Antitrust Law Daily Wrap Up, TOP STORY—C.D. Cal.: Cosmetic surgeon alleges new wrinkle in antitrust claims against Botox maker, (Oct 21, 2015)

By Linda O’Brien, J.D., LL.M.

A cosmetic surgeon sufficiently alleged an injury and causation to pursue antitrust and unