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Standing Under California’s Unfair Competition Laws Only Requires an Allegation of an Injury in Fact That Was Caused by Defendants’ Unfair Competition

May 24, 2011

Decision icon Decision

Last Month at the Federal Circuit - June 2011

Judges: Newman, Gajarsa (author), Prost

[Appealed from: C.D. Cal., Judge Selna]

In Allergan, Inc. v. Athena Cosmetics, Inc., No. 10-1394 (Fed. Cir. May 24, 2011), the Federal Circuit reversed the district court’s finding that Allergan, Inc. (“Allergan”) lacked standing to bring suit against Athena Cosmetics, Inc. and its numerous codefendants (collectively “Defendants”) under California Business & Professions Code (“UCL”) §§ 17200 et seq.—the statute’s unfair competition provisions.

Allergan manufactures and sells Latisse®, an FDA-approved product that comprises a prostaglandin compound, PGF, to treat inadequate eyelash growth.  Allergan is the only authorized manufacturer of a prostaglandin product for the stimulation of hair growth.

Allergan sued Defendants under 35 U.S.C. § 271 for infringing or inducing infringement of three of its patents and also alleged that Defendants violated UCL §§ 17200 et seq. by unlawfully marketing, selling, and distributing hair and/or eyelash growth products without a prescription, without an approved NDA from the FDA or the California Department of Health Services, and in violation of state and federal misbranding laws.  Allergan alleged that Defendants’ 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.”  Slip op. at 5 (citation omitted).  Defendants moved for judgment on the pleadings under Fed. R. Civ. P. 12(c), claiming that Allergan lacked standing to assert a violation of UCL §§ 17200 et seq. because Allergan did not allege an injury that was compensable by restitution.

The district court concluded, based on California law existing at the time, that Allergan had failed to plead an injury compensable through restitution because it did not have an ownership interest or a vested interest in the lost profits or market share it sought to recover since Defendants’ profits from sales of its products came from third-party consumers, and not Allergan.  The district court entered judgment pursuant to Fed. R. Civ. P. 54(b) and dismissed Allergan’s claim for relief under the UCL with prejudice.  The district court stayed Allergan’s patent claims until the outcome of its UCL appeal.

On appeal, the Federal Circuit noted that although Allergan’s patent claims are not presently at issue, they give rise to the Court’s jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).  On the merits, the Court reviewed the history of UCL § 17204, noting that in 2004 it was amended by Proposition 64—a California voter’s amendment—and limited a private person’s right to sue under the UCL to someone who has “suffered injury in fact and has lost money or property as a result of such unfair competition.”  Id. at 9 (citation omitted).

Initially, the California courts interpreted the amendment to limit claims to individuals who were eligible for restitution, as opposed to those requesting injunctive relief.  The Federal Circuit, however, noted that 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), rejected that reasoning and clarified:  “[T]o satisfy the standing requirements of section 17204, a plaintiff must allege exactly what the statutory text requires:  ‘(1) . . . a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e. economic injury, and (2) . . . that [the] economic injury was the result of, i.e. caused by, the unfair business practice . . . .’”  Slip op. at 10 (alterations in original) (quoting Kwikset, 246 P.3d at 885).  The Federal Circuit reiterated that, in rejecting the earlier California courts’ restitution limitation, the California Supreme Court explained that “‘nothing in the text or history of Proposition 64 suggests’ that the drafters intended ‘to make standing under section 17204 expressly dependent on the eligibility for restitution under section 17203.’”  Id. (quoting Kwikset, 246 P.3d at 894-95).

Applying that standard here, the Federal Circuit held that Allergan plainly alleged an economic injury that was the result of an unfair business practice and thus, under Kwikset, satisfied the requirements of § 17204.  In addition, the Court rejected Defendants’ argument that Proposition 64 added a “business dealings requirement” to standing under § 17204.  The only amendment made by Proposition 64 was to require that a private person “suffered injury in fact and . . . lost money or property as a result of such unfair competition.”  Id. at 12 (alteration in original) (quoting Cal. Prop. 64 § 3).  The Federal Circuit noted that “[r]eading this amendment to encompass a business dealings requirement would contradict the plain language of the statute and improperly elevate one purpose of Proposition 64 over the language of the statute.”  Id.  The Court agreed that while a direct business dealing is one way in which a plaintiff could be harmed, California courts have also recognized claims under the UCL where a direct business dealing was lacking.

Accordingly, the Federal Circuit reversed the decision of the district court and remanded for further proceedings consistent with its opinion.


Summary authored by Joseph P. Long, Esq.