Consumer Law

NY can still seek disgorgement even if FTC can’t

NY can still seek disgorgement even if FTC can’t

Federal Trade Comm’n v. Vyera Pharms., LLC, 2021 WL 4392481,
No. 20cv00706 (DLC) (S.D.N.Y. Sept. 24, 2021)

Featuring Martin Shkreli as a defendant! The FTC, with NY
and a number of other states, sued Vyera for violating the antitrust laws in
the market for the pharmaceutical Daraprim, which treats the potentially fatal
infection toxoplasmosis. In a reminder that satire is dead and that no cartoon
villains can match reality, the day after acquiring the rights to Daraprim,
Vyera raised the price from $17.50 per tablet to $750 per tablet; defendants
also allegedly schemed to block lower-cost generic drug competition.

The locus of the bad conduct was NY; seven states sued in
their parens patriae capacity, that is, they asserted a quasi-sovereign
interest “in the health and well-being — both physical and economic — of its
residents in general.”  They sought
injunctive relief and disgorgement of nationwide profits. The FTC can no longer
seek disgorgement, but the states sought to do so both under the Sherman Act
and under their respective state laws.

Vyera argued that the states lacked parens patriae standing
to obtain equitable monetary relief, including disgorgement, on behalf of those
who weren’t citizens of their States. Regardless of whether the other states
did, NY could do so because the alleged violations stemmed “from decisions made
and contracts executed in New York.”  The
Attorney General can seek relief on behalf of out-of-state residents injured by
the wrongdoing, furthering “New York’s vital interest in securing an honest
marketplace,” which is threatened when a defendant uses “a New York business”
to engage in its scheme. Thus, disgorgement of net profits attributable to all
US sales was potentially available. This was not a penalty, because the states
indicated that, should they prevail, they’d undertake to distribute the
disgorged profits to all victims wherever they were. And overlapping awards
could be avoided by courts sitting in equity (which is how you get
disgorgement).

Vyera argued that NY had no parens patriae interest in other
states’ citizens. But parens patriae is about standing, not about the scope of
a disgorgement remedy.

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