Allergan Inc. v. Athena Cosmetics Inc.

• Decision Date: 24 May 2011
• Docket Number: No. 2010–1394.,2010–1394.
• Citation: 98 U.S.P.Q.2d 2012,640 F.3d 1377
• Parties: ALLERGAN, INC., Plaintiff–Appellant,andMurray A. Johnstone, M.D. and Duke University, Plaintiffs,v.ATHENA COSMETICS, INC., Pharma Tech International, Inc., and Northwest Cosmetic Laboratories, Inc., Defendants–Appellees,andCosmetic Alchemy, LLC, Defendant–Appellee,andNutra–Luxe M.D., Defendant,andStella International, LLC, Product Innovations, LLC, and Metics, LLC, Movants–Appellees,andPeter Thomas Roth, Inc. and Peter Thomas Roth Labs LLC, Defendants–Appellees,andLifetech Resources, LLC and Rocasuba, Inc., Defendants–Appellees,andGlobal MDRX, Cosmetic Technologies, Inc., DMI, La Canada Ventures Inc., and Susan F. Lin, M.D., Defendants.
• Court: U.S. Court of Appeals — Federal Circuit

640 F.3d 1377

98 U.S.P.Q.2d 2012

ALLERGAN, INC., Plaintiff–Appellant,andMurray A. Johnstone, M.D. and Duke University, Plaintiffs,

v.ATHENA COSMETICS, INC., Pharma Tech International, Inc., and Northwest Cosmetic Laboratories, Inc., Defendants–Appellees,andCosmetic Alchemy, LLC, Defendant–Appellee,andNutra–Luxe M.D., Defendant,andStella International, LLC, Product Innovations, LLC, and Metics, LLC, Movants–Appellees,andPeter Thomas Roth, Inc. and Peter Thomas Roth Labs LLC, Defendants–Appellees,andLifetech Resources, LLC and Rocasuba, Inc., Defendants–Appellees,andGlobal MDRX, Cosmetic Technologies, Inc., DMI, La Canada Ventures Inc., and Susan F. Lin, M.D., Defendants.

No. 2010–1394.

United States Court of Appeals, Federal Circuit.

May 24, 2011.

Mark A. Perry, Gibson, Dunn & Crutcher, LLP, of Washington, DC, argued for plaintiff-appellant. With him on the brief were Jeffrey T. Thomas and Blaine H. Evanson, Gibson, Dunn, & Crutcher, LLP, of Irvine, CA.Stephen Benson, Katten Muchin Rosenman, LLP, of Chicago, IL, argued for defendants-appellees Athena Cosmetics, Inc., et al. With him on the brief was Robert B. Breisblatt.Jeffrey L. Weiss, Weiss & Moy, P.C., of Scottsdale, AZ, argued for defendants-appellees Cosmetic Alchemy, LLC and Movants-appellees Stella International, LLC, et al.Martin C. Washton, Towle Denison Smith & Maniscalco, LLP, of Los Angeles, CA, argued for defendants-appellees Lifetech Resources, LLC, et al. With him on the brief was Amanda R. Washton.Before NEWMAN, GAJARSA, and PROST, Circuit Judges.GAJARSA, Circuit Judge.

This case arises from the district court's dismissal of Allergan, Inc.'s (“Allergan”) claim for relief under California Business & Professions Code (“UCL”) § 17200 et seq.—the unfair competition provisions—for lack of standing. The issue before the court is whether a party must allege an injury compensable by restitution to have standing under the UCL. The California Supreme Court makes clear in two recent decisions, Kwikset Corp. v. Superior Court of Orange County, 51 Cal.4th 310, 120 Cal.Rptr.3d 741, 246 P.3d 877 (2011) and Clayworth v. Pfizer, Inc., 49 Cal.4th 758, 111 Cal.Rptr.3d 666, 233 P.3d 1066 (2010), that UCL § 17204, as amended by Proposition 64, requires that a party need only allege an injury in fact that was caused by defendant's unfair competition. We therefore reverse and remand.

