Standing Under California § 17200 Only Requires Injury From Business Practice

Drawing upon recent California Supreme Court rulings, the U.S. Court of Appeals for the Federal Circuit reversed a California federal district court’s dismissal of claims under the state’s unfair competition law, finding the court had wrongly dismissed the claims for lack of standing. Allergan, Inc. et. al. v. Athena Cosmetics, Inc. et. al., Case No. 10-1394 (Fed. Cir., May 24, 2011) (Gajarsa, J.).

Allergan, a manufacturer of an FDA-approved treatment for inadequate eyelash growth, Latisse®, brought suit alleging the defendants had infringed or induced infringement of multiple patents. Allergan also claimed defendants violated California’s unfair competition law, U.C.L. §§17200 et seq. With respect to the latter claim, Allergan contended that defendants’ manufacture, sale or marketing of hair/eyelash growth products that had not been approved by the FDA or state health regulators constituted unfair competition under the California statute.

The defendants countered that Allergan lacked standing because the statute only protects persons who have suffered a loss that is eligible for restitution. Restitution is a remedy that seeks to restore the status quo; it requires the plaintiff to have had an ownership interest in the money or property it seeks to recover. The district court found Allergan had no such interest in lost profits or market share because defendants’ profits derived from third-party consumers. Allergan appealed; its patent claims were stayed pending appeal of the unfair competition claim.

The Federal Circuit rejected the district court’s narrow view of the California unfair competition statute. While acknowledging that California voters had approved Proposition 64 to restrict standing requirements and address abuses that had resulted in frivolous lawsuits, the Court noted that the California Supreme Court’s decisions in two cases that were decided while the Allergan appeal was pending (Kwikset Corp. v. Superior Court of Orange County and Clayworth v. Pfizer, Inc.,), demonstrated that Proposition 64 did not limit standing solely to injuries compensable by restitution. Instead, a plaintiff need only allege an injury in fact that was the result of the unfair business practice. Applying this reasoning, the Court held that Allergan had adequately pleaded a claim under U.C.L. §17200.

Importantly, the Court also rejected the defendants’ claims that standing under U.C.L. §17200 required a plaintiff to have direct business dealings with a defendant. The Court denied that Proposition 64 added any such “business dealings” requirement to U.C.L. §17200 claims.

Practice Note: The Allergan decision demonstrates that while standing to file suit under §17200 is more limited than it was in the past, §17200 remains a potent tool that litigants can use to challenge a competitor’s practices.

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Generic Drug Manufacturers And Failure To Warn: What duty is there after Pliva v. Mensing?

The Supreme Court ruled on June 23, 2011, that generic drug manufacturers cannot be sued for a failure to warn under state tort law, as long as their labeling complies with the FDA mandated labeling for the innovator drug product. While the Court had previously declined to find that federal regulation and approval of drug labeling of an innovator drug preempted state tort law in Wyeth v. Levine, 555 US 555 (2009), the Court ruled 5-4 in Pliva that the comprehensive scheme for approval of generic drugs under the 1984 Hatch-Waxman amendments required generic manufacturers to use the same labeling as the innovator brand name product. Since the law and FDA regulations, as conceded by the Food and Drug Administration (FDA), preclude a generic company from obtaining approval of labeling different from the innovator brand name product, the Court held it was not possible for a generic manufacturer to comply with both federal and state law. As such, under the doctrine of impossibility, they ruled federal law was supreme and state tort laws on failure to warn were preempted. In so finding, they held that the issue of “impossibility” turns on whether the private party could independently do under federal law what state law requires of it. In this case, they held that generic manufacturers could only ask FDA to change labeling and could not do so without FDA approval, and thus could not act independently.

As stated by the Court:

The non obstante provision suggests that pre-emption analysis should not involve speculation about ways in which federal agency and third-party actions could potentially reconcile federal duties with conflicting state duties. When the “ordinary meaning” of federal law blocks a private party from independently accomplishing what state law requires, that party has established pre-emption.

