Federal Trade Commission v. AbbVie Inc

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 18-2621

FEDERAL TRADE COMMISSION,

Appellant

v.

ABBVIE INC; ABBOTT LABORATORIES; UNIMED

PHARMACEUTICALS, LLC; BESINS HEALTHCARE,

INC.; *TEVA PHARMACEUTICALS USA, INC

(*Dismissed Pursuant to Court’s 3/12/19 Order.)

No. 18-2748

FEDERAL TRADE COMMISSION,

v.

ABBVIE INC; ABBOTT LABORATORIES; UNIMED

PHARMACEUTICALS, LLC; BESINS HEALTHCARE,

INC.; *TEVA PHARMACEUTICALS USA, INC.

Abbvie Inc; Abbott Laboratories; Unimed

Pharmaceuticals, LLC

Appellants

(*Dismissed Pursuant to Court’s 3/12/19 Order.)

No. 18-2758

FEDERAL TRADE COMMISSION,

v.

ABBVIE INC; ABBOTT LABORATORIES; UNIMED

PHARMACEUTICALS, LLC;

BESINS HEALTHCARE, INC.; *TEVA

PHARMACEUTICALS USA, INC

Besins Healthcare, Inc.,

Appellant

(*Dismissed Pursuant to Court’s 3/12/19 Order.)

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. No. 2-14-cv-05151)

District Judge: Honorable Harvey Bartle, III

Argued on January 15, 2020

2

Before: HARDIMAN, PORTER and PHIPPS, Circuit Judges.

(Filed September 30, 2020)

Mark S. Hegedus

Federal Trade Commission

MS-582

600 Pennsylvania Avenue, N.W.

Washington, DC 20580

Matthew M. Hoffman [Argued]

Joel R. Marcus

Federal Trade Commission

600 Pennsylvania Avenue, N.W.

Washington, DC 20580

Attorneys for Federal Trade Commission

Brittany Amadi

Catherine M.A. Carroll

Leon B. Greenfield

Seth P. Waxman [Argued]

WilmerHale

1875 Pennsylvania Avenue, N.W.

Washington, DC 20006

Elaine J. Goldenberg

Munger Tolles & Olson

1155 F Street, N.W.

7th Floor

Washington, DC 20004

3

Adam R. Lawton

Stuart N. Senator

Jeffrey I. Weinberger

Munger Tolles & Olson

350 South Grand Avenue

50th Floor

Los Angeles, CA 90071

William F. Lee

WilmerHale

60 State Street

Boston, MA 02109

Paul H. Saint-Antoine

John S. Yi.

Faegre Drinker Biddle & Reath

One Logan Square

Suite 2000

Philadelphia, PA 19103

Attorneys for AbbVie Inc, Abbott Laboratories, and Unimed

Pharmaceuticals LLC

Melinda F. Levitt

Gregory E. Neppl [Argued]

Foley & Lardner

3000 K Street, N.W.

Suite 600

Washington, DC 20007

Paul H. Saint-Antoine

John S. Yi

Faegre Drinker Biddle & Reath

4

One Logan Square

Suite 2000

Philadelphia, PA 19103

Attorneys for Besins Healthcare, Inc.

William A. Rivera

AARP Foundation Litigation

B4-230

601 E Street, N.W.

Washington, DC 20049

Attorney for Amici AARP and AARP Foundation

Ilana H. Eisenstein

DLA Piper

1650 Market Street

One Liberty Place, Suite 5000

Philadelphia, PA 19103

Attorney for Amicus Chamber of Commerce of the United

States of America

Bradford J. Badke

Sidley Austin

787 Seventh Avenue

New York, NY 10019

Attorney for Amicus Amgen Inc

Andrew D. Lazerow

Covington & Burling

850 10th Street, N.W.

5

One City Center

Washington, DC 20001

Attorney for Amicus Pharmaceutical Research and

Manufacturers of America

Richard M. Brunell

Hilliard & Shadowen

1135 West 6th Street

Suite 125

Austin, TX 78703

Attorney for Amici American Antitrust Institute, Public

Citizen Inc, and Public Knowledge

OPINION OF THE COURT

HARDIMAN, Circuit Judge.

TABLE OF CONTENTS

I. FACTUAL BACKGROUND ......................................... 9

A. FDA Approval under the Hatch-Waxman Act ........... 9

B. Patent disputes under the Hatch-Waxman Act ........ 11

C. Therapeutic equivalence ratings ............................. 12

D. Hypogonadism and testosterone

replacement therapies ............................................. 13

6

E. AndroGel ............................................................... 14

F. The ’894 patent’s prosecution history ..................... 15

G. AndroGel’s competitors ......................................... 18

H. The lawsuits against Teva and Perrigo .................... 18

I. The settlements with Perrigo and Teva ................... 21

J. Teva and Perrigo’s generic versions of AndroGel ... 23

II. PROCEDURAL HISTORY ....................................... 24

III. JURISDICTION ........................................................ 26

IV. LIABILITY ............................................................... 35

A. The District Court erred by rejecting the

reverse-payment theory.. ........................................ 35

B. The District Court erred in concluding AbbVie and

Besins’s litigation against Teva was a sham; it did

not err in concluding the Perrigo litigation was a

sham. ..................................................................... 53

C. The District Court did not err in concluding

AbbVie and Besins had monopoly power in the

relevant market. ..................................................... 77

V. REMEDIES .................................................................. 83

A. The District Court erred in ordering disgorgement..83

B. The District Court did not abuse its discretion in

denying injunctive relief. ........................................ 93

C. Remand on the reverse-payment theory is not

futile. ..................................................................... 97

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This appeal involves a patented drug called AndroGel.

A blockbuster testosterone replacement therapy that generated

billions of dollars in sales, AndroGel caught the attention of

the Federal Trade Commission. The FTC sued the owners of

an AndroGel patent—AbbVie, Inc., Abbott Laboratories,

Unimed Pharmaceuticals LLC, and Besins Healthcare, Inc.—

under Section 13(b) of the Federal Trade Commission Act in

the United States District Court for the Eastern District of

Pennsylvania. The FTC alleged that Defendants filed sham

patent infringement suits against Teva Pharmaceuticals USA,

Inc. and Perrigo Company, and that AbbVie, Abbott, and

Unimed entered into an anticompetitive reverse-payment

agreement with Teva. The FTC accused Defendants of trying

to monopolize and restrain trade over AndroGel.

The District Court dismissed the FTC’s claims to the

extent they relied on a reverse-payment theory but found

Defendants liable for monopolization on the sham-litigation

theory. The Court ordered Defendants to disgorge $448 million

in ill-gotten profits but denied the FTC’s request for an

injunction. The parties cross-appeal.

We hold the District Court erred by rejecting the

reverse-payment theory and in concluding Defendants’

litigation against Teva was a sham. The Court did not err,

however, in concluding the Perrigo litigation was a sham and

that Defendants had monopoly power in the relevant market.

Yet the FTC has not shown the monopolization entitles it to

any remedy. The Court did not abuse its discretion in denying

injunctive relief; and the Court erred by ordering disgorgement

because that remedy is unavailable under Section 13(b) of the

FTC Act. Accordingly, we will reinstate the FTC’s dismissed

claims and remand for further proceedings consistent with this

opinion. We will also affirm in part and reverse in part the

8

Court’s order adjudging Defendants liable for monopolization.

Finally, we will affirm the Court’s order denying injunctive

relief and reverse the Court’s order requiring Defendants to

disgorge $448 million.

I. FACTUAL BACKGROUND

A. FDA Approval under the Hatch-Waxman Act

The Food, Drug, and Cosmetic Act (the FDC Act), 21

U.S.C. § 301 et seq., empowers the Food and Drug

Administration (FDA) to regulate the manufacture and sale of

drugs in the United States. Before a pharmaceutical company

can market a drug, it must obtain FDA approval. Id. § 355(a).

Under the FDC Act, as amended by the Drug Price

Competition and Patent Term Restoration Act of 1984 (the

Hatch-Waxman Act), 21 U.S.C. § 355 and 35 U.S.C. § 271, a

company can apply for FDA approval in one of three ways:

1. Section 505(b)(1) New Drug Application (NDA). This is

a “full-length” application. FTC v. AbbVie Inc., 329 F.

Supp. 3d 98, 107 (E.D. Pa. 2018). The “gauntlet of

procedures” associated with it is “long, comprehensive,

and costly.” In re Wellbutrin XL Antitrust Litig. Indirect

Purchaser Class, 868 F.3d 132, 143 (3d Cir. 2017)

(citation omitted). It includes “full reports of

investigations” into whether the drug is safe and

effective, a “full list of . . . [the drug’s] components,” a

“full description of the methods used in . . . the

manufacture, processing, and packing” of the drug,

samples of the drug, and specimens of the labeling the

company proposes to use. 21 U.S.C. § 355(b)(1). A

company must also list any relevant patents. See

Wellbutrin, 868 F.3d at 144 (citation omitted). We refer

9

to drugs approved through this process as “brand-name”

drugs.

2. Section 505(j) Abbreviated New Drug Application

(ANDA). This streamlined application is appropriate for

a company seeking to market a generic version of a

brand-name drug. The company need not produce its

own safety and efficacy data. 21 U.S.C. §

355(j)(2)(A)(vi). But it must show that the generic drug

is “the same” as the brand-name drug in certain relevant

respects. Id. § 355(j)(2)(A). It also must “assure the

FDA that its proposed generic drug will not infringe the

brand’s patents.” Caraco Pharm. Labs., Ltd. v. Novo

Nordisk A/S, 566 U.S. 399, 406 (2012). It can do so by

certifying that the manufacture, use, or sale of the

generic will not infringe patents relating to the brand-

name drug, or that those patents are invalid. 21 U.S.C.

§ 355 (j)(2)(A)(vii)(IV). This certification is known as

a “paragraph IV notice.” AbbVie, 329 F. Supp. 3d at

108.

The first company to seek FDA approval in this

way enjoys “a period of 180 days of exclusivity,” during

which “no other generic can compete with the brand-

name drug.” FTC v. Actavis, Inc., 570 U.S. 136, 143–44

(2013) (citing 21 U.S.C. § 355 (j)(5)(B)(iv)). “[T]his

180-day period . . . can prove valuable, possibly worth

several hundred million dollars.” Id. at 144 (internal

quotation marks and citation omitted). One exception is

that during the 180-day exclusivity period, the brand-

name company can produce a generic version of its own

drug or license a third party to do so. See Mylan Pharm.,

Inc. v. FDA, 454 F.3d 270, 276–77 (4th Cir. 2006).

These “authorized generics” can decrease the value an

10

applicant receives from the 180-day exclusivity period

to the extent they share the generic drug market and

depress prices. See id. at 273.

3. Section 505(b)(2) New Drug Application (hybrid NDA).

This application is appropriate for a company seeking

to modify another company’s brand-name drug. For

example, a company might seek FDA approval of “a

new indication or new dosage form.” 21 C.F.R. §

314.54(a). This application is like an ANDA because

the company need not produce all safety and efficacy

data about the drug and because it must assure the FDA

that its generic drug will not infringe the brand’s

patents. See 21 U.S.C. § 355(b)(2)(A)(iv). But it differs

from an ANDA because the company must produce

some data, including whatever “information [is] needed

to support the modification(s).” 21 C.F.R. § 314.54(a).

The latter two pathways “speed the introduction of low-

cost generic drugs to market” and promote competition in the

pharmaceutical industry. Actavis, 570 U.S. at 142 (internal

citation omitted).

B. Patent disputes under the Hatch-Waxman Act

The Hatch-Waxman Act also has provisions that

encourage the quick resolution of patent disputes. See

Wellbutrin, 868 F.3d at 144. A paragraph IV notice

“automatically counts as patent infringement.” Id. (quoting

Actavis, 570 U.S. at 143 (citing 35 U.S.C. § 271(e)(2)(A))).

After receiving this notice, a patentee has 45 days to decide

whether to sue. 21 U.S.C. § 355(j)(5)(B)(iii).

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To help a patentee make that decision, the company

seeking approval of a generic drug often allows the patentee’s

outside counsel to review the company’s application in secret.

If the patentee sues within the time limit, the FDA cannot

approve the company’s application for a generic drug until one

of three things happens: (1) a court holds that the patent is

invalid or has not been infringed; (2) the patent expires; or (3)

30 months elapse, as measured from the date the patentee

received the paragraph IV notice. 21 U.S.C. § 355(j)(5)(B)(iii).

The automatic, 30-month stay creates tension with the

Hatch-Waxman Act’s procompetitive goals. Simply by suing,

a patentee can delay the introduction of low-cost generic drugs

to market and impede competition in the pharmaceutical

industry. Cf. Actavis, 570 U.S. at 142.

C. Therapeutic equivalence ratings

After the FDA approves a company’s generic drug, the

company can seek a therapeutic equivalence (TE) rating.

“Products that are determined to be therapeutically equivalent

[to the brand] are assigned an ‘A’ or ‘AB’ rating. Generic

products for which therapeutic equivalence cannot be

determined are assigned a ‘B’ or ‘BX’ rating.” AbbVie, 329 F.

Supp. 3d at 107. Generic drug companies usually prefer A or

AB ratings because every state’s law “either permit[s] or

require[s] pharmacists to dispense a therapeutically equivalent,

lower-cost generic drug in place of a brand drug.” Mylan

Pharm. Inc. v. Warner Chilcott Pub. Ltd., 838 F.3d 421, 428

(3d Cir. 2016) (internal quotation marks and citations omitted).

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D. Hypogonadism and testosterone replacement

therapies

Hypogonadism is a clinical syndrome resulting from

low testosterone in the human body. See AbbVie, 329 F. Supp.

3d at 108. It affects an estimated 2-6 percent of the adult male

population in the United States and causes “decreases in energy

and libido, erectile dysfunction, and changes in body

composition.” Id.

Doctors treat hypogonadism with testosterone

replacement therapies (TRTs). TRTs include injectables,

topical/transdermals (TTRTs), and other therapies. Companies

first marketed injectables in the 1950s. Because generic

injectables have been available for decades, they are the least

expensive. They involve dissolving testosterone in a liquid and

injecting it into the patient’s body every one to three weeks.

Some patients administer injections to themselves at home,

while others receive injections at their doctor’s office or a

specialized testosterone clinic. By contrast, TTRTs first

appeared in the 1990s and are more expensive. They deliver

testosterone to the patient’s body through a patch or gel applied

to the patient’s skin. Gels are applied daily.

TRTs have different benefits and drawbacks. Some

patients dislike injectables because the injection is painful, or

because the “peak in testosterone level” after the injection

causes “swings in mood, libido, and energy.” Id. at 109. Many

of these patients prefer TTRTs because they release

testosterone steadily. Other patients dislike TTRT gels.

Common complaints include skin irritation and the

inconvenience of having to apply the gel daily. And patients

sometimes transfer the testosterone gel to others inadvertently

through skin-to-skin contact. Finally, some patients dislike

13

TTRT patches, which can irritate the skin and are visible to

other people, depending on where the patch is applied.

E. AndroGel

In the 1990s, Laboratoires Besins International S.A.S.

(LBI)—a corporate affiliate of Besins’s parent company—

developed the TTRT gel that became AndroGel. In 1995, LBI

licensed to Unimed certain intellectual property relating to the

gel, and Unimed assumed responsibility for marketing the gel

in the United States. In exchange, Unimed agreed to pay LBI a

royalty on the gel’s net sales. Unimed secured FDA approval

for the gel in 2000. That same year, Unimed and Besins filed a

joint U.S. patent application, and, in 2003, U.S. Patent No.

6,503,894 (the ’894 patent) issued.

Today, Besins and AbbVie co-own the ’894 patent.

AbbVie acquired Unimed’s interest in the patent as follows: in

1999, Unimed was acquired by Solvay; in 2010, Solvay was

acquired by Abbott; in 2013, Abbott separated into two

companies—Abbott and AbbVie—with AbbVie assuming all

of Abbott’s propriety pharmaceutical business, including its

interest in AndroGel.

Solvay brought AndroGel to market in 2000. At the

time, AndroGel was available only in a sachet form at 1%

strength. From 2004-2013, Solvay and its successors marketed

AndroGel in a metered-dose pump form. And in 2011, Abbott

started marketing AndroGel at 1.62% strength. Sales of

AndroGel 1.62% grew more slowly than anticipated, but by

June 2012, they comprised most of AndroGel’s total sales.

AndroGel has been a huge commercial success. Its

annual net sales sometimes surpassed a billion dollars and

14

remained strong even after generic versions of AndroGel

entered the market in 2015. From 2009-2015, it generated a

high profit margin of about 65 percent.

F. The ’894 patent’s prosecution history

TTRT gels use “penetration enhancers” to accelerate the

delivery of testosterone through a patient’s skin. AndroGel’s

penetration enhancer is isopropyl myristate.

Unimed and Besins’s joint patent application was U.S.

Patent Application Serial No. 09/651,777. As originally

drafted, claim 1 of the patent application claimed all

penetration enhancers:

A pharmaceutical composition useful for the

percutaneous delivery of an active

pharmaceutical ingredient, comprising:

(a) a C1-C4 alcohol;

(b) a penetration enhancer;

(c) the active pharmaceutical ingredient; and

(d) water.

App. 909 (emphasis added). The penetration enhancers then in

existence numbered in the tens of millions.

In June 2001, the patent examiner rejected this claim as

obvious over two prior art references—Mak in view of Allen.

Mak disclosed the penetration enhancer oleic acid used in a

transdermal testosterone gel. Allen disclosed isopropyl

myristate, isopropyl palmitate, and three other penetration

15

enhancers used in a nitroglycerin cream. The examiner

explained that “since all composition components herein are

known to be useful for the percutaneous delivery of

pharmaceuticals, it is considered prima facie obvious to

combine them into a single composition useful for the very

same purpose.” App. 1014–16.

