Innovative Health Solutions, Inc. v. Dyansys, Inc. et al
Filing
119
ORDER GRANTING IN PART DEFENDANTS' MOTION TO DISMISS SECOND AMENDED COMPLAINT, AND GRANTING LEAVE TO AMEND 101 (Illston, Susan) (Filed on 5/19/2015)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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INNOVATIVE HEALTH SOLUTIONS,
INC.,
Plaintiff,
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DYANSYS, INC., et al.,
Re: Dkt. No. 101
Defendants.
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United States District Court
Northern District of California
ORDER GRANTING IN PART
DEFENDANTS' MOTION TO DISMISS
SECOND AMENDED COMPLAINT
AND GRANTING LEAVE TO AMEND
v.
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Case No. 14-cv-05207-SI
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On May 15, 2015, the Court held a hearing on defendants' motion to dismiss the second
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amended complaint. For the reasons set forth below, the Court GRANTS defendants' motion in
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part, and GRANTS plaintiff leave to amend.
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BACKGROUND
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This case was originally filed on September 12, 2014, in the United States District Court
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for the Middle District of Florida. On September 30, 2014, plaintiff filed a first amended
complaint. By order filed November 25, 2014, this case was transferred into this district. On
February 12, 2015, the Court granted the parties' stipulation permitting plaintiff leave to file a
second amended complaint ("SAC"). Now before the court is defendants' motion to dismiss the
SAC.
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Plaintiff IHS, is an Indiana corporation engaged in the business of marketing, selling, and
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distributing a medical device called P-STIM throughout Florida and the United States. SAC ¶ 4.
The SAC alleges that defendant DyAnsys, Inc. is a California corporation "engaged in a business
that competes with IHS and which . . . has passed itself off as the source of PSTIM, and has
deliberately endangered and continues to endanger patients throughout the United States by
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distributing and selling an Indian-made medical device that is not approved by, and has never been
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approved by, the FDA and for which the FDA has issued an import alert preventing its importation
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into the United States." Id. ¶ 5. Defendant Srini Nageshwar is the CEO of DyAnsys and "is the
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moving force behind the infringing, tortious, and dangerous misconduct committed by DyAnsys."
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Id. ¶ 6. The SAC alleges that defendant Products for Doctors, Inc. (sometimes "PD"), is a
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California corporation believed to be an agent or representative of DyAnsys, and that defendant
James Bradford "holds himself out as an Executive Partner of Products for Doctors, Inc. and is
believed to be the moving force behind the infringing, tortious, and dangerous misconduct of
Products for Doctors, Inc." Id. ¶¶ 7-8.
According to the SAC, "[s]ince at least as early as 2010, IHS, itself and by and through its
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predecessor in interest, has been continuously using P-STIM as a trademark to identify a medical
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United States District Court
Northern District of California
device for administering autonomic nervous system and vascular stimulation (hereinafter referred
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to as the 'PSTIM medical device')." Id. ¶ 9.
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internationally by Biegler GbmH, a company in Austria that manufactures the P-STIM medical
device for IHS and licenses the mark to IHS for use in the United States." Id.1
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The SAC alleges that "P-STIM is a mark owned
IHS, in conjunction with Biegler, originally began selling its P-STIM medical device under
FDA 510(K) Clearance No. K050123. Id. ¶ 11. The SAC alleges that "[a]s a result of IHS'
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tremendous promotional, marketing and sales efforts, outstanding customer service, exponential
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sales growth, and the exceptionally high quality of its FDA-approved device, P-STIM has
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acquired a secondary meaning among doctors, patients and the consuming public such that they
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According to defendants, Biegler does not possess any registered trademark rights to the “PSTIM” term. Defendants state that "Biegler previously attempted to register the 'P-STIM' mark
with the United States Patent and Trademark Office (USPTO), but was unsuccessful in its
application. Among other things, the USPTO determined that the mark was 'confusingly similar'
to a previously registered 'PC-STIM' mark. Consequently, Biegler possesses, at best, common law
rights to the 'P-STIM' mark." Dkt. 101 at 2:18-23. Defendants also state that they "understand
that there has been collateral litigation pertaining to Biegler's alleged ownership of the P-STIM
Mark and rights to use the technology." Id. at 2 n. 1.
