Statement of Commissioner Thomas B. Leary, Dissenting in Part and Concurring in Part
Federal Trade Commission v. Mylan Pharmaceuticals, Inc., et al.
FTC File No. X990015
The Commission's complaint in this particular case pleaded a particularly egregious antitrust violation. The consent settlement has been negotiated in the context of these special facts and a special procedural setting. I believe that the desire of concerned parties to resolve differences should ordinarily be given great weight, and I have no reason to believe that the ultimate resolution of this particular case is unfair. I concur without reservation in the underlying injunctive relief that bars defendants from entering into exclusive agreements similar to those that triggered this lawsuit. However, I am compelled to dissent in part from the financial aspects of the settlement because I believe they may create an undesirable precedent for antitrust enforcement at both the state and the federal levels.
First, I am concerned by the District Court's finding that the Commission may properly seek a permanent injunction, including ancillary monetary relief in an antitrust case, under Section 13(b) of the Federal Trade Commission Act for violations of "any provision of law" enforced by the Commission.(1) The present members of the Commission may only intend to seek this extreme relief in the most extraordinary cases, but the litigation has resulted in a ruling that may be employed by successors less scrupulous. Second, there is another ruling in this case that could be used to justify applications for the same kind of relief by individual states with statutes "that explicitly reference or are modeled after, the FTC Act, or that otherwise permit the state to pursue equitable remedies."(2) This magnifies the potential problem. Third, and perhaps most important, these rulings could seriously undercut federal policy against multiple claims by direct and indirect purchasers.
The Commissioners who voted out the complaint in this case had good reason, in my view, to regard the respondents' conduct as a clear cut antitrust violation that resulted in substantial consumer harm. A Section 13(b) remedy may have appeared to be the most likely way to avoid a manifestly unjust result.(3) The trouble is that this seemingly expedient solution may have a ripple effect far beyond the matter at hand.
If the Commission approves the settlement in this particular case - based on the District Court rulings that we have helped to obtain - I believe it is essential that we somehow communicate our views on the appropriate parameters of the Section 13(b) remedy generally for antitrust cases. At the very least, we might indicate that the remedy will not be sought in cases where the violation is unclear and where private damage remedies are available and being pursued. Our effort to cabin the remedy may have only an hortatory effect on our successors and on the other jurisdictions that may now be prompted to consider actions based on parallel state laws, but it may nonetheless help to contain unintended consequences of this settlement.
A particularly serious spillover effect of the federal court decisions in this case is the potential conflict with federal policy established by the decisions in Hanover Shoe, Inc. v. United Shoe Machinery Corp.(4) and Illinois Brick Co. v. Illinois,(5) and consistently maintained since that time. In Hanover Shoe, the Court held that an antitrust violator may not assert a passing-on defense in order to escape liability for an unlawful over-charge once the direct purchaser has proved injury and the amount of damages. In Illinois Brick, the Court embraced the logical correlate of that rationale and held that plaintiffs who purchased goods indirectly from an antitrust violator could not recover damages for overcharges passed on to them through a chain of distribution. The Court held that as a matter of law, only those who purchase directly from the antitrust violator are "injured in their business or property" within the meaning of Section 4 of the Clayton Act.
The Illinois Brick Court based its reasoning on three factors, which will be discussed here in the following order: (1) the complexity of measuring the amount of an indirect purchaser's damages and apportionment of the recovery among all potential plaintiffs that could have absorbed part of the overcharge;(6) (2) a belief that the antitrust laws would be more effectively enforced if the most likely plaintiffs (direct purchasers) could recover the full overcharge (uncertainty about apportionment of the overcharge at different levels reduces their incentive to sue); and (3) the risk of multiple recovery -- allowing offensive but not defensive use of the passing-on defense would create a serious risk of multiple liability for the defendants.
Before a more detailed discussion of Illinois Brick, it is necessary to address a technical point. It is true that the Illinois Brick decision (and Hanover Shoe) specifically involved an interpretation of Section 4 of the Clayton Act, 15 U.S. C. § 15, and the Court has since held in California v. ARC America Corp.,(7) that Illinois Brick does not preclude indirect purchaser recoveries under different state statutes.(8) By extension, an argument is therefore available that disgorgement under a different federal statute like Section 13(b) of the FTC Act, 15 U.S.C. § 53, does not literally conflict with the Illinois Brick holding.(9)
However, it can hardly be claimed that restitution to indirect purchasers under an alternative federal statute is consistent with the broad policy objectives of Illinois Brick, which also involved a federal statute. The ARC opinion emphasized the distinction between the application of federal law and state law,(10) and in particular, the fact that States had their own mandate to interpret state antitrust laws.(11) There is no corresponding distinction between application of the FTC Act and the Clayton Act. They both are enforced by the same sovereign, and the considerations of federalism present in the ARC case do not apply.
