Wednesday, November 22, 2006

Proton beams: out of science fiction, into advertising law

Optivus Technology, Inc. v. Ion Beam Applications S.A., --- F.3d ----, 2006 WL 3314967 (Fed. Cir.)

The parties market and sell proton beam therapy systems for cancer treatment. (There are patent claims in this case, but I ignore them.) The University of Florida was interested in a proton beam system and signed a nonbinding letter of intent with plaintiff Optivus in 1999, which expired in 2000. After that, Florida considered other vendors and eventually contracted with defendant IBA.

Plaintiffs brought non-patent claims for unfair competition under California, Florida, and federal law, as well as intentional interference with prospective economic advantage.

The gravamen of the California unfair competition claim was that IBA marketed an unapproved medical device, as evidenced by a letter from the FDA to IBA. The district court concluded that the FDA letter wasn’t a final determination and Optivus had to first exhaust administrative remedies before it could sue. Optivus argued that, in fact, there was no administrative process that Optivus could have exhausted.

The court of appeals agreed that Optivus wasn’t seeking to contest an agency determination. Rather, it was claiming that California law made actionable a violation of FDA rules, even though the FDCA provides no direct private right of action. Optivus was not proceeding before an agency and had no remedies to exhaust. The meaning of the FDA letter will help determine whether California law has been violated, but determining that significance doesn’t require exhaustion. Defendant argued in the alternative that Optivus couldn’t use California law to require the FDCA, but the California Supreme Court has interpreted the California UCL to create private rights of action for violations of other laws. Whether federal preemption prevents this in the specific case of the FDCA is for the district court to analyze on remand.

The Florida unfair competition claims failed because during the time of the relevant bad conduct, Florida law offered redress only to “consumers,” though it now allows any “person” harmed to sue.

Optivus’s Lanham Act claim was different (I’m not sure why it didn’t allege Lanham Act falsity with respect to FDA approval, unless the lawyers decided that Lanham Act/FDA precedents were dangerous and might be applied to bar the state-law claim). Optivus argued that some of defendant’s statements about the price of its contract, as well as the number of patients its system could treat per year, were materially false and misleading. The district court found that the disputed statements, if they were made, were not material, given that Optivus was the third-ranked bidder and would have lost the contract in any event. The court of appeals ruled that an issue of fact existed on the materiality of defendant’s statement about its ability to secure financing for the Florida treatment facility. Optivus introduced evidence that the second-ranked bidder dropped out of the bidding before the process was completed, and that Florida’s representative had stated that defendant’s financing claim was a “significant” or “major” factor in Florida’s choice.

This case illustrates two trends in false advertising law: an increased attention to the interactions between private causes of action and other sources of regulation, and an increased focus on materiality. Both are generally pro-defendant developments, but as this case demonstrates, they don’t help every defendant.

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