The Court ruled at length upon the FDA’s interpretation of its authority. FDA conceded that a generic company could not obtain approval of a CBE-30 (Changes Being Effected in 30 day supplement) to add additional warning language to labeling, and that its only alternative if it chose to do so was to propose new warnings to the FDA if they believed they were necessary. At that point the Agency is to work with the brand name manufacturer “to create a new label”. The appellant manufacturers and FDA did not agree as to whether there was such a duty. The Court did not rule on that issue, since it found that pre-emption applies, even if there were such a duty.

Both the majority opinion conceded, and the dissent made a big point of, the fact that the result of the decision resulted in a situation where an individual’s right to seek relief for failure to warn turns on whether he/she took a generic or brand name of a product. As noted in the majority opinion:

We recognize that from the perspective of Mensing and Demahy, finding pre-emption here but not in Wyeth makes little sense. Had Mensing and Demahy taken Reglan, the brand-name drug prescribed by their doctors, Wyeth would control and their lawsuits would not be pre-empted. But because pharmacists, acting in full accord with state law, substituted generic metoclopramide instead, federal law pre-empts these lawsuits. See, e.g., Minn. Stat. §151.21 (2010) (describing when pharmacists may substitute generic drugs); La. Rev. Stat. Ann. §37:1241(A)(17) (West 2007) (same). We acknowledge the unfortunate hand that federal drug regulation has dealt Mensing, Demahy, and others similarly situated.
But “it is not this Court’s task to decide whether the statutory scheme established by Congress is unusual or even bizarre.” Cuomo v. Clearing House Assn., L.L.C., 557 U. S. ___, ___ (2009) (THOMAS, J., concurring in part and dissenting in part) (slip op., at 21) (internal quotation marks and brackets omitted). It is beyond dispute that the federal statutes and regulations that apply to brand name drug manufacturers are meaningfully different than those that apply to generic drug manufacturers. Indeed, it is the special, and different, regulation of generic drugs that allowed the generic drug market to expand, bringing more drugs more quickly and cheaply to the public. But different federal statutes and regulations may, as here, lead to different pre-emption results. We will not distort the Supremacy Clause in order to create similar preemption across a dissimilar statutory scheme. As always, Congress and the FDA retain the authority to change the law and regulations if they so desire.

Given this ruling, what duty do generic manufacturers have if they become aware of new information as to the safety of a drug? Generic drug manufacturers still have pharmacovigilance duties under 21 C.F.R. § 314.80, and may become aware of data that they believe requires a labeling change. While the Court did not rule there was a duty to take any action, the FDA made it clear in their briefing that there was an obligation to bring such information to their attention and request a label change. As stated by the Court:

According to the FDA, the Manufacturers could have proposed—indeed, were required to propose—stronger warning labels to the agency if they believed such warnings were needed. U. S. Brief 20; 57 Fed. Reg. 17961. If the FDA had agreed that a label change was necessary, it would have worked with the brand-name manufacturer to create a new label for both the brand-name and generic drug. Ibid.

The agency traces this duty to 21 U. S. C. §352(f)(2), which provides that a drug is “misbranded . . . [u]nless its labeling bears . . . adequate warnings against . . . unsafe dosage or methods or duration of administration or application, in such manner and form, as are necessary for the protection of users.” See U. S. Brief 12. By regulation, the FDA has interpreted that statute to require that “labeling shall be revised to include a warning as soon as there is reasonable evidence of an association of a serious hazard with a drug.” 21 CFR §201.57(e).
According to the FDA, these requirements apply to generic drugs. As it explains, a “ ‘central premise of federal drug regulation is that the manufacturer bears responsibility for the content of its label at all times.’ ” U. S. Brief 12–13 (quoting Wyeth, 555 U. S., at 570–571). The FDA reconciles this duty to have adequate and accurate labeling with the duty of sameness in the following way:
Generic drug manufacturers that become aware of safety problems must ask the agency to work toward strengthening the label that applies to both the generic and brand name equivalent drug. U. S. Brief 20.