In October 2001, Unimed and Besins amended the

patent application’s claim 1 to recite at least one of 24

penetration enhancers, including isopropyl myristate and

isostearic acid. Isopropyl palmitate was not among the 24.

Unimed and Besins also added several new claims. Claim 47

recited “a penetration enhancer selected from the group

consisting of isopropyl myristate and lauryl alcohol.” App.

1022. And claims 61 and 62 recited only isopropyl myristate as

a penetration enhancer.

Unimed and Besins sought “reconsideration and

withdrawal of the [obviousness] rejections and allowance of

the[se] claims.” App. 1039. In support, they cited AndroGel’s

commercial success. See id.; see generally Graham v. John

Deere Co. of Kansas City, 383 U.S. 1, 17 (1966) (holding

commercial success is a “secondary consideration” suggesting

nonobviousness). They also argued “[t]he mere fact that

references can be combined or modified does not render the

resultant combination obvious unless the prior art also suggests

the desirability of the combination.” App. 1030–31 (citations

omitted). For three reasons, they said, the prior art did not

suggest combining Mak and Allen. First, Mak “[taught] away

from using the presently claimed penetration enhancers by

focusing on the superiority of oleic acid.” App. 1032. Second,

the claimed penetration enhancers had an “unexpected and

unique pharmacokinetic and phamacodynamic profile.” Id.

And third, “the prior art recognize[d] the chemical and

16

physiologic/functional differences of penetration enhancers,

including the differences between oleic acid and the claimed

enhancers, such as isopropyl myristate.” App. 1037–38.

Attorneys for Unimed and Besins then met with the

examiner for an interview. The examiner opined that “claims

61-62 are . . . allowable over the prior art.” App. 1084. She also

noted that the attorneys “argued claim 47 is novel [and]

nonobvious over the prior art because the prior art does not

teach the composition with particular concentrations [of

isopropyl myristate and lauryl alcohol].” Id.

In December 2001 and February 2002, Unimed and

Besins twice more amended the patent application. They

cancelled claims 1 and 62, amended claim 47 to cover only a

composition comprising isopropyl myristate, and modified the

concentration ranges for isopropyl myristate in claim 61. With

each amendment, they sought “reconsideration and withdrawal

of the [obviousness] rejections and allowance of the[se]

claims.” App. 1095, 1129.

The examiner issued a notice of allowability. She wrote

that “[t]he claimed pharmaceutical composition consisting

essentially of the particular ingredients herein in the specific

amounts, is not seen to be taught or fairly suggested by the

prior art.” App. 1152. She clarified that she considered the

amendments “all together,” and they sufficed to “remove the

prior art rejection . . . over [Mak in view of Allen].” Id.

In January 2003, the ’894 patent issued. It expired on

August 30, 2020.

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G. AndroGel’s competitors

When Solvay brought AndroGel to market in 2000, its

only competitors were injectables and two TTRT patches (i.e.,

Testoderm and Androderm). Since then, companies have

marketed four other TTRT gels (i.e., Testim, Axiron, Fortesta,

and Vogelxo). Companies have also developed other TRTs,

including Striant (a buccal tablet applied twice daily to a

patient’s gums), Testopel (a pellet surgically inserted into a

patient’s body every three to six months), and Natesto (a nasal

spray administered three times a day).

H. The lawsuits against Teva and Perrigo

In December 2008, Perrigo filed two ANDAs for a

generic 1% testosterone gel in sachet and pump forms, and in

June 2009 it served paragraph IV notices on Unimed and

Besins. It asserted that because its gel used the penetration

enhancer isostearic acid instead of isopropyl myristate, the gel

would not literally infringe the ’894 patent. It also argued the

gel would not infringe the patent under the doctrine of

equivalents, which provides that “[t]he scope of a

patent . . . embraces all equivalents to the claims described.”

Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co. (“Festo

VIII”), 535 U.S. 722, 732 (2002). Perrigo explained the ’894

patent’s prosecution history would estop Unimed and Besins

from claiming equivalency between isostearic acid and

isopropyl myristate, because they originally claimed isostearic

acid before excluding it in response to a rejection. This

limitation on the doctrine of equivalents is known as

prosecution history estoppel. Id. at 733–34.

Solvay, Unimed, and Besins retained outside counsel to

review Perrigo’s ANDAs. In July 2009, Solvay and Unimed

18

issued a press release stating that they had carefully evaluated

the ANDAs and decided not to sue Perrigo, in part because

Perrigo’s gel “contains a different formulation than the

formulation protected by the AndroGel patent.” AbbVie, 329 F.

Supp. 3d at 111. Besins also decided not to sue.

That same year, the FDA learned that patients were

accidentally transferring TTRT gels to children through skin-

to-skin contact. AndroGel’s new owner Abbott petitioned the

FDA to require Perrigo to resubmit its 2009 ANDAs as hybrid

NDAs. See 21 C.F.R. § 10.30 (FDA citizen petition form). That

would require Perrigo to investigate whether isostearic acid

poses a higher risk of accidental transfer than isopropyl

myristate. Abbott also asked the FDA to require Perrigo to

serve new paragraph IV notices on Abbott and Besins, thereby

reopening the 45-day window for them to decide whether to

sue. The FDA granted Abbott’s petition in relevant part.

In January 2011, Teva filed a hybrid NDA for a generic

1% testosterone gel in sachet and pump forms, and in March

2011 it served paragraph IV notices on Abbott, Solvay,

Unimed, and Besins. Teva asserted its gel would not literally

infringe the ’894 patent because it used isopropyl palmitate

instead of isopropyl myristate. It also explained that the ’894

patent’s prosecution history would estop Abbott and Besins

from claiming infringement on the ground that isopropyl

palmitate is equivalent to isopropyl myristate. Abbott and

Besins retained outside counsel to review Teva’s hybrid NDA.

On April 29, 2011, Abbott, Unimed, and Besins sued

Teva for patent infringement in the United States District Court

for the District of Delaware. They argued that isopropyl

myristate and isopropyl palmitate were equivalent. The lawsuit

triggered the Hatch-Waxman Act’s automatic, 30-month stay

19

on FDA approval for Teva’s gel. Teva responded that

prosecution history estoppel applied because Unimed and

Besins’s October 2001 amendment—which narrowed the

application’s claim 1 from all penetration enhancers to a list of

24—surrendered isopropyl palmitate. Abbott, Unimed, and

Besins disagreed. They cited an exception to prosecution

history estoppel—known as “tangentiality”—that applies if

“the rationale underlying the amendment [bore] no more than

a tangential relation to the equivalent in question.” Festo VIII,

535 U.S. at 740. Abbott, Unimed, and Besins argued the

October 2001 amendment sought to overcome Mak’s use of

oleic acid and was thus tangential to isopropyl palmitate, which

Allen disclosed. The Court set trial for May 2012.

In July 2011, Perrigo filed a hybrid NDA for generic 1%

testosterone gel, and in September 2001, it served new

paragraph IV notices on Abbott, Unimed, and Besins. It again

asserted its gel would not infringe the ’894 patent. And it added

that “a lawsuit asserting the ’894 patent against Perrigo would

be objectively baseless and a sham, brought in bad faith for the

improper purpose of, inter alia, delaying Perrigo’s NDA

approval.” AbbVie, 329 F. Supp. 3d at 114. A bad faith motive

for suing would be “particularly apparent,” Perrigo said, in

light of Solvay’s July 2009 press release. Id. Abbott, Unimed,

and Besins retained outside counsel to review Perrigo’s hybrid

NDA.

In August 2011, Abbott petitioned the FDA not to grant

therapeutic equivalence ratings to hybrid NDAs referencing

AndroGel. Alternatively, it asked the FDA to assign such

products BX ratings.

On October 31, 2011, Abbott, Unimed, and Besins sued

Perrigo in the United States District Court for the District of

20

New Jersey. That lawsuit triggered the Hatch-Waxman Act’s

automatic, 30-month stay on FDA approval for Perrigo’s gel.

Four in-house patent attorneys in AbbVie’s intellectual

property group and AbbVie’s general counsel decided to sue

Teva and Perrigo. Those attorneys had “extensive experience

in patent law and with AbbVie.” See id. at 113. However, “[n]o

business persons at AbbVie were involved in the decision to

sue.” Id. As for Besins, its in-house counsel Thomas

MacAllister decided to sue. MacAllister is an experienced

intellectual property attorney and a former patent examiner.

I. The settlements with Perrigo and Teva

In December 2011, Abbott and Perrigo settled. They

agreed to dismiss all claims and counterclaims with prejudice;

Abbott agreed to pay Perrigo $2 million as reasonable litigation

expenses; and Abbott agreed to license Perrigo to market its

generic 1% testosterone gel on either January 1, 2015 or when

another generic version came to market, whichever was sooner.

(The last provision is known as an acceleration clause). Perrigo

unsuccessfully pushed for an earlier market entry date in

settlement negotiations. Its assistant general counsel Andrew

Solomon later said he predicted the acceleration clause would

provide Perrigo with an earlier entry date, because he saw “a

very good probability Teva could prevail” against Abbott and

Besins at trial in the other lawsuit. AbbVie, 329 F. Supp. 3d at

115. He also said he advised Perrigo that it had a 75 percent

chance of success, had the litigation proceeded to trial. He

explained this figure meant Perrigo felt “very, very strongly

about [its] chances for success, recognizing that there is [an]

inherent uncertainty . . . any time a case gets in front of an

arbiter.” App. 4071.

21

Abbott and Teva also settled in December 2011, soon

after the court set a trial date. Abbott agreed to license Teva to

market its generic 1% testosterone gel on December 27,

2014—almost six years before the ’894 patent expired. Teva

pushed unsuccessfully for an earlier market–entry date in

settlement negotiations.

On the same day Abbott and Teva settled the

infringement suit, they also made a deal involving a popular

brand-name cholesterol drug named TriCor. A previous

settlement between Abbott and Teva had set Teva’s entry in the

TriCor market for July 2012. And because Teva was the first

generic challenger to TriCor, Teva was entitled to 180 days of

marketing exclusivity. Teva was struggling to capitalize on the

exclusivity period, though, because it could not secure FDA

approval. In the December 2011 deal, Abbott agreed to grant

Teva a license to sell a generic version of TriCor, which Abbott

would supply to Teva at Teva’s option, for a four-year term

beginning in November 2012. This supply agreement provided

for Teva to pay Abbott the costs of production, an additional

percentage of that cost, and a royalty.

According to the FTC, the December 2011 settlement

agreement and TriCor deal were an illegal reverse payment. A

reverse payment occurs when a patentee, as plaintiff, pays an

alleged infringer, as defendant, to end a lawsuit. See

Wellbutrin, 868 F.3d at 142 n.3 (citing Actavis, 570 U.S. at

140–41). Such agreements can be anticompetitive if they allow

a brand-name company to split its monopoly profits with a

generic company in exchange for the generic agreeing to delay

market entry. As applied here, the FTC alleges Abbott

calculated that it would sacrifice about $100 million in TriCor

sales, but that was a small fraction of the billions of dollars in

AndroGel revenue it protected by deferring competition in the

22

TTRT market for three years. Deferring competition also gave

Abbott time to shift sales to Androgel 1.62%, for which there

were no generic competitors. As for Teva, it “concluded that it

would be better off by sharing in AbbVie[’s] monopoly profits

from the sale of AndroGel than by competing.” App. 4418.

Teva’s settlement triggered the acceleration clause in

Perrigo’s settlement agreement, so Perrigo’s licensed entry

date became December 27, 2014.

J. Teva and Perrigo’s generic versions of AndroGel

In February 2012, the FDA approved Teva’s hybrid

NDA for the sachet form of its generic 1% testosterone gel.

Teva withdrew the pump form from its application after the

FDA identified a safety concern with the packaging. But the

FDA allowed Teva to resubmit the pump form as a post-

approval amendment.

In January 2013, the FDA approved Perrigo’s hybrid

NDA for generic 1% testosterone gel. It then considered the

gel’s therapeutic equivalence rating. Perrigo sent the FDA three

letters to expedite the FDA’s consideration. AbbVie petitioned

the FDA to issue Perrigo’s product a BX rating.

In March 2014, Perrigo sued the FDA, accusing it of

unreasonable delay. The FDA responded that “Perrigo has

itself obviated the need for a prompt decision by reaching an

agreement with [Abbott] not to market until December 2014.”

AbbVie, 329 F. Supp. 3d at 116. It said it expected to rate

Perrigo’s gel “by July 31, 2014—some five months before

Perrigo’s planned product launch.” Id. On July 23, 2014, the

FDA issued the gel an AB rating, and Perrigo dismissed its

lawsuit against the FDA. See id. at 116, 116 n.9. Perrigo

23

brought its gel to market on December 27, 2014, its licensed

entry date.

Also on July 23, 2014, the FDA issued Teva’s gel a BX

rating. Teva never marketed the product.

II. PROCEDURAL HISTORY

The FTC sued AbbVie, Abbott, Unimed, Besins, and

Teva under Section 13(b) of the FTC Act in the United States

District Court for the Eastern District of Pennsylvania. 15

U.S.C. § 53(b). We refer to AbbVie, Abbott, Unimed, and

Solvay as “AbbVie” for simplicity.

In Count I of the complaint, the FTC alleged AbbVie

and Besins willfully maintained a monopoly through a course

of anticompetitive conduct, including sham patent litigation

against Teva and Perrigo. In Count II, the FTC alleged AbbVie

restrained trade by entering into an anticompetitive reverse-

payment agreement with Teva. The FTC requested that the

Court enjoin AbbVie and Besins “from engaging in similar and

related conduct in the future,” and that the Court “grant such

other equitable [monetary] relief as [it] finds necessary,

including restitution or disgorgement.” App. 4454.

AbbVie and Besins moved to dismiss “Count I to the

extent it [wa]s premised on the” alleged reverse payments,

under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

Dkt. 2:14-cv-05151, ECF No. 38 at 1. AbbVie also moved to

dismiss Count II in its entirety, as it was based only on the

reverse-payment theory. The District Court granted both

motions.

24

The FTC moved for reconsideration after our decision

in King Drug Co. of Florence, Inc. v. SmithKline Beecham

Corp., 791 F.3d 388 (3d Cir. 2015). But the District Court

distinguished King Drug and denied the motion.

The FTC then moved for partial summary judgment on

the sham-litigation theory supporting Count I. AbbVie and

Besins sought summary judgment as well.

The sham-litigation theory required the FTC to prove

(1) that AbbVie had monopoly power in the relevant market

and (2) that AbbVie willfully acquired or maintained that

power through sham litigation. See Mylan, 838 F.3d at 433.

Sham litigation has two prongs. “First, the lawsuit must be

objectively baseless in the sense that no reasonable litigant

could realistically expect success on the merits.” Prof’l Real

Estate Invs., Inc. v. Columbia Pictures Indus., Inc. (“PRE”),

508 U.S. 49, 60 (1993). And second, the lawsuit must conceal

an attempt to interfere directly with the business relationships

of a competitor through the use of the governmental process as

an anticompetitive weapon. See id. at 60–61. The FTC sought

summary judgment only on the objective baselessness prong.

The District Court granted the FTC partial summary

judgment and denied AbbVie and Besins’s motions. The Court

held a sixteen-day bench trial on sham litigation’s subjective

prong and monopoly power, and it found for the FTC on both.

See AbbVie, 329 F. Supp. 3d at 146. The Court awarded

“equitable monetary relief in favor of the FTC and against

[AbbVie and Besins] in the amount of $448 million, which

represent[ed] disgorgement of [their] ill-gotten profits.” Id. It

25

declined to enter an injunction. The FTC, AbbVie, and Besins

now appeal.

The FTC argues the District Court erred in dismissing

its claims to the extent they relied on a reverse-payment theory;

abused its discretion in calculating the amount of

disgorgement; and abused its discretion in denying the FTC

injunctive relief.

AbbVie and Besins argue the District Court erred in

concluding the infringement suits against Teva and Perrigo met

either prong of the sham-litigation standard, and that AbbVie

had monopoly power in the relevant market. They also argue

the Court erred in ordering disgorgement because Section

13(b) of the FTC Act does not authorize disgorgement, the

disgorgement is a penalty rather than an equitable remedy, and

the FTC failed to prove statutory preconditions for injunctive

relief. Finally, they argue the Court abused its discretion in

calculating the amount of disgorgement

III. JURISDICTION

The District Court had jurisdiction under 28 U.S.C.

§ 1331. The parties to this appeal agree that we have

jurisdiction. Yet we have a “continuing obligation to . . . raise

the issue of subject matter jurisdiction if it is in question.”

Bracken v. Matgouranis, 296 F.3d 160, 162 (3d Cir. 2002)

(citations omitted).

Our jurisdiction under 28 U.S.C. § 1291 extends to

“appeals from all final decisions of the district courts of the

United States.” But there is an exception. The United States

Court of Appeals for the Federal Circuit has “exclusive

jurisdiction . . . of an appeal from a final decision of a district

26

court of the United States . . . in any civil action arising

under . . . any Act of Congress relating to patents.” 28 U.S.C.

§ 1295(a)(1) (emphasis added).

A civil action “aris[es] under” federal patent law if “a

well-pleaded complaint” shows either that “federal patent law

creates the cause of action,” or “the plaintiff’s right to relief

necessarily depends on resolution of a substantial question of

federal patent law, in that patent law is a necessary element of

one of the well-pleaded claims.” Christianson v. Colt Indus.

