False claims of FDA approval actionable under Lanham Act and state law

Innovative Health Solutions, Inc. v. DyAnsys, Inc., 2015 WL 2398931, No. 14-cv-05207 (N.D. Cal. May 19, 2015)
IHS sells a medical device called P–STIM.  DyAnsys used to be the distributor of P-STIM in the US, but after it lost the distributorship it allegedly started selling a knockoff device, first using the P-STIM name (which allegedly has secondary meaning) and misrepresenting the device as having the same §501(K) clearance as P-STIM.  IHS alleged that defendants lacked FDA clearance for the “knockoff,” but used the §501(K) number assigned to P-STIM and misrepresented that their device was FDA-approved.  The FDA published an import alert that allegedly effectively prohibited the importation of defendants’ device because it doesn’t have FDA clearance, but defendants continued to misrepresent its clearance status.  In addition, defendants’ sales representatives allegedly used an official FDA document – FDA’s Summary of Safety and Effectiveness for the FDA 510(K) number assigned to the P–STIM medical device – “as a marketing tool to confuse, deceive and steal away IHS’ customers.”  The inferiority of defendants’ device allegedly damaged IHS’s reputation and goodwill.
In addition, DyAnsys allegedly appeared before the Centers for Medicare and Medicaid Systems (CMS) and “falsely claim[ed] standing as the ‘manufacturer’ and seller of the P–STIM medical device.” They told CMS that “the billing codes for P–STIM are unclear or ambiguous, and that they need to be revised or clarified.” In fact, defendants allegedly knew that this argument would cause reimbursement concerns within CMS, which led CMS to determine that there was no justification for reimbursing P-STIM use through insurance payments.  This decision allegedly effectively drove IHS out of the P–STIM business.  Then, defendants allegedly created a new name, AnsiStim, for their device and applied for their own FDA 510(K) clearance number.
The complaint alleged false designation of origin, false advertising, and related state law claims including trade libel.
Defendants argued that the false advertising claims should be dismissed to the extent they were based upon defendants’ alleged misuse of an FDA clearance number or violations of the FDCA.  They argued that PhotoMedex, Inc. v. Irwin, 601 F.3d 919 (9th Cir. 2010), meant that—“especially in the medical device field – claims that require the court to interpret FDA regulations stray too close to the exclusive enforcement domain of the FDA and should not be permitted to proceed.” IHS responded that it wasn’t trying to prove FDCA violations, but rather that defendants falsely advertised that their device was interchangeable with the approved P-STIM.  JHP Pharms., LLC v. Hospira, Inc., 52 F. Supp. 3d 992 (C.D. Cal. 2014), held that the FDCA did not bar a Lanham Act claim alleging that the defendant misrepresented its products as being FDA-approved because “where the issue of FDA approval is straightforward, a Lanham action is viable.” The court here agreed.  Further, although PhotoMedex was not specifically overruled by POM Wonderful, its precedential value may be limited.
However, IHS also alleged that the DyAnsys P–STIM device “undercuts the FDA regulatory framework,” was “unsafe and hazardous,” was “mislabeled,” was “ineffective,” posed “numerous health risks,” endangered patients, and violated the FDCA. The claims not about misrepresenting FDA approval were dismissed with leave to amend to clarify.
Defendants also received Noerr–Pennington immunity for claims based on their petitioning CMS and related communications with the government agency, because these were constitutionally-protected activities  seeking relief from a government agency. IHS didn’t allege facts showing that the activity was objectively baseless and a sham.
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