There are questions left open on this issue, including the lack of any clarity on whether this is indeed a statutory duty. If it is, what is the consequence if a generic manufacturer becomes aware of a safety issue with one of its product and does not act to bring the matter to FDA? In addition to the potential misbranding charges which FDA’s interpretation suggests, will the knowing failure to bring the matter to FDA result in liability under a negligence or other theory? Or is the only possible liability a potential violation of the Federal Food Drug and Cosmetic Act? (the Act) Would a plaintiff claiming a generic manufacturer did not pursue its duty to request a label change face the defense that there is no private right of action with regard to a generic manufacturer’s duty as outlined by FDA?

In addition, as discussed at same length in the dissent, what happens when the brand name product is discontinued as frequently occurs after generics enter the market? Who, if any one, may be exposed to failure to warn issue? If, as FDA frequently does, FDA lists the first generic as the Reference Listed Drug for purposes of bio-equivalence studies, does that “generic” manufacturer get put in the place of the brand name company in the analysis? While it may appear to be the last word on generic drug manufacturer labeling for failure to warn under state law, Pliva may not totally absolve generic drug manufacturers from product and other liability if they become aware of safety data and do not act to address the issue.

Aspartame Class Action Dismissal Affirmed on Statute of Limitations Grounds

On January 28, 2011, the Third Circuit Court of Appeals in an unpublished opinion affirmed the 2008 decision of the District Court for the Eastern District of Pennsylvania to toss the Aspartame class action on statute of limitations grounds. The court of appeals agreed that the plaintiffs could not invoke the equitable doctrine of fraudulent concealment to toll the four-year statute of limitations for antitrust claims. In re Aspartame Antitrust Litig., Case No. 09-1487. Doc # 003110422286, filed 1/28/2011 (hereafter “Op.”).

The class plaintiffs asserted claims under Section 1 of the Sherman Act, 15 U.S.C. § 1, alleging that the defendants had conspired to fix the prices of and allocate the market for Aspartame, an artificial sweetener, since at least January 1, 1993. Op. at 2; see also In re Aspartame Antitrust Litig., No. 2:06-CV-1732-LDD, 2008 WL 4724094, at *1 (E.D. Pa. Aug. 11, 2008). The underlying class action was commenced in April, 2006, making the applicable statute of limitations, April 2002.

Neither of the two named plaintiffs – Nog, Inc. or Sorbee International, Ltd. – purchased any Aspartame product after 2001, with Nog’s last purchase occurring in 1995 and Sorbee’s in 2001. The district court initially had denied a motion to dismiss on statute of limitations grounds, finding that, although plaintiffs’ factual allegations relating to fraudulent concealment were “not robust,” the issue should be decided “on a developed factual record” and allowed the case to proceed to discovery. Op. at 2 (internal quotation marks omitted).

Discovery revealed, however, that neither plaintiff took any steps to investigate its claims. Nog’s president and Rule 30(b)(6) designee testified that Nog purchased roughly $454 worth of Aspartame from Defendant NutraSweet in 1994 and 1995. He further testified that, while Nog believed that “the price [of Aspartame] was out of sight” when it began purchasing the product, no one at Nog complained to NutraSweet, attempted to negotiate a price reduction, or investigated the existence of other suppliers because Nog believed that NutraSweet was the only Aspartame supplier. Op. at 3; see also Aspartame Antitrust Litig., 2008 WL 4724094, at *5 (Nog’s designee testified to belief that NutraSweet “was the only game in town”).

Sorbee’s vice president and Rule 30(b)(6) designee testified that the company purchased roughly $47,500 worth of Aspartame between 1997 and 2001 and similarly denied having undertaken any investigation of the Aspartame market. He disclaimed any knowledge as to whether the company had negotiated the price of the Aspartame it purchased or attempted to obtain Aspartame at a lower price from any other supplier. He was also unable to answer “the most basic questions concerning the Aspartame market; he admitted that he had no understanding of the balance of supply and demand, the fluctuation in the price of raw materials, or the prevailing price tendered by other direct purchasers.” Op. at 3-4; see also Aspartame Antitrust Litig., 2008 WL 4724094, at *5 (noting Sorbee’s designee had “no recollection about the ‘negotiation, price paid, bidding, or process of purchasing Aspartame'”).

