August 25, 2022

Can't Dismiss Lanham Act Claim Based on FDCA Preemption

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The US Court of Appeals for the First Circuit affirmed-in-part and vacated-in-part a district court ruling dismissing claims under the Lanham Act and Massachusetts consumer protection law based on statements on a website regarding compliance with the Food, Drug, and Cosmetic Act (FDCA). Azurity Pharmaceuticals, Inc. v. Edge Pharma, LLC, Case No. 21-1492 (1st Cir. Aug. 12, 2022) (Barron, Howard, Thompson, JJ.)

Azurity is a specialty pharmaceutical company that markets a hydrochloride vancomycin drug that received pre-market approval from the US Food & Drug Administration (FDA). Edge Pharma is a drug compounding company that also markets a hydrochloride vancomycin drug that competes with Azurity's drug but has not yet received FDA approval. In 2020, Azurity filed suit against Edge in the US District Court for the District of Massachusetts under both the Lanham Act and a Massachusetts consumer protection law based on statements that Edge allegedly made on its website. Azurity argued that these statements represented or conveyed the impression that Edge was not in violation of Section 503B of the FDCA, which authorizes drug compounders that meet certain conditions to market their drugs without first obtaining FDA approval. Azurity alleged that these statements were literally false and/or misleading and that other statements holding out Edge's drug as superior to Azurity's were similarly false and/or misleading. Edge moved to dismiss Azurity's claims for failure to state a claim on which relief could be granted.

The district court granted Edge's motion as to Azurity's Lanham Act claim on the ground that the FDCA precluded Azurity's claim. The district court stated that the claim would require it to interpret the meaning of Section 503B in a way that would interfere with the FDA's authority to administer and enforce the FDCA. The district court also ruled that Azurity's consumer protection claim failed because it was premised on the same allegations as Azurity's Lanham Act claim. Azurity appealed.

The FDCA requires FDA pre-approval to market any drug. However, there are exemptions for "compounded" drugs and "outsourcing facilities" that manufacture compounded drugs. The FDCA provides registration and compliance requirements to be considered an "outsourcing facility."

Edge made several statements on its website regarding alleged FDCA compliance, FDCA registration and other commercially available options for its compounded drug. The First Circuit referred to these as compliance statements, registration statements and superiority statements, respectively. With respect to Edge's compliance and registration statements, the Court did not find that the FDCA precluded Azurity's claims and instead adopted the framework used by the Ninth and District of Columbia Circuits. The First Circuit noted that those circuits established that, "[a]bsent a clear and unambiguous ruling from a court or agency of competent jurisdiction, statements by laypersons that purport to interpret the meaning of a statute or regulation are opinion statements, and not statements of fact," and thus, as such, are "not generally actionable under the Lanham Act." The Court found that Azurity's reliance on a non-binding FDA guidance document regarding "essentially a copy" provision of Section 503B was not a ruling by the FDA or any court and that Edge had in fact violated Section 503B and was therefore not actionable under the Lanham Act.

Azurity similarly challenged the district court's dismissal of its Lanham Act claim regarding the way that Edge's compliance and registration statements implicated the provision of Section 503B that conditions the ability of an outsourcing facility to market a drug without prior FDA approval on the facility "not compound[ing] using bulk drug substances . . . unless" the substance appears on a list of "bulk substances for which there is a clinical need." Because of the plain language requirements of this provision, the First Circuit agreed with Azurity that no interpretation is necessary where it is "so clear on its face that no good faith doubt concerning its interpretation would be possible, even without an explicit statement from the [relevant regulator entity]," such that it is "so clear as to be a fact for Lanham Act purposes." Here, the provision at issue specifies exactly which substances cannot be used unless they are on readily identifiable lists. Accordingly, the Court disagreed with the district court's dismissal of this variant of Azurity's Lanham Act claim.

The First Circuit next addressed Edge's non-preclusion-based ground for dismissal of this claim. Azurity claimed that Edge's statements that it was a "registered" outsourcing facility, while literally true, were misleading. The Court, however, found that the complaint lacked any specific explanation as to how the statements could mislead the viewing public as required. The Court also found that Azurity lacked a showing that Edge intentionally misled the viewing public. For reasons independent of FDCA preclusion, the Court therefore found that Azurity failed to allege a proper Lanham Act claim.

Turning to the FDCA preclusion arguments, Edge contended that because the FDA has indicated through its Interim Bulk Drug Policy that it does not intend to take action against outsourcing facilities compounding drugs by using vancomycin hydrochloride, the FDCA precluded Azurity's claims. The First Circuit disagreed for three reasons. First, the FDA did not preapprove Edge's statements that were allegedly made in violation of the Lanham Act. Second, the parties identified no FDA regulation that governs the statements that outsourcing facilities may make in advertising. Lastly, the Court found that Azurity was not attempting to enforce the FDCA indirectly. Because Azurity was seeking to enforce the Lanham Act, not the FDCA or its regulations, the Court found that there was no preclusion.

The First Circuit also agreed with Edge that Azurity's Lanham Act claim regarding Edge's superiority statements should be dismissed. The Court found that Edge's statement that "commercially available options are not ideal for use in the hospital setting" amounted to "non-actionable puffery," and upheld the district court's dismissal.

Neither side presented argument on whether Azurity's consumer protection claims could survive if it did not plausibly allege Lanham Act violations. The First Circuit therefore vacated-in-part and affirmed-in-part the district court's dismissal of Azurity's consumer protection claims to the same extent it affirmed and vacated the Lanham Act claim.

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