In opposition to defendants' motion to dismiss the SAC, plaintiff has submitted the
Declaration of Ingeborg Biegler, the President of Biegler GmbH, dated November 10, 2014. The
Biegler declaration states that "[w]e have applied for a trademark registration in the United States,
but that application is currently pending. It is my understanding based on information I received
from my attorneys that the only reason that our application has not yet been granted is that the
U.S. trademark office believes that P-STIM is too similar to a previously existing trademark
registration for PC-STIM." Acharya Decl. Ex. A ¶ 6.
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identify P-STIM as the source of IHS' high quality autonomic nervous system and vascular
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stimulation medical device." Id. ¶ 14.
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The SAC alleges that the DyAnsys defendants are previous distributors of the P-STIM
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medical device manufactured by Biegler, but their distribution rights were terminated by Biegler
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in July 2013. Id. ¶ 16. On or after August 1, 2013, the DyAnsys defendants began importing from
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India a device almost identical in appearance to that of the P-STIM, which defendants called “PStim” and, later, “AnsiStim.” Id. ¶ 17. The SAC alleges that the DyAnsys defendants then
recruited, among others, Products for Doctors as their agents and representatives to market and sell
the knockoff 'P-Stim' medical devices on their behalf. Id. ¶ 18. The SAC also alleges that
defendant Products for Doctors is using an unauthorized reproduction of the "P-STIM stylized font
and logo" on their website. Id. The SAC alleges that "[a]t the time that they entered the market,
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United States District Court
Northern District of California
Defendants were entirely aware that IHS had been using P-STIM as a trademark, and their actions
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to date prove what appears to be a willful and deliberate ploy to misappropriate the mark for
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themselves and to use it to sell flimsy, Indian-made knockoff 'P-Stim' devices." Id. ¶ 19.
The SAC alleges that defendants do not have FDA clearance to sell the "knockoff" "PStim" devices, and that defendants have misrepresented to the public that their product was cleared
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under the same FDA 510(K) number assigned to IHS’s P-STIM medical device. Id. ¶ 20. The
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SAC also alleges that the "DyAnsys and PD Defendants misrepresented on their respective
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websites that their Knockoff Device was approved by the FDA, and they otherwise misbranded
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their product in violation of federal regulations." Id. ¶ 22.
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On January 2, 2015, while this case was pending, the FDA published Import Alert 89-08,
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which, according to the SAC, "effectively prohibit[ed] the importation of Defendants’ device,
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whether designated 'P-Stim' or 'AnsiStim' because, contrary to Defendants’ misrepresentations to
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the public, their device does not have and has never had an FDA 510(K) clearance number." Id.
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¶ 23. The SAC alleges that "[d]espite the Import Alert, PD Defendants continue to represent, as of
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today, that its 'PStim' device is 'FDA cleared.'" Id. ¶ 26, Ex. D. The SAC alleges that "defendants'
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sales representatives used, and may still be using, an official FDA document – FDA’s Summary of
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Safety and Effectiveness (‘SSE’) for the FDA 510(K) number assigned to the P-STIM medical
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device – as a marketing tool to confuse, deceive and steal away IHS’ customers.” Id. ¶ 28.
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The SAC alleges that the DyAnsys defendants "also illegally import their 'P-Stim' product
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by making false statements to the government." Id. ¶ 29. "Before an electro-acupuncture medical
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device is allowed entry into the United States, the importer must provide the FDA and the
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Customs and Border Patrol with the medical device's 510(K) clearance showing that it can be
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lawfully marketed in the United States. Thus, not only does DyAnsys Defendants’ fraud allow
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United States District Court
Northern District of California
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them to import ineffective and unsafe products in violation of the federal Food, Drug, and
Cosmetic Act, it also violates the federal False Statements Accountability Act of 1996." Id.
The SAC alleges that “[b]ecause Defendants wrongfully and misleadingly referenced and
relied on the P-STIM FDA 510(K) number, Biegler was forced to obtain a different number for
the P-STIM medical device, namely FDA 510(K) 140788, in an effort to allay confusion in the
U.S. between IHS’ P-STIM medical device and Defendants’ Knockoff Device sold under the
Counterfeit Designation.” Id. ¶ 31. Plaintiff alleges that defendants’ knockoff device is “flimsy,
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unreliable, and cheap, it has an extraordinarily high failure rate, routinely malfunctions and breaks
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down altogether.” Id. ¶ 33. “Because doctors and patients identify P-STIM with IHS and are
unaware that Defendants were, and still may be, selling inferior Knockoff Devices under the
Counterfeit Designation, they attribute their negative experiences to IHS, which severely damaged
IHS’ reputation and goodwill, and to that of the valuable P-STIM trademark.” Id.
