[Billing Code: 6750-01]
FEDERAL TRADE COMMISSION
Policy Statement on Monetary Equitable Remedies in Competition Cases
AGENCY: Federal Trade Commission (FTC).
ACTION: Notice.
SUMMARY: The Commission has issued a policy statement on the use of disgorgement as a
remedy for violations of the Hart-Scott-Rodino (HSR) Act, FTC Act and Clayton Act.
DATE: The Commission approved this policy statement on July 25, 2003.
FOR FURTHER INFORMATION CONTACT: John D. Graubert, Principal Deputy
General Counsel, Office of General Counsel, FTC, 600 Pennsylvania Avenue, N.W.,
Washington, D.C. 20580, (202) 326-2186, jgraubert@ftc.gov.
SUPPLEMENTARY INFORMATION:
Policy Statement on Monetary Equitable Remedies in Competition Cases
In recent years the Commission has given considerable thought to the appropriate
circumstances in which to seek, as a matter of prosecutorial discretion, monetary equitable
remedies (particularly disgorgement or restitution) in competition cases brought pursuant to
Section 13(b) of the FTC Act.(1) In December 2001, the Commission issued a notice requesting
comment on the issue,(2) and received six comments in response.(3) The agency has also reviewed
relevant case law and literature, including a number of sources cited by commentors, as well as
discussions in public fora and its own experience. The Commission may use all these resources
to inform its decisions whether to seek monetary remedies in particular competition matters on
a case by case basis. In addition, the Commission sets forth below some general observations
on the use of disgorgement or restitution in competition cases.(4)
Disgorgement is an equitable monetary remedy "designed to deprive a wrongdoer of his
unjust enrichment and to deter others" from future violations.(5) Depriving the violator of any of
the benefits of illegal conduct has long been accepted as an appropriate, indeed necessary,
element of antitrust remedies. See, e.g., United States v. Grinnell Corp., 384 U.S. 563, 577
(1966); Schine Chain Theatres, Inc. v. United States, 334 U.S. 110, 128 (1948). Restitution is
also an equitable remedy, serving different but often complementary purposes. Restitution is
intended to restore the victims of a violation to the position they would have been in without the
violation, often by refunding overpayments made as a result of the violation. The Commission
has sought and obtained disgorgement or restitution in a number of competition cases over the
last few decades,(6) most recently in the Mylan(7) and Hearst(8) matters. In exercising its
prosecutorial discretion in the competition area, however, the Commission has moved
cautiously and used its monetary remedial authority there sparingly. The Commission continues
to believe that disgorgement and restitution can play a useful role in some competition cases,
complementing more familiar remedies such as divestiture, conduct remedies, private damages,
and civil or criminal penalties. The competition enforcement regime in the United States is
multifaceted, and it is important and beneficial that there be a number of flexible tools, as well as
a number of potential enforcers, available to address competitive problems in a particular case.
Nonetheless, we do not view monetary disgorgement or restitution as routine remedies for
antitrust cases. In general, we will continue to rely primarily on more familiar, prospective
remedies, and seek disgorgement and restitution in exceptional cases.
As a general matter, the Commission will consider the following three factors in determining
whether to seek disgorgement or restitution in a competition case. First, the Commission will
ordinarily seek monetary relief only where the underlying violation is clear. Second, there must
be a reasonable basis for calculating the amount of a remedial payment. Third, the Commission
will consider the value of seeking monetary relief in light of any other remedies available in the
matter, including private actions and criminal proceedings. A strong showing in one area may
tip the decision whether to seek monetary remedies. For example, a particularly egregious
violation may justify pursuit of these remedies even if there appears to be some likelihood of
private actions. Moreover, the pendency of numerous private actions may tilt the balance the
other way, even if the violation is clear.
Clear Violation
The Commission will ordinarily seek monetary disgorgement
only when the violation is clear. A violation is "clear" for this purpose when, based on existing precedent, a reasonable
party should expect that the conduct at issue would likely be found to be illegal. ("Clearness" is
therefore measured ex ante, as of the time the act occurs, and not ex post with the benefit of
hindsight.) In such cases, the use of disgorgement will serve an appropriate deterrence goal.