Moreover, courts have construed the FTC Act as being in pari materia with the Sherman and Clayton Acts,(12) as a matter of substance. The Commission routinely relies on cases brought under the Sherman and Clayton Act as precedent when pursuing cases under the FTC Act.(13) In the absence of explicit statutory language,(14) it is appropriate to seek congruence in remedies as well as in substance. Illinois Brick and Hanover Shoe relied on broad congressional policies to define the recovery that federal antitrust law authorizes under Section 4 of the Clayton Act.(15) While these decisions only involved Section 4, the reliance on federal antitrust policy suggests the Federal Trade Commission remedies should be applied consistently.(16)
The fundamental fairness rationale of Hanover Shoe and Illinois Brick should not be ignored, just because it is possible to construct a technical justification for doing so. The symmetrical relationship between the two decisions, and subsequent cases applying them, demonstrate a consistent concern for federal policies in federal cases, even in extreme situations. In Kansas and Missouri v. Utilicorp United, Inc.,(17) for example, the Court stated that even if the economic assumptions underlying the Illinois Brick rule are disproved in a particular case, it would be "unwarranted and counterproductive to litigate a series of exceptions" to the rule.(18) The fact that restitution or redress arises out of a separate cause of action should not change this view. In Kansas and Missouri, it was argued that the risk of multiple recovery would be eliminated because the direct and indirect purchasers were seeking different, not duplicative, damages -- that is, the indirect purchasers sought to recover only the amount of the overcharge and the direct purchasers who passed on the full overcharge sought to recover only damages for lost sales. The Court concluded that these distinctly different theories would introduce additional complexity into an already complex case, and were not sufficient to overcome the overriding barriers to indirect purchaser recovery.(19) The same could be said for an argument that disgorgement or restitution under Section 13(b) of the FTC Act are remedies distinct from antitrust treble damages. These remedies have an effect substantially identical to a damage claim based on overcharges and should be treated the same under the Illinois Brick rule.
The Illinois Brick Court found that the effort to allocate direct and indirect damages would lead to intolerable litigation complexities.(20) The allocation problems -- even at the second purchaser level, not to mention succeeding ones -- were intractable then and remain so today. The fact that the parties have agreed to an essentially ad hoc allocation of the disgorgement amount in this case, under the aegis of a single judge, is not an adequate answer. Settlements can resolve anything, but sound legal rules have to be premised on the assumption that there will be no settlement. Remember that at the time the Commission decides to seek disgorgement in a particular case, and thereby create the potential for these complications, it cannot be sure that all matters will be consolidated and amicably settled in a single forum.
Similar expediency arguments were specifically rejected in Kansas and Missouri, where the Court stated, "we continue to believe that 'even if ways could be found to bring all potential plaintiffs together in one huge action, the complexity thereby introduced into treble-damages proceedings argues strongly for retaining the Hanover Shoe rule.'"(21) Detailed studies of available procedural mechanisms by the Antitrust Section of the American Bar Association have also demonstrated that foolproof mechanisms do not exist to assure that all litigation will be consolidated in a single forum.(22)
The Illinois Brick decision was also based on the idea that deterrence is best achieved by giving direct purchasers the right to recover full damages and not share them with others down the line. The assumption is that these purchasers will be most motivated and capable. The only empirical study of which I am aware confirmed that direct purchasers typically do sue notwithstanding ongoing supplier relationships, and that the threat of suit serves as a deterrent.(23) The fact that direct purchasers may not be aggressively pursuing this particular case is not a sufficient basis for an exception to overriding federal policy.(24)
In addition, indirect purchasers are less likely than direct purchasers to have the necessary information about antitrust violations and, when there are vast numbers of them, their damages are likely to be so small that they have no incentive to sue.(25) The fact that indirect purchaser interests are being collectively pursued by the Commission and various States in this particular case may obviate these concerns for now. But, as stated above, we still have to think about the precedents we may create.
Widespread use of Section 13(b), or equivalent state authority can directly undermine the final policy foundation for Illinois Brick, namely, avoidance of duplicate recoveries. This proceeding has opened the door for other cases where we (and perhaps myriad states) obtain restitution on behalf of consumers and respondents are still liable for full treble damage recoveries by direct purchasers.