Operating Corp., 486 U.S. 800, 809 (1988) (emphasis added).

In this appeal, the former basis for the Federal Circuit’s

jurisdiction does not apply because “[f]ederal . . . antitrust law,

not federal patent law, creates [the FTC’s] claims.” In re Lipitor

Antitrust Litig., 855 F.3d 126, 145 (3d Cir. 2017) (emphasis

omitted). So “[t]his case . . . turns on the [latter basis]” for the

Federal Circuit’s exclusive jurisdiction. Id.

The latter basis applies only if two requirements are

met. First, federal patent law must be a “necessary” element of

one of the plaintiff’s well-pleaded claims. Here, the word

“necessary” takes its strict, logical meaning: “a claim

supported by alternative theories in the complaint may not

form the basis for [the Federal Circuit’s exclusive jurisdiction]

unless patent law is essential to each of those theories.”

Christianson, 486 U.S. at 810 (emphasis added). And the

patent-law issues must be “substantial.” Id. at 809.

The Supreme Court has yet to interpret the

substantiality requirement in a case involving 28 U.S.C.

§ 1295(a)(1) in its current form. But it has addressed the

requirement in cases involving 28 U.S.C. § 1338(a), which is

analogous because it gives district courts exclusive jurisdiction

over “any civil action arising under any Act of Congress

27

relating to patents.” (emphasis added). In Gunn v. Minton, 568

U.S. 251 (2013), the Court held a state legal malpractice claim

arising out of a patent infringement proceeding did not present

a “substantial” federal issue vesting federal district courts with

exclusive jurisdiction. Id. at 261. The Court first clarified that

whether a question is “substantial” turns not on the

“importance of the issue to the plaintiff’s case and to the

parties,” but instead on “the importance of the issue to the

federal system as a whole.” Id. at 260. Applying that standard,

it emphasized that because the legal malpractice claim was

“backward-looking” and the issue it raised was “hypothetical,”

the state court could not change the patent’s invalidity as

determined by the prior federal patent litigation. Id. at 261. Nor

could the state court undermine the uniformity of federal patent

law going forward, because federal courts “are of course not

bound by state court . . . patent rulings” and “state courts can

be expected to hew closely to the pertinent federal precedents.”

Id. at 261–62 (citations omitted). Moreover, any preclusive

effect the state court’s ruling might have “would be limited to

the parties and patents that had been before the state court.” Id.

at 263. Finally, the mere possibility that the state court might

misunderstand patent law and incorrectly resolve a state claim

was not “enough to trigger the federal courts’ exclusive patent

jurisdiction.” Id.

This appeal meets neither of the requirements for the

latter basis of the Federal Circuit’s exclusive jurisdiction. Thus,

the Federal Circuit does not have exclusive jurisdiction here.

First, federal patent law is not a “necessary” element of one of

the FTC’s well-pleaded claims. In its complaint, the FTC

“challenges a course of anticompetitive conduct,” which the

complaint defines to include AbbVie and Besins’s “sham

patent infringement litigation” and “[AbbVie’s] . . . illegal

28

[reverse-payment] agreement.” App. 4416. The complaint then

asserts two counts. Count II (Restraint of Trade) claims AbbVie

violated federal antitrust law by entering into an

anticompetitive reverse-payment agreement with Teva. App.

4453–54. We have held that “reverse-payment antitrust claims

do not present a question of patent law.” Lipitor, 855 F.3d at

146 (citing Actavis, 570 U.S. at 158 (“[T]he size of the

unexplained reverse payment can provide a workable surrogate

for a patent’s weakness, all without forcing a court to conduct

a detailed exploration of the validity of the patent itself.”)

(citation omitted)). Thus, patent law is not a necessary element

of Count II.

The same reasoning applies to Count I

(Monopolization). It first “reallege[s] and incorporate[s] by

reference” all of the complaint’s allegations. App. 4453. It then

asserts that AbbVie and Besins willfully maintained a

monopoly “through a course of anticompetitive conduct,

including filing sham patent litigation against Teva and

Perrigo.” Id. By its terms, Count I challenges a “course of

anticompetitive conduct,” which the complaint earlier defines

to include not only sham litigation, but also the reverse-

payment agreement. Because reverse-payment theories do not

present a question of patent law, patent law is not a necessary

element of Count I either.

Our reasoning is consistent with the Supreme Court’s

decision in Christianson and our decision in Lipitor. In both

cases, the presence of “non-patent-law theories of liability

supporting the . . . plaintiffs’ monopolization claims vest[ed]

jurisdiction over their appeals” in the regional circuit, “not the

29

Federal Circuit.” Lipitor, 855 F.3d at 146 (citing Christianson,

486 U.S. at 812).

The parties’ conduct before the District Court also

supports our interpretation. AbbVie and Besins moved to

dismiss “Count I to the extent it [wa]s premised on the” alleged

reverse payments. Dkt. 2:14-cv-05151, ECF No. 38 at 1. The

District Court granted that motion. Because Count I is

premised, at least in part, on this non-patent-law theory, the

Federal Circuit does not have exclusive jurisdiction over this

action.

It is true that the FTC pleads in Count I that the course

of conduct “includ[es]” sham patent litigation. App. 4453. And

a sham-litigation theory does present patent-law questions

because it requires us to review the objective reasonableness of

AbbVie and Besins’s patent-infringement litigation against

Teva and Perrigo. See PRE, 508 U.S. at 60. But that fact does

not undermine our jurisdiction because the sham-litigation

theory is one of two theories supporting Count I. And the other

theory—the reverse-payment theory—does not present a

question of patent law. See Christianson, 486 U.S. at 810.

We also note that the FTC has not contended that Besins

and Teva entered into an independent reverse-payment

agreement. Thus, it might be argued the FTC’s right to relief as

against Besins necessarily depends on resolution of patent-law

questions.1 We disagree because the FTC’s complaint may be

read to allege that Besins participated in AbbVie’s settlement

with Teva. The complaint notes “[t]he sham lawsuits did not

1

Judge Phipps would have accepted this argument and

held we have jurisdiction because the patent-law issues the

FTC’s sham-litigation theory presents are not substantial.

30

eliminate the threat of Teva’s and Perrigo’s products to AbbVie

Defendants and Besins’s monopoly.” App. 4441. It then asserts

“AbbVie . . . and Besins . . . turned to other ways to preserve

their monopoly,” including AbbVie’s settlement with Teva.

App. 4442. As mentioned above, the parties’ conduct before

the District Court supports our reading because both AbbVie

and Besins moved to dismiss “Count I to the extent it [wa]s

premised on the” alleged reverse payments.

Thus, patent law is not a “necessary” element of one of

the FTC’s well-pleaded claims, so the latter basis for the

Federal Circuit’s exclusive jurisdiction does not apply.

Second, the patent-law issues that the FTC’s sham-

litigation theory presents are not “substantial,” in the sense that

they are important to the “federal system as a whole.” Gunn,

568 U.S. at 260. So even if federal patent law were a

“necessary” element of one of the FTC’s well-pleaded claims,

the latter basis for the Federal Circuit’s exclusive jurisdiction

still would not apply. Like the state legal malpractice claim in

Gunn, the sham-litigation theory here is purely backward

looking: just as the state court’s adjudication of the legal

malpractice claim could not change the result of the prior

federal patent litigation, our adjudication of the FTC’s sham-

litigation theory cannot change the settlement that resulted

from AbbVie and Besins’s infringement suits against Teva and

Perrigo. See id. at 261.2

Nor would adjudicating the sham-litigation theory

undermine the uniformity of federal patent law. See id. at 261–

2

It might be argued the patent-law issues Gunn

presented are less substantial than the ones we face here

because the patent litigation in Gunn led to the patent’s

31

62. The reasons for this are general and case specific.

Generally, much like the state court’s decision in Gunn could

not bind federal courts, the parts of our decision in this appeal

that interpret patent law cannot bind the Federal Circuit or

district courts outside the Third Circuit. See id. And like the

state court in Gunn, we must hew closely to the Federal

Circuit’s precedents. See id. If the patent-law issues we decide

arise frequently, they “will soon be resolved within [the Federal

Circuit], laying to rest any contrary . . . precedent.” Id. at 262.

Otherwise, they are “unlikely to implicate substantial federal

interests.” Id.

There are two additional, case-specific reasons that

adjudicating the sham-litigation theory would not undermine

the uniformity of federal patent law. First, litigation is a sham

only if it is objectively baseless, meaning “no reasonable

litigant could realistically expect success on the merits.” PRE,

508 U.S. at 60. Our application of this standard poses no threat

to the uniformity of federal patent law. Consider our choices in

this appeal: AbbVie and Besins’s lawsuits were or were not

shams. If the former, it must be true that the patent law we

apply is so clear that AbbVie and Besins were unreasonable in

suing Teva or Perrigo for infringement and expecting to

invalidation, see id. at 255, whereas the ’894 patent has not

been invalidated. Indeed, while the ’894 patent expired on

August 30, 2020, AbbVie and Besins may sue for infringement

for up to six years after that date. See 35 U.S.C. § 286. We think

this distinction is immaterial under Gunn, which emphasized

that state-court adjudication of the legal malpractice claim

would not change the result of the prior federal patent

litigation, rather than emphasizing the result itself. See 568

U.S. at 261.

32

succeed. Such a holding would effectively adjudicate the

merits of an infringement claim but at no cost to uniformity.

And the latter holding would mean only that AbbVie and

Besins were not unreasonable in expecting success in their

infringement suits. That conclusion would not undermine

uniformity because it would not adjudicate the merits of the

infringement claims.

Moreover, whether AbbVie and Besins’s infringement

lawsuits were shams depends on whether the tangentiality

exception to prosecution history estoppel applies. But the

Federal Circuit has cautioned against applying analogical

reasoning in determining tangentiality. See Eli Lilly & Co. v.

Hospira, Inc., 933 F.3d 1320, 1332 n.5 (Fed. Cir. 2019) (“[W]e

find the analogies to other cases less helpful than a direct

consideration of the specific record of this case and what it

shows about the reason for amendment and the relation of that

reason to the asserted equivalent.”). Because the Federal

Circuit limits reliance on its own precedents in determining

tangentiality, it follows that our decision in this appeal will

have limited effect on the uniformity of patent law. Even

setting Eli Lilly aside, however, the rarity of the patent-law

issues these appeals present counsels in favor of our

jurisdiction: the issues are not ones whose resolution will

control numerous other cases. See Gunn, 568 U.S. at 262

(quoting Empire Healthchoice Assurance, Inc. v. McVeigh, 547

U.S. 677, 700 (2006)).

Finally, here, as in Gunn, the preclusive effect of our

ruling “would be limited to the parties and patents” before us.

See 568 U.S. at 263. And the mere possibility that we might

misunderstand patent law is not dispositive. See id. So the

patent-law issues that the FTC’s sham-litigation theory

presents are not “substantial.” Even if federal patent law were

33

a “necessary” element of one of the FTC’s well-pleaded

claims, the latter basis for the Federal Circuit’s exclusive

jurisdiction still would not apply.

Before concluding, we note a prudential consideration

supporting our jurisdiction: “[u]nder the Federal Circuit’s

choice-of-law rules, it would apply Third Circuit antitrust

jurisprudence . . . when reviewing whether [the FTC] states[s

a] plausible claim[] for relief under” a reverse-payment theory.

Lipitor, 855 F.3d at 148 (citing Nobelpharma AB v. Implant

Innovations, Inc., 141 F.3d 1059, 1068 (Fed. Cir. 1998) (the

Federal Circuit “appl[ies] the law of the appropriate regional

circuit to issues involving other elements of antitrust law such

as relevant market, market power, damages, etc., as those

issues are not unique to patent law”)). The Federal Circuit

would also apply our precedent when reviewing the District

Court’s judgment on the sham-litigation theory, except when

the judgment raised issues unique to patent law. See id.

Needless to say, we are as capable of applying our own law as

the Federal Circuit. And it makes eminent sense for this Court

to develop our own law in this area.

In summary, neither basis for the Federal Circuit’s

exclusive jurisdiction applies: federal patent law does not

create the FTC’s cause of action, and the FTC’s right to relief

does not necessarily depend on resolution of a substantial

question of federal patent law. So this civil action does not

“aris[e] under” federal patent law within the meaning of 28

U.S.C. § 1295(a)(1). We have jurisdiction under 28 U.S.C.

§ 1291.

34

IV. LIABILITY

Having assured ourselves of our jurisdiction, we turn to

the merits of these cross-appeals. We hold the District Court

erred by rejecting the reverse-payment theory and in

concluding AbbVie and Besins’s litigation against Teva was a

sham. The Court did not err, however, in concluding the

Perrigo litigation was a sham and that AbbVie and Besins had

monopoly power in the relevant market.

A. The District Court erred by rejecting the

reverse-payment theory.

We review the District Court’s dismissal order de novo.

Phillips v. Cnty. of Allegheny, 515 F.3d 224, 230 (3d Cir. 2008)

(citation omitted). We must “accept all factual allegations as

true, construe the complaint in the light most favorable to the

plaintiff, and determine whether, under any reasonable reading

of the complaint, the plaintiff may be entitled to relief.” Id. at

231 (internal citation and quotation marks omitted). A plaintiff

relying on a reverse-payment theory must “allege facts

sufficient to support the legal conclusion that the settlement at

issue involves a large and unjustified reverse payment under

Actavis.” In re Lipitor Antitrust Litig., 868 F.3d 231, 252 (3d

Cir. 2017) (citation omitted).

1. Actavis

A reverse payment occurs when a patentee pays an

alleged infringer to end a lawsuit. See Wellbutrin, 868 F.3d at

142 n.3 (citing Actavis, 570 U.S. at 140–41). A typical reverse

payment happens this way: “Company A sues Company B for

patent infringement. The two companies settle under terms that

require (1) Company B, the claimed infringer, not to produce

35

the patented product until the patent’s term expires, and (2)

Company A, the patentee, to pay B many millions of dollars.”

Actavis, 570 U.S. at 140.

Reverse payments can be anticompetitive in violation of

the antitrust laws. Absent the reverse payment in the previous

example, Company B might have prevailed by proving

Company A’s patent invalid. Even if the patent were valid,

Company B might prevail by showing it did not infringe. In

either case, generic drugs would have entered the market

before Company A’s patent was set to expire, and consumers

would have benefited from lower drug prices.

In Actavis, the Supreme Court held reverse payments

“can sometimes unreasonably diminish competition in

violation of the antitrust laws.” Id. at 141. That case, like this

one, involved AndroGel. See id. at 144. Solvay sued Actavis,

Inc., a company seeking to market a generic version of the gel.

See id. at 145. Solvay and Actavis settled under the following

terms: (1) “Actavis agreed that it would not bring its generic to

market until . . . 65 months before Solvay’s patent expired

(unless someone else marketed a generic sooner)”; (2)

“Actavis also agreed to promote AndroGel to urologists”; and

(3) “Solvay agreed to pay . . . an estimated $19–$30 million

annually, for nine years, to Actavis.” Id. “The companies

described these payments as compensation for other services

[Actavis] promised to perform.” Id. at 145. The FTC was

unpersuaded. It sued Solvay and Actavis, contending the

services had little value and the payments actually

compensated the generics for delaying their market entry. See

id.

The district court dismissed the FTC’s complaint, and

the United States Court of Appeals for the Eleventh Circuit

36

affirmed. See id. at 145–46. Both courts applied the “scope of

the patent” test, which provides that “absent sham litigation or

fraud in obtaining the patent, a reverse payment settlement is

immune from antitrust attack so long as its anticompetitive

effects fall within the scope of the exclusionary potential of the

patent.” Id. at 146 (citation omitted). This “categorical

rule . . . relied on the premise that, because a patentee

possesses a lawful right to keep others out of its market, the

patentee may also enter into settlement agreements excluding

potential patent challengers from entering that market.”

Lipitor, 868 F.3d at 250 (citing Actavis, 570 U.S. at 146). The

Eleventh Circuit was also concerned that antitrust review of

reverse payments would undermine the general policy in favor

of settlements and “require the parties to litigate the validity of

the patent in order to demonstrate what would have happened

to competition in the absence of the settlement.” Actavis, 570

U.S. at 153.

The Supreme Court reversed. It first rejected the scope

of the patent test. The infringement suit Solvay and Actavis

settled “put the patent’s validity at issue, as well as its actual

preclusive scope.” Actavis, 570 U.S. at 147. And the parties’

settlement was both “unusual” and potentially anticompetitive,

because the FTC alleged Solvay “agreed to pay [Actavis] many

millions of dollars to stay out of its market, even though

[Actavis] did not have any claim that [Solvay] was

liable . . . for damages.” Id. at 147–48. These factors persuaded

the Court it would be “incongruous to determine antitrust

legality by measuring the settlement’s anticompetitive effects

solely against patent law policy, rather than measuring them

against procompetitive antitrust policies as well.” Id. at 148.

The Court then held that for five reasons, the district

court erred by dismissing the FTC’s complaint. See id. at 153.

37

First, reverse payments can be anticompetitive because they

allow a brand-name company to split its monopoly profits with

a generic company willing to delay market entry. See id. at

153–56. Second, reverse payments’ “anticompetitive

consequences will at least sometimes prove unjustified.” Id. at

156. A defendant might show that “traditional settlement

considerations, such as avoided litigation costs or fair value for

services” justified the reverse payment. Id. Alternatively,

antitrust review could reveal “a patentee is using its monopoly

profits to avoid the risk of patent invalidation or a finding of

noninfringement,” in which case the payment is not justified.

Id. Third and fourth, the “size of [an] unexplained reverse

payment can provide a workable surrogate for a patent’s

weakness” and a patentee’s market power, “all without forcing

a court to conduct a detailed exploration of the patent itself.”