One key purpose of the disgorgement remedy is to remove the incentive to commit violations
by demonstrating to the potential violator that unlawful conduct will not be profitable. This
purpose can best be served when the violator can determine in advance that its conduct would
probably be considered illegal. Disgorgement might arguably serve useful purposes whether or
not the violation was clear -- for instance, by providing an example for future violators and
restoring the relevant market to its pre-violation status (thereby removing any unfair advantages
obtained by the violator). Overall, however, the Commission believes that the value of
deterrence is reduced when the violator has no reasonable way of knowing in advance that its
conduct is placing it in jeopardy of having to pay back all the potential gains.(9)
The Commission will assess whether a violation is "clear" by
means of an objective, not a
subjective, standard, i.e., a reasonableness test. "Naked" restraints of trade, such as price-fixing or horizontal market division, are presumptively clear cases. The list of "clear" cases,
however, goes beyond traditional per se violations. The Hearst and Mylan cases are
themselves examples of easily condemned conduct that would not necessarily be described as a
per se violation: in Hearst, merger to monopoly aided by withholding key documents from the
FTC;(10) and in Mylan, conspiracy to obtain monopoly power through exclusive supply
agreements (unsupported by any legitimate business purpose).(11)
Conversely, in the Commission's statement accompanying the issuance of its consent
agreement in Abbott Laboratories and Geneva Pharmaceuticals, Inc., File
No. 981-0395 (March 16, 2000), the Commission noted that the case represented
the first resolution of an
antitrust challenge by the government to a private agreement whereby a brand
name drug company paid the first generic company that sought FDA approval not
to enter the market, and
to retain its 180-day period of market exclusivity under the Hatch-Waxman Act.
Because the behavior occurred in a complex regulatory context, and because this
was the first government
antitrust enforcement action in this area, the Commission believed the public
interest was satisfied with orders that regulated future conduct by the parties,
without further monetary relief.
The Commission warned pharmaceutical firms that they "should now be on notice, however,
that [such] arrangements . . . can raise serious antitrust issues," and that accordingly "in
the future, the Commission will consider its entire range of remedies in connection
with enforcement
actions against such arrangements, including possibly seeking disgorgement of
illegally obtained
profits."(12)
Reasonable Basis for Calculation of Remedy
The Commission will not seek a monetary equitable remedy when there is no reasonable
basis for calculating the amount of the disgorgement or restitution to be ordered. Thus, the
agency does not expect to seek disgorgement unless it can suggest to a court a reasonable
means of calculating the gains or benefits from a violation, nor to seek restitution unless it can
offer a reasonable gauge of the amount of injury from a violation. Nonetheless, a reasonable
basis for calculation does not require undue precision. See, e.g., FTC v. Febre, 128 F.3d 530,
535 (7th Cir. 1997); see also SEC v. Bilzerian, 29 F.3d 689 (D.C. Cir. 1994); SEC v. First
City Financial Corporation, Ltd., 890 F.2d 1215 (D.C. Cir. 1989).
Value Added by the Commission's Monetary Remedy
The Commission will consider monetary remedies when it anticipates that other remedies
are likely to fail to accomplish fully the purposes of the antitrust laws or when such a monetary
remedy may provide important additional benefits. When other remedies are brought to bear
and are likely to result in complete relief, a Commission action for monetary equitable relief
might well be an unnecessary and unwise expenditure of limited agency resources.(13)
Thus, for example, a case may be particularly appropriate for disgorgement when private
actions likely will not remove the total unjust enrichment from a violation. If statutes of limitation
for, or market disincentives to, private damage actions are likely to leave a violator with some
or all of the fruits of its violation, we may seek disgorgement to prevent the violator from
benefitting from the violation. Similarly, when practical or legal difficulties are likely to preclude
compensation for those injured by a violation who in equity should be made whole, we may
seek restitution for them.(14) Such situations can arise, for example, when significant aggregate
consumer injury results from relatively small individual injuries not justifying the cost of a private
lawsuit, or when direct purchasers do not sue (for a variety of possible reasons) and indirect
purchasers are precluded from suit under Section 4 of the Clayton Act.