Some may argue that it is better for an antitrust violator to pay excessive damages than for injured parties to go uncompensated. But the Supreme Court in Illinois Brick expressly found that the risk of multiple recovery in this context is unacceptable:
Justice Marshall's statement in Associated General Contractors of California v. California State Council of Carpenters(27) repeats this theme:
There are some who might argue that it is, on balance, a good thing to pile on multiple recoveries. In this view, there is no such thing as too much deterrence, so long as offenses continue to be committed. Of course, this rationale has an impact across the entire spectrum of criminal law, and is used to justify ever-longer, and mandatory minimum, sentences.(29) It is not necessary for us to pursue these deep questions, however, because the Supreme Court has already addressed the issue. Over-deterrence of antitrust violations, unlike over-deterrence in certain other legal contexts, can have the unfortunate consequence of chilling neutral and even procompetitive, efficiency-enhancing conduct.(30) For this reason, the Supreme Court has noted that excessive deterrence in the antitrust context does not "redound to the public's benefit."(31)
There may not be much doubt about the ultimate antitrust liability in this case but in many other cases there will be a genuine risk of over-deterrence, particularly if Section 13(b) recoveries are potentially available across the full reach of the Commission's antitrust jurisdiction and if State authorities exercise comparable powers. Even if all interested parties could be brought together in a single forum, the sheer multiplicity of classes of potential claimants will inevitably raise the settlement stakes. The law favors settlement over litigation, but the law is not well served if potential overlapping liabilities are so vast that defendants have no practical alternatives.
Illinois Brick has withstood frontal assaults for over 20 years. It would be ironic, indeed, if a barrier against indirect purchaser suits under a federal statute (Clayton Act Section 4) that specifically refers to monetary recoveries in antitrust cases could be so easily avoided by a backdoor approach under a statute (Section 13(b) of the FTC Act) that nowhere specifically authorizes monetary recoveries in antitrust cases and that was never so employed until very recently.(32) In an analogous situation, the Supreme Court declined to expand the States parens patriae remedy under Section 4C of the Hart-Scott-Rodino Act, to permit actions on behalf of consumers as indirect purchasers. The Court reasoned that Section 4C did not establish any new substantive liability but rather "created a new procedural device - parens patriae actions by States on behalf of their citizens - to enforce existing rights of recovery under § 4."(33)
Finally, there is an overriding institutional concern that extends beyond the appropriate scope of Section 13(b) and possible proliferation of actions that undercut federal antitrust policies established in Hanover Shoe and Illinois Brick. An action of this kind is almost too expedient and, dare I say, too seductive. It transforms the Commission into a prosecutor with an immensely powerful antitrust weapon. I suggest that this kind of remedy in this kind of case is hardly what Congress had in mind when it passed the Federal Trade Commission Act in 1914 or, for that matter, when it gave the Commission the power to seek injunctive relief in 1973. Our traditional role in competition matters has been to look forward rather than backward, to articulate the law where the law is uncertain, and to seek relief that is prospective and remedial rather than retrospective and punitive. As we stray progressively further away from that vision - even for reasons of expediency, efficiency and equity that may seem compelling at the time - we may unwittingly neglect our special mission.
1. F.T.C. v. Mylan Labs., Inc. 62 F.Supp. 2d 25, 36 (D.D.C. 1999). The discussion of Section 13(b) throughout this statement is not intended to apply to its use in consumer protection cases.
2. F.T.C. v. Mylan Labs., Inc. 99 F.Supp. 2d 1, 5 (D.D.C. 1999).
3. The complaint in this case was voted out, and the District Court's decision allowing the Commission to seek disgorgement, was issued before I joined the Commission.
4. 392 U.S. 481 (1968).
5. 431 U.S. 720 (1977).
6. People tend to assume that there are only two "levels" of potential claimants, but there may well be multiple levels branching off in different directions. The Illinois Brick case involved a conspiracy by manufacturers to fix the price of masonry brick. An argument could be made that this conduct had an effect not only on direct-purchasing brick wholesalers but also on masonry contractors, general contractors, initial purchasers of brick buildings, their lessees, etc., etc. A decision to cut off the calculation at any particular point can be attacked as arbitrary.
7. 490 U.S. 93 (1989).
8. Illinois Brick did not expressly pre-empt inconsistent state statutes. The lack of express pre-emption and federalism considerations were a substantial factor in the ARC decision. ARC 490 U.S. at 101.
