it's illegal to say that use of non-manufacturer accessories voids a warranty

EMED Technologies Corp.  v. Repro–Med Systems, Inc., No. 13–cv–1957, 2015 WL 3794967 (E.D. Cal. June 16, 2015)

 

The parties compete to supply components of medical devices used to administer immunoglobulin (human plasma and antibodies) to patients suffering from a particular immunodeficiency disorder.  This therapy is increasingly administered at home, instead of in medical offices and hospitals. Ten major customers in the U.S. purchase the majority of the devices, and EMED and RMS are the two primary U.S. manufacturers. 

 

The devices relevant to this lawsuit are: (1) mechanical infusion pumps; (2) rate sets; and (3) subcutaneous needle sets. RMS makes a Freedom 60 infusion pump, which was cleared by the FDA in 1994 and which has become the dominant pump in the market.  Pumps can last 10-15 years, but rate sets and needle sets are single-use accessories.  Rate sets are a type of tubing that regulate the flow of infusion between the pump and the needle sets, and the parties are the only two suppliers of rate sets for use with the Freedom 60.  EMED developed two different rate sets: (1) “Infusets,” intended to compete directly with RMS on design and price; and (2) “VersaRate,” which allow the user to adjust the flow rate. EMED claimed that Infusets were FDA cleared via 510(k)s from 1994 and May 2014, and that VersaRate sets were FDA cleared via a 2012 501(k).

 

EMED alleged that RMS tried to push it out of business through false and misleading statements, including a 2012 “Safety Bulletin” to customers claiming that when it learned of attempts to “encourage” use of non-RMS rate sets with the Freedom 60, it was

 

concerned because, to the best of our knowledge, such knock-off tubing has not been cleared by the FDA for use with the FREEDOM60 pump, nor tested in accordance with our stringent release criteria to confirm that it can be safely and effectively used in the RMS FREEDOM60 Syringe Infusion System. RMS believes this knock-off tubing, marketed as the same product, fails to meet RMS specifications. Furthermore, we believe that using such non-RMS tubing with the FREEDOM60 Syringe Infusion System could potentially result in uncontrolled flows that could lead to patient injury or death.

While RMS investigates whether legal action against unauthorized sets is necessary to protect customers and patients, we urge you to use caution and refer to the product labeling …:

Caution: Use only FREEDOM60 tubing sets manufactured by RMS Medical Products. Use of any other tubing may cause the syringe to eject from the pump and eventually cause internal damage to the pump. Use of any other flow rate control tubing set may cause over or under delivery or medication to the patient, which could result in injury or death.

Please keep in mind that patient safety may be compromised by the use of unapproved and incompatible flow control tubing sets to deliver drugs. In addition, regulatory, patent infringement, reimbursement, and other issues may also arise. Moreover, use of non-RMS flow rate tubing voids the warranty for the FREEDOM60 Syringe Infusion Pump….

 

RMS’ SEC Form 10-Q in 2013 mentioned the Safety Bulletin and said that any non-RMS product could be “unsafe” and even cause death.  Its 2014 SEC Form 10-Q said that it didn’t believe that EMED’s product had FDA clearance. Its website said that it had the “only tubing specifically designed and FDA-cleared to have the accuracy necessary for the safe, controlled, dynamically-responsive infusions of the FREEDOM 60.”  In addition, statements that use of non-RMS rate sets voids the warranty for the Freedom 60 appeared in RMS’ four most recent SEC Form 10–Q’s.  And the Freedom 60’s user manual contained a warranty provision saying that “use with non-approved accessories or disposable items” voids the warranty.  Similar statements appeared in a 2014 article on NASDAQ.com and used words like “knock-off.”

 

EMED alleged that these were false statements that harmed its sales.  For example, a customer wrote to EMED stating: “The Freedom 60 warranty is voided if we use sets other than the RMS products. This is documented in the user manual. Accordingly, the EMED sets have not been proven to be accurate with the use of the Freedom 60 pump. Taking these things into consideration, I have asked our locations to discontinue use of the EMED sets.”  Others expressed concerns about FDA approval and safety, based on RMS’ claims.  Others required EMED to indemnify them before agreeing to purchase rate sets.  EMED claimed a loss of roughly 33% in related revenue since January 2014.

 

RMS sued EMED for patent infringement; EMED counterclaimed for false advertising.  The court first found “serious questions going to the merits” (still an alternative to likely success on the merits in the 9^th Circuit).  EMED claimed that, from 2002 to 2005, RMS contracted with EMED for the “manufacture of microbore tubing for RMS’ branded rate sets,” and during this time EMED sold at least 155,000 units of microbore tubing to RMS. RMS provided EMED with specifications necessary to manufacture the tubing, which allowed EMED to specifically design its rate sets for the Freedom 60 pump.  For years, RMS allegedly provided consumers with instructions for using EMED needle sets. Thus, the claim that EMED accessories couldn’t be used with RMS products was false.