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The SAC also alleges that defendants “crafted a scheme predicated on outright falsities in
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order to drive IHS and the P-STIM mark out of the medical device market altogether.” Id. ¶ 38.
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In May 2014, the DyAnsys defendants appeared before the Centers for Medicare and Medicaid
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Systems (“CMS”) and “falsely claim[ed] standing as the ‘manufacturer’ and seller of the P-STIM
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medical device.” Id. ¶ 39. Defendants argued to CMS that “the billing codes for P-STIM are
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unclear or ambiguous, and that they need to be revised or clarified.” Id. The SAC alleges that
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“DyAnsys Defendants were not at all interested in seeking revision or clarification of the codes.
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Rather, Defendants knew full well that by arguing to CMS that the codes were unclear or
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ambiguous, this would cause reimbursement concerns within CMS and, based on those concerns
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alone, CMS would compromise the current Medicare reimbursement status of the product. As a
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result, CMS decided that no national program operating need was identified for Medicare,
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Medicaid, and for the private insurance sector.” Id. ¶ 40. Plaintiff alleges that “[t]his CMS action,
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caused by DyAnsys Defendants, caused great harm to covered patients and effectively drove IHS
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out of the P-STIM business.” Id. ¶ 41.
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The SAC alleges that “[i]n furtherance of their ploy, Defendants created a new designation,
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ANSiStim, for their Indian-made knockoff medical device, and applied for their own FDA 510(K)
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clearance number in connection with that device.” Id. ¶ 42. “Knowing full well that their
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Counterfeit Designation and cheap Knockoff Device had already created tremendous confusion in
the marketplace and that their misrepresentations to CMS would cause Medicare and Medicaid
patients and IHS reimbursement harm, DyAnsys Defendants deliberately set out to denigrate the
P-STIM trademark, drive IHS out of business, and then steal all of that business under a newly
assumed name, ANSiStim, and a newly assigned 510(K) number.” Id. ¶ 43. The SAC alleges that
“ANSiStim is, in effect, the ‘fruit of the poisonous tree.’” Id. ¶ 45.
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Northern District of California
The SAC alleges that "Biegler has delegated to IHS: a) all rights to protect the P-STIM
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trademark against challenges, including to the Mark’s validity and enforceability, being made by
Defendants in this case; b) all rights to pursue legal action in connection with statements and
actions by DyAnsys to CMS concerning P-STIM." Id. ¶ 52. Biegler GmbH also "stipulates and
agrees to be bound by any legal determinations made by this Court with respect to the validity and
enforceability of the P-STIM mark in the United States." Id. ¶ 53. Finally, Biegler GmbH
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"stipulates and agrees not to pursue any legal action against Defendants seeking damages or
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injunctive relief resulting from their use, misuse, or infringement of the P-STIM mark or for any
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of the other claims asserted or that could have been asserted by IHS in this case." Id. ¶ 54.2
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The SAC alleges the following claims:
(1) False Designation of Origin and False
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Descriptions under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); (2) False Advertising
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under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); (3) False Advertising under Cal.
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Bus. & Prof. Code § 17500; (4) Unlawful Business Practice under Cal. Bus. & Prof. Code
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§ 17200; (5) Unlawful Business Practice under Cal. Bus. & Prof. Code § 17200; (6) Fraudulent
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Business Practice under Cal. Bus. & Prof. Code § 17200; (7) Unfair, Deceptive, Untrue, or
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Misleading Advertising under Cal. Bus. & Prof. Code § 17200; (8) Unfair Methods of
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Ms. Biegler's declaration reiterates the stipulations alleged in the SAC. Acharya Decl. Ex. A
¶¶ 19-22.
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Competition and Unfair or Deceptive Acts or Practices Unlawful Business Practice under Cal.
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Bus. & Prof. Code § 1770; and (9) trade libel. The SAC seeks damages, restitution and injunctive
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relief, including enjoining defendants from representing that their products are covered or
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approved under FDA 510(K) No. K050123, K140788 or any other FDA 510(K) number
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associated with IHS’ P-STIM medical device. Id. Prayer for Relief ¶¶ C, E, F. The SAC also
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seeks an injunction prohibiting defendants from advertising, marketing, distributing or selling their
knockoff devices or any equivalent medical device, whether under the name ANSiStim or
otherwise. Id. ¶ G.