Under these facts – and given that the named plaintiffs’ purchases were all outside the limitations period – the district court granted the defendants’ later summary judgment motion, finding that the “complete lack of any diligence by the Plaintiffs precludes them from invoking the equitable doctrine of fraudulent concealment.” Aspartame Antitrust Litig., 2008 WL 4724094, at *6. The district court pointed to “storm warnings” that as a whole put the plaintiffs on inquiry notice and triggered a duty to investigate. Id. at *6. These warnings included (1) plaintiffs’ belief that the price of Aspartame was “out of sight” and that NutraSweet was the sole supplier in the market, (2) the filing of several anti-competition suits in other jurisdictions naming some of the defendants, and (3) a 1993 Harvard study about the conditions of the Aspartame market, all of which “collectively revealed significant barriers to entry and lack of competition in the Aspartame market.” Aspartame Antitrust Litig., 2008 WL 4724094, at *6; Op. at 6-7.

The court of appeals affirmed, holding that, under the foregoing facts, “[e]ven if we assume that defendants fraudulently concealed their anticompetitive conduct, there is simply no evidence to show that plaintiffs exercised the level of due care necessary to toll the limitations period.” Id. at 6. The court also rejected plaintiffs’ argument that “their complete inactivity [was] justified by the sophistication of defendants’ concealment” and that “until there is some outward indication of a price-fixing conspiracy, plaintiffs cannot be expected to do anything at all.” Id.Pointing to the “storm warnings” noted by the district court, the court of appeals found this argument unpersuasive and held, “Although these warnings were not particularly ominous, they certainly required plaintiffs to do something. . . . Instead, both parties sat on their hands. Equity will not excuse such unjustified inactivity.” Id. at 7 (emphasis in original; internal citations omitted)

E-CIGARETTES GET A “SMOKING” BREAK: D.C. Circuit Clarifies Scope of FDA’s Authority Over E-Cigarettes

On Tuesday December 7th, the D.C. Circuit Court of Appeals affirmed a lower court’s ruling in Sottera, Inc. v. FDA, No. 10-5032, (D.C. Cir. Dec. 7, 2010) holding that that the Food and Drug Administration (FDA) could not regulate as a medical device the electronic cigarettes (often referred to as “e-cigarettes”) at issue in that case. Instead, the court affirmed the district court’s finding that FDA’s authority over these e-cigarettes, as labeled, was limited to that over traditional tobacco products.
E-cigarettes are battery-powered reusable products that allow users to inhale nicotine vapor without fire, smoke, ash, or carbon monoxide. Manufacturers of e-cigarettes market their electronic nicotine delivery products as a safer, cheaper, and more environmentally-friendly alternative to traditional cigarettes. Designed to look like traditional cigarettes complete with a small LED light on the tip that glows red when activated, each contains an atomizer and a rechargeable battery. These products are viewed by some as a potentially viable alternative to traditional cigarettes, causing their popularity to increase in recent years.

The case was brought first in the U.S. District Court for the District of Columbia (Smoking Everywhere, Inc. v. FDA, 680 F. Supp. 2d 62 (D. D.C. 2010)) (“Smoking Everywhere”), by two e-cigarette distributors, Smoking Everywhere and Sottera, Inc. (doing business as NJOY). They filed the case after inbound shipments of their e-cigarettes were denied entry into the United States by FDA based on the Agency’s claim that the products were an unapproved drug-device combination under the Food, Drug, and Cosmetic Act (“FDCA”). The plaintiffs sought to enjoin FDA from regulating e-cigarettes as a drug-device combination and from denying entry of those products into the United States. The plaintiffs argued that FDA’s authority over their e-cigarette products did not extend beyond that of FDA’s more limited authority over traditional cigarettes.  The district court agreed with the plaintiffs and granted the injunction.  FDA appealed and the D.C. Circuit Court of Appeals has now affirmed.

