FDA’s Right to Get Disgorgement Is Threatened

January 1, 2005

In the last five years, FDA has entered into a number of high-profile settlements with companies that have agreed to disgorge (forfeit) profits from their sales of products that FDA believed violated the FDC Act. These actions followed a ruling by the Sixth Circuit that FDA can obtain restitution for “injured consumers” in connection with an injunctive action commenced by the United States against the company responsible for violating the Act.

In 2003, two members of this firm wrote an article in the Food and Drug Law Journal, arguing that FDA cannot obtain either disgorgement of profits or restitution in an action it brings under 21 U.S.C. 332 (the injunction provision in the Act). Jeffrey N. Gibbs and John R. Fleder, Can FDA Seek Restitution or Disgorgement?, 58 FOOD & DRUG L.J. 129-147 (2003). The central thesis of the article was that Congress did not authorize courts to award FDA either disgorgement or restitution.

The D.C. Circuit has just issued a ruling which adds new support for our theory. In United States v. Philip Morris USA Inc., No. 04-5252 (D.C. Cir., filed Feb. 4, 2005), the Court ruled (in a 2-1 decision) that the United States could not obtain disgorgement in the massive tobacco case filed by the government under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1964(a). The Court interpreted a statutory provision which authorized injunctions “to prevent and restrain violations of” RICO. It ruled that this provision was intended to cover “forward-looking remedies that prevent and restrain violations of the Act. Because disgorgement, a remedy aimed at past violations, does not so prevent or restrain”, the government could not obtain disgorgement. The D.C. Circuit’s recent decision may not be the final word in that case. The government can seek rehearing or rehearing en banc, and can, of course, also seek review by the United States Supreme Court.

It is particularly noteworthy that the Court interpreted the words “prevent and restrain.” 21 U.S.C. 332 uses even more limiting language: “The district courts of the United States . . . shall have jurisdiction, for cause shown . . . to restrain violations of the” FDC Act. The word “prevent” is not in the statutory language. Our recent article agreed with the D.C. Circuit’s recent analysis that the term “restrain” is focused on the future only, and cannot reach back to obtain backward-looking concepts such as disgorgement or restitution.

FDA’s authority in this area is currently under review in the Third Circuit in a case that involves a dietary supplement product that the lower court said was really an unapproved drug. United States v. Lane Labs-USA Inc. (lower court ordered defendant to make restitution to consumers).

Please contact John Fleder at 202-737-4580 or jrf@hpm.com if you have any questions about this topic.