9. For example, in F.T.C. v. Mylan Labs., Inc., 99 F.Supp. 2d at 4, the District Court held that States with statutes that prompt courts to consider decisions interpreting Section 5(a)(1) of the FTC Act, rather than the Clayton Act, would be entitled to seek restitution on behalf of indirect purchasers (since the court had already held that the FTC could pursue equitable remedies such as disgorgement).
10. ARC, 490 U.S. at 105.
11. Id. at 103.
12. See Atlantic Refining v. FTC. 344 F.2d 599, 605-06 (1965).
14. There are, for example, explicit and long-understood distinctions between the remedies available to the Federal Trade Commission and the Department of Justice Antitrust Division.
15. ARC, 490 U.S. at 103; see also Illinois Brick, 431 U.S. at 746.
16. It is ironic that in the present matter, the District Court's rationale for expanding the use of disgorgement to states with statutes modeled after the FTC or that provide equitable remedies -- preserving consistency -- could also be used to expand the application of Illinois Brick to the FTC Act.
17. 497 U.S. 519 (1983).
18. Kansas and Missouri, 497 U.S. at 217.
19. Id. at 212-13.
20. Illinois Brick, 431 U.S. at 737-41 ("Permitting the use of pass-on theories under § 4 essentially would transform treble-damages actions into massive efforts to apportion the recovery among all potential plaintiffs that could have absorbed part of the overcharge -- from direct purchasers to middlemen to ultimate consumers. However appealing this attempt to allocate the overcharge might seem in theory, it would add whole new dimensions of complexity to treble-damages suits and seriously undermine their effectiveness.")
21. Kansas and Missouri, 497 U.S. at 213, quoting Illinois Brick.
22. Report of the ABA Antitrust Section Task Force to Review the Supreme Court's Decision in California v. ARC America Corp., 59 Antitrust L.J. 273 (1990); Report of the Antitrust Section's Task Force to Review Proposed Legislation to Repeal or Modify Illinois Brick, 52 Antitrust L.J. 841 (1984)[hereinafter 1984 ABA Task Force Report]. Even the ARC Court recognized a concern with settlements where direct and indirect purchasers share damages amounts -- but excused it in circumstances involving state indirect purchaser statutes, concluding that it is "a function of the fact and form of the settlement rather than the impermissible operation of state indirect purchaser statutes." ARC, 490 U.S. at 105.
23. 1984 ABA Task Force Report, at 846, 863-68.
24. It is entirely possible that disgorgement obtained in cases like the present action would diminish direct purchaser incentives to sue.
25. See Illinois Brick, 431 U.S. at 745 ("[a]dded to the uncertainty of how much of an overcharge could be established at trial would be the uncertainty of how that overcharge would be apportioned among the various plaintiffs. This additional uncertainty would further reduce the incentive to sue. The combination of increasing the costs and diffusing the benefits of bringing a treble-damages action could seriously impair this important weapon of antitrust enforcement.").
26. Illinois Brick, 431 U.S. at 731, n. 11.
27. 459 U.S. 519 (1983).
28. Id. at 550 n.7, (Marshall, T., dissenting statement not inconsistent with majority opinion, citing Areeda & D. Turner, Antitrust Law § 337d (1978)).
29. The idea was carried to its logical extreme in England 200 years ago, and relatively minor offenses were punished by hanging. But, they still were committed. This particular analogy may seem farfetched, but the prospect of multiple damages can threaten corporate bankruptcy.
30. Except in the limited cases of per se unlawful conduct, enforcement of the antitrust laws involves a delicate balancing of all factors neutral, pro, and anticompetitive, over the short and long term.
31. United States v. United States Gypsum Co., 438 U.S. 422, 442 n.17 (1978).
32. Cf. Meghrig v. KFC Western, Inc., 516 U.S. 479, 488 (1996), where the Court observed: "[I]t is an elemental canon of statutory construction that where a statute expressly provides a particular remedy or remedies, a court must be chary of reading others into it." (Quoting Middlesex County Sewerage Auth. v. National Sea Clammers Ass'n, 453 U.S. 1, 14-15 (1981)). It is noteworthy that the District Court in the present case expressed some uncertainty in its holding: "It should be noted that no court, including this one, has held that the FTC may pursue restitution claims on behalf of indirect purchasers. . . . In light of the expansive view of a court's equitable jurisdiction espoused in . . . [other] cases, the Court will assume that the FTC does have the authority to seek such relief." F.T.C. v. Mylan Labs., Inc., 99 F.Supp. 2d at 5, n. 2 (emphasis added).
33. Kansas and Missouri, 497 U.S. at 219 (emphasis added), quoting Illinois Brick, 431 U.S. at 734, n.14.