Background

Allergan manufactures and sells Latisse®, a FDA-approved product that uses PGF, a prostaglandin compound, to treat inadequate eyelash growth. Allergan's First Am. Compl. 5. In fact, Allergan is the only authorized manufacturer of a prostaglandin product for the stimulation of hair growth. Id. The only other FDA-approved uses for prostaglandin compounds are to treat glaucoma and ocular hypertension. Id. The numerous defendants ¹ in this case allegedly manufacture, market, and/or sell products containing PGF for hair and/or eyelash growth. Id. at 6–9.

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.

Defendants Athena Cosmetics, Inc., Pharma Tech International, Inc., and Northwest Cosmetic Laboratories, LLC (collectively, “Athena”) moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), claiming that Allergan lacked standing to pursue its claim that Athena violated UCL § 17200 et seq. Allergan, Inc. v. Athena Cosmetics, Inc., Case Nos. 07–CV–1316 and 09–CV–328, slip op. at 1 (Mar. 3, 2010) (“ Dismissal Opinion ”). According to Athena, because Allergan did not allege an injury that was compensable by restitution, it failed to meet the standing requirements of UCL § 17204. Id. at 3.

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, 89 Cal.Rptr.3d 455 (Cal.Ct.App.2009) (citation omitted) overruled by Kwikset, 120 Cal.Rptr.3d 741, 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, 131 Cal.Rptr.2d 29, 63 P.3d 937 (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, 131 Cal.Rptr.2d 29, 63 P.3d 937). 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, 131 Cal.Rptr.2d 29, 63 P.3d 937).

The district court concluded that Allergan had not sufficiently plead an injury that could be compensated by restitution. Id. at 6. Earlier California precedent held that a party that failed to plead an injury compensable by restitution lacked standing under the UCL. Relying on this precedent, the district court found that Allergan lacked standing to obtain any relief under the UCL. Id. at 3–12. Finding that there was no just reason for delay in appealing this claim, the district court entered judgment pursuant to Federal Rule of Civil Procedure 54(b) and dismissed Allergan's claim for relief under the UCL as to all defendants with prejudice.² Allergan now appeals the dismissal of its UCL claims. Allergan's patent claims remain pending before the district court, but the action is stayed until the outcome of this appeal. Although the patent claims are not presently at issue, they give rise to this court's jurisdiction over the appeal. See 28 U.S.C. § 1295(a)(1) (stating that this court has jurisdiction “of an appeal from a final decision of a district court of the United States ... if the jurisdiction of that court was based, in whole or in part, on section 1338 of this title ....” (emphases added)). We therefore have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

Standard of review

When this court reviews a judgment on the pleadings, we follow the procedural law of the regional circuit. Imation Corp. v. Koninklijke Philips Elecs. N.V., 586 F.3d 980, 985 (Fed.Cir.2009) (citation omitted). In the Ninth Circuit, a grant of judgment on the pleadings is reviewed de novo. Or. Nat. Desert Ass'n v. U.S. Forest Serv., 550 F.3d 778, 782 (9th Cir.2008) (citation omitted). On review, the court must “accept all material allegations in the complaint as true and construe them in the light most favorable to [the nonmoving party].” Turner v. Cook, 362 F.3d 1219, 1225 (9th Cir.2004).

Discussion

The resolution of this appeal turns on the allegations a party asserting a claim under the UCL must state to satisfy the standing requirements of UCL § 17204. Subsequent to the adoption of Proposition 64—a California voter's amendment that restricted the scope of standing under section 17204—California courts required an additional limitation for a plaintiff to have standing under the UCL: namely, that the party asserting the claim must allege an injury compensable by restitution. As discussed below, the recent California Supreme Court decisions in Kwikset Corp. v. Superior Court of Orange County, 51 Cal.4th 310, 120 Cal.Rptr.3d 741, 246 P.3d 877 (2011) and Clayworth v. Pfizer, Inc., 49 Cal.4th 758, 111 Cal.Rptr.3d 666, 233 P.3d 1066 (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...