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DISCUSSION
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The DyAnsys defendants have moved to dismiss the second amended complaint. DyAnsys
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United States District Court
Northern District of California
contends that: (i) Biegler and any other licensees must be joined as parties because IHS alone
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cannot bring its claims under the Lanham Act, since IHS is neither the owner of the trademark nor
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an exclusive licensee; (ii) IHS lacks standing to assert claims based upon the Ansys Defendants’
alleged misrepresentations to the FDA, since there is no private action for an alleged violation of
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an FDA regulation; (iii) IHS lacks standing to assert claims based upon the DyAnsys Defendants’
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alleged misrepresentations to the Centers for Medicare and Medicaid Services (“CMS”) since the
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filing of a CMS application is a constitutionally protected activity; and (iv) all claims against
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defendant Srini Nageshwar should be dismissed because, as president of DyAnsys, he cannot be
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held personally liable for the alleged misconduct of the corporation.
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Doctors and James Bradford have joined in this motion.
Defendants Products for
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I.
Joinder
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Defendants move to dismiss plaintiff’s Lanham Act claims on the ground that IHS cannot
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bring its claims on its own, because Biegler, which owns the trademark, and other licensees are
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necessary parties. Although defendants frame the issue as one of standing, it does not appear that
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defendants actually contend that IHS lacks standing to bring its Lanham Act claims. Rather,
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defendants contend that a licensee must generally join the trademark owner as a party in order to
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assert a Section 43(a) claim.3 Defendants also note that IHS is just one of at least two licensees.
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Defendants argue that Biegler and the other non-exclusive licensees are affected by the outcome of
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this lawsuit, yet they are not participating in this action.
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Defendants contend that this lawsuit could have significant consequences for Biegler, for
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defendants, and for any other parties who claim an ownership interest in or rights to the disputed
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mark. The DyAnsys defendants assert that they will be challenging the validity of the trademark,
and if they are successful, "it would substantially affect Biegler’s common law rights to the mark,
as the Court’s ruling would have a persuasive (and perhaps preclusive) impact on any subsequent
action in which Biegler attempts to enforce the mark against other distributors of p-stim products."
Dkt. 101 at 7:5-8. Defendants also argue that if Biegler and its licensees are not named as parties
to the action, defendants will face the risk of multiple, duplicative, and potentially inconsistent
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Northern District of California
judgments if these parties ever attempt to separately enforce the mark.
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Federal Rule of Civil Procedure 19(a) provides the standard for determining if a party must
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by joined as “necessary”:
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A person who is subject to service of process and whose joinder will
not deprive the court of jurisdiction over the subject matter of the
action shall be joined as a party in the action if (1) in the person's
absence complete relief cannot be accorded among those already
parties, or (2) the person claims an interest relating to the subject of
the action and is so situated that the disposition of the action in the
person's absence may (i) as a practical matter impair or impede the
person's ability to protect that interest or (ii) leave any of the persons
already parties subject to a substantial risk of incurring double,
multiple, or otherwise inconsistent obligations by reason of the
claimed interest.
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Fed. R. Civ. P. 19(a).
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The determination of whether a non-party should be joined pursuant to Rule 19(a) rests
within the discretion of the court based on a consideration of the facts of the case and the policies
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underlying the rule. See Bakia v. County of Los Angeles, 687 F.2d 299, 301 (9th Cir. 1982). The
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Ninth Circuit has instructed courts to consider the following when deciding whether a non-party
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should be joined:
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Underlying policies include plaintiff's right to decide whom he shall
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Defendants note that plaintiff did not attach a copy of the license agreement to the SAC, and
thus the terms of plaintiff’s license are not before the Court.
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sue, avoiding multiple litigation, providing the parties with complete
and effective relief in a single action, protecting the absentee, and
fairness to the other party. The determination is heavily influenced
by the facts and circumstances of each case. It is a misapplication of
Rule 19(a) to add parties who are neither necessary nor
indispensable, who are not essential for just adjudication and who
have a separate cause of action entirely.
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Id.
