The Federal Trade Commission recently fired a warning shot to companies facing antitrust scrutiny by withdrawing its Policy Statement on Monetary Equitable Remedies in Competition Cases. Many had previously interpreted the policy statement, issued in 2003, as limiting the FTC’s use of monetary equitable remedies, including disgorgement of profits, to only “exceptional cases” involving “clear” antitrust violations and where “remedies in other civil or criminal litigation was likely to accomplish the purposes of the antitrust laws.” In withdrawing the policy statement, the FTC has now removed these limitations, and opened the barn door for the possibility of disgorgement of ill-gotten profits as well as restitution to injured parties, along with the usual injunctive relief, even in cases where the anti-competitive conduct is one of first impression and other private or criminal litigation is sufficient.

Under the now-rescinded policy statement, the FTC infrequently sought monetary equitable remedies in competition cases. The FTC reserved seeking such relief for “exceptional” cases. The FTC’s success in the courts to date has been limited in obtaining such relief. However, the FTC has successfully obtained such monetary relief in consent orders and stipulated judgments. Such cases include FTC v. Ovation Pharmaceuticals, (2008) (court ruled against the FTC on merits and denied all requested relief denied); FTC v. Perrigo, (2004) (consent order requiring disgorgement of profits in an amount exceeding $3 million); FTC v. The Hearst Trust, (2001) (stipulated judgment required $19 million in restitution); FTC v. Mylan Labs, (2001) (stipulated judgment required $100 million in restitution); and FTC v. College Physicians-Surgeons of Puerto Rico, (1997) (stipulated judgment required $300,000 in restitution). The rescinding of the policy statement suggests that the FTC will now seek significant monetary equitable remedies more regularly going forward.

According to the FTC, the primary reason for withdrawing the policy statement was because the statement had the practical effect of creating “an overly restrictive view” of the FTC’s options for seeking monetary remedies. The 2003 statement provided a three-part test for the FTC in determining whether or not to seek monetary remedies: “(1) whether the underlying violation is ‘clear’; (2) whether there is a reasonable basis to calculate the remedial payment; and (3) whether remedies in other civil or criminal litigation are likely to accomplish fully the purposes of the antitrust laws.” By withdrawing the policy statement, the FTC has essentially removed the first and third parts of the test. As noted by the FTC, the withdrawal of the policy statement will not impact the second part of the test, as it “does no more than restate legal standards” already required by courts.

The first part of the test required that the violation be “clear,” i.e., the anti-competitive conduct had to be “common” or previously addressed in order for the FTC to consider seeking monetary equitable remedies. Now, even anti-competitive conduct that is novel, one of first impression or based on unsettled law will be fair game for the FTC to seek disgorgement of profits and/or restitution. As the FTC notes, “whether conduct is common or novel, clearly a violation or never before considered, has little to do with whether the conduct is anti-competitive; some novel conduct can violate the antitrust laws and can be even more egregious than ‘clear’ violations.” According to the FTC, removing this requirement will “ensure that the party that engaged in the anti-competitive conduct does not retain the profits derived from that conduct.”

The FTC’s withdrawal of the policy statement also removes the third part of the test, which required the FTC to examine if “other remedies are likely to fail to accomplish fully the purposes of the antitrust laws.” The FTC reasons that this part of the former test could be interpreted as requiring the FTC to establish “the insufficiency of other actions to secure monetary equitable remedies.” While the issue of whether or not other civil or criminal actions will secure the disgorgement of profits or restitution remains “relevant,” it can now no longer be argued that it is dispositive. This, of course, will result in duplicative monetary awards with companies getting hit twice in the pocketbook for the same conduct. It also raises the thorny legal issue for the courts to sort out as to whether disgorgement of profits and/or restitution are available under the Sherman Antitrust Act and/or Section 5 of the FTC Act in the “competition cases” referenced by the FTC.

In justifying its about-face move, the FTC claims that the withdrawn policy statement “has chilled the pursuit of monetary remedies in the years since the statement’s issuance,” which took place in 2003. The FTC asserts that the existing case law and the agency’s reasonable exercise of its prosecutorial discretion will suffice going forward. However, the commission vote was not unanimous, with Commissioner Maureen K. Ohlhausen vehemently disagreeing and stating that she had “significant concerns about sending such a signal.”

Ohlhausen pointed out in her dissenting statement that she has “not been presented with any evidence that the policy statement has inappropriately constrained the commission in the nine years it has been in effect. This begs the question why the agency needs to rescind the policy statement now and why it should not perhaps be revised rather than rescinded altogether.”

In criticizing the other commissioners’ decision to withdraw the nine-year-old policy statement, Ohlhausen noted that the policy statement was issued in 2003 by a bipartisan vote, and “subsequently received a unanimous endorsement by the Antitrust Modernization Commission” in 2007. Indeed, the AMC endorsed the FTC’s policy statement after concluding that “there is no need to clarify, expand or limit the agencies’ authority to seek monetary equitable relief.”

Ohlhausen also expressed concern that the FTC will lose support going forward because withdrawal of the policy statement “runs counter to the goal of transparency,” and she warned the majority that the FTC is “moving from clear guidance on disgorgement to virtually no guidance on this important policy issue.” In concluding her dissenting statement, the commissioner expressed her unease with the lack of both internal and external deliberation that accompanied the withdrawal of the policy statement. Although the FTC sought public comment on a draft of the policy statement prior to its adoption in 2003, “that public comment process was not pursued in connection with the withdrawal of the statement.” It is troubling that a commissioner believes that “there should have been more internal deliberation and likely public input before the commission withdrew a policy statement that appears to have served this agency well over the past nine years.” It is equally troubling that no guidelines now exist for companies to heed or follow, leaving it to the FTC staff in the first instance to exercise, hopefully, reasonable discretion in seeking such heavy-duty relief.

Ohlhausen’s dissenting statement underscores the significance of the FTC’s withdrawal of the policy statement. By rescinding the statement, the FTC has clearly signaled its willingness to pursue monetary penalties in the form of disgorgement of profits and restitution in any competition case, particularly those involving allegations of an impact on price. Even companies engaging in behavior that a court has yet to deem anti-competitive must now weigh the severe risk of the FTC seeking monetary equitable relief. Notably, companies in cases involving conduct that courts disagree whether or not to condemn as anti-competitive will also have to consider the potential risk of disgorging profits or paying restitution, perhaps even when other related civil or criminal cases would sufficiently recover any ill-gotten profits. This major development will also substantially up the ante when companies are sitting at the negotiation table with the FTC and discussing options such as consent decrees and stipulated judgments, because what was once exceptional relief may now become the rule. Stay tuned. •

Carl W. Hittinger is the chairman of DLA Piper’s litigation group in Philadelphia, where he concentrates his practice in complex commercial trial and appellate litigation with a particular emphasis on antitrust and unfair competition matters. He can be reached at 215-656-2449 or carl.hittinger@dlapiper.com.

John D. Huh is an associate with the firm, where he focuses his practice on antitrust and complex commercial litigation.