This post is from the non-Reed Smith side of the blog.
In future posts I will get to the point with little delay, but because this is my first post for the blog, a short introduction is in order.
I am partner in Winston & Strawn LLP’s Appellate & Critical Motions practice. Questions of federal preemption run through my practice. I defend clients in heavily-regulated industries, from medical-device and pharmaceutical manufacturers to providers of transportation and consumer-financial services.
In the medical-device space, I am the attorney who convinced the Arizona Supreme Court to repudiate the Ninth Circuit’s misguided Stengel decision, which badly mangled federal preemption law based on a misinterpretation of state failure-to-warn law. I’m also the lawyer who over the course of five years of national litigation built (with the help of colleagues, of course) what one court ultimately described as a “clear consensus” that federal law preempts tort claims predicated on the alleged off-label promotion of a medical device with premarket approval.
For the past 15 years I have had the pleasure of collaborating with—and learning from—Bexis. I am glad to be joining his merry band of bloggers.
Introduction complete, on to the actual subject of today’s blog post…
It is commonplace to invoke preemption when challenging state regulatory efforts or defending product-liability cases. Less common is raising preemption as a defense to commercial claims brought by a competitor. But the defendant in today’s case did exactly that—and won.
In Nexus Pharmaceuticals, Inc. v. U.S. Compounding, Inc., 2021 WL 342573 (C.D. Cal. Jan. 7, 2021), one pharmaceutical manufacturer sued another alleging unfair competition and unfair trade practices. The plaintiff sells “a ready-to-use ephedrine sulfate,” which “is used in surgeries to raise a patient’s blood pressure when the patient begins experiencing hypotension severe enough to affect the patient’s health.” Id. at *2. The defendant compounds drugs, i.e., “combines, mixes, or alters ingredients of a drug to create a medication tailored to the needs of an individual patient.” Id. Like the plaintiff, the defendant “sells a ready-to-use ephedrine sulfate product.” Id.
Federal law regulates the sale of drugs. Generally, new drugs must be approved by the FDA before they may be sold. Compounded drugs are an exception to this rule; they do not require FDA approval. Still, section 503B of the FDCA, codified at 21 U.S.C. § 353b, “imposes a litany of other conditions” on the sale of compounded drugs. 2021 WL 342573, at *1. When produced in an “outsourcing facility”—i.e., by an entity rather than an individual physician or pharmacist—a compounded drug must be manufactured in a facility that is registered with the FDA. 21 U.S.C. § 353b(a)(1), (b)(1). If the compounded drug is made using “bulk drug substances,” it may be sold only if that substance appears on an FDA list. Id. § 353b(a)(2)(A)(i). Finally (for our purposes), federal law prohibits the sale of a compounded drug if it is “essentially a copy of one or more approved drugs.” Id. § 353b(a)(5).
The Nexus defendant operates an “outsourcing facility” to produce its ephedrine-sulfate product. 2021 WL 342573, at *1. The plaintiff claimed that sale of the defendant’s compounded drug violates the FDCA because the compounded drug is, allegedly, made using a bulk drug substance that does not appear on any of the relevant FDA lists and is essentially a copy of the plaintiff’s FDA-approved ephedrine-sulfate product.
Moving to dismiss, the defendant argued that the plaintiff’s unfair-competition and unfair-trade-practice claims were impliedly preempted by 21 U.S.C. § 337(a) as construed in Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341 (2001).
As regular readers of the blog will know, § 337(a) declares that all actions to enforce the FDCA “shall be by and in the name of the United States.” This, said the Buckman Court, “leaves no doubt that it is the Federal Government rather than private litigants who are authorized to file suit for noncompliance with the [FDCA].” Id. at 349 n.4. In other words, § 337(a) impliedly preempts any state-law claim for which “the existence of [the FDCA] is a critical element in [the plaintiff’s] case.” Id. at 353.
According to the Nexus defendant, § 337(a) as construed in Buckman impliedly preempted the plaintiff’s unfair-competition and unfair-trade-practice claims because the purportedly wrongful conduct was alleged to be “unfair” only insofar as it violated federal requirements for the sale of compounded drugs.
The court agreed. It noted that the plaintiff was claiming that the defendant’s alleged “actions constitute unfair competition because” the defendant was “not following the rules—and those rules are the FDCA rules.” 2021 WL 342573, at *3. Thus, “[l]ike in Buckman,” the plaintiff’s “claims exist[ed] only because of the FDCA’s requirements.” Id. The court held that the plaintiff’s unfair-competition and unfair-trade-practice claims were therefore impliedly preempted by § 337(a), which makes clear that “the FDA … has the exclusive power to … enforce … the FDCA” and its restrictions on the sale of compounded drugs. Id.
The fact that the defendant’s alleged conduct purportedly violated federal law did not save the plaintiff’s state-law claims from dismissal. As the court noted, although the alleged violation of a federal requirement might allow a claim implicating a medical device to avoid express preemption, “implied preemption is ‘another hurdle’” that must also be cleared. 2021 WL 342573, at *3 (quoting Perez v. Nidek Co., 711 F.3d 1109, 1119 (9th Cir. 2013)).
And with that, commercial claims brought by one drug manufacturer against another were dismissed as impliedly preempted.