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United States District Court
Northern District of California
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Where joinder is “necessary” pursuant to Rule 19(a)(1)-(2), but such joinder is not feasible
because it would destroy the court's jurisdiction, then the court must determine whether the party
is “indispensable,” as defined by Rule 19(b). If the party is “indispensable,” then the action must
be dismissed. Rule 19(b) states:
Determination by Court Whenever Joinder Not Feasible. If a person
as described in subdivision (a)(1)-(2) hereof cannot be made a party,
the court shall determine whether in equity and good conscience the
action should proceed among the parties before it, or should be
dismissed, the absent person being thus regarded as indispensable.
The factors to be considered by the court include: first, to what
extent a judgment rendered in the person's absence might be
prejudicial to the person or those already parties; second, the extent
to which, by protective provisions in the judgment, by the shaping of
relief, or other measures, the prejudice can be lessened or avoided;
third, whether a judgment rendered in the person's absence will be
adequate; fourth, whether the plaintiff will have an adequate remedy
if the action is dismissed for nonjoinder.
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Fed. R. Civ. P. 19(b). Defendants bear the burden of persuasion in arguing for dismissal under
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Rule 19. See Clinton v. Babbit, 180 F.3d 1081, 1088 (9th Cir. 1999).
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Plaintiff argues that defendants do not face the risk of multiple, duplicative, and potentially
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inconsistent judgments because Biegler GbmH has: (a) assigned all rights to protect the P-STIM
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trademark to IHS (see Acharya Decl., Exh. A ¶ 19); (b) agreed to be bound by any and all legal
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determinations made by this Court with respect to the validity and enforceability of the P-STIM
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mark in the United States (id. ¶ 20); and (c) stipulated and agreed that it will not pursue any legal
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action against defendants resulting from their use, misuse or infringement of the P-STIM
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trademark or for any of the other claims asserted or that could have been asserted by IHS in this
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case. (id. ¶ 21.). In addition, plaintiff has filed the declaration of Ms. Biegler, which reiterates the
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stipulations alleged in the SAC. Acharya Decl. Ex. A ¶¶ 19-22. At the hearing, plaintiff's counsel
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stated that he had been in contact with Ms. Biegler and that Biegler did not want to participate as a
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plaintiff in this lawsuit, and counsel confirmed that Biegler agreed to be bound by all of this
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Court's determinations regarding the P-STIM mark, including its validity. Counsel also asserted
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that this Court lacks jurisdiction to compel Biegler to join as a party. Counsel also stated that
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there was only one other licensee, that counsel he had been in contact with the other licensee, and
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that the licensee was aware of this lawsuit and had declined to join as a plaintiff. Finally, counsel
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stated that Biegler would cooperate with discovery, that defendants would not be required to
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conduct discovery pursuant to the Hague Convention, and that in the event defendants wished to
take Ms. Biegler's deposition, Ms. Biegler would travel to the United States for that proceeding.
Based upon the record before the Court, including the various representations made by
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plaintiff's counsel at the hearing, the Court finds that joinder of absent parties is not warranted.
Biegler has assigned all of its rights to protect the P-STIM trademark to plaintiff, and the other
licensee does not claim an interest in this litigation. As such, neither Biegler nor the other licensee
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Northern District of California
is a necessary party to this case. Further, based upon the allegations of the SAC, Ms. Biegler's
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declaration, and the representations of plaintiff's counsel at the hearing, the Court finds that
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defendants are not at risk of facing multiple lawsuits because Biegler has agreed to be bound by
any and all legal determinations made by this Court regarding the mark. Finally, the Court's
concerns about the practical difficulties of conducting discovery with regard to Biegler have been
addressed by plaintiff's counsel's representations that Biegler will cooperate with discovery as
discussed above.
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II.
Preclusion/preemption of claims based on Federal Food, Drug and Cosmetic Act
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Defendants contend that IHS’ Lanham Act and state law claims should be dismissed to the
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extent they are based upon defendants’ alleged misuse of an FDA clearance number or violations
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of the Federal Food, Drug, and Cosmetic Act (“FDCA”). Defendants argue that federal law
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provides that the FDA has exclusive enforcement authority over the approval of medical devices,
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and as such, there is no private cause of action for an alleged violation of the FDCA. See 21
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U.S.C. § 337(a); Buckman Co. v. Plaintiff’s Legal Comm., 531 U.S. 341, 349 n.4 (2001) (Section
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337(a) “leaves no doubt that it is the Federal Government rather than private litigants who are
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authorized to file suit for noncompliance with the medical device provisions [of the FDCA]”).
