A federal judge here yesterday cleared the way for a $120 million antitrust lawsuit against Mylan Laboratories Inc., a decision that could establish the right of the Federal Trade Commission to seek financial penalties from the companies it sues.

U.S. District Judge Thomas Hogan yesterday refused to dismiss the case against Pittsburgh-based Mylan, which was filed in December by the FTC and alleges that the nation's second-largest maker of generic drugs illegally tried to corner the market for a pair of popular anti-anxiety medications. Prices for those drugs soared by as much as 3,000 percent last year, a rise that helped cause a 0.2 percent increase in the consumer price index.

In a widely anticipated ruling, Hogan said the FTC has the legal authority to recover the ill-gotten gains of companies found to have violated antitrust laws. The decision could have important ramifications for all businesses because the commission has said that it now intends to add muscle to its enforcement actions by demanding that corporations hand over illegal profits.

It's unclear whether Congress intended to give the FTC the right to seek disgorgement in antitrust suits, and some experts have argued that the agency's charter merely allows it to issue cease-and-desist orders. When misconduct is egregious enough, the commission traditionally refers cases to the Justice Department for criminal prosecution. And offending companies typically are forced to part with illegal profits through lawsuits filed on behalf of aggrieved consumers.

With Hogan's decision, the FTC finally has won a clear judicial imprimatur to demand disgorgement. His opinion stated that Mylan "cites no relevant case law that prohibits the FTC from seeking disgorgement or any other form of equitable ancillary relief."

"We're gratified by the decision," said FTC spokeswoman Victoria Streitfeld. "It's good news for consumers."

Mylan officials noted yesterday that Hogan's decision did not speak to the merits of the lawsuit and they reiterated their contention that the company never sought a monopoly on any drugs.

"We are confident that when all the facts are examined, Mylan will prevail," said Dana Barnett, a company vice president. "Consumers continue to benefit from a highly competitive marketplace in these products."

The case stems from an exclusive deal Mylan signed in 1997 with Profarmaco, an Italian drug manufacturer. Soon after, the wholesale price of clorazepate rose from $11.36 for a bottle of 500 to $377 a bottle. The price increase of lorazepam rocketed to $190 from $7.30.

Mylan officials said the brand-name version of both drugs is far costlier than what they charged and they have argued that other drugmakers could have purchased the raw materials for the drugs from other companies.