Disgorgement can also be particularly valuable when the advantages a violator reaps from
the violation greatly outweigh the specific penalties prescribed in applicable laws, and thereby
overwhelm the significant disincentive to violating the law that such penalties otherwise
provide.(15) The paramount purpose of disgorgement is to make sure that wrongdoers do not
profit from their wrongdoing. E.g., SEC v. First City Financial Corp., supra; SEC v. Tome,
833 F.2d 1086 (2d Cir. 1987), cert. denied, 486 U.S. 1014-15 (1988); see also FTC v. Gem
Merchandising Corp., 87 F.3d 466, 470 (11th Cir. 1996).
The Commission is sensitive to the interest in avoiding
duplicative recoveries by injured
persons or "excessive" multiple payments by defendants for the same injury.
Thus, although a particular illegal practice may give rise both to monetary equitable
remedies and to damages
under the antitrust laws, when an injured person obtains damages sufficient to
erase an injury, we do not believe that equity warrants restitution to that person.
We will take pains to ensure
that injured persons who recover losses through private damage actions under
the Clayton Act not recover doubly for the same losses via FTC-obtained restitution.
Similarly, in cases
involving both disgorgement and restitution, we would apply any available disgorged
funds toward restitution and credit any funds paid for restitution against the
amount of disgorgement.
We do not, however, consider it appropriate to offset a civil penalty assessment against
disgorgement or restitution. As noted above, disgorgement is an equitable remedy whose
purpose is simply to remove the unjust gain of the violator. Penalties are intended to punish the
violator and reflect a different, additional calculation of the amount that will serve society's
interest in optimal deterrence, retribution, and perhaps other interests. A penalty award would
have no punitive effect if it were simply offset against these equitable remedies. It is not the
Commission's intent, therefore, to allow its monetary relief proceedings to dilute the
effectiveness of a civil penalty.
When the same conduct gives rise to two different
causes of action, moreover, the imposition of remedies for each cause of
action does not necessarily mean the resulting
sanctions are "excessive." See, e.g., California v. ARC America Corp., 490 U.S. 93 (1989);
Loeb Industries, Inc. v. Sumitomo Corp., 306 F.3d 469, 492 (7th Cir. 2002), cert. denied,
123 S. Ct. 2247 (2003); In Re Lorazepam & Clorazepate Antitrust Litigation, MDL Dkt. No.
1290 (D.D.C.) (denial of motion to dismiss, July 2, 2001) Mem. Order at 15-16 . Ultimately,
we believe that courts considering equitable remedies have sufficient flexibility to craft orders to
avoid unjust results.(16) We have not yet encountered any such complications.
As a procedural matter, in the Commission's two recent cases in which disgorgement
was approved, claims administration procedures were being developed in parallel state and
private litigation. To simplify the process and avoid any appearance of duplicative payments, in
each of those cases the funds recovered by the Commission were combined with other
recoveries and a single claims administration process handled the administration of all the funds.
In future cases, the Commission could also consider the suggestion of several commentors to
set up an escrow fund, to seek appointment of a special master or claims administrator to
determine the appropriate allocation of funds collected, or to seek to coordinate parallel
actions.
By direction of the Commission.
Donald S. Clark
Secretary
1. 15 U.S.C. § 53(b).
2. 66 FR 67254 (Dec. 28, 2001); also available on the Commission's website at
http://www.ftc.gov/os/2001/12/disgorgefrn.htm.
3. The following filed comments: the Antitrust Section of the American Bar
Association, the American Antitrust Institute, the American Enterprise Institute for Public Policy
Research, James M. Spears, Stephen A. Stack, and Kenneth G. Starling. These comments are
available at http://www.ftc.gov/os/comments/disgorgement/index.htm.
