May 15, 2013
Law360
Authored by Mareesa A. Frederick and Eric J. Fues
The United States International Trade Commission has firmly established itself as one of the leading forums for trying patent infringement cases. The ITC, however, also has the authority to hear cases involving "unfair methods of competition and unfair acts" that, among other things, have the ability to "destroy or substantially injure an industry in the United States."1 Although "unfair methods of competition" or "unfair acts" encompass a wide range of commercial wrongs, one recent complaint filed at the ITC has tested the limits of the ITC's jurisdictional reach.
Last October, K-V Pharmaceutical Company filed a complaint with the ITC, along with a request for a temporary exclusion order, against numerous respondents alleging that their importation of 17α hydroxyprogesterone caproate ("17P") supports in unlawful drug manufacturing and distribution scheme.2 KV alleged that this scheme constituted an "unfair method of competition" or "unfair act" under Section 337.
By way of background, KV owns and markets a drug made from 17P called "Makena." In 2011, the U.S. Food and Drug Administration approved Makena to treat and lower the risk of preterm labor in women who were pregnant with one baby and had delivered another baby prematurely in the past. Because this condition affects less than 200,000 women a year, Makena qualified for orphan drug status. This status allowed KV to exclusively sell and market Makena for seven years.
KV soon learned, however, that its orphan drug status did not afford it so substantial an exclusivity period. Although KV was the first company to obtain orphan drug status for 17P to treat preterm labor, it was not the first company to discover that this drug could treat this condition. Rather, for many years before the FDA approved Makena, 17P had been used to reduce the risk of preterm labor. The company who manufactured 17P, however, had stopped making the drug and thus doctors could not continue prescribing the drug to their patients. 17P essentially fell out of favor until 2003. That year, the National Institute of Health released a study reaffirming the use of 17P to reduce the risk of preterm labor.3 At that time, there were no companies selling the drug, although women were able to obtain it from compounding pharmacies for $10 to $20 a dose.
There were, however, some safety concerns over the purity and consistency of compounded 17P. Therefore, when KV requested and qualified for orphan drug exclusivity for Makena, the FDA had no qualms granting approval. The FDA immediately discovered that this exclusivity right came at a price.
As soon as it received orphan drug status, KV began sending cease and desist letters to compounding pharmacies. KV informed these companies of its exclusivity right and demanded that they immediately stop selling compounded versions of the drug to consumers. KV then set the price of Makena at $1,500 a dose, more than 100 times the price set by the compounding pharmacies.
Not surprisingly, this price hike was met by public outrage. Two senators called for the Federal Trade Commission to investigate KV's price increase and to consider its anticompetitive effects. March of Dimes, a company devoted to promoting the health of woman and babies, also expressed deep concern over the effects of KV's price increase on the accessibility of the drug to pregnant women. Against this public outcry, the FDA decided it would continue allowing pharmacies to produce compounded versions of 17P. The FDA made this decision even though KV had repeatedly requested that it take action against the pharmacies.4
Faced with financial trouble, KV sought relief from the judicial system by suing the FDA in the District Court of the District of Columbia. The crux of KV's argument in its complaint was that the court should step in and require the FDA to undertake enforcement action against the compounding pharmacies.5 KV also asserted that the FDA's inaction against the compounding pharmacies had essentially rendered its orphan drug status meaningless.6
The district court considered KV's complaint and dismissed the case for failure to state a claim. Importantly, the court held that KV's complaint fell squarely within the holding in Heckler v. Chaney, 470 U.S. 821 (1985). In Chaney, the U.S. Supreme Court held that an agency's decision not to pursue an enforcement action is presumptively unreviewable, as such actions are "committed to agency discretion by law" under § 701(a)(2) of the Administrative Procedure Act.7 As a result, the court refused to review the FDA's decision not to enforce its own rules against compounding pharmacies.
Unsatisfied, and facing bankruptcy, KV sought relief from the ITC. The commission, after reviewing KV's complaint, agreed with the district court and declined to institute an investigation. Unlike district courts, once a complaint is filed with the ITC, the six commissioners have 30 days after filing to determine whether an investigation should be instituted. The commissioners review complaints to, among other things, ensure that they contain facts tending to show that the ITC has jurisdiction over the claim(s). Although an investigation is not automatically initiated upon filing a complaint, the commissioners rarely decline to institute one.
In this case, however, the acting secretary of the ITC sent a letter to KV's attorneys stating that the commissioners were declining to institute an investigation because KV's complaint did not "allege an unfair method of competition or an unfair act cognizable under 19 U.S.C. § 1337(a)(1)(A), as required by the statute and the Commission's rules."8 Citing to KV Pharm. Co. v. FDA, the commission also noted that FDA was charged with enforcing its own laws.9 Commissioners Dean Pinkert and Meredith Broadbent filed a concurring opinion stating that while they agreed that KV's complaint did not allege an "unfair method of competition" or an "unfair act," they did not "reach the issue of whether properly pleaded claims based on the Food, Drug and Cosmetic Act may be cognizable under Section 337(a) (1)(A).10 Consequently, KV's attempt to use the ITC as a last resort failed.
