Debbie Feinstein of the FTC on the use of disgorgement in competition cases
6 October 2015. By Kirk Victor.
When Deborah Feinstein, director of the Federal Trade Commission’s Bureau of Competition, recently said that observers should expect the agency to step up its pursuit of “disgorgement” as a remedy to seek repayment of ill-gotten gains, her comments provoked concern in the antitrust bar.
Some worry that the commission has failed to set out when it is likely to seek what they see as an extraordinary remedy that should be reserved for egregious cases. Others wondered what prompted the timing of Feinstein’s comment. Still others speculated that she was sending a signal to parties contemplating a deal.
Whatever the reason, Feinstein was clear in responding to a question during her appearance on Sept. 18 at the Global Competition Review’s Third Annual GCR Live that “you’re going to hear about [disgorgement] more than you did in the past.” She noted that it “took a while for the antitrust agencies to get comfortable with the idea that they could do this on the competition side.”
And Feinstein, who made the standard disclaimer that she was speaking for herself, elaborated that the agency would weigh various factors, including whether damages might be recovered in private litigation, but said that even in those cases, the FTC might still seek disgorgement, too.
“We think about whether there’s an important deterrent effect, both to the parties at issue and to other parties who might be doing similar things,” she noted, adding that, “we’re certainly thinking of applying disgorgement to consummated mergers—no question about it.”
Those stark statements have prompted much consternation in the antitrust bar.
“Assuming it is going to happen more often, when is it going to happen?” asked one veteran antitrust lawyer. “That uncertainty gives us pause, and [prompts] the broader question: Why? Is this extra remedy something that is necessary in order to stop otherwise bad behavior? Why aren’t other remedies sufficient?”
Some attorneys were puzzled by the reference to consummated mergers.
“Consummated mergers are very difficult to prove…as anti-competitive,” an antitrust attorney who formerly worked at the agency said. “She must have one in mind or she is trying to warn somebody about a proposed transaction that may or may not be reportable—and she’s saying that even if it is not reportable, if we decide it’s illegal, not only can we investigate you but also we might seek disgorgement.”
But agency officials have indicated they are seeing problems that require stronger remediation. In an interview with FTC:WATCH earlier this year, David Vladeck, the former director of the Bureau of Consumer Protection, said that some corporate behavior merits more serious punishment.
“The problem with those kinds of labels is egregiousness is in the eye of the beholder,” Vladeck said. “Is there really a spectrum of bad behavior? The statute doesn’t make that distinction. The statute says that we are supposed to prevent unfair and deceptive acts and practices.”
“It doesn’t give us redress in cases where we have some moral judgment that some cases are worse than others,” Vladeck added. “You don’t accidentally violate the antitrust laws—typically you don’t accidentally engage in serious deception. There is no scale that we can look at and say this is 60 percent egregious and that is 80 percent egregious. There is nothing in the statute that provides a template for this.”
FTC Chairwoman Edith Ramirez has also made specific mention of disgorgement recently. In an interview with MLex earlier this year, Ramirez pointed to cases involving radiopharmacy seller Cardinal Health and drugmaker Cephalon as examples when disgorgement was a necessary remedy because an injunction would not be sufficient to address the wrongdoing.
“In most cases, we are able to address competitive concerns at the outset,” she said, while adding that sometimes such a resolution early on is not possible. In those latter cases, “limiting yourself to an injunction is not going to provide meaningful relief and in that instance you need to think more broadly [about using] other forms of relief we have available to us,” she noted.
Some of the angst in the antitrust bar goes back to the commission’s decision in 2012 to withdraw its policy statement that had set out a framework for determining when the agency would seek equitable monetary remedies, including disgorgement. The agency would pursue that relief only when the underlying violation is clear, when there is a reasonable basis for calculating the amount of the remedial payment and after considering the availability of other remedies.
In withdrawing the policy statement, the FTC explained that it had created “an overly restrictive view” of options for equitable remedies and had “chilled the pursuit of monetary remedies.” It noted that in the years following the issuance of the policy statement in 2003, the agency had sought disgorgement in only two cases.
The FTC also made clear that “while disgorgement and restitution are not appropriate in all cases, we do not believe they should apply only in ‘exceptional cases,’ as previously set out in the policy statement.”
In place of the policy statement, the agency said it would rely upon “existing law, which provides sufficient guidance on the use of monetary equitable remedies.” Furthermore, the agency noted that it would “exercise responsibly its prosecutorial discretion in determining which cases are appropriate for disgorgement.”
Not everyone at the FTC agrees. In a tough dissent that presaged criticisms being voiced in the antitrust bar today, Republican Commissioner Maureen Ohlhausen said that the commission had withdrawn a clear, well-reasoned and widely supported policy and replaced it with a promise to exercise the commission’s prosecutorial discretion responsibly—something it already did.
Taking issue with the FTC’s reliance on “existing law” to determine when disgorgement should be sought, Ohlhausen said that position “could be used to justify a decision to refrain from issuing any guidance whatsoever about how this agency will interpret and exercise its statutory authority on any issue….In essence, we are moving from clear guidance on disgorgement to virtually no guidance.”
Three years later, Feinstein’s words are igniting that debate all over again.