4. This statement sets forth some observations and intentions of the Commission
regarding its exercise of discretion in determining whether to seek monetary equitable remedies
in competition cases. It does not create any right or obligation, impose any element of proof, or
adjust the burden of proof or production of evidence on any particular issue, as those standards
have been established by the courts. This statement of policy does not apply to consumer
protection cases.
5. SEC v. First City Financial Corp., 890 F.2d 1215, 1230 (D.C. Cir. 1989).
6. See FTC v. College of Physicians-Surgeons of Puerto Rico,
Civ. No. 97-2466 HL (D.P.R. Oct. 2, 1997) (alleged price-fixing and boycott,
under FTC Act §§ 5(a) and 13(b);
stipulated judgment included $300,000 restitution to Puerto Rico); FTC v.
Mead Johnson & Co., Civ. No. 92-1266 (D.D.C. June 11, 1992) (alleged
bid-rigging, under FTC Act §§ 5(a)
and 13(b); stipulated judgment included restitution in kind to USDA); FTC v. American Home
Products Corp., Civ. No. 92-1367 (D.D.C. June 11, 1992) (same); FTC v. Joseph Dixon
Crucible Co., Civ. No. C80-700 (N.D. Ohio 1983) (alleged price-fixing, under Section 5(l) for
violation of earlier order; stipulated judgment included $525,000 in consumer redress, plus
$75,000 civil penalty); Commonwealth Land Title Ins. Co., 126 F.T.C. 680, 688 (1998)
(alleged price-fixing; consent order included refund of excess charges); Binney & Smith
Inc.,
96 F.T.C. 625 (1980) (alleged price-fixing; consent order included $1 million in consumer
redress); Milton Bradley Co., 96 F.T.C. 638 (1980) (same; consent order included $200,000
in consumer redress); American Art Clay Co., 96 F.T.C. 809 (1980) (same; consent order
included $25,000 in consumer redress); see also FTC v. Abbott Laboratories,
1992-2 Trade
Cas. (CCH) ¶ 69,996 (D.D.C. 1992) (Gesell, J.), dismissed on other grounds,
853 F. Supp.
526 (D.D.C. 1994) (holding that FTC Act § 13(b) permitted the FTC to seek permanent
injunction ordering restitution in antitrust case); FTC press release, June 5, 1989, re:
A&P/Waldbaums (noting position of Commissioner Strenio that Commission should have
exercised its "authority to obtain full disgorgement of these ill-gotten gains").
7. FTC v. Mylan Labs, Inc., No.1:98CV03114 (TFH) (D.D.C. Feb. 9, 2001) (alleged
monopolization; stipulated judgment included $100 million restitution); see Mem. Opinion, 62
F. Supp. 2d 25, 36-37 (D.D.C.), revised and reaffirmed in pertinent part, 99 F. Supp. 2d 1, 4-5 (D.D.C. 1999).
8. FTC v. The Hearst Trust, No.1:01CV00734 (TPJ) (D.D.C. Nov. 9, 2001) (alleged
anticompetitive acquisition and violation of pre-merger filing requirements; stipulated judgment
included $19 million disgorgement).
9. The analysis may be slightly
more complicated in cases in which the Commission is seeking restitution
rather than disgorgement. Restitution focuses on the victim, not the violator,
and is justified by the need to restore the victim to the status quo ante, not
on ex ante
deterrence of unlawful conduct by a defendant. Thus, for example, when significant
consumer harm will not (for one reason or another) be redressed through a
private action (see discussion
of our third factor, below), the Commission might therefore consider seeking
restitution even if the conduct at issue does not otherwise meet our definition
of a "clear" violation.
10. Although there was some disagreement among the Commissioners in Hearst on
whether seeking disgorgement resulted in the optimal payment from the defendants,
there was general agreement that the conduct at issue was egregious. It is
axiomatic that a merger of the
only significant competitors in a market (absent unusual circumstances such as
proof of the "failing firm" criteria of Section 5 of the Horizontal Merger
Guidelines) violates the letter of the
Clayton and Sherman Acts. See United States v. Aluminum Co. of America,
148 F.2d 416,
429 (2d Cir. 1945); Areeda, Hovenkamp & Solow, IV Antitrust Law § 14.12
(2002 ed.).