Id. at 157–58 (citation omitted). Fifth, subjecting reverse

payments to antitrust review does not violate the general legal

policy in favor of settlements, because companies can settle in

other ways. See id. at 158. For example, a brand-name

company may “allow[] the generic manufacturer to enter the

patentee’s market prior to the patent’s expiration, without the

patentee paying the challenger to stay out prior to that point.”

Id. Thus, the Court concluded, “a reverse payment, where large

and unjustified,” can violate the antitrust laws. Id. at 158–60

(emphasis added).

2. King Drug and Lipitor

Since the Supreme Court decided Actavis, we have

applied its teachings on three occasions. See King Drug, 791

F.3d at 393; Lipitor, 868 F.3d at 239; Wellbutrin, 868 F.3d at

158. The parties to this appeal rely on King Drug and Lipitor.

38

In King Drug, we reinstated a complaint challenging a

settlement agreement in which the alleged reverse payment

took a form other than cash. See 791 F.3d at 393. There, direct

purchasers of the brand-name drug Lamictal sued its producer

(GlaxoSmithKline (GSK)) and generic applicant (Teva) over

their settlement of Teva’s challenge to the validity and

enforceability of GSK’s patents on Lamictal’s active

ingredient (lamotrigine). See id. Teva agreed to “end its

challenge to GSK’s patent in exchange for early entry into the

$50 million annual lamotrigine chewables market and GSK’s

commitment not to produce its own, ‘authorized generic’

version of Lamictal tablets for the market alleged to be worth

$2 billion annually.” Id. at 393–94. The purchasers claimed this

“no-AG agreement” was a reverse payment under Actavis

because it “was designed to induce Teva to abandon the patent

fight and thereby agree to eliminate the risk of competition in

the $2 billion lamotrigine tablet market.” Id. at 394.

Reversing the district court, we held the no-AG

agreement was actionable under Actavis. See id. The district

court had reasoned that “when the Supreme Court said

‘payment’ it meant a payment of money.” Id. at 405 (quotation

marks and citation omitted). We doubted “the Court intended

to draw such a formal line.” Id. at 405–06. We explained that

even though GSK did not pay Teva cash under the agreement,

it was “likely to present the same types of problems as reverse

payments of cash.” Id. at 404. The no-AG agreement could

have been worth millions of dollars, if not hundreds of millions

of dollars, to Teva. See id. Conversely, GSK’s commitment not

to produce an authorized generic transferred to Teva “the

profits [GSK] would have made from its authorized generic.”

Id. at 405. Thus, the agreement may have been “something

39

more than just an agreed-upon early entry”—it may have been

“pay-for-delay.” Id.

We also rejected the defendants’ counterargument that

the purchasers’ “allegations [were] far too speculative to satisfy

their burden of plausibly alleging that the settlement was

anticompetitive.” Id. at 409 (quotations and citation omitted).

Specifically, the defendants argued the purchasers needed to

plead that without the reverse payment: GSK and Teva would

have negotiated an alternative, more competitive agreement;

continued litigation ending in settlement would have yielded a

more competitive result; and Teva would have launched its

generics. See id.

We held the purchasers stated a claim. They alleged:

GSK agreed not to launch an authorized generic during Teva’s

180-day exclusivity period; the agreement was worth “many

millions of dollars of additional revenue”; GSK would

otherwise be incentivized to launch an authorized generic;

Teva likely would have launched alongside GSK; and GSK’s

patent was likely to be invalidated. See id. at 409–10. “And

although [the purchasers] concede[d] that Teva entered the

lamotrigine chewables market about 37 months early . . . the

chewables market, allegedly worth only $50 million annually,

was orders of magnitude smaller than the alleged $2 billion

tablet market the agreement [was] said to have protected.” Id.

at 410. Because the purchasers had plausibly alleged that “any

procompetitive aspects of the chewables arrangement were

outweighed by the anticompetitive harm from the no-AG

agreement,” they were entitled to discovery. Id.

We also rejected the district court’s alternative holding

that “the settlement . . . would survive Actavis scrutiny and

[was] reasonable.” Id. at 410–11. The purchasers were entitled

40

to discovery because they plausibly alleged the settlement was

anticompetitive. See id. at 411. And “[i]f genuine issues of

material fact remain[ed] after discovery, the rule-of-reason

analysis [would be] for the finder of fact, not the court as a

matter of law.” Id.

Next, in Lipitor, we addressed consolidated appeals

concerning two drugs: Lipitor and Effexor XR. See 868 F.3d

at 239. In the Lipitor litigation, we reinstated a complaint

alleging a generic applicant delayed entry into the market in

exchange for the brand-name producer settling a damages

claim for much less than the claim was really worth. See id. at

253–54. There, the plaintiffs were a putative class of direct

purchasers, a putative class of end payors, and several

individual retailers. See id. at 241. They sued Lipitor’s brand-

name producer (Pfizer Inc.) and its generic applicant (Ranbaxy

Inc.) over a “near-global” litigation settlement addressing

“scores of patent litigations [between Pfizer and Ranbaxy]

around the world.” Id. at 244. One part of that settlement

resolved Ranbaxy’s challenge to the validity and enforceability

of Pfizer’s patents on Lipitor. See id. at 242. It provided

Ranbaxy would delay its entry, “thus extending Pfizer’s

exclusivity in the Lipitor market” past the expiration of its

patents. Id. at 244–45. Another part of the settlement resolved

Pfizer’s claim against Ranbaxy for allegedly infringing

Pfizer’s patents on Accupril, a different drug. Id. at 243–44.

Before settling, Pfizer had reason to believe its claim was

worth hundreds of millions of dollars: Accupril’s annual sales

were “over $500 million”; Ranbaxy’s generic entry

“decimated” those sales; Pfizer sought treble damages for

willful infringement; and the district court granted Pfizer a

preliminary injunction and Pfizer posted a $200 million bond.

Id. Pfizer had also “expressed confidence that it would succeed

41

in obtaining a substantial monetary judgment from Ranbaxy.”

Id. at 244. Nevertheless, Pfizer agreed to settle this claim for a

mere $1 million. See id.

Reversing the district court, we held these two,

otherwise-unrelated parts of the global settlement agreement

were actionable under Actavis. See id. at 248, 253. The court

had required the plaintiffs to plead a “reliable” monetary

estimate of the dropped Accupril claims so it could determine

whether the reverse payment was large and unjustified. See id.

at 254. We rejected that requirement, explaining it “heightened

[the] pleading standard contrary to Bell Atlantic v. Twombly,

[550 U.S. 544 (2007)], and Ashcroft v. Iqbal, [556 U.S. 662

(2009)].” Id. Moreover, we said neither Actavis nor King Drug

“demanded [that] level of detail.” Id. at 254.

In fact, the plaintiffs’ allegations “easily match[ed], if

not exceed[ed], the level of specificity and detail of those in

Actavis and King Drug.” Id. at 253, 255. As relevant here, the

plaintiffs alleged:

Ranbaxy launched a generic version of Pfizer’s

brand drug Accupril “at risk” [of

infringement] . . . ; Pfizer had annual Accupril

sales over $500 million prior to Ranbaxy’s

launch . . . ; Pfizer brought suit and sought to

enjoin Ranbaxy’s generic sales . . . ; the District

Court granted the injunction halting Ranbaxy’s

sales of generic Accupril, which the Federal

Circuit affirmed . . . ; Pfizer posted ‘a $200

million bond in conjunction with’ the injunction

and informed the Court that Ranbaxy’s generic

sales ‘decimated’ its Accupril sales . . . ; Pfizer’s

suit was likely to be successful . . . ; and Pfizer

42

itself made statements about Ranbaxy’s

exposure . . . .

Id. at 253. The plaintiffs also alleged the release of the Accupril

claims was unjustified because the “potential liability in

Accupril ‘far exceeded’ any of Pfizer’s saved litigation costs or

any services provided by Ranbaxy.” Id. Thus, we held the

plaintiffs “sufficiently allege[d] that Pfizer agreed to release

the Accupril claims against Ranbaxy, which were likely to

succeed and worth hundreds of millions of dollars, in exchange

for Ranbaxy’s delay in the release of its generic version of

Lipitor.” Id.

The defendants countered that the plaintiffs did not

address other parts of the global litigation settlement that might

well have justified the alleged reverse payment. But because

the defendants had the burden of justifying a reverse payment,

Actavis did not “require antitrust plaintiffs to come up with

possible explanations for the reverse payment and then rebut

those explanations.” Id. at 256. The defendants also countered

that because Ranbaxy paid Pfizer $1 million, it was a

commonplace settlement to which Actavis does not apply. Id.

at 257. We said this argument “[could not] be squared with

Actavis” because “[i]f parties could shield their settlements

from antitrust review by simply including a token payment by

the purportedly infringing generic manufacturer, then

otherwise unlawful reverse payment settlement agreements

attempting to eliminate the risk of competition would escape

review.” Id. at 258.

Similarly, in the Effexor XR litigation, we reinstated a

complaint alleging a generic applicant delayed entry into the

Effexor market in exchange for the brand-name producer’s

agreement not to market an authorized generic—even though

43

the generic agreed to pay some royalties to the brand. See id.

at 254, 247. There, the plaintiffs were a putative class of end

payors, two third-party payors, and several retailers. See id. at

246. They sued Effexor’s generic applicant (Teva) and brand-

name producer (Wyeth, Inc.) over their settlement of Teva’s

challenge to the validity and enforceability of Wyeth’s patents

on Effexor. See id. at 247. Under the settlement, Teva and

Wyeth agreed to vacate a district court ruling construing the

patent claims unfavorably to Wyeth. See id. They further

agreed that Teva could market the extended-release version of

its generic nearly seven years before Wyeth’s patent expired,

and its instant-release version at some point before the patent

expired. See id. In exchange, Wyeth agreed it would not market

authorized generics during Teva’s 180-day exclusivity period.

See id. In return, Teva agreed to pay Wyeth royalties. See id.

Reversing the district court, we held the no-AG

agreement was actionable under Actavis. Given the similarities

between King Drug and the Effexor litigation, we will not

repeat the Effexor plaintiffs’ allegations here. See id. at 258–

59. We mention the Effexor litigation only to highlight two

counterarguments the defendants made. First, the defendants

argued “the reverse payment was not large because the

complaints failed to sufficiently allege that Wyeth would have

released an authorized generic but for its settlement agreement

with Teva.” Id. They explained that “Wyeth has rarely

introduced authorized generics in response to the entry of a

generic into one of their branded drugs’ markets.” Id. at 260.

We rejected this argument because the mere fact that “Wyeth

does not typically introduce authorized generics into the

market” did not “render[] [the plaintiffs’] allegations about the

value of the no-AG agreement implausible.” Id. at 260–61.

Second, the defendants argued the royalties Teva agreed to pay

44

Wyeth justified the reverse payment. See id. We responded that

“[a]lthough the royalty licensing provisions will perhaps be a

valid defense, they require factual assessments, economic

calculations, and expert analysis that are inappropriate at the

pleading stage.” Id. at 261. In sum, we said, “Effexor plaintiffs

need not have valued the no-AG agreement beyond their

allegations summarized above . . . Nor were they required to

counter potential defenses at the pleading stage.” Id. at 262

(citation omitted).

3. Application

Two principles emerge from King Drug and Lipitor.

First, a reverse payment’s legality depends mainly on its

economic substance, not its form. The alleged reverse payment

in Actavis was made in cash. Yet the alleged reverse payments

in King Drug and Lipitor included two no-AG agreements and

the settlement of a valuable damages claim. The reverse

payment in Actavis was part of a single settlement agreement

addressing one drug (AndroGel). Yet the reverse payment in

the Lipitor litigation spanned two parts of a “near-global”

litigation settlement addressing two different drugs (Lipitor

and Accupril); and in King Drug, the challenged settlement

addressed a drug in two different forms (chewable and tablet).

Finally, the settlement in Actavis did not provide for cash to

flow from the generic entrant to the brand-name producer. Yet

the settlements in Lipitor provided for Ranbaxy to pay Pfizer

$1 million and for Teva to pay Wyeth royalties.

However meaningful these formalisms may be in other

areas of the law, they are disfavored in antitrust. The purpose

of antitrust law is “to protect consumers from arrangements

that prevent competition in the marketplace.” King Drug, 791

F.3d at 406 (citations omitted). Because of that unique purpose,

45

“economic realities rather than a formalistic approach must

govern.” United States v. Dentsply, Inc., 399 F.3d 181, 189 (3d

Cir. 2005). Accordingly, in King Drug and Lipitor, we read

Actavis practically; we read it to apply to potentially

anticompetitive reverse payments regardless of their form.

The second principle emerging from King Drug and

Lipitor is that the law of pleading applies to reverse-payment

theories. To survive a motion to dismiss, a plaintiff must

“allege facts sufficient to support the legal conclusion that the

settlement at issue involves a large and unjustified reverse

payment under Actavis.” Lipitor, 868 F.3d at 252 (citation

omitted). A plaintiff can meet this pleading standard without

describing in perfect detail the world without the reverse

payment, calculating reliably the payment’s exact size, or pre-

empting every possible explanation for it. Moreover, a district

court must accept a plaintiff’s well-pleaded allegations as true.

If a plaintiff plausibly alleges that an agreement’s

anticompetitive effects outweigh its procompetitive virtues,

the district court must accept that allegation and allow the

plaintiff to take discovery. If genuine issues of material fact

remain, the rule-of-reason analysis is for the factfinder, not the

court.

Applying these precedents here, the District Court erred

by dismissing the FTC’s claims to the extent they relied on a

reverse payment theory. The FTC plausibly alleged an

anticompetitive reverse payment. It alleged AbbVie and Besins

filed sham lawsuits against Teva and Perrigo in order to trigger

the automatic, 30-month stay of FDA approval on its generic

version of AndroGel. App. 4440 ¶ 99. But those suits “did not

eliminate the threat of Teva’s . . . products to [AbbVie] and

Besins’s monopoly,” because AbbVie and Teva both expected

Teva would win the infringement suit against it and would

46

introduce its generic in 2012—before 30 months had passed.

App. 4441 ¶¶ 107–09. So “[AbbVie] and Besins . . . turned to

other ways to preserve their monopoly.” App. 4442 ¶ 111.

Specifically, AbbVie “approached Teva to discuss a potential

settlement” that would give “[AbbVie] time to shift sales to its

reformulated product, AndroGel 1.62%.” Id. ¶ 112. Teva

agreed to “drop its patent challenge and refrain from competing

with [AndroGel] until December 2014.” App. 4443 ¶ 115. In

exchange, it asked AbbVie to sell it a “supply of . . . TriCor.”

Id. ¶ 113. AbbVie agreed. It authorized Teva to sell a generic

version of TriCor, which AbbVie would supply to Teva at

Teva’s option, for a four-year term beginning in November

2012. Id. ¶ 117. The supply agreement provided for Teva to

pay AbbVie the costs of production, an additional percentage

of that cost, and a royalty. See id.

The payment was plausibly “large.” The FTC alleges

the supply of TriCor was “extremely valuable” to Teva. App.

4444 ¶ 120. A previous settlement between AbbVie and Teva

had set Teva’s entry in the TriCor market for July 2012. App.

4442 ¶ 114. And because Teva was the first generic challenger

to TriCor, Teva was entitled to 180 days of marketing

exclusivity. See id. Teva was struggling to capitalize on the

exclusivity period, though, because it could not secure FDA

approval for its generic drug. See id. The TriCor deal enabled

Teva “to secure generic TriCor revenues in 2012 and its first

mover advantage.” App. 4444–45 ¶¶ 121, 124. Teva expected

its “net sales of authorized generic TriCor sales would be

nearly $175 million over a four-year period.” App. 4444 ¶ 120.

In fact, Teva’s actual sales were much higher. Id. They “far

exceed[ed]” the litigation costs that AbbVie, Besins, or Teva

saved by settling. App. 4445 ¶ 122. And they exceeded what

Teva had projected it was likely to earn by winning the

47

infringement suit and marketing its generic version of

AndroGel. Id. ¶ 123.

The payment was also plausibly “unjustified.” The FTC

alleges the TriCor deal “cannot be explained as an independent

business deal from Abbott’s perspective.” App. 4445 ¶ 125.

AbbVie “had no incentive to increase . . . generic competition

from Teva on another of its blockbuster products.” App. 4443

¶ 115. And the TriCor deal was “highly unusual” in other

respects. App. 4445 ¶ 126. For example, it did not condition

Teva’s launch on the launch of an independent generic. App.

4445–46 ¶ 126. It actually accelerated generic entry, because

“Teva’s launch triggered provisions in [AbbVie’s] agreements

with other generic TriCor ANDA filers allowing them to

launch their own generic[ versions].” App. 4446–47 ¶ 129.

Moreover, the royalty terms were “significantly worse for

[AbbVie]” than is usual in authorized-generic agreements,

including contemporaneous agreements that AbbVie entered.

App. 4447 ¶ 130. AbbVie expected to lose roughly $100

million in TriCor revenues as a result of the deal, and its

“modest income from the . . . deal did not come close to

making up this significant loss of revenue.” Id. ¶ 132.

Finally, it is plausible that the anticompetitive effects of

AbbVie’s settlement with Teva outweighed any

procompetitive virtues of the TriCor deal. The FTC alleges

AbbVie calculated that it would sacrifice $100 million in

TriCor sales, but that was a small fraction of the billions of

dollars in AndroGel revenue it protected by deferring

competition in the TTRT market for three years. See id.; cf.

King Drug, 791 F.3d at 410 (purchasers were entitled to

discovery because they plausibly alleged that “any

procompetitive aspects of the chewables arrangement were

48

outweighed by the anticompetitive harm from the no-AG

agreement”).

