[Federal Register Volume 68, Number 149 (Monday, August 4, 2003)]
[Notices]
[Pages 45820-45823]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19722]


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FEDERAL TRADE COMMISSION


Policy Statement on Monetary Equitable Remedies in Competition 
Cases

AGENCY: Federal Trade Commission (FTC).

ACTION: Notice.

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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.

DATES: 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, NW., Washington, DC 20580, (202) 326-2186, [email protected].

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

[[Page 45821]]

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\
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    \1\ 15 U.S.C. 53(b).
    \2\ 66 FR 67254 (Dec. 28, 2001); also available on the 
Commission's web site 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.
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    Disgorgement is an equitable monetary remedy ``designed to deprived 
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 complimentary 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.
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    \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 sections 5(a) and 13(b); stipulated judgment 
included $300,000 restitution to Puerto Rico); FTC v. Mead Johnson & 
Co., No. 92-1266 (D.D.C. June 11, 1992) (alleged bid-rigging, under 
FTC Act sections 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(1) 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 
section 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).
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    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 is 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\
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    \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.

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[[Page 45822]]

    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\
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    \10\ Although there are 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 section 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).
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    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\
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    \12\ See http://www.ftc.gov/opa/2000/03/hoechst.htm.
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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. Nontheless, 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\
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    \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.
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    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.
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    \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.
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    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),

[[Page 45823]]

cert. denied, 486 U.S. 1014-15 (1988); see also FTC v. Gem 
Merchandising Corp., 87 F.3d 466, 470 (11th Cir. 1996).
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    \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.
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    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 
no 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.
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    \16\ Courts routinely allows ``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, 552 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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    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 Commision
Donal S. Clark,
Secretary.
[FR Doc. 03-19722 Filed 8-1-03; 8:45 am]
BILLING CODE 6750-01-M