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Defendants cite PhotoMedex, Inc. v. Irwin, 601 F.3d 919 (9th Cir. 2010), for the
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proposition that "the federal courts have uniformly established that – especially in the medical
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device field – claims that require the court to interpret FDA regulations stray too close to the
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exclusive enforcement domain of the FDA and should not be permitted to proceed." Dkt. 101 at
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8:26-9:2. In PhotoMedex, the plaintiff alleged that the defendant violated the Lanham Act by
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falsely advertising a surgical laser as “FDA approved” when it had not in fact been approved.
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Northern District of California
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FDA regulations provided that once a medical device had been approved by the FDA,
“substantially equivalent” medical devices were also considered approved.
601 F.3d at 925-26.
The plaintiff filed an administrative complaint with the FDA alleging that the defendant’s new
laser was not “substantially equivalent” to an earlier, approved laser. The FDA initially failed to
act on the complaint, and eventually determined that the laser at issue was “substantially
equivalent” to the earlier laser. Id. at 926-27. The plaintiff’s Lanham Act claim alleged that prior
to the FDA’s determination of substantial equivalence, the defendant’s representations about FDA
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approval were false. Id. at 927-28. The Ninth Circuit held that under those circumstances, the
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plaintiff’s Lanham Act claim was barred:
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PhotoMedex is not permitted to circumvent the FDA’s exclusive
enforcement authority by seeking to prove that Defendants violated
the FDCA, when the FDA did not reach that conclusion. In a
context where the statute and regulations place responsibility in the
first instance on the manufacturer to determine whether its device is
covered by a previous FDA clearance and permit marketing of the
product without an affirmative statement of clearance by the FDA, it
is impossible for PhotoMedex to prove that Ra Medical’s device had
not been cleared by the FDA when the FDA itself did not take that
position.
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Id. at 928.
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In this case, plaintiff responds that "IHS does not bring any claims or causes of action
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pertaining to the FDA clearance Number, and thus there is no claim preclusion." Dkt. 105 at 9:11-
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12. Plaintiff argues that "IHS’s causes of action do not circumvent the FDA’s enforcement
authority because IHS is not trying to prove that Defendants violated the Federal Food, Drug, and
Cosmetic Act ('FDCA')," but rather that "consumers will believe that Defendants' unapproved
products are interchangeable with plaintiff’s approved one." Dkt. 105 at 9:15-19. Plaintiff relies
on JHP Pharms., LLC v. Hospira, Inc., No. CV 13-07460 DDP (JEMx), 2014 WL 4988016, at *4
(C.D. Cal. Oct. 7, 2014), in which the court held that the FDCA did not bar a Lanham Act claim
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alleging that the defendant misrepresented its products as being FDA-approved. In JHP, the
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plaintiff alleged, inter alia, that the defendant advertised its product as having received FDA
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approval when it had not, and that the defendant advertised its product as interchangeable with
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plaintiff's FDA-approved product. Id. at *5. The JHP Pharmaceuticals court held that these
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claims were not precluded because "where the issue of FDA approval is straightforward, a
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Lanham action is viable."
Plaintiff argues that, like the plaintiff in JHP
Pharmaceuticals, it is alleging that defendants falsely represented that their products had FDA
approval when they did not (by using plaintiff's 510(K) numbers).
The Court finds that to the extent plaintiff alleges that defendants have falsely represented
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Id. at *4.
that they obtained FDA approval for their products, those claims are not precluded or preempted.
The Court finds that PhotoMedex and another case relied upon by defendants, Catheter
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Northern District of California
Connections, Inc. v. Ivera Medical Corp., No. 2:14-cv-70-TC, 2014 WL 3536573 (D. Utah July
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17, 2014), are distinguishable on the ground that those cases involved re-approval of new models
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of existing medical devices.4 As the JHP court held in discussing Catheter Connections,
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[R]e-approval of new models of existing medical devices, [is] a
circumstance under which the FDA leaves it to the manufacturer, in
the first instance, to determine whether it must apply for approval
again or assume that the approval carries over. Thus, the
manufacturer there could plausibly claim that its product was, in
fact, approved, at least until the FDA determined otherwise -- a
determination that would, of course, be entirely within the agency's
purview. That is obviously very different from the present case,
where the Defendants have never had (and do not claim to have had)
their products approved in the first place.
