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FTC Presses for Disgorgement in Cephalon Pay-for-Delay Case
Practical Law Legal Update 2-601-1505 (Approx. 3 pages)
FTC Presses for Disgorgement in Cephalon Pay-for-Delay Case
by Practical Law Antitrust
| Law stated as of 19 Feb 2015 • USA (National/Federal) |
The Federal Trade Commission (FTC) responded in a court filing to Cephalon, Inc.'s motion to preclude disgorgement as a remedy in the FTC's pay-for-delay case. The agency defended the availability of disgorgement under Section 13(b) of the FTC Act and argued that Cephalon's motion was procedurally improper.
In a February 17, 2015, court filing, the Federal Trade Commission (FTC) defended its right to seek disgorgement of the profits that it alleges Cephalon Inc. obtained as a result of a pay-for-delay agreement regarding the narcolepsy drug Provigil. The FTC's brief responds to Cephalon's recent motion to preclude disgorgement, which could total billions of dollars if the FTC prevails at the trial scheduled for June 1 in the federal district court for the Eastern District of Pennsylvania. In its motion, Cephalon argued that:
- Section 13(b) of the FTC Act (15 U.S.C. §53(b)) limits the FTC to injunctive relief, based on its text, the legislative history and subsequent Supreme Court precedent.
- The FTC should be denied disgorgement as a matter of equity because:
- The FTC repeatedly stated prior to 2012 that it was not seeking a monetary remedy in the litigation.
- The FTC's 2003 Policy on Monetary Remedies (later withdrawn) counseled against disgorgement because Cephalon's activities were not a clear violation of the law at the time.
In response, the FTC rejected Cephalon's argument that Section 13(b) forbids disgorgement as a matter of law. The FTC noted that every court to consider the issue has concluded that disgorgement and other equitable monetary remedies are available under Section 13(b) of the FTC Act, including eight circuit courts and several federal district courts. These courts have relied on principles articulated in Supreme Court precedent emphasizing the breadth of a district court's power to grant equitable remedies, unless there is clear statutory language to the contrary (see Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288 (1960)).
The FTC also disputed Cephalon's claim that disgorgement should be denied on equitable principles. The FTC argued that it did not act improperly by deciding to pursue disgorgement several years after the litigation started, because circumstances changed after generic manufacturers entered the Provigil market in 2012 while the FTC's lawsuit was still pending. The FTC also claimed that Cephalon was not prejudiced by this change in position. Finally, the FTC argued that the 2003 Policy on Monetary Remedies did not weigh against allowing disgorgement because:
- The policy emphasized that the FTC retained prosecutorial discretion to seek disgorgement in appropriate cases.
- Cephalon's conduct was a clear violation of the law at the time that it entered into the pay-for-delay agreement because Cephalon obtained the Provigil patent by fraud.
The FTC also argued that Cephalon's motion was procedurally improper, because it attempted to address the merits of the litigation before trial. According to the FTC, the evidence at trial will establish that disgorgement is appropriate based on Cephalon's conduct. The FTC also said that any disgorged profits would be placed into a Consumer Relief Fund.
For more information on the antitrust issues surrounding reverse payment settlement agreements and the status of pay-for-delay litigation, see Practice Note, Reverse Payment Settlement Agreements and Actavis Case Tracker.