These allegations, if true, would “support the legal

conclusion that the settlement at issue involves a large and

unjustified reverse payment.” Lipitor, 868 F.3d at 252. So the

District Court erred by dismissing the FTC’s claims to the

extent they relied on a reverse-payment theory.

The District Court ruled that “when two agreements are

involved . . . the court must determine separately whether each

promotes competition.” AbbVie, 107 F. Supp. 3d at 437 (citing

Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438

(2009)). The Court then reasoned AbbVie’s settlement with

Teva promoted competition and was distinguishable from the

settlement in Actavis. In Actavis, the patentee paid the alleged

infringer. But here, the Court said, AbbVie and Besins “did not

make any payment, reverse or otherwise, to . . . Teva.” Id. at

436. Instead, they “simply allow[ed] Teva to enter the

AndroGel market almost six years prior to the expiration of the

’894 patent.” Id. It further stated that because “Actavis

specifically states that such an agreement does not run afoul of

the antitrust laws,” the settlement was procompetitive and

unactionable. Id. (citation omitted).

The District Court next reasoned the TriCor deal

promoted competition because “[i]t allow[ed] Teva to enter the

cholesterol drug market with a generic product to compete with

Abbott’s product and thus advantage[d] the purchasers of

cholesterol drugs.” Id. The Court stressed that while

“something of large value passed from [AbbVie] to Teva, it

was not a reverse payment under Actavis” because AbbVie was

“not making any payments to Teva.” Id. Rather, Teva was

“paying [AbbVie] for the supply of TriCor.” Id. And even

49

though the FTC alleged AbbVie was “charging a price that is

well below what is customary in such situations,” it did not

allege AbbVie “agreed to sell TriCor . . . for less than its cost.”

Id. Thus, the Court held the deal was procompetitive. Id.

The District Court’s reasoning is unpersuasive. The

Court cited Linkline for the proposition that if a settlement

involves two agreements, a court must determine separately

whether each promotes competition. But Linkline held “two

antitrust theories cannot be combined to form a new theory of

antitrust liability.” ZF Meritor, LLC v. Eaton Corp., 696 F.3d

254, 280 (3d Cir. 2012) (emphasis added) (citing Linkline, 555

U.S. at 457). The FTC’s complaint does not allege such a

combination, so Linkline does not apply.

Nor do our precedents support the rule that “when two

agreements are involved . . . [a] court must determine

separately whether each promotes competition.” AbbVie, 107

F. Supp. 3d at 437 (citation omitted). That rule violates two

principles from our precedents. It elevates form over substance

because companies could avoid liability for anticompetitive

reverse payments simply by structuring them as two separate

agreements—one in which the generic company agrees to

delay entry until patent expiration, and the other in which the

brand-name company agrees to split monopoly profits. In

effect, Actavis would become a penalty for bad corporate

lawyering instead of anticompetitive conduct. The rule also

contradicts pleading law. Here, the FTC plausibly alleged that

AbbVie’s settlement with Teva and the TriCor deal were

linked. The Court had to accept that allegation as true. See

Phillips, 515 F.3d at 230–31.

We are also unpersuaded by the District Court’s

economic analyses of the TriCor deal and AbbVie’s settlement

50

with Teva. As to the TriCor deal, the Court acknowledged that

“something of large value passed from [AbbVie] to Teva.”

AbbVie, 107 F. Supp. 3d at 436. Yet it said that transfer could

not be a reverse payment under Actavis because AbbVie was

not “making any payments to Teva.” Id. This reasoning cannot

be reconciled with King Drug, where we held a plaintiff may

base a reverse-payment theory on any “unexplained large

transfer of value from the patent holder to the alleged

infringer.” King Drug, 791 F.3d at 403 (emphasis added).

Moreover, the Court emphasized that Teva paid AbbVie

for the supply of TriCor. But in Lipitor, we held that parties

cannot “shield their settlements from antitrust review by

simply including a token payment by the purportedly

infringing generic manufacturer.” 868 F.3d at 258. Although

Teva’s payments “will perhaps be a valid defense, they require

factual assessments, economic calculations, and expert

analysis that are inappropriate at the pleading stage.” Id. at 261.

Finally, the Court intimated the result might be different if the

FTC had alleged AbbVie agreed to sell TriCor below-cost. But

the FTC did not have to allege the TriCor deal would appear as

a loss on AbbVie’s balance sheets; it needed only to allege that

through the deal, AbbVie unjustifiably transferred to Teva an

opportunity, and the profits associated with the opportunity

were large. See King Drug, 791 F.3d at 405 (GSK’s

commitment not to produce an authorized generic transferred

to Teva “the profits [GSK] would have made from its

authorized generic”) (emphasis added). So without expressing

an opinion whether the District Court correctly concluded the

TriCor deal was procompetitive, we think it analyzed

incorrectly the deal’s economic substance.

As to AbbVie’s settlement with Teva, the District Court

erred in concluding it was procompetitive as a matter of law.

51

Granted, the District Court was right that under Actavis, “an

agreement does not run afoul of the antitrust laws” if it simply

allows a generic company to enter a market before patent

expiration. AbbVie, 107 F. Supp. 3d at 436 (citing Actavis, 570

U.S. at 158 (“[Parties] may, as in other industries, settle in

other ways, for example, by allowing the generic manufacturer

to enter the patentee’s market prior to the patent’s expiration,

without the patentee paying the challenger to stay out prior to

that point.”) (emphasis added)). And it was reasonable for the

Court to think this exception reflects the Supreme Court’s view

that such agreements are so often procompetitive they should

be legal per se. Still, the exception applies only if a patentee

does not “pay[] the challenger to stay out [before patent

expiration],” and the District Court erred in concluding this

condition was met here. Actavis, 570 U.S. at 158. The Court

said AbbVie “did not make any payment, reverse or otherwise,

to . . . Teva.” AbbVie, 107 F. Supp. 3d at 436. But that finding

rested on the Court’s erroneous ruling that it had to analyze the

settlement separately from the TriCor deal, which even the

Court acknowledged involved a transfer of value from AbbVie

to Teva. Because the FTC plausibly alleged the TriCor deal

was a reverse payment, the settlement may have been

“something more than just an agreed-upon early entry”—it

may have been “pay-for-delay.” King Drug, 791 F.3d at 405.

And pay-for-delay is anticompetitive even if the delay does not

continue past patent expiration. It was this same

anticompetitive potential that led the Supreme Court to reject

the scope of the patent test in Actavis. See 570 U.S. at 147–48.

For these reasons, the District Court erred by dismissing

the FTC’s claims to the extent they relied on a reverse-payment

theory.

52

B. The District Court erred in concluding AbbVie and

Besins’s litigation against Teva was a sham; it did

not err in concluding the Perrigo litigation was a

sham.

1. Noerr-Pennington immunity

Under the Noerr-Pennington doctrine, “[t]hose who

petition [the] government for redress are generally immune

from antitrust liability.” PRE, 508 U.S. at 56. That includes the

right to sue in federal court. Cal. Motor Transp. Co. v. Trucking

Unlimited, 404 U.S. 508, 510, 515 (1972) (holding “the right

to petition extends to all departments of the Government,”

including the courts).

Noerr-Pennington immunity is not absolute.

Wellbutrin, 868 F.3d at 148. An exception arises if a lawsuit is

“a mere sham to cover what is actually nothing more than an

attempt to interfere directly with the business relationships of

a competitor.” E. R.R. Presidents Conference v. Noerr Motor

Freight, Inc., 365 U.S. 127, 144 (1961). In PRE, the Supreme

Court held this exception has two prongs:

First, the lawsuit must be objectively baseless in

the sense that no reasonable litigant could

realistically expect success on the merits. If an

objective litigant could conclude that the suit is

reasonably calculated to elicit a favorable

outcome, the suit is immunized under Noerr, and

an antitrust claim premised on the sham

exception must fail. Only if challenged litigation

is objectively meritless may a court examine the

litigant’s subjective motivation. Under this

second part of our definition of sham, the court

53

should focus on whether the baseless lawsuit

conceals an attempt to interfere directly with the

business relationships of a competitor through

the use of the governmental process—as

opposed to the outcome of that process—as an

anticompetitive weapon. This two-tiered process

requires the plaintiff to disprove the challenged

lawsuit’s legal viability before the court will

entertain evidence of the

suit’s economic viability.

508 U.S. at 60–61 (internal quotation marks, citations,

alteration, and footnote omitted). Under the objective

baselessness prong, a “probable cause determination

irrefutably demonstrates” a defendant’s immunity. Id. at 63.

Probable cause is a “reasonable belief that there is a chance that

a claim may be held valid upon adjudication.” Id. at 62–63

(internal quotation marks, citations, and alterations omitted);

see also id. at 65 (defendant was immune because “[a]ny

reasonable [litigant] in [its] position could have believed that it

had some chance of winning”). In determining reasonableness,

a court should consider the state of the law at the time of a

defendant’s suit. See id. at 65; see also Wellbutrin, 868 F.3d at

150. Generally, the more “unsettled” the law is, the more

reasonable is a belief that a claim will be held valid. PRE, 508

U.S. at 64–65 (probable cause supports a claim if it is

“arguably ‘warranted by existing law’”) (quoting FED. R. CIV.

P. 11). Even if the law was settled against the defendant,

however, that is not dispositive. Then, a court should ask

whether the defendant’s claim “at the very least was based on

an objectively ‘good faith argument for the extension,

modification, or reversal of existing law.’” Id. at 65 (quoting

FED. R. CIV. P. 11).

54

Under the subjective motivation prong, a plaintiff must

show the defendant “brought baseless claims in an attempt to

thwart competition (i.e., in bad faith).” Octane Fitness, LLC v.

ICON Health & Fitness, Inc., 572 U.S. 545, 556 (2014). Some

factors relating to a defendant’s “economic motivations” in

bringing suit include whether the defendant was “indifferent to

the outcome on the merits of the . . . suit, whether any damages

for infringement would be too low to justify . . . investment in

the suit, or whether [the defendant] had decided to sue

primarily for the benefit of collateral injuries inflicted through

the use of legal process.” PRE, 508 U.S. at 65–66 (citation

omitted).

Generally, a plaintiff seeking to show the sham

litigation exception faces “an uphill battle.” Wellbutrin, 868

F.3d at 147. And in some respects, the hill is steeper “in the

context of an ANDA case.” Id. at 149. “Since the submission

of an ANDA is, by statutory definition, an infringing act, an

infringement suit filed in response to an ANDA with a

paragraph IV certification could only be objectively baseless if

no reasonable person could disagree with the assertions of

noninfringement or invalidity in the certification.” Id. (citation

omitted). Moreover, the number of lawsuits a brand-name drug

manufacturer files will sometimes reveal little about its

subjective motivation for suing, because the Hatch-Waxman

Act “incentivizes [brands] to promptly file patent infringement

suits by rewarding them with a stay of up to 30 months if they

do so.” Id. at 157–58 (citing 21 U.S.C. § 355(j)(5)(B)(iii)). For

that reason, we have declined to apply a related exception to

Noerr-Pennington immunity—serial petitioning—in the

Hatch-Waxman context. Id. (citing Hanover 3201 Realty, LLC

v. Village Supermarkets, Inc., 806 F.3d 162 (3d Cir. 2015)).

55

Yet in other respects, the ANDA context may help a

plaintiff. The automatic, 30-month stay is a collateral injury the

defendant’s mere use of legal process invariably inflicts. And

though the stay ends if a court holds the defendant’s patent is

invalid or has not been infringed, it does not otherwise depend

on a suit’s outcome. Thus, a plaintiff may be able to show a

defendant was indifferent to the outcome of its infringement

suit, and the automatic, 30-month stay was an anticompetitive

weapon the defendant tried to wield.

In sum, applying the sham-litigation standard is a

delicate task. The defendant’s First Amendment right “to

petition the Government for a redress of grievances” is at stake.

U.S. Const. amend. I. So too is congressional policy, as

expressed in both the Hatch-Waxman Act and the antitrust

laws. We must not “penalize a brand-name manufacturer

whose ‘litigiousness was a product of Hatch-Waxman.’”

Wellbutrin, 868 F.3d. at 158 (citing Kaiser Found. Health

Plan, Inc. v. Abbott Labs, Inc., 552 F.3d 1033, 1047 (9th Cir.

2009)). “Doing so would punish behavior that Congress sought

to encourage.” Id. (citation omitted). At the same time, we must

not immunize a brand-name manufacturer who uses the Hatch-

Waxman Act’s automatic, 30-month stay to thwart

competition. Doing so would excuse behavior that Congress

proscribed in the antitrust laws.

2. Objective Baselessness

The District Court granted the FTC summary judgment

on sham litigation’s objective baselessness prong. We review

that judgment de novo. See Morgan v. Covington Twp., 648

F.3d 172, 177 (3d Cir. 2011).

56

a. Patent law’s doctrine of equivalents,

prosecution history estoppel, and tangentiality

Under the doctrine of equivalents, “[t]he scope of a

patent is not limited to its literal terms but instead embraces all

equivalents to the claims described.” Festo VIII, 535 U.S. at

732. There are at least two reasons for this doctrine. First,

because “the nature of language makes it impossible to capture

the essence of a thing in a patent application,” it is unrealistic

to expect a patentee to “capture every nuance of [his or her]

invention or describe with complete precision the range of its

novelty.” Id. at 731. Second, “[i]f patents were always

interpreted by their literal terms,” rival inventors might “defeat

the patent” simply by making “unimportant and insubstantial”

changes. Id. This would diminish the scientific and artistic

progress that the patent system seeks to foster. See id.

Although the doctrine of equivalents counters the threat

that literal interpretation of patents poses to scientific and

artistic progress, it creates another problem. One function of

patents is to notify would-be inventors about the scope of the

patentee’s property right. See id. (“A patent holder should

know what he owns, and the public should know what he does

not.”). Notice allows inventors to innovate without fear that the

patentee will sue them for infringement. See id. at 732. But

because the doctrine of equivalents untethers a patentee’s

property right from a patent’s literal terms, it tends to

undermine notice. See id. So the doctrine risks dampening

inventors’ innovative spirit.

Thus, patent law must balance “the needs of patentees

for adequate protection of their inventions” on the one hand,

and “the needs of would-be competitors for adequate notice of

the scope of that protection” on the other. Festo Corp. v.

57

Shoketsu Kinzoku Kogyo Kabushiki Co. (“Festo IX”), 344 F.3d

1359, 1385 (Fed. Cir. 2003) (Newman, J., concurring in part,

dissenting in part).

Recognizing the need for balance, the Supreme Court

has limited the doctrine of equivalents. One limitation—known

as prosecution history estoppel—applies when “the patentee

originally claimed the subject matter alleged to infringe but

then narrowed the claim in response to a rejection.” Festo VIII,

535 U.S. at 733. The patentee “may not argue that the

surrendered territory comprised unforeseen subject matter that

should be deemed equivalent to the literal claims of the issued

patent.” Id. at 733–34.

Prosecution history estoppel “ensures that the doctrine

of equivalents remains tied to its underlying purpose.” Id. at

734. “The doctrine of equivalents is premised on language’s

inability to capture the essence of innovation.” Id. But that

premise is unsound if a patent’s prosecution history shows that

the patentee “turned his attention to the subject matter in

question, knew the words for both the broader and narrower

claim, and affirmatively chose the latter.” Id. at 734–35. In that

case, the patentee’s competitors could reasonably infer the

patentee’s property right extended only so far as the narrower

claim.

Courts use a three-part test to determine whether

prosecution history estoppel applies:

1. The first question in a prosecution history

estoppel inquiry is whether an amendment filed

in the Patent and Trademark Office (PTO) has

narrowed the literal scope of a claim. . . . If the

58

amendment was not narrowing, then prosecution

history estoppel does not apply.

2. If the accused infringer establishes that the

amendment was a narrowing one, then the

second question is whether the reason for that

amendment was a substantial one relating to

patentability. . . . When the prosecution

history record reveals no reason for the

narrowing amendment, [the Supreme Court’s

decision in] Warner–Jenkinson [Co. v. Hilton

Davis Chem. Co., 520 U.S. 17 (1997)] presumes

that the patentee had a substantial reason relating

to patentability; consequently, the patentee must

show that the reason for the amendment was not

one relating to patentability if it is to rebut that

presumption. . . . In this regard, . . . a patentee’s

rebuttal of the Warner–Jenkinson presumption is

restricted to the evidence in the prosecution

history record. . . . If the patentee successfully

establishes that the amendment was not for a

reason of patentability, then prosecution history

estoppel does not apply.

3. If, however, the court determines that a

narrowing amendment has been made for a

substantial reason relating to

patentability . . . then the third question in a

prosecution history estoppel analysis addresses

the scope of the subject matter surrendered by the

narrowing amendment. . . . At that point Festo

VIII imposes the presumption that the patentee

has surrendered all territory between the original

claim limitation and the amended claim

59

limitation. . . . The patentee may rebut that

presumption of total surrender by demonstrating

that it did not surrender the particular equivalent

in question . . . Finally, if the patentee fails to

rebut the Festo presumption, then prosecution

history estoppel bars the patentee from relying

on the doctrine of equivalents for the accused

element. If the patentee successfully rebuts the

presumption, then prosecution history estoppel

does not apply and the question whether the

accused element is in fact equivalent to the

limitation at issue is reached on the merits.

Festo IX, 344 F.3d at 1366–67 (internal citations omitted)

(emphasis added). To rebut the presumption of total surrender,

a patentee “must show that at the time of the amendment one

skilled in the art could not reasonably be expected to have

drafted a claim that would have literally encompassed the

alleged equivalent.” Festo VIII, 535 U.S. at 741.