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JHP Pharms., 2014 WL 4988016, at *6; see also PhotoMedex, 601 F.3d at 924-25 ("[F]or
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example, [if] it was clear that an affirmative statement of approval by the FDA was required
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before a given product could be marketed and that no such FDA approval had been granted, a
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Lanham Act claim could be pursued for injuries suffered by a competitor as a result of a false
assertion that approval had been granted."); Par Sterile Products, LLC v. Fresenius Kabi USA
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Further, as the JHP court noted, "PhotoMedex was the primary case relied on by the lower
courts in POM Wonderful, and although it was not specifically overruled [by the Supreme Court in
POM Wonderful LLC v. Coca–Cola Co., 134 S.Ct. 2228 (2014)], its precedential value may be
limited." JHP Pharms., 2014 WL 4988016, at *4. In POM Wonderful, the Supreme Court held
that the FDCA does not preclude a private party from bringing a Lanham Act claim challenging as
misleading a food label that is regulated by the FDCA.
11
1
LLC, No. 14 C 3349, 2015 WL 1263041, at *4 (N.D. Ill. Mar. 17, 2015) (holding Lanham Act and
2
state claims not precluded because "Par asserts the specific, particularized claim that a competitor
3
injuriously misrepresents its product as FDA–approved by offering it for sale in certain marketing
4
channels alongside FDA–approved generic drugs.
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consumers in violation of the Lanham Act by doing so remains in question at this early stage of
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7
8
9
10
United States District Court
Northern District of California
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Whether Fresenius is actually deceiving
the proceedings, but the dispute is of the sort with which the Lanham Act is concerned to the
extent it involves deception of consumers as to the fact of whether a product carries the
imprimatur of FDA approval, not whether the product is safe and effective enough to be approved
by the FDA.").
However, as defendants note, the SAC contains allegations that the DyAnsys P-STIM
device: (i) “undercuts the FDA regulatory framework,” (ii) is “unsafe and hazardous,” (iii) is
“mislabeled,” (iv) is “ineffective,” (v) contains “numerous health risks,” and (vi) endangers
12
patients and the consuming public.
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SAC ¶¶ 29, 36. The SAC also alleges that the DyAnsys
defendants have imported “ineffective and unsafe products in violation of the federal Food, Drug,
and Cosmetic Act.” Id. at ¶ 29. Plaintiff does not address these allegations in the opposition, and
thus it is unclear whether plaintiff intends to pursue these allegations, and if so, the scope of these
claims.
17
Accordingly, the Court DENIES defendants' motion to dismiss plaintiff's Lanham Act claims
18
to the extent plaintiff alleges that defendants falsely represented that their products had FDA
19
approval, when they did not. With respect to plaintiff's other allegations (e.g., ¶¶ 29, 36), the
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Court GRANTS defendants' motion to dismiss and GRANTS plaintiff leave to amend to clarify
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the nature and scope of its claims.
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23
III.
Noerr-Pennington immunity
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Defendants contend that IHS’ claims should be dismissed to the extent that they are based
25
upon the DyAnsys defendants’ petitioning of CMS and related communications with the
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government agency, as these are constitutionally-protected activities. Defendants argue that any
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claims related to their filings before CMS are protected by the First Amendment.
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“The Supreme Court has long recognized that for the Petition Clause [of the First
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1
Amendment] to be a meaningful protection of the democratic process, citizens must be immune
2
from some forms of liability for their efforts to persuade government officials to adopt policy or
3
perform their functions in a certain way.” Kottle v. Nw. Kidney Ctrs., 146 F.3d 1056, 1059 (9th
4
Cir. 1998). This doctrine is referred to as the Noerr-Pennington doctrine, which has its origins in
5
the Supreme Court’s decision that a party could be immune from liability under the Sherman Act
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United States District Court
Northern District of California
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for efforts to influence the legislative or executive branches of government. See E.R.R. Presidents
Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); United Mine Workers v.
Pennington, 381 U.S. 657 (1965). The Noerr-Pennington doctrine has been applied to other
federal laws beyond those involving antitrust violations. See, e.g., Sosa v. DIRECTV, Inc., 437
F.3d 923, 930 (9th Cir. 2006) (applying the Noerr-Pennington doctrine to a civil RICO claim and
explaining that “[r]ecognizing the constitutional foundation of the doctrine, the Supreme Court has
applied Noerr-Pennington principles outside the antitrust field”).
