On December 30, 2013, the Federal Court of Appeals, in Allergan, Inc. v. Athena Cosmetics, Inc., et al., an as-yet unpublished decision, affirmed a California District Court ruling that has the potential significantly to affect advertising law and the use of the California unfair competition statute at B&P Code §17200, et seq. to regulate commerce. http://www.cafc.uscourts.gov/images/stories/opinions-orders/13-1286.Opinion.12-26-2013.1.PDF In that case, the Federal Circuit affirmed that a California unfair competition claim is limited in injunctive effect to California only.
The key facts are as follows. Amgen, the manufacturer of Latisse eyelash thickener, sued Athena for its competing RevitaLash product, by asserting a number of federal patent and California Section 17200 unfair competition claims. The issue was whether RevitaLash could be marketed as a medical product that would grow and lengthen eyelashes. Amgen sued because its own brand is the only product presently approved by the FDA to grow eyelashes.
Although other competitors that were sued by Amgen settled out of court, Athena moved forward and lost to Amgen on summary judgment. In his summary judgment ruling, Judge Selna in the California Federal District Court for the Central District (Southern Division), expressly found that Athena’s product was marketed as a drug, not a cosmetic. On appeal, Athena argued that enforcement of the California statutes upon which the case was based (the patent claims had already been dropped) were preempted by federal law, specifically the federal Food, Drug and Cosmetic Act ("FDCA").
The Federal Circuit, having retained jurisdiction despite the patent claims having been dropped, made clear that the FDCA, because it paralleled California law, did not create grounds for preemption. For purposes of this analysis, however, it is the other prong of the Federal Circuit’s ruling related to § 17200, that is of interest.
In a victory for Athena, which apparently manufactures its products outside of California, the court ruled that Judge Selna erred in granting Amgen powers of a nation-wide injunction based on the California § 17200 violation. The court held that, "[n]either the California courts nor the California Legislature are permitted to regulate commerce entirely outside the state’s borders." The court continued that, "To do so would violate the Commerce Clause, which precludes such extraterritorial application of state law."
This is a significant clarification of the limits of the California law of unfair competition on advertising claims. In effect, there is still nothing to prevent Athena from continuing to manufacture its product as long as it does not directly ship it into California – even if, theoretically, it knows that third parties will resell the product into California.
While Athena may have to change its advertising platform – although it has consistently claimed that it does not advertise any health benefit of its product – it can continue manufacturing and sales outside of California virtually unabated. At this point, whether Amgen can or will take any action in other states based on other § 17200-like statutes (or federal law), is unclear.
The impact of this case on advertising claims, however, is clear. Advertising claims are often brought in conjunction with the rather broad and vague standards of § 17200 unfair competition claims in California seeking essentially nationwide relief. This leverage will no longer be available to plaintiffs seeking to punish California advertisers or importers, except in limited circumstances where a given product is manufactured exclusively in the state. The Allergan ruling may make California a less preferred venue for plaintiffs while encouraging manufacturers who have even potential legal concerns about their product or their advertising to set up manufacturing operations outside of California such that they cannot be broadly shut down by a California ruling.