As previously noted, the ITC's decision not to institute the investigation based on KV's complaint is not a normal occurrence. The wording of Section 337 suggests that investigations should be readily instituted: "[t]he Commission shall investigate any alleged violation of this section on complaint."11 Moreover, the scope of "unfair acts" or "unfair methods of competition" is wide-ranging. The Senate report on Section 316 of the Tariff Action of 1922 (which later became Section 337) confirms this interpretation:
[t]he provision relating to unfair methods of competition in the importation of goods is broad enough to prevent every type and form of unfair practice and is, therefore, more adequate protection to American industry than any antidumping statute the country has ever had."12
The commission therefore has wide discretion to determine whether a respondent is engaging in an "unfair method of competition" or an "unfair act" in the importation of goods.
Despite the statute's expansive nature and the apparent legislative intention to make the institution of investigations almost mandatory, KV's complaint shows that the commission will exercise discretion when determining to institute an investigation. In particular, KV's complaint shows that the scope of the acts that could constitute an "unfair method of competition" claim is not without bounds. A fundamental requirement for making out an "unfair method of competition" claim is a showing that the act or practice is, in fact, "unfair."13
Due to most courts general reluctance to interfere in the competitive process, only acts that "substantially interfere with the ability of others to compete on the merits of their products or otherwise conflicts with accepted principles of public policy recognized by statute or common law" are actionable.14 While KV did show that the compounding pharmacies were substantially interfering with its ability to compete in the prenatal market, it did not show that these pharmacies were competing in an unfair manner. The FDA decided not to stop pharmacies from selling compounded versions of 17P. So, the proposed respondents identified in KV's ITC complaint (i.e. manufacturers of 17P and compounding pharmacies) were engaged in lawful conduct that ultimately could not support a cause of action for unfair competition.
The ITC would likely have instituted the case if the FDA had determined that it was unlawful to sell compounded versions of 17P. This may, in fact, be what prompted Commissioners Pinkert and Broadbent's Concurring Memorandum to specifically point out that they did not reach the issue as to whether a properly pled complaint could be based on the Food and Drug Act. The Restatement of Unfair Competition, for example, explicitly recognizes an unlawful act as a basis for an unfair method of competition claim: "one who engages in a particular business or trade in violation of a statute prohibiting such an activity, either absolutely or without prescribed permission, may be subject to liability to other if . . . a private right of action is not inconsistent with the legislative intent."15 Thus, even if the FDA did not explicitly allow a private cause of action to prevent the importation of 17p, the law of unfair competition would allow such a cause of action to go forward. Further, such a case could be brought at the ITC.
Further, the commission likely also recognized the tension that could result if it were to find that such a cause of action would violate Section 337. KV's true issue was not with the proposed respondents it identified in the complaint but with FDA and the way it enforced (or in this instance) chose not to enforce its own laws. The president has given the FDA the authority to protect and promote public health by regulating and enforcing the distribution of drugs in the United States. For the commission to essentially overrule the FDA's decision not to enforce its own rules against the compounding pharmacies would have blurred the boundaries of these two agencies. Because the FDA has the authority and moreover the expertise to determine whether it would enforce its own rules, the ITC commissioners chose to respect FDA's ultimate decision on the distribution of Makena.
In sum, Section 337 provides the commission with broad jurisdiction to hear a wide range of cases. The basis for this expansive scope stems from the statutory language—"unfair methods of competition" and "unfair acts in the importation of articles." Both these terms are undefined in the statute, and, thus, the commission has broad discretion in determining if a parties' actions violate Section 337 and whether jurisdiction exists. The commission, however, will likely closely review complaints that could usurp the power of another federal agency and potentially undermine that federal agency's application of its own rules. If a potential claim conflicts with another federal agencies administration of its own laws, the commission will proceed carefully before interfering with the administration of that agency's statutory mandate.
Endnotes
1 19 U.S.C. § 1337(a)(1)(A).
2 Certain Hydroxyprogesterone Caproate and Products Containing the Same, Docket No. 2919 (Oct. 23, 2012).
3 Meis, P et al, Prevention of recurrent preterm delivery by 17 alpha-hydroxyprogesterone caproate, New England Journal of Medicine, 348(24):2379-85 (June 12, 2003).
4 FDA Statement on Makena (Mar. 20, 2011), available at www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm249025.htm.
5 KV Pharmaceutical Company v. FDA, 889 F.Supp.2d 119 (D.D.C. 2012).
6 Id.
7 Id. at 132-140.
8 Certain Hydroxyprogesterone Caproate and Products Containing the Same, Docket No. 2919, Letter from Acting Secretary to the Commission Lisa R. Barton (December 21, 2012) (available on EDIS).
9 Id.
10 Certain Hydroxyprogesterone Caproate and Products Containing the Same, Docket No. 2919, Concurring Memorandum from Commissioner Dean A. Pinkert and Commissioner Meredith M. Broadbent (December 21, 2012)(available on EDIS).
11 19 U.S.C. § 1337(b)(1).
12 S. Rep. No. 67-595, pt. 1, at 3 (1922).
13 Restatement (Third) of Unfair Competition § 1 (1995)
14 Id.
15 Id.
Originally printed in Law360 (www.law360.com). Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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