One way a patentee can meet this high standard is by

showing “the rationale underlying the narrowing amendment

[bore] no more than a tangential relation to the equivalent in

question.” Festo IX, 344 F.3d at 1369 (internal citation

omitted). This is the tangentiality exception to prosecution

history estoppel. In determining whether an amendment was

tangential to an equivalent, a court does not consider the

patentee’s subjective motivation for narrowing his claims. That

approach would overlook “the public notice function of a

patent and its prosecution history.” Id. (citations omitted).

Instead, the court considers the “objectively apparent”

motivation as suggested by the prosecution history. Id.

Although the tangentiality exception generally cannot be

reduced to hard-and-fast rules, see id. at 1368, one rule is clear:

60

“an amendment made to avoid prior art that contains the

equivalent in question is not tangential,” id. at 1369 (citation

omitted).

Like prosecution history estoppel, the tangentiality

exception balances the needs of patentees and would-be

competitors. It also ensures the doctrine of equivalents remains

tied to its underlying purpose. If the rationale for an

amendment is tangential to the alleged equivalent, “one skilled

in the art could not reasonably be expected to have drafted a

claim that would have literally encompassed the alleged

equivalent.” Festo VIII, 535 U.S. at 741. Thus, a patentee’s

competitors could not infer the patentee “turned his attention

to the subject matter in question, knew the words for both the

broader and narrower claim, and affirmatively chose the latter.”

Id. at 734–35. By the same token, however, the tangentiality

exception does not apply if the rationale for an amendment is

to avoid prior art that contains the alleged equivalent. Then the

prior art itself teaches the patentee how to draft a claim that

literally encompasses the equivalent. And because the patentee

turned his attention to the prior art in order to avoid it, the

patentee’s competitors could infer the patentee affirmatively

chose the narrower claim.

b. The District Court erred in concluding AbbVie

and Besins’s suit against Teva was objectively

baseless.

Teva’s paragraph IV notice asserted that because its gel

used the penetration enhancer isopropyl palmitate instead of

isopropyl myristate, the gel did not literally infringe the ’894

patent. It also argued the ’894 patent’s prosecution history

estopped AbbVie and Besins from claiming infringement on

61

the ground that isopropyl palmitate is equivalent to isopropyl

myristate.

On appeal, AbbVie and Besins concede the October

2001 amendment—which narrowed the patent application’s

claim 1 from all penetration enhancers to a list of 24 not

including isopropyl palmitate—was narrowing and was made

for a substantial reason related to patentability. See Festo IX,

344 F.3d at 1366 (citation omitted). Thus, we presume AbbVie

and Besins “surrendered all territory between the original

claim limitation and the amended claim limitation,” which

includes isopropyl palmitate. Id. at 1367 (citing Festo VIII, 535

U.S. at 740). To rebut this presumption, AbbVie and Besins

would have had to show that “at the time of the [October 2001]

amendment one skilled in the art could not reasonably be

expected to have drafted a claim that would have literally

encompassed [isopropyl palmitate].” Festo VIII, 535 U.S. at

741. AbbVie and Besins argue they could make this showing.

They contend the reason for the October 2001 amendment was

to overcome Mak’s use of oleic acid—not Allen’s disclosure

of isopropyl palmitate or other penetration enhancers. So, they

claim, the rationale for the amendment was tangential to

isopropyl palmitate. See Festo IX, 344 F.3d at 1369 (internal

citation omitted).

The FTC has not shown that no reasonable litigant in

AbbVie and Besins’s position would believe it had a chance of

winning. See PRE, 508 U.S. at 65. AbbVie and Besins’s

argument has support in the prosecution history record. Allen

disclosed isopropyl myristate—the penetration enhancer used

in AndroGel—and yet the October 2001 amendment retained

isopropyl myristate. Moreover, AbbVie and Besins gave three

reasons why the prior art did not suggest combining Mak and

Allen. Every one of those reasons distinguished the claimed

62

penetration enhancers from oleic acid, the penetration

enhancer Mak used. Finally, expert testimony could have

supported AbbVie and Besins’s interpretation of the

prosecution history. See Festo IX, 344 F.3d at 1369–70. The

District Court heard testimony from Dr. Jonathan Hadgraft,

Emeritus Professor of Biophysical Chemistry at University

College London School of Pharmacy. He testified the

“chemical and functional differences identified by the patent

applicants in their rationale for distinguishing the penetration

enhancers listed in the claims in the [October 2001]

amendment . . . from oleic acid would apply equally to

isopropyl palmitate.” App. 4511. For these reasons, AbbVie

and Besins could reasonably have argued that at the time of the

October 2001 amendment, one skilled in the art could not

reasonably be expected to have drafted a claim that would have

literally encompassed isopropyl palmitate. See Festo VIII, 535

U.S. at 741. In that case, prosecution history estoppel would

not apply. See id.

The FTC presents three main counterarguments.

First, the District Court concluded the rationale for the

October 2001 amendment was not tangential to isopropyl

palmitate because “[i]f AbbVie and Besins merely sought to

relinquish oleic acid and no other penetration enhancer in

October 2001, they easily could have said so.” AbbVie, 2017

WL 4098688, at *8. Relatedly, the FTC argues that because

AbbVie’s “oleic acid rationale does not explain the entire

[October 2001] amendment,” the rationale for the amendment

was not tangential to isopropyl palmitate as a matter of law.

FTC Resp. Br. 39–40 (citing Felix v. Am. Honda Motor Co.,

562 F.3d 1167, 1184 (Fed. Cir. 2009) and Amgen Inc. v.

Hoechst Marion Roussel, Inc., 457 F.3d 1293, 1315 (Fed. Cir.

2006)). But negative claim limitations of the sort the Court

63

mentioned are usually impermissible. See In re Schechter, 205

F.2d 185, 188 (C.C.P.A. 1953). Put differently, AbbVie and

Besins probably could not have claimed all penetration

enhancers “except oleic acid.” And the law is not as well-

settled as the FTC suggests. Granted, in the cases the FTC cites,

the Federal Circuit held the tangentiality exception did not

apply in part because the patentee’s rationale failed to explain

the entire amendment. But because the Federal Circuit has

refused to reduce the tangentiality exception to hard-and-fast

rules, see Festo IX, 344 F.3d at 1368, a reasonable litigant in

AbbVie and Besins’s position would not necessarily see those

decisions as foreclosing its claim.

More persuasive is the District Court’s reasoning that

the October 2001 amendment sought to overcome the Allen

prior art, which “listed isopropyl palmitate as one of five

penetration enhancers.” AbbVie, 2017 WL 4098688, at *8. The

FTC also argues Allen’s disclosure of isopropyl palmitate

“precludes a tangentiality finding,” because “an amendment

made to avoid prior art that contains the equivalent in question

is not tangential.” FTC Resp. Br. 38 (quoting Festo IX, 344

F.3d at 1369 (Pioneer Magnetics, Inc. v. Micro Linear Corp.,

330 F.3d 1352, 1357 (Fed. Cir. 2003))). This argument is more

persuasive because the rule the FTC cites is a well-settled

exception to the Federal Circuit’s case-by-case approach to the

tangentiality exception. See id. But the argument is not so

strong as to make the suits objectively unreasonable. AbbVie

and Besins could reasonably have argued the rule did not apply

or should be modified, because even though Allen disclosed

isopropyl palmitate, AbbVie and Besins made the October

2001 amendment “to avoid” Mak’s use of oleic acid, not

Allen’s disclosure of isopropyl palmitate or other penetration

enhancers. PRE, 508 U.S. at 65 (quoting FED. R. CIV. P. 11).

64

Thus, a reasonable litigant in AbbVie and Besins’s position

would not necessarily see this rule as foreclosing its claim.

Finally, the District Court reasoned that the “entire

prosecution history”—not just the October 2001 amendment—

is relevant to determine whether estoppel applies. AbbVie,

2017 WL 4098688, at *6 (citing Wang Labs, Inc. v. Toshiba

Corp., 993 F.2d 858, 867 (Fed. Cir. 1993) and Tex.

Instruments, Inc. v. U.S. Int’l Trade Comm’n, 988 F.2d 1165,

1174 (Fed. Cir. 1993)). Likewise, the FTC argues that “[e]ven

if the October 2001 amendment had not excluded isopropyl

palmitate, the later amendments would have.” FTC Resp. Br.

41. And those amendments “plainly could not have been

intended to distinguish oleic acid, which (as AbbVie concedes)

had already been excluded by the October 2001 amendment.”

FTC Resp. Br. 42. Again, the law is not as well-settled as the

FTC would have us believe. AbbVie and Besins could

reasonably have argued only the October 2001 amendment was

relevant under existing law. See Festo IX, 344 F.3d at 1369

(tangentiality “focuses on the patentee’s objectively apparent

reason for the narrowing amendment”) (emphasis added); see

also Felix, 562 F.3d at 1182–83; PRE, 508 U.S. at 64–65

(probable cause supports a claim if it is “arguably ‘warranted

by existing law’”) (quoting FED. R. CIV. P. 11).

Thus, the District Court erred in concluding AbbVie and

Besins’s suit against Teva was objectively baseless.

Accordingly, we will not consider the subjective motivation

prong as to Teva. See PRE, 508 U.S. at 60–61.

65

c. The District Court did not err in concluding

AbbVie and Besins’s suit against Perrigo was

objectively baseless.

Perrigo’s first paragraph IV notice asserted that because

its gel used the penetration enhancer isostearic acid instead of

isopropyl myristate, the gel did not literally infringe the ’894

patent. It also explained that the ’894 patent’s prosecution

history estopped AbbVie and Besins from claiming

infringement on the ground that isostearic acid is equivalent to

isopropyl myristate.

AbbVie and Besins concede the December 2001

amendment narrowed the patent application’s claims from 24

penetration enhancers including isostearic acid to isopropyl

myristate. But they argue it was not for a substantial reason

relating to patentability and, if it was, the rationale for the

amendment was tangential to isostearic acid.

No reasonable litigant in AbbVie and Besins’s position

would believe it had a chance of winning on these arguments.

First, AbbVie and Besins argue the December 2001

amendment was not for a substantial reason relating to

patentability, both because “the claims pending at the time of

the December 2001 amendment . . . were never rejected or

threatened with rejection,” and because they “amended the

claims in December 2001 to expedite the timing of patent

protection.” AbbVie Br. 47–48. This argument is untenable.

“[A] voluntary amendment may give rise to prosecution

history estoppel.” Festo IX, 344 F.3d at 1366 (internal

quotations and citation omitted). And expediting prosecution is

not a legitimate basis on which to avoid prosecution history

estoppel. See Biogen, Inc. v. Berlex Labs., Inc., 318 F.3d 1132,

1142 (Fed. Cir. 2003) (“[C]laims that were deliberately limited

66

in order to expedite prosecution by avoiding examination

cannot regain that scope for infringement purposes.”) (citing

Genentech, Inc. v. Wellcome Found. Ltd., 29 F.3d 1555, 1564

(Fed. Cir. 1994)). Regardless, no court would hold the

December 2001 amendment’s purpose was to expedite

prosecution. “[A] patentee’s rebuttal of the Warner–Jenkinson

presumption” that a narrowing amendment was made for a

substantial reason relating to patentability “is restricted to the

evidence in the prosecution history record.” Festo IX, 344 at

1367 (citations omitted). But nothing in the prosecution history

supports AbbVie and Besins’s claim that the December 2001

amendment’s purpose was to expedite prosecution. AbbVie

and Besins cite the amendment’s concluding sentence, which

reads: “The Examiner is urged to call the undersigned with any

questions or to otherwise expedite prosecution.” App. 1095

(emphasis added). But that boilerplate statement reveals

nothing about the amendment’s purpose. AbbVie and Besins

also argue that even if the purpose to expedite prosecution did

not appear in the prosecution history, it was clear “as a matter

of law.” Abbvie Br. 48 n.3. This argument fails even as an

argument “for the extension, modification, or reversal of

existing law.” PRE, 508 U.S. at 65 (quoting FED. R. CIV. P. 11).

As we have explained, the rule that a patentee’s rebuttal of the

Warner-Jenkinson presumption is restricted to the prosecution

history is fundamental; it balances “the needs of patentees for

adequate protection of their inventions” on the one hand, and

“the needs of would-be competitors for adequate notice of the

scope of that protection” on the other. Festo IX, 344 F.3d at

1385 (Newman, J., concurring in part, dissenting in part).

To the extent the prosecution history reveals the

December 2001 amendment’s purpose, it shows the

amendment related to patentability. In June 2001, the patent

67

examiner rejected the application’s claim 1. In October 2001,

AbbVie and Besins unsuccessfully tried to overcome the

rejection by amending the application. Their attorneys then had

an interview with the patent examiner in which she opined that

the application’s claims to isopropyl myristate were allowable

over the prior art. As the District Court found, these facts were

“a telling signal to any reasonable person that patentability

required the narrowing of any claim so that it disclosed

isopropyl myristate at a particular concentration as the sole

penetration enhancer.” AbbVie, 2017 WL 4098688, at *11.

AbbVie and Besins followed that signal in their December

2001 amendment: in the amendment’s conclusion—

immediately before the boilerplate discussed above—they

sought “reconsideration and withdrawal of the outstanding

rejections and allowance of the . . . claims.” App. 1095.

(emphasis added).

AbbVie and Besins also argue the rationale for the

December 2001 amendment was to overcome Mak’s use of

oleic acid, so it was tangential to isostearic acid. That argument

contradicts the prosecution history. AbbVie and Besins

narrowed their claims to exclude oleic acid in October 2001,

so that could not have been the purpose of the December 2001

amendment.

AbbVie and Besins counter that the District Court erred

by “assessing . . . whether [they] had a winning case against

Perrigo” instead of whether a reasonable litigant would believe

it had a chance of winning. AbbVie Br. 50. We disagree. While

the Court did assess whether they had a winning case, it also

assessed whether a reasonable litigant would believe it had a

chance of winning. See AbbVie, 2017 WL 4098688, at *9

(“[A]ny reasonable person who reads the prosecution history

of the ’894 patent can reach no other conclusion than that the

68

defendants have purposefully and not tangentially

excluded . . . isostearic acid.”).

Finally, AbbVie and Besins argue “[t]he favorable

settlements [they] obtained in both suits foreclose the

proposition that no reasonable person could have perceived a

chance of success for the infringement claims.” AbbVie Br.

50–51. They note Perrigo agreed to “continued market

exclusivity for AndroGel until late 2014—‘far beyond the

maximum 30-month Hatch-Waxman stay[]’ that would have

applied had the lawsuits continued.” Id. at 51. We think that,

ordinarily, settlement on terms favorable to a plaintiff suggests

a suit is not objectively baseless. See, e.g., Theme Promotions,

Inc. v. News Am. Mktg. FSI, 546 F.3d 991, 1008 (9th Cir.

2008); New W., L.P. v. City of Joliet, 491 F.3d 717, 722 (7th

Cir. 2007). But that is not the situation here. To start, the

settlement with Perrigo was not especially favorable to AbbVie

and Besins. AbbVie paid Perrigo $2 million as reasonable

litigation expenses and agreed to let Perrigo enter the market

for AndroGel at the same time as Teva—almost six years

before the ’894 patent expired. Even if the settlement was

favorable, however, that is not dispositive, since the record is

clear that Perrigo did not settle because it doubted its litigation

position. In Perrigo’s paragraph IV notice, it opined that “a

lawsuit asserting the ’894 patent . . . would be objectively

baseless and a sham, brought in bad faith for the improper

purpose of, inter alia, delaying Perrigo’s NDA approval.”

AbbVie, 329 F. Supp. 3d at 114. And Perrigo’s assistant general

counsel estimated it had a 75 percent chance of victory, which,

given the uncertainties inherent in litigation, is a strong

probability. Thus, as the District Court found, Perrigo settled

for reasons “independent of the merits of [AbbVie and

69

Besins’s] claims,” including especially the cost of litigating.

Id. at 123.

Thus, the District Court did not err in concluding

AbbVie and Besins’s suit against Perrigo was objectively

baseless.

3. The District Court did not err in concluding AbbVie

and Besins’s suit against Perrigo met sham litigation’s

subjective motivation prong.

The District Court’s evaluation of the subjective

motivation prong of the sham litigation test required it to make

findings of fact. We review those factual findings under the

deferential clear-error standard. See VICI Racing, LLC v. T-

Mobile USA, Inc., 763 F.3d 273, 282–83 (3d Cir. 2014). A

finding is clearly erroneous when “although there is evidence

to support it, the reviewing court on the entire evidence is left

with the definite and firm conviction that a mistake has been

committed.” United States v. U.S. Gypsum Co., 333 U.S. 364,

395 (1948). “Where there are two permissible views of the

evidence, the factfinder’s choice between them cannot be

clearly erroneous.” Anderson v. City of Bessemer City, N.C.,

470 U.S. 564, 574 (1985) (citations omitted). Clear error

review exists to prevent a reviewing court from

“overstep[ping] the bounds of its duty . . . [by] duplicat[ing]

the role of the lower court.” Id. at 573 (citing FED. R. CIV. P.

52(a)).

The District Court ruled the FTC “must prove [by clear

and convincing evidence] that defendants had actual

knowledge that the patent infringement suits here were

70

baseless.” AbbVie, 329 F. Supp. 3d at 120.3 In support, it cited

City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S.

365 (1991), in which the Supreme Court said “[a] classic

example [of sham litigation] is the filing of frivolous objections

to the license application of a competitor, with no expectation

of achieving denial of the license but simply in order to impose

expense and delay.” Id. at 380 (emphasis added).