RMS responded that, before issuing its Safety Bulletin, RMS tested EMED’s products and found that EMED’s Infuset products did not provide flow rates that are compatible with the advertised RMS equivalent.  RMS argued that EMED tested its products improperly, using fluids of the wrong viscosity.  EMED never made complete tubing sets, and thus didn’t have the complete specifications.  RMS attributed EMED’s revenue decline to RMS’ ability to sell a total system for treating patients. 

 

The court found that the facts were disputed as to whether EMED’s testing procedures were equivalent to RMS’, or whether the alleged superiority of RMS’ “total system” was the reason for EMED’s decline in revenue.

 

So what about those 510(k)s?  A 510(k) clearance means that there’s substantial equivalence to another legally marketed device, with either the same technological characteristics or differences that don’t raise new questions of safety and effectiveness.  EMED’s 2012 clearance didn’t specifically mention the Freedom 60, but the May 2014 clearance for Infusets did.  Internal EMED emails, construed in a light favorable to RMS, showed doubt over whether EMED previously had FDA clearance, though EMED’s position was that its VersaRate clearance covered a variety of pumps, including the Freedom 60; the court couldn’t make a definitive finding at this time, or a definitive finding that Infusets were covered by the 1994 510(k), even though RMS’ argument that Infusets weren’t covered was “unconvincing.” 

 

However, it was undisputed that there was clearance for Infusets to be used with the Freedom 60 as of May 2014. After that time, the Safety Bulletin warning of “death” was still available on RMS’ website, and showed up as the top Google search entry when typing in “Freedom60 customers.” It wasn’t clear how much RMS participated in the NASDAQ.com article, but the article tracked the statements in the Safety Bulletin, and those statements were false or misleading, because they contradict the fact that Infusets were FDA cleared to be used safely with the Freedom 60.  Likewise, as of September 2014, the RMS website still said “That’s why it has to be Precision—it’s the only tubing specifically designed and FDA-cleared to have the accuracy necessary for the safe, controlled, dynamically-responsive infusions of the FREEDOM 60.” RMS argued that even if Infusets received FDA clearance they still were not FDA cleared and designed for accuracy with the Freedom 60. Still, it was misleading in light of the 510(k). The court found that EMED raised serious questions going to the merits on falsity and misleadingness as of May 2014.

 

In addition, EMED argued that RMS’ claims about voiding the warranty violated the Magnuson–Moss Act, Section 2302(c) of which states:

 

No warrantor of a consumer product may condition his written or implied warranty of such product on the consumer’s using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name ...

 

Comment: News to me!  That is a very interesting provision, and I wonder if it’s underlitigated compared to other claims.  RMS said EMED didn’t have standing to enforce the law, which permits suits by the AG, the FTC, and consumers.  But California’s UCL converts violations of other laws into violations of the UCL, and RMS was allowed to sue under the UCL.

 

RMS argued that it didn’t know about the law, but that doesn’t change the fact that voiding the Freedom 60’s warranty based on use of non-RMS products would actually violate the Magnuson–Moss Act.  The Safety Bulletin thus described an unlawful warranty, apparently directed specifically at EMED, which again raised serious questions going to the merits of a claim for “unfair or fraudulent” practices or “unfair, deceptive, untrue, or misleading advertising.”

 

Turning to the remaining preliminary injunction factors: RMS argued that EMED had unclean hands because a draft user manual for its products had the same provision, but that was just a draft. The current user manual states: “Limited Warranty: EMED Technologies Corporation (“Manufacturer”) warrants the SCIg60 Infuser to be free from defects in materials and workmanship under normal use.”

 

The balance of hardships tipped “sharply” in EMED’s favor, given the evidence of negative customer response, indemnity agreements demanded by customers, and declining revenues.  Enjoining RMS to stop its false or misleading statements would cause minimal to no hardship.

 

RMS argued that EMED’s delay in seeking a preliminary injunction cut against a finding of irreparable harm.  EMED waited for nearly two years to use after receiving December 2012 customer emails expressing concerns; it waited over 16 months after sending its first cease-and-desist letter to RMS and one year aftter sending its second; and it waited 11 months after asserting its counterclaims. EMED argued that it acted after RMS continued to claim that only its products could be safely used with the Freedom 60 even after the May 2014 510(k).  The court agreed that the delay was long, given EMED’s position that its rate sets were FDA cleared even before May 2014, but delay is just a single factor and courts are reluctant to withhold relief solely on this ground.

 

EMED supported its irreparable harm claim with evidence that the Safety Bulletin raised customer concerns about safety and voiding the warranty, plus allegations of lost revenue.  Given all this, an injunction against false and misleading advertising was in the public interest.