Before the U.S. District Court, FDA argued that e-cigarettes should be regulated like nicotine replacement gum or patches pursuant to FDA’s jurisdiction over medical devices. FDA has authority under the FDCA to regulate articles that are “drugs,” “devices,” or “drug/device combinations.” The FDCA defines drugs to include “articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease” and “articles (other than food) intended to affect the structure or any function of the body of man or other animals.”21 U.S.C. § 321(g). Similarly, “device” is defined as “an instrument, apparatus, implement … or other similar or related article, including any component, part, or accessory, intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or intended to affect the structure or any function of the body of man or other animals…” 21 U.S.C. § 321(h).In sum, FDA’s statutory authority to regulate a product as a “drug” or “device” is limited to products that are intended to be used to affect a structure or function of the body or that are intended for use in the cure, mitigation, treatment, or prevention of disease.

FDA also has statutory authority to regulate traditional cigarettes and other tobacco products under the FDCA as a result of the Family Smoking Prevention and Tobacco Control Act of 2009 (the “Tobacco Act”), but that authority is more limited than that applicable to drugs and devices. Specifically, FDA may regulate “tobacco products,” which the FDCA defines as “any product made or derived from tobacco that is intended for human consumption.” 21 U.S.C. 321(rr)(1); however, the act excludes any “article that is a drug under 21 U.S.C. § 321(g)(1), a device under 21 U.S.C. § 321(h), or a combination product described in 21 U.S.C. § 353(g).” 21 U.S.C. § 321(rr)(2)-(3). Under its authority over tobacco products, FDA may impose restrictions on their sale, advertising and promotion, regulate their mode of manufacture, and establish other standards for their production and distribution. Unlike its more expansive authority over drugs and devices, however, FDA’s authority over conventional tobacco products does not include a pre-marketing clearance or approval requirement.

In the Smoking Everywhere litigation, the plaintiffs argued that e-cigarettes are the same as traditional cigarettes in their use and purpose, and therefore FDA must be required to regulate them under the Tobacco Act the same as it does traditional cigarettes. Conversely, FDA argued that nicotine is a drug that affects the structure or function of the body, and that, as a nicotine delivery mechanism, e-cigarettes are medical devices. If e-cigarettes were to be classified as a medical device because of their nicotine-delivery feature, the products would require FDA’s premarketing approval under the FDCA, subject to a rigorous demonstration of safety and effectiveness, as well as a host of other regulatory requirements.

The district court found for the plaintiffs, holding that since the e-cigarettes were neither labeled nor advertised as having any therapeutic uses, FDA could not regulate them as drugs or devices. FDA appealed the decision.

The appellate court agreed with the district court that e-cigarettes must be regulated the same way as other traditional tobacco products under the FDA’s Tobacco Act authority. The court noted that FDA itself frequently expressed the view that “cigarettes are beyond the scope of the [FDCA] absent health claims establishing a therapeutic intent on behalf of the manufacturer or vendor.” Sottera, Inc. v. FDA, at 9. The court found dispositive that, in enacting several statutes on tobacco regulation, “Congress has acted against the backdrop of the FDA’s consistent and repeated statements that it lacked authority under the FDCA to regulate tobacco absent claims of therapeutic benefit by the manufacturer.” Id., citing FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 144 (2000). Following the Supreme Court’s reasoning in Brown & Williamson, the court held that FDA can only regulate tobacco products marketed for therapeutic purposes under the FDCA’s drug/device provisions. Since the e-cigarettes at issue in the case were neither labeled nor marketed with any claim of therapeutic use, the court held that these products could not be regulated as drugs or medical devices, and that therefore FDA’s detention of them was unlawful.