The District Court then determined certain evidence

submitted to show AbbVie and Besins’s knowledge was not

probative. This evidence included: (1) Solvay’s 2009 press

release, because “[n]one of the in-house AbbVie attorneys

identified as the decision-makers regarding the 2011 suit[]

against . . . Perrigo was previously employed by Solvay or

Unimed,” AbbVie, 329 F. Supp. 3d at 121; (2) business

planning documents, because “none of the[]

documents . . . was created by or influenced anyone who

played a role in the decision[] to sue . . . Perrigo,” id. at 122;

3

In a footnote in its response brief, the FTC challenges

the District Court’s requirement of proof by clear-and-

convincing evidence. We have not decided what standard of

proof applies to sham litigation’s subjective motivation prong.

Cf. Wellbutrin, 868 F.3d at 148 n.18 (referencing the objective

baselessness prong). But in discussing Noerr-Pennington cases

involving Section 1983 claims, we have explained that a higher

standard of proof is needed in Noerr-Pennington cases

involving patent disputes. See Campbell v. Pa. Sch. Bd. Ass’n,

2020 WL 5049051, at *7 (3d Cir. 2020). We need not adopt that

dicta today because “arguments raised in passing (such as, in a

footnote), but not squarely argued,” are forfeited on appeal.

John Wyeth & Bro. Ltd. v. CIGNA Intern. Corp., 119 F.3d 1070,

1076 n.6 (3d Cir. 1997).

71

(3) the settlement agreements, because “[p]arties often settle

litigation for a variety of reasons independent of the merits of

the claims,” id. at 123; and (4) AbbVie’s citizen petitions,

because the petitions “were [all] found to be at least partially

meritorious,” id.4

Finally, the Court “zoom[ed] in on the individuals at

AbbVie and Besins who made the decision[] to file the

infringement action[] against . . . Perrigo [to] discern what

these individuals knew.” Id. at 123–24. Because AbbVie and

Besins invoked attorney-client privilege and the attorney work

product doctrine, the trial produced “no direct evidence of

[these individuals’] subjective intent.” Id. at 125. The Court

refused to draw any negative inference as a result. See id.

Instead, it considered “the surrounding circumstances and the

natural and probable consequences of [AbbVie and Besins’s]

knowing acts.” Id. The Court considered two pieces of

circumstantial evidence. First, because AbbVie and Besins’s

decisionmakers were all “very experienced patent attorneys”

who had reviewed Perrigo’s paragraph IV notices and

consulted outside counsel, they knew the lawsuit against

Perrigo was objectively baseless. Id. at 126. And second, the

decisionmakers—some of whom were long-time employees—

“knew the extensive financial benefits to [AbbVie and Besins]

if generic versions of AndroGel were kept or delayed from

entry into the market.” Id. The Court concluded “[t]he only

4

AbbVie and Besins argue the District Court erred by

not considering the business planning documents and

settlement agreements. The FTC argues the Court erred by not

considering Solvay’s 2009 press release. The Court correctly

concluded that none of this evidence is probative of the

decisionmakers’ subjective motivations.

72

reason for the filing of these lawsuits was to impose expense

and delay on . . . Perrigo so as to block [its] entry into the

TTRT market.” Id.

AbbVie and Besins argue the District Court erred by

merging sham litigation’s objective baselessness and

subjective motivation prongs. They claim “the relevant inquiry

under the subjective element [is] whether [the] decisionmakers

actually believed the lawsuits had no possibility of success”

and were therefore “subjective[ly] baseless[].” AbbVie Br. 56.

The FTC counters that the District Court required it to

prove more than was necessary, because the subjective inquiry

“has nothing to do with what a litigant knew or should have

known regarding the merits of its claims.” FTC Resp. Br. 57

(quoting Kilopass Tech., Inc. v. Sidense Corp., 738 F.3d 1302,

1313 (Fed. Cir. 2013)). Instead, the FTC argues, what matters

is the intent to “thwart competition.” Id. (citing Octane Fitness,

572 U.S. at 556).

We agree with the FTC that the District Court applied

an improper legal standard. The ultimate inquiry under sham

litigation’s subjective prong is a defendant’s subjective

motivation, not its subjective belief about the merits of its

claims. See PRE, 508 U.S. at 60–61; Octane Fitness, 572 U.S.

at 556. Thus, the term “subjective baselessness” is a misnomer.

That said, we disagree that the inquiry into a defendant’s

motivation has “nothing to do” with a defendant’s belief about

the merits of its claims. But cf. Kilopass, 738 F.3d at 1313.

Evidence that a defendant knew its claims were meritless may

help a plaintiff to show a defendant was “indifferent to the

outcome on the merits of the . . . suit” and “decided to sue

primarily for the benefit of collateral injuries inflicted through

the use of legal process.” PRE, 508 U.S. at 65 (citation

73

omitted). It is therefore unsurprising that evidence of a

defendant’s belief about the merits of its claims appears in a

“classic example” of sham litigation, Omni, 499 U.S. at 380, or

that it appeared in this case. So while evidence of a defendant’s

belief about the merits of its claims may be relevant to

determining a defendant’s motivation, it is not required in

every case. In short, a defendant can be ambivalent about the

merits while filing litigation for an improper purpose (i.e., in

bad faith).

We also reject AbbVie and Besins’s argument that the

District Court improperly merged sham litigation’s objective

baselessness and subjective motivation prongs. That argument

assumes the two prongs are distinct, but they are interrelated.

To see how, consider the following syllogism: (1) A lawsuit is

objectively baseless if “no reasonable litigant could

realistically expect success on the merits,” PRE, 508 U.S. at

60; (2) and a litigant who files an objectively baseless lawsuit

must have had some subjective motivation for suing; (3) but

because the lawsuit was objectively baseless, the litigant’s

subjective motivation could not have been success on the

merits, unless the litigant was unreasonable; (4) thus, a

reasonable litigant’s subjective motivation for filing an

objectively baseless lawsuit must be something besides success

on the merits. The District Court merely applied this syllogism.

It first held that AbbVie and Besins’s lawsuits were objectively

baseless. It then reasoned that because AbbVie and Besins’s

decisionmakers were all very experienced patent attorneys who

had reviewed Perrigo’s paragraph IV notices and consulted

outside counsel, they knew the lawsuits were baseless. Finally,

it reasoned that because the decisionmakers knew the lawsuits

were baseless, they must have been motivated by something

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other than success on the merits. The District Court’s logic is

valid.

AbbVie and Besins respond that, under the District

Court’s analysis, “in virtually every Hatch-Waxman suit in

which a court finds objective baselessness, a finding of

subjective baselessness would necessarily follow.” AbbVie Br.

57. Not so. The syllogism the Court applied establishes only

that a reasonable litigant’s subjective motivation must have

been something besides success on the merits. It does not

necessarily follow that the motivation was to thwart

competition. For example, a company might file an objectively

baseless lawsuit because it subjectively (though unreasonably)

expected the lawsuit to succeed. In that case, a finding of

“subjective baselessness” would not necessarily follow from a

finding of objective baselessness.

AbbVie and Besins next argue that the circumstantial

evidence the Court considered was insufficient to establish the

subjective motivation prong by clear and convincing evidence,

especially given the presumption that “the assertion of a duly

granted patent is made in good faith.” AbbVie Br. 56 (quoting

C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1369 (Fed. Cir.

1998)).

We disagree. Because AbbVie and Besins invoked

attorney-client privilege and the attorney work product

doctrine, the Court properly considered the surrounding

circumstances and the natural and probable consequences of

AbbVie and Besins’s intentional acts to make its findings. Cf.

Howard Hess Dental Labs. Inc. v. Dentsply Intern., Inc., 602

F.3d 237, 257–58 (3d Cir. 2010) (“Specific intent in the

antitrust context may be inferred from a defendant’s unlawful

conduct.”) (citing Advo, Inc. v. Phila. Newspapers, Inc., 51

75

F.3d 1191, 1199 (3d Cir. 1995)). The Court noted that AbbVie

and Besins’s decisionmakers were all experienced patent

attorneys who had reviewed Perrigo’s paragraph IV notices

and consulted outside counsel. They also knew the extensive

financial benefits AbbVie and Besins would receive if generic

versions of AndroGel were kept or delayed from entry into the

market. Especially given the collateral injury the Hatch-

Waxman Act’s 30-month stay invariably inflicts, the Court was

permitted to conclude from this evidence that in filing an

objectively baseless lawsuit against Perrigo, the

decisionmakers were motivated not to assert a patent in good

faith, but to impose expense and delay on Perrigo to delay its

entry into the TTRT market. Anderson, 470 U.S. at 574.

Besins lastly argues the District Court clearly erred

because the FTC presented “no evidence” about “who in 2011

were the decisionmakers at Besins . . . and what those people

knew.” Besins Br. 14. It also argues the trial testimony “neither

addressed nor established who made the 2011 decisions to sue.

Nor did the FTC ask [Besin’s in-house counsel] MacAllister

who at Besins made those decisions.” Id. at 15.

The District Court did not clearly err. MacAllister

testified at trial that: he is a former patent examiner; he was

“the highest ranking attorney in-house at Besins,” App. 3672;

he “oversaw the global intellectual property group,” id.; and he

“advised on litigations concerning Besins’[s] patents,” App.

3673. An attorney for the FTC asked MacAllister whether he

was “involved in the decision to file patent litigation against

Perrigo in 2011.” App. 3690. He responded that he conferred

with AbbVie’s in-house counsel “related to the decision

whether or not to proceed with the lawsuit,” and that Besins’s

outside counsel provided him and others with advice that

“informed our decision as to whether or not to proceed with the

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lawsuit.” Id. It was “permissible” for the Court to conclude

from this testimony that MacAllister decided to sue on Besins’s

behalf. Anderson, 470 U.S. at 574.

Thus, the District Court did not err in concluding

AbbVie and Besins’s suit against Perrigo concealed an attempt

to interfere directly with its business relationships, through the

use of the governmental process—as opposed to the

outcome of that process—as an anticompetitive weapon.

C. The District Court did not err in concluding

AbbVie and Besins had monopoly power in the

relevant market.

To prove monopolization, a plaintiff must establish that

the defendant had monopoly power in the relevant market. See

Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 306–07 (3d

Cir. 2007). Monopoly power is “the ability to control prices

and exclude competition in a given market.” Id.

The FTC relied on indirect evidence to establish

AbbVie’s monopoly power. “To support a claim of monopoly

power through indirect evidence, [a plaintiff] must show that

(1) [d]efendants had market power in the relevant market and

(2) that there were barriers to entry into the market.” Mylan,

838 F.3d at 435. Market power is “the ability to raise prices

above those that would otherwise prevail in a competitive

market.” Gordon v. Lewistown Hosp., 423 F.3d 184, 210 (3d

Cir. 2005) (citation omitted). A court can infer market power

from a market share significantly greater than 55 percent. See

Dentsply, 399 F.3d at 187. “Other germane factors include the

size and strength of competing firms, freedom of entry, pricing

trends and practices in the industry, ability of consumers to

substitute comparable goods, and consumer demand.” Id. A

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defendant’s ability to maintain market share is also relevant.

See id. at 188–89 (citing United States v. Syufy Enters., 903

F.2d 659, 665–66 (9th Cir. 1990)). Barriers to entry include

“regulatory requirements, high capital costs, or technological

obstacles, that prevent new competition from entering a market

in response to a monopolist’s supracompetitive prices.”

Broadcom Corp., 501 F.3d at 307.

The parties agreed that the relevant geographic market

is the United States, so the District Court had to define only the

product market.

To determine if two products are in the same

market, we ask if they are readily substitutable

for one another, an inquiry that requires us to

assess the reasonable interchangeability of use

between a product and its substitute. We also

look to their cross-elasticity of demand, which is

defined as a relationship between two products,

usually substitutes for each other, in which a

price change for one product affects the price of

the other.

Mylan, 838 F.3d at 435–36 (internal quotation marks, citations,

and alterations omitted); see also SmithKline Corp. v. Eli Lilly

& Co., 575 F.2d 1056, 1064 (3d Cir. 1978) (requiring

“significant” cross-elasticity of demand).

The District Court defined the product market as “the

market for all TTRTs, that is all transdermal testosterone

replacement therapies within the United States.” AbbVie, 329

F. Supp. 3d at 134. It found that all TTRTs were “reasonably

interchangeable” and exhibited cross-elasticity of demand. See

id. at 131–32. By contrast, in considering the market for

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TTRTs and injectables, the Court found that while TTRTs

were reasonably interchangeable with injectables, they

exhibited “little cross-elasticity of demand.” Id. at 133. It relied

on the following evidence:

• Injectables are much cheaper than AndroGel, yet

AbbVie has “consistently raised AndroGel’s wholesale

acquisition cost.”

• AbbVie executive James Hynd testified that AbbVie

does not price AndroGel against injectables and did not

offer rebates to match the price of injectables.

• AndroGel’s Director of Marketing Frank Jaeger

testified that AbbVie did not consider injectables to be

competition. He identified other TTRTs “such as

Axiron, Fortesta, and Testim as AndroGel’s

competitors.”

Id. The Court discounted an internal AbbVie document stating

that a rise in AndroGel’s copay was correlated with an increase

in injectables’ sales. It explained that factors besides price

drove the correlation, including “patient preference, the

existence of [specialized testosterone clinics], and the

disproportionate negative publicity testosterone gels received

after reports associating TTRTs with heightened

cardiovascular risk.” Id. For the same reason, the Court also

discounted a “patient switching study” that AbbVie and

Besins’s expert conducted. See id.

The District Court also found that AbbVie and Besins

had “a dominant share of the TTRT market in the relevant

period and that significant barriers existed for entry into that

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market.” Id. at 136. It relied on the following evidence in

finding that AbbVie and Besins had a dominant share:

• “In the TTRT market, AndroGel was by far the most-

prescribed product and was widely-recognized as the

‘market leader’ from before 2011 through 2014.”

• In April 2011 (when AbbVie and Besins sued Teva),

AndroGel’s share of the TTRT market was 71.5

percent. In October 2011 (when they sued Perrigo),

AndroGel’s share was 63.6 percent. AndroGel’s share

“remained above 60[ percent] until the end of 2014,

when Perrigo’s generic 1% testosterone product entered

the market.”

• No other TTRT product ever held 10 percent or more of

the market during this period, and AndroGel’s market

share was always more than three times larger than the

market share of any of its brand-name competitors.

• “AbbVie was able to maintain its share of the TTRT

market with a profit margin of over 65[ percent]” during

this period, “even with huge rebates.”

• AbbVie increased the wholesale acquisition cost for

AndroGel during this period.

Id. at 134–35. Finally, the Court found significant barriers to

entry because “a generic drug has significant capital, technical,

regulatory, and legal barriers to overcome.” Id. at 135–36. It

explained that, although three brand-name TTRT products

(i.e., Fortesta, Axiron, and Vogelxo) entered the market

between 2011 and 2014, “they did not pose significant

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competition to [AbbVie and Besins’s] monopolistic conduct”

because they held a low market share. Id. at 136.

AbbVie and Besins claim the District Court clearly

erred by excluding injectables from the product market for two

reasons. First, the record contained “voluminous evidence,

including expert testimony, showing substantial cross-

elasticity between topical TRTs and injectables.” AbbVie Br.

64. And second, the FTC’s expert conceded “some cross-

elasticity . . . between AndroGel and injectables” and

“presented no cross-elasticity study to support” the market the

Court defined. Id. at 64–65 (citation omitted). In sum, AbbVie

and Besins argue that the Court “defined the relevant antitrust

market in terms no expert had endorsed.” Id. at 29.

We disagree for several reasons. First, the mere fact that

the record contained evidence tending to show substantial

cross-elasticity between topical TRTs and injectables does not

mean the Court clearly erred. AbbVie employees conceded at

trial that AndroGel does not compete against injectables, so it

was at least “permissible” for the Court to exclude injectables

from the product market. Anderson, 470 U.S. at 574. Second,

while the FTC’s expert conceded some cross-elasticity

between AndroGel and injectables, he did not concede

significant cross-elasticity, which is required to find clear

error. See SmithKline Corp., 575 F.2d at 1064. Finally, the

FTC’s expert did study whether AndroGel and injectables

exhibited cross-elasticity of demand. App. 3862 (“I looked at

the data on what happened over time to a number of injectable

prescriptions and looked to see whether significant changes in

the price of the transdermal products, whether we could see an

effect on injectables . . . [The data] indicates a low cross-

elasticity of demand between AndroGel and injectables . . . .”).

While the expert did not “endorse” the market the Court

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ultimately defined, his testimony supported the Court’s market

definition, and the FTC argued for that definition in the

alternative. App. 3491 (“[E]ven if the relevant market included

all other TRT products except injections, the market share has

established that AndroGel still possessed monopoly power.”).

AbbVie and Besins also contend the District Court

committed legal error by misapplying the legal standard as to

the existence of market power and barriers to entry. They argue

the Court gave dispositive weight to market share data and

Hatch-Waxman’s technical and regulatory requirements while

ignoring real-world evidence. They emphasize that three new

competing brand-name TTRTs entered the market between

2011 and 2014. We are unpersuaded.

The Court did not give dispositive weight to market

share data; it also considered consumer demand for AndroGel,

the durability of AndroGel’s market share, the size and

strength of AndroGel’s competitors, and AndroGel’s pricing

trends and practices. See Dentsply, 399 F.3d at 187–89

(explaining these are relevant factors). And the Court did not

ignore new entrants; it explained the three brand-name TTRT

products that entered the market between 2011 and 2014 were

not meaningful competitors to AndroGel because of their

modest market shares. So the District Court did not err in

concluding AbbVie and Besins had monopoly power in the

relevant market.

