Federal Trade Commission v. Vyera Pharmaceuticals, LLC

Background

The Federal Trade Commission and seven state plaintiffs—the States of New York, California, Ohio, Illinois, and North Carolina, and the Commonwealths of Pennsylvania and Virginia—brought antitrust claims against Vyera Pharmaceuticals, LLC, Phoenixus AG, Martin Shkreli, and Kevin Mulleady concerning the drug Daraprim. The plaintiffs alleged that, after Vyera acquired the U.S. rights to Daraprim in August 2015, it raised the price from $17.50 to $750 per tablet and used agreements with distributors and suppliers to block lower-cost generic competition.

The plaintiffs waived money damages. The remaining relief included an injunction and disgorgement. Disgorgement is an equitable remedy measured by a defendant’s net unlawful profits rather than directly by the victims’ losses. The State plaintiffs sought disgorgement of Vyera’s net profits from all U.S. Daraprim sales, not only sales to residents of the seven plaintiff states.

Motions and Arguments

Vyera, Phoenixus, Shkreli, and Mulleady moved for partial summary judgment on the geographic scope of the States’ disgorgement claim. They argued that the States lacked authority to seek equitable monetary relief for people who were not citizens of those states. The States cross-moved for partial summary judgment and sought an order preventing the defendants from contesting nationwide relief or introducing evidence about where Daraprim purchases occurred at trial.

The court noted that the alleged wrongful conduct was based in New York. Vyera’s headquarters were and are in New York, and the distribution and exclusive supply agreements at issue were executed there. The court also noted that New York’s Attorney General may enforce the New York Donnelly Act and Executive Law § 63(12), and that New York law permits disgorgement without proof of direct consumer losses. New York law also allows the Attorney General to seek relief for out-of-state residents injured by wrongdoing conducted through a New York business.

Ruling

The court held that the New York Attorney General, if the alleged violations of the Donnelly Act and Executive Law are proven, may seek disgorgement of Vyera’s net profits attributable to all of its U.S. sales. The court did not need to decide whether each of the seven state Attorneys General independently had the same authority.

The court rejected Vyera’s arguments that nationwide disgorgement was impermissibly extraterritorial, amounted to a penalty, or could result in overlapping awards. It explained that the States represented they would distribute any disgorged profits to victims wherever they lived, and that defendants could raise concerns about duplicative recoveries in any court considering such relief.

Denise Cote denied the defendants’ motion for partial summary judgment and granted the State plaintiffs’ cross-motion for partial summary judgment. A separate order granted the States’ request concerning the pretrial and trial proceedings. The opinion did not decide whether the defendants violated the antitrust laws or award disgorgement; it decided the geographic scope of the relief the States could pursue.