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May 29, 2011

Injury

U.S. justice is blind, but not necessarily in a good way. At root, garden-variety judges are too easily bamboozled, led by the nose by bias, or simply muddle-headed to begin with. Allergan makes and sells a patented vanity cosmetic drug treatment, "to treat inadequate eyelash growth." Allergan sued competitors, including Athena Cosmetics, for patent infringement, and unfair competition under California law. Central California Judge James V. Selna dismissed the unfair competition claim over standing, that Allergan had not been injured.

Allergan et al v. Athena Cosmetics et al (CAFC 2010-1394) precedential; Judges Newman, Gajarsa (author), and Prost

The patent portion of the litigation was stayed pending appeal on unfair competition.

Allergan filed an action in the United States District Court for the Central District of California, alleging that the defendants infringed or induced infringement of U.S. Patent Nos. 6,262,105, 7,351,404, and 7,388,029 under 35 U.S.C. § 271. Allergan also alleged that the defendants violated UCL §§ 17200 et seq. Section 17200 defines "unfair competition" as "any unlawful, unfair or fraudulent business act or practice . . . ." Allergan alleged that the defendants violated the UCL by "unlawfully marketing, selling, and distributing hair and/or eyelash growth products without a prescription, without an approved new drug application [from] the FDA or the California Department of Health Services, and in violation of state and federal misbranding laws." Allergan's First Am. Compl. 11. It also alleged that the use of defendants' products "can result in significant adverse reactions and substantial harm" and that the products are not "recognized . . . as safe and effective." Id. at 12-13. Furthermore, Allergan claimed that the "[d]efendants' unfair competition has resulted in and continues to result in serious and irreparable injury to Allergan, including but not limited to lost sales, revenue, market share, and asset value." Id. at 14.

A party found to have violated the UCL may be enjoined or required to "restore to a person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition." UCL § 17203. Thus, the remedies available to injured parties are an injunction and restitution, id., both of which Allergan requested, Allergan's First Am. Compl. 15.

Section 17204 states that "actions for relief pursuant to this chapter shall be prosecuted . . . by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition." At the time the Rule 12(c) motion was filed and decided, California state courts had generally held that "[b]ecause remedies for individuals under the [unfair competition law] are restricted to injunctive relief and restitution, the import of the [loss of money or property] requirement [in UCL § 17204] is to limit standing to individuals who suffer losses of money or property that are eligible for restitution." Citizens of Humanity, LLC v. Costco Wholesale Corp., 171 Cal. App. 4th 1, 22 (Cal. Ct. App. 2009) (citation omitted) overruled by Kwikset, 246 P.3d at 895.

The district court determined that Allergan had failed to plead an injury that was eligible for restitution. Relying on Korea Supply, it held that a plaintiff seeking restitution must have an ownership interest or a vested interest in the money it seeks to recover. Dismissal Opinion at 4-5 (citing Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1149 (2003)). The district court reasoned that Allergan did not have an ownership interest in its lost profits or market share because the defendants' profits from sales of their products came from third party consumers, not Allergan. Dismissal Opinion at 4-5 (citing Korea Supply, 29 Cal. 4th at 1149). Moreover, the district court held that Allergan lacked a vested interest in its lost profits or market share because its expectation of receiving this money was contingent on payment by a third party. Id. at 5 (citing Korea Supply, 29 Cal. 4th at 1150).

The bottom line on appeal -

[T]he recent California Supreme Court decisions in Kwikset Corp. v. Superior Court of Orange County, 246 P.3d 877 (Cal. 2011) and Clayworth v. Pfizer, Inc., 233 P.3d 1066 (Cal. 2010), make clear that section 17204 only requires that a party allege an injury in fact and that the injury was caused by the defendant. Moreover, section 17204 does not mandate a "business dealings requirement," as the defendants argue. Finally, because we hold that Allergan's pleadings meet the standing requirements of section 17204, we need not reach the issue of whether it plead an injury that could be compensated by restitution. See Clayworth, 233 P.3d at 1087.

Here, Allergan has plainly alleged an economic injury that was the result of an unfair business practice. The unfair competition that Allergan alleges involves the defendants' manufacture, marketing and/or sale of hair and eyelash growth products without a prescription, federal or state approval, and proper labeling in violation of federal and California laws. Allergan's First Am. Compl. 9-14. As a result of these acts, Allergan alleges that it has "lost sales, revenue, market share, and asset value." Id. at 14. Allergan's complaint sufficiently alleges an injury that was caused by the defendants' unfair business practices. Under Kwikset, this satisfies the requirements of section 17204, and therefore Allergan has standing to pursue its claim for relief under the UCL. See Kwikset, 246 P.3d at 894-95; Clayworth, 233 P.3d at 1087.

Reversed and remanded.

Posted by Patent Hawk at May 29, 2011 11:01 AM | Standing