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Plaintiff responds that its allegations related to the CMS petition "are used to show
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Defendants’ overall fraudulent scheme to damage IHS in violation of the Lanham Act and
California State law." Dkt. 105 at 11:5-8. Plaintiff asserts that "[e]ven if IHS’s allegations did
somehow implicate the Noerr-Pennington Doctrine, DyAnsys Defendants’ CMS petition was a
'sham' petition and would not be protected." Id. at 11:9-10.
There is a “sham” exception to the Noerr-Pennington doctrine.
Sham litigation is
18
described by the Supreme Court as “‘private action that is not genuinely aimed at procuring
19
favorable government action’ as opposed to ‘a valid effort to influence government action.’”
20
Professional Real Estate Investors, Inc. (“PREI”) v. Columbia Pictures Industries, 508 U.S. 49,
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58 (1993) (citing Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500, n.4. ) The
22
Court in PREI outlined a two-part definition of “sham” litigation:
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27
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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 the challenged exception is objectively meritless may a
court examine the litigant’s subjective motivation. Under this
second part of our definition of sham, the court 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
13
process – as an anticompetitive weapon.
1
PREI, 508 U.S. at 60 (internal quotation marks omitted); see also Kottle v. Northwest Kidney
2
3
Centers, 146 F.3d 1056, 1063 (9th Cir. 1998) (holding heightened pleading standard applies to
show that the petitioning activity is objectively baseless).
4
5
The Court finds defendants' petitioning of CMS is a constitutionally-protected activity
because defendants were seeking relief from a government agency. The Court further finds that
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plaintiff has not shown that defendants' petitioning constituted a sham. The SAC does not allege
7
any facts to show how the filings before CMS were objectively baseless, and plaintiff's opposition
8
brief does not assert that defendants' filings were objectively baseless. Based upon the record
9
before the Court, it does not appear that plaintiff could allege that defendants’ petitioning of CMS
and related communications were objectively baseless.
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United States District Court
Northern District of California
10
plaintiff's claims to the extent that they are based upon the DyAnsys defendants’ petitioning of
12
CMS seeking a revision or clarification of the billing codes for plaintiff's product.
Accordingly, the Court DISMISSES
13
14
IV.
Liability of individual defendants
15
Finally, defendants contend that IHS’ claims against the individual defendants should be
16
dismissed because IHS has not pled any facts that would justify holding Nageshwar or Bradford
17
personally liable. The SAC alleges that each individual defendant is “the moving force” behind
18
their companies' allegedly improper conduct. SAC ¶¶ 6, 8. The only other allegation specific to
19
20
21
22
23
defendant Nageshwar is found in paragraph 27, which alleges that "In January 2013 DyAnsys
Defendants improperly submitted to the Centers for Medicare and Medicaid Services ('CMS') a
Healthcare Common Procedure Code application for P-STIM (seeking a billing code) in which
they misrepresented themselves as the 'manufacturer' of the P-STIM medical device. See Exhibit
H hereto, last page, under Defendant Nageshwar's signature. But DyAnsys Defendants have never
manufactured the P-STIM medical device, and thus this statement, made to a federal agency, is
24
utterly false." Id. ¶ 27.
25
"A corporate officer or director is, in general, personally liable for all torts which he
26
27
authorizes or directs or in which he participates, notwithstanding that he acted as an agent of the
corporation and not on his own behalf." Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d
28
14
1
1001, 1021 (9th Cir. 1985). The Court agrees with defendants that the SAC does not contain any
2
factual allegations that would provide a basis for holding the individual defendants liable. The
3
allegation that the defendants were the "moving force" behind their companies' improper conduct
4
is conclusory. The only factual allegation specific to Nageshwar -- that he signed an application
5
filed with CMS -- is insufficient on its own to hold Nageshwar for the tortious activity alleged in
6
7
8
the SAC.
The Court DISMISSES the claims alleged against the individual defendants and GRANTS
plaintiff leave to amend to allege facts in support of individual liability.
9
CONCLUSION
10
For the foregoing reasons, defendants' motion is GRANTED IN PART AND DENIED IN
11
United States District Court
Northern District of California
PART. Plaintiff shall file an amended complaint by June 5, 2015.
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13
IT IS SO ORDERED.
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Dated: May 19, 2015
________________________
SUSAN ILLSTON
United States District Judge
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