For all the reasons stated, we hold the District Court

erred by rejecting the reverse-payment theory and in

concluding AbbVie and Besins’s litigation against Teva was a

sham. We also hold that the Court did not err when it concluded

the Perrigo litigation was a sham and that AbbVie and Besins

had monopoly power in the relevant market.

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V. REMEDIES

We turn finally to remedial issues. The District Court

erred in requiring AbbVie and Besins to disgorge $448 million

because district courts lack the power to order disgorgement

under Section 13(b) of the FTC Act. But it did not abuse its

discretion in denying injunctive relief. Nor is it futile to remand

the reverse-payment theory.

A. The District Court erred in ordering disgorgement.

The District Court ordered AbbVie and Besins to

disgorge $448 million in ill-gotten profits. It reasoned “[t]he

weight of authority . . . supports the conclusion that the grant

of authority in section 13(b) to provide injunctive relief

includes the full range of equitable remedies, including the

power to order a defendant to disgorge illegally obtained

funds.” AbbVie, 329 F. Supp. 3d at 137 (citation omitted). It

also said a contrary interpretation would “eviscerate the FTC

Act” because a monopolist would “be able to retain its ill-

gotten gains and simply face an injunction against future

wrongdoing.” Id.

Reviewing the District Court’s interpretation de novo,

see Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144, 151 (3d

Cir. 2009), we conclude it erred in ordering disgorgement

because district courts lack the power to do so under Section

13(b).

“The FTC has multiple instruments in its toolbox to

combat unfair methods of competition” and unfair or deceptive

acts or practices. FTC v. Shire ViroPharma, Inc., 917 F.3d 147,

155 (3d Cir. 2019). First is the FTC’s “traditional enforcement

tool,” Section 5 of the FTC Act. Id. (citing 15 U.S.C. § 45(b)).

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That section allows the FTC to initiate an administrative

proceeding to obtain a cease-and-desist order against an unfair

method of competition or an unfair or deceptive act or practice.

See 15 U.S.C. § 45(b). The FTC can then sue in federal district

court to get “limited monetary remedies” for violations of the

order. Shire, 917 F.3d at 155. A respondent who violates an

order is liable for no more than $10,000 per violation. See 15

U.S.C. § 45(l). The FTC can also seek “mandatory injunctions”

and “such other and further equitable relief” as the court deems

appropriate. Id. Violators other than the respondent are also

liable for up to $10,000 per violation, but only if they violate

the order knowingly. See id. § 45(m)(1)(A).

Second, under Section 19 of the FTC Act, the FTC can

promulgate “rules which define with specificity acts or

practices which are unfair or deceptive.” Id. § 57a(a)(1)(B).

Alternatively, it can initiate an administrative proceeding to

obtain a cease-and-desist order. Id. § 57a(a)(2). In either case,

it can sue violators in federal district court. See id. § 57a(a)(1)–

(2). If the FTC promulgated a rule, the court can “grant such

relief as the court finds necessary to redress injury,” including

but not limited to “the refund of money or return of property”

and “the payment of damages.” Id. § 57b(b). Otherwise, the

FTC can obtain such relief only if it shows “a reasonable man

would have known under the circumstances” his conduct was

“dishonest or fraudulent.” Id. § 57b(a)(2).

A third enforcement tool is Section 13(b) of the FTC

Act. “Unlike Section 5, Section 13 was not part of the original

FTC Act.” Shire, 917 F.3d at 155. “Rather, [it] was added later

[in 1973] in an effort to solve one of the main problems of the

FTC’s relatively slow-moving administrative regime—the

need to quickly enjoin ongoing or imminent illegal conduct.”

Id.

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The question presented in this appeal is whether a

district court has the power to order disgorgement under

Section 13(b). We start with the text, for where “the words of

the statute are unambiguous, the judicial inquiry is complete.”

Desert Palace, Inc. v. Costa, 539 U.S. 90, 91 (2003) (internal

quotation marks and citation omitted). Section 13(b) states:

Whenever the Commission has reason to

believe—

(1) that any person, partnership, or corporation is

violating, or is about to violate, any provision of

law enforced by the Federal Trade Commission,

and

(2) that the enjoining thereof pending the

issuance of a complaint by the Commission and

until such complaint is dismissed by the

Commission or set aside by the court on review,

or until the order of the Commission made

thereon has become final, would be in the

interest of the public—

the Commission by any of its attorneys

designated by it for such purpose may bring suit

in a district court of the United States to enjoin

any such act or practice. Upon a proper showing

that, weighing the equities and considering the

Commission’s likelihood of ultimate success,

such action would be in the public interest, and

after notice to the defendant, a temporary

restraining order or a preliminary injunction may

be granted without bond: Provided, however,

That if a complaint is not filed within such period

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(not exceeding 20 days) as may be specified by

the court after issuance of the temporary

restraining order or preliminary injunction, the

order or injunction shall be dissolved by the

court and be of no further force and effect:

Provided further, That in proper cases the

Commission may seek, and after proper proof,

the court may issue, a permanent injunction.

15 U.S.C. § 53(b). Section 13(b) authorizes a court to “enjoin”

antitrust violations. It says nothing about disgorgement, which

is a form of restitution, see Liu v. SEC, 140 S. Ct. 1936, 1940–

41 (2020), not injunctive relief, see, e.g., Meghrig v. KFC W.,

Inc., 516 U.S. 479, 484 (1996) (“[N]either [a mandatory nor

prohibitory injunction] contemplates the award

of . . . ‘damages’ or ‘equitable restitution.’”); Owner-Operator

Indep. Drivers Ass’n v. Landstar Sys., Inc., 622 F.3d 1307,

1324 (11th Cir. 2010) (“Injunctive relief constitutes a distinct

type of equitable relief; it is not an umbrella term that

encompasses restitution or disgorgement.”). Thus, Section

13(b) does not explicitly empower district courts to order

disgorgement.

This interpretation is even stronger in context. Section

13(b) says that, in order to sue, the FTC must have reason to

believe an antitrust violation is imminent or ongoing. See

Shire, 917 F.3d at 156 (holding requirement applies to request

for permanent injunction). This requirement makes perfect

sense as applied to injunctive relief, which prevents or

mandates a future action. See Injunction, BLACK’S LAW

DICTIONARY (rev. 4th ed. 1968). So if a violator’s conduct is

neither imminent nor ongoing, there is nothing to enjoin, and

the FTC cannot sue under Section 13(b). By contrast, the

requirement makes little sense as applied to a disgorgement

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remedy. Disgorgement deprives a wrongdoer of past gains, see

Liu, 140 S. Ct. at 1940–41, meaning that even if a wrongdoer’s

conduct is not imminent or ongoing, he may have gains to

disgorge. If Congress contemplated the FTC could sue for

disgorgement under Section 13(b), it probably would not have

required the FTC to show an imminent or ongoing violation.

That requirement suggests Section 13(b) does not empower

district courts to order disgorgement.

The FTC’s other enforcement powers also support our

interpretation. Both distinguish between injunctions and other

forms of equitable relief. See 15 U.S.C. § 45(l) (FTC can seek

“mandatory injunctions” and “such other and further equitable

relief” as the court deems appropriate); Id. § 57b(b) (court can

“grant such relief as the court finds necessary to redress

injury,” including but not limited to “the refund of money or

return of property” and “the payment of damages”). The timing

of the enactment of these powers is also instructive. Congress

amended Section 5 to allow “such other and further equitable

relief” at the same time it enacted Section 13(b). See Trans-

Alaska Pipeline Authorization Act, Pub. L. No. 93-153, § 408,

87 Stat. 576, 591 (1973). And it enacted Section 19—which

allows disgorgement only under certain conditions—after

Section 13(b). See Magnuson-Moss Warranty Act, Pub. L. No.

93-637, § 206, 88 Stat. 2183, 2201–02 (1975). Thus, Sections

5 and 19 both show that when Congress wants to empower a

district court to order more expansive equitable relief than

injunctions, it does so. Yet Congress did not do so in Section

13(b).

A contrary conclusion would undermine the FTC Act’s

statutory scheme. Section 13(b) was added in 1973 because the

FTC’s administrative regime moved slowly. See Shire, 917

F.3d at 155. But it is slow-moving for a reason: it affords

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defendants valuable procedural protections. For example,

Section 5 conditions relief to defendants on an administrative

proceeding and a cease-and-desist order. See 15 U.S.C.

§ 45(b). It also limits the monetary relief the FTC can obtain.

See 15 U.S.C. § 45(l); see also id. § 45(m)(1)(A). Section 19

likewise requires the FTC to promulgate “rules which define

with specificity acts or practices which are unfair,” or initiate

an administrative proceeding to obtain a cease-and-desist

order. Id. § 57a(a)(1)(B)–(2). By contrast, Section 13(b) does

not incorporate these same protections: it grants the FTC a

cause of action to seek a preliminary injunction in federal court

without first pursuing administrative adjudication or

rulemaking; and it imposes no limits on the amount of any

monetary relief the FTC may be able to obtain. Thus, our

interpretation does not “eviscerate” the FTC Act; it harmonizes

its provisions.

The FTC counters that Section 19 has a savings clause.

That clause states: “Remedies provided in this section are in

addition to, and not in lieu of, any other remedy or right of

action provided by State or Federal law. Nothing in this section

shall be construed to affect any authority of the Commission

under any other provision of law.” 15 U.S.C. § 57b(e). But

“[t]he saving clause preserves only those remedies that exist. It

does not inform the question whether section 13(b) contains an

implied power to award restitution.” FTC v. Credit Bureau

Ctr., LLC, 937 F.3d 764, 775 (7th Cir. 2019).

The FTC argues the interpretation we adopt goes

against the weight of precedent. It notes that seven of our sister

courts have held courts may order disgorgement under Section

13(b), and we acknowledged as much in the footnote of a not-

precedential decision. FTC Reply Br. 88 (quoting FTC v.

Magazine Sols., LLC, 432 F. App’x 155, 158 n.2 (3d Cir.

88

2011)). That is true, but until recently, “[n]o circuit ha[d]

examined whether reading a restitution remedy into section

13(b) comports with the FTCA’s text and structure.” Credit

Bureau, 937 F.3d at 785 (describing the precedents); see also

id. (quoting United States v. Hill, 48 F.3d 228, 232 (7th Cir.

1995) (“We are not merely to count noses. The parties are

entitled to our independent judgment.”)). Moreover, today’s

result is consistent with the recent ruling of the United States

Court of Appeals for the Seventh Circuit, which, in a thorough

and well-reasoned opinion, overturned its precedent

authorizing restitution under Section 13(b). Credit Bureau

Center, 937 F.3d at 764; see also FTC v. AMG Capital Mgmt.,

LLC, 910 F.3d 417, 429 (9th Cir. 2018) (O’Scannlain, J.,

specially concurring). Finally, our decision in Magazine

Solutions does not bind us. See I.O.P. 5.7. Even if it did, the

part of the footnote on which the FTC relies was dictum

because the litigant forfeited the issue by failing to raise it in

the district court. See 432 F. App’x at 158 n.2.

Next, the FTC argues Congress has “twice ratified the

consistent understanding of the courts of appeals”—first in

1994, when Congress expanded the venue and service-of-

process provisions of Section 13(b), see FTC Act Amendments

of 1994, Pub. L. No. 103-312, § 10, 108 Stat. 1691, 1695–96

(1994); and second in 2006, when Congress made “[a]ll

remedies available to the Commission . . . including restitution

to domestic or foreign victims” available for certain unfair

practices abroad, see U.S. Safe Web Act of 2006, Pub. L. No.

109-455, § 3, 120 Stat. 3372, 3372 (2006) (amending 15

U.S.C. § 45(a)(4)(B)) (emphasis added). FTC Reply Br. 93.

We disagree. The 1994 amendment did not change the

remedies available to the Commission. So it can hardly be seen

as ratifying our sister courts’ precedents on that issue. And the

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2006 amendment’s reference to restitution does not mean

restitution is available under Section 13(b); the availability of

restitution under Sections 5 and 19 is well-settled, and the

amendment could have referred to those sections instead.

The crux of the FTC’s counterargument is a pair of

Supreme Court decisions on which our sister courts and the

District Court relied—Porter v. Warner Holding Co., 328 U.S.

395, 398 (1946), and Mitchell v. Robert DeMario Jewelry, Inc.,

361 U.S. 288 (1960). According to the FTC, these decisions

mean Section 13(b)’s use of the word “injunction” impliedly

empowers district courts to order equitable relief in addition to

injunctions. Once again, we disagree.

In Porter, the Supreme Court held a district court could

order restitution under the Emergency Price Control Act of

1942, which authorized the Administrator of the Office of

Price Administration to seek “a permanent or temporary

injunction, restraining order, or other order” in court. 328 U.S.

at 397 (emphasis added). The Court reasoned:

Unless otherwise provided by statute, all the

inherent equitable powers of the District Court

are available for the proper and complete

exercise of that jurisdiction. And since the public

interest is involved . . . , those equitable powers

assume an even broader and more flexible

character than when only a private controversy is

at stake. Power is thereby resident in the District

Court, in exercising this jurisdiction to do equity

and to mould each decree to the necessities of the

particular case. It may act so as . . . to accord full

justice to all the real parties in interest . . . . In

addition, the court may . . . give whatever other

90

relief may be necessary under the circumstances.

Only in that way can equity do complete rather

than truncated justice.

Moreover, the comprehensiveness of this

equitable jurisdiction is not to be denied or

limited in the absence of a clear and valid

legislative command. Unless a statute in so many

words, or by a necessary and inescapable

inference, restricts the court’s jurisdiction in

equity, the full scope of that jurisdiction is to be

recognized and applied.

Id. at 398 (internal citations and quotations omitted). The Court

concluded that “the term ‘other order’ contemplates a remedy

other than that of an injunction or restraining order, a remedy

entered in the exercise of the District Court’s equitable

discretion.” Id. at 399. It noted that no “other provision of the

Act . . . expressly or impliedly precludes a court from ordering

restitution.” Id. at 403.

In Mitchell, the Supreme Court extended Porter. The

Court held a district court could order wage reimbursement

under the Fair Labor Standards Act, which gave courts

jurisdiction “to restrain violations” of the Act. Mitchell, 361

U.S. at 289. The Court said:

When Congress entrusts to an equity court the

enforcement of prohibitions contained in a

regulatory enactment, it must be taken to have

acted cognizant of the historic power of equity to

provide complete relief in light of the statutory

purposes. As this Court long ago recognized,

there is inherent in the Courts of Equity a

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jurisdiction to . . . give effect to the policy of the

legislature.

Id. at 291–92 (alteration in original) (citation and internal

quotations omitted). It was immaterial that the Act lacked

language, like “other order” in Porter, that confirmed the

court’s power to order reimbursement. See id. at 291 (citations

omitted).

We interpreted Porter and Mitchell in United States v.

Lane Labs-USA Inc., 427 F.3d 219 (3d Cir. 2005). There, we

held a court could order restitution under the FDC Act in part

because the Act empowered district courts to “restrain

violations.” See id. at 223; 21 U.S.C. § 332(a). We explained

Porter and Mitchell “charted an analytical course that seems

fairly easy to follow: (1) a district court sitting in equity may

order restitution unless there is a clear statutory limitation on

the district court’s equitable jurisdiction and powers; and (2)

restitution is permitted only where it furthers the purposes of

the statute.” Id. at 225. We noted “[n]umerous courts have

followed this approach in opining about a court’s power to

order . . . disgorgement under several different statutes.” Id. In

support, we cited, among other authorities, a decision holding

disgorgement is available under Section 13(b). See id. (citing

FTC v. Gem Merch. Corp., 87 F.3d 466, 470 (11th Cir. 1996)).

Following the analytical course that Lane Labs

described, we conclude Section 13(b) does not implicitly

empower district courts to order disgorgement. Unlike the

statutes at issue in Porter, Mitchell, and Lane Labs, Section

13(b) limits the district court’s equitable jurisdiction and

powers because it specifies the form of equitable relief a court

may order. Compare Porter, 328 U.S. at 397–98 (“a permanent

or temporary injunction, restraining order, or other order” in

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court), Mitchell, 361 U.S. at 289 (“restrain violations”), and

Lane Labs, 427 F.3d at 223 (same) with 15 U.S.C. § 53(b)

(“enjoin”). Moreover, as we have explained, the context of

Section 13(b) and the FTC Act’s broader statutory scheme both

support “a necessary and inescapable inference” that a district

court’s jurisdiction in equity under Section 13(b) is limited to

ordering injunctive relief. Porter, 328 U.S. at 398. So our

interpretation is consistent with Lane Labs and faithful to

Porter and Mitchell.

The FTC counters that in Lane Labs, we cited Gem

Merchandising, which held disgorgement is available under

Section 13(b). But we cited that case solely to support our

approach to applying Porter and Mitchell, and the other cases

we cited involved three different statutes. Lane Labs, 427 F.3d

at 225. We were not interpreting statutes en masse.

For these reasons, we hold district courts lack the power

to order disgorgement under Section 13(b) of the FTC Act. So

the District Court erred in requiring AbbVie and Besins to

disgorge $448 million.

B. The District Court did not abuse its discretion in

denying injunctive relief.

To obtain an injunction, the FTC must show there is a

“cognizable danger of recurrent violation, something more

than the mere possibility which serves to keep the case alive.”

United States v. W.T. Grant Co., 345 U.S. 629, 633 (1953). An

injunction that implicates a defendant’s First Amendment

rights must “burden no more speech than necessary to serve a

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significant government interest.” Madsen v. Women’s Health

Ctr., Inc., 512 U.S.

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