The case is further bolstered when, as in Hearst, such conduct is paired with evidence of
specific intent to monopolize. See United States v. Microsoft Corp, 253 F.3d 34, 59 (D.C.
Cir.), (en banc), cert. denied, 534 U.S. 952 (2001); Statement of Chairman Pitofsky and
Commissioners Anthony and Thompson (Apr. 2001) (available at
http://www.ftc.gov/os/2001/04/hearstpitantthom.htm).
11. According to the Commission's complaint in Mylan,
the parties' exclusive arrangements covered 90% of the supply of the ingredient
necessary to produce one of the
drugs at issue, and 100% with respect to a second drug. The Commissioners all
characterized
the conduct alleged as "egregious," with one Commissioner observing that the facts alleged
described "a clear cut antitrust violation." Statement of Commissioner Thomas
B. Leary,
Dissenting in Part and Concurring in Part (available at
http://www.ftc.gov/os/2000/11/mylanlearystatement.htm).
12. See http://www.ftc.gov/opa/2000/03/hoechst.htm.
13. Several commentors suggested that the mere availability of
treble damage actions or other avenues of relief will ordinarily render disgorgement
unnecessary, implying that ultimately
such other actions will have extracted the full amount of unjust enrichment from
violators and will provide adequate deterrence against future violations.
On the current state of the record
we cannot share this confidence. We have not been directed to empirical evidence
indicating that existing remedies routinely achieve these goals, let alone
evidence that antitrust defendants
have been subjected to excessive, "duplicative" damage awards. In fact it appears
that the
issue has been the subject of considerable debate. See, e.g., Richard
Posner, Antitrust
Law 47 (2d ed. 2001); John Lopatka & William Page, Who Suffered Antitrust Injury in the
Microsoft Case?, 69 Geo. Wash. L. Rev. 829 (2001); Robert Lande, Are
Antitrust "Treble" Damages Really Single Damages?, 54 Ohio St. L.J. 115
(1993); Steven Salop & Lawrence
White, Economic Analysis of Private Antitrust Litigation, 74 Geo. L.J. 1001, 1033-39 (1986);
Walter Erickson, The Profitability of Violating the Antitrust Laws: Dissolution and Treble
Damages in Private Antitrust, 5:4 Antitrust L. & Econ. Rev. 101 (1972);
Alfred Parker, Treble
Damage Action - A Financial Deterrent to Antitrust Violations?, 16 Antitrust Bull. 483 (1971);
compare Joseph Gallo et al., Department of Justice Antitrust Enforcement, 1955-1997: An
Empirical Study, 17 Rev. Indus. Org. 75, 125-27 (2000). The Commission will therefore
need to continue to evaluate this issue on a case-by-case basis.
14. For example, Hearst presented the somewhat unusual case of a consummated
merger that had passed through the HSR review process. Absent FTC action, private plaintiffs
would have faced the possibly discouraging prospect of not only having to prove a violation of
Section 7 of the Clayton Act or Section 2 of the Sherman Act, but also, as a practical matter,
needing to show a violation of the Hart-Scott-Rodino premerger notification rules to explain
why the FTC took no action with respect to the merger.
15. Such a discrepancy could also
be addressed by the Department of Justice in a criminal action seeking, among
other remedies, the significant penalties under the alternative
fines provisions of the Sentencing Reform Act. 18 U.S.C. § 3571(d). When DOJ
has initiated a criminal prosecution, however, under existing institutional arrangements
the Commission
ordinarily will defer to DOJ and not bring a separate action for monetary relief.
16. Courts routinely allow "set-offs" and
credits, for example, to avoid duplicative
payments. See, e.g., SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1475 (2d Cir. 1996),
cert. denied, 522 U.S. 812 (1997); SEC v. Penn Cent. Co., 425 F. Supp. 593, 599 (E.D. Pa.
1976); see also SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301,
1307 (2d Cir.) (establishing
escrow fund to prevent "double liability"), cert denied, 404 U.S. 1005 (1971).
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