Allergan, Inc. v. Athena Cosmetics, Inc.

Federal Food, Drug, and Cosmetic Act Does Not Preempt State’s Regulation of Prescription Drugs

13-1286

December 30, 2013

Decision

Last Month at the Federal Circuit - January 2014

Judges: Rader, Moore (author), Wallach

[Appealed from: C.D. Cal., Judge Selna]

In Allergan, Inc. v. Athena Cosmetics, Inc., No. 13-1286 (Fed. Cir. Dec. 30, 2013), the Federal Circuit affirmed the district court’s SJ of violation of California’s unfair competition law (“UCL”). But the Court vacated the district court’s entry of a nationwide permanent injunction and remanded. The Court also held that it has exclusive jurisdiction in this case, since patent law is a necessary element of one of the well-pleaded claims, and the district court’s decision had changed the parties’ legal position with respect to the patent claims.

Plaintiff Allergan, Inc., Duke University, and Murray A. Johnstone, M.D. (collectively “Allergan”) sued Defendants Athena Cosmetics, Inc., Pharma Tech International, Inc., Product Innovations, LLC, Northwest Cosmetic Laboratories, LLC, and R & G Business LLC (collectively “Athena”) for infringing three patents of which Allergan is the exclusive licensee, including U.S. Patent No. 6,262,105 (“the ’105 patent”), and for a violation of the UCL, California Business and Professions Code § 17200 et seq. Allergan alleged that Athena competed unfairly by violating, inter alia, California Health Code § 111550 by marketing, selling, and distributing its RevitaLash line of hair and/or eyelash growth products, all of which contain a prostaglandin derivative as an active ingredient, without an NDA approved by the FDA or by the California State Department of Health Services. The district court, pursuant to the parties’ agreements, granted SJ of noninfringement of the ’105 patent and dismissed all of the patent claims without prejudice. The district court then granted Allergan’s motion for SJ that Athena’s products-at-issue qualified as new drugs that lacked the requisite approval, giving rise to a UCL violation. The district court also held that the Federal Food, Drug, and Cosmetic Act (“FDCA”) did not preempt Allergan’s UCL claim, and entered a permanent injunction barring Athena from manufacturing, marketing, and selling any eyelash growth product anywhere within the United States. Athena appealed.

On appeal, the Court first held it has exclusive jurisdiction over the appeal, even though no patent issue was involved. The Court noted that when patent law is a necessary element of one of the well-pleaded claims in a complaint, and the district court’s final decision on that complaint is now under appeal, the Court has jurisdiction over the appeal unless the district court’s decision left the parties in the same legal position with respect to all the patent claims. Athena argued that the parties’ legal positions had changed. The Court agreed with Athena, noting that the district court’s SJ of noninfringement would bind the parties in future district court litigations against each other.

The Court next affirmed the district court’s SJ that Athena violated the UCL, which bans marketing, distributing, and selling products that qualify as drugs without regulatory approval. The Court first looked at whether Allergan’s UCL claim is preempted by the FDCA. Athena argued that the FDCA impliedly preempts the UCL because Allergan’s UCL claim involves the violation of a California statute that simply incorporates FDCA provisions. Such a claim, Athena argued, is not rooted in a traditional state law tort principle and exists solely by virtue of a federal statute. Athena also argued that the UCL claim interferes with the FDA’s discretionary authority in regulating an article in interstate commerce as a drug, similar to a claim based on alleged misrepresentation to the FDA about a medical device. Allergan argued that the FDCA does not impliedly preempt its UCL claim because, while the FDCA contains express preemption provisions for medical devices and nonprescription drugs, it does not contain such provisions for prescription drugs. Allergan further argued that there is no implied preemption when simultaneous compliance with the UCL and the FDCA is possible, given that the California Health Code’s requirements parallel the FDCA’s.

The Court agreed with Allergan that the FDCA does not impliedly preempt the UCL claim. The Court noted that in all preemption cases, there is always an assumption that the historic police powers of the States, including regulation of health and safety, are not to be superseded by the FDCA unless that is the clear and manifest purpose of Congress. The Court found that Congress clearly defined the scope of preemption under the FDCA to include medical devices and nonprescription drugs, but the Court did not find a clear purpose by Congress to preempt state law in regulating prescription drugs, under which the products-at-issue are classified.

The Court next looked at whether there was a genuine issue of material fact about whether Athena’s eyelash products are within the definition of drugs by the California Health Code. The California Health Code incorporates the FDCA’s definition of “drugs” to include any article other than food to affect the structure of the human body. The Court noted that an article’s intended use is determined based on “the objective intent of the persons legally responsible for the labeling of drugs,” which may be derived or inferred from labeling, promotional material, advertising, or any other relevant source. Slip op. at 9-10 (quoting 21 C.F.R. § 201.128). Athena argued that its intent should turn only on labeling and marketing materials for its present products, which only discuss “eyelash appearance,” and that statements by resellers about eyelash growth do not reflect Athena’s objective intent. Allergan argued that there is no genuine factual dispute that Athena objectively intends for the products to be used as drugs, as revealed in testimony by Athena’s founder, and that Athena’s marketing materials consistently refer to “eyelash length,” which depends on growth.

The Court agreed with Allergan and held that there is no genuine dispute that Athena’s products were intended to be used to affect the structure of eyelashes, and were properly classified as drugs. The Court noted that Athena’s website collectively referred to its past and present products as the RevitaLash line-up of products. Therefore, Athena’s drug-related claims about an early product are relevant to its objective intent, given that Athena never disavowed such claims as it reformulated its products. The Court further observed that Athena had made references to eyelash structures and linked eyelash appearance to physical changes in its advertising, as well as in its trainings and presentations provided to resellers. Because the Court found that Athena objectively intended that the products-at-issue be used as drugs, the Court affirmed the district court’s grant of SJ.

The Court also vacated the district court’s entry of a permanent injunction barring Athena from manufacturing, marketing, selling, and/or offering for sale any and all eyelash growth products anywhere within the United States. The Court noted that the Commerce Clause precludes the California courts and the California legislature from regulating commerce entirely outside of California’s borders, and only the FDA has the power and discretion to enforce the FDCA. Athena argued that the injunction violates the Commerce Clause by regulating commerce that occurs wholly outside of California, since the state is not part of the supply chain for its most recent products-at-issue. The Court agreed with Athena that the district court abused its discretion by entering a nationwide injunction, since the injunction prevents extraterritorial sales that are entirely performed by non-California residents outside of California, thereby violating the Commerce Clause. The Court therefore vacated the permanent injunction and remanded, instructing the district court to limit the scope of the injunction to regulate conduct occurring within California.

Summary authored by Ming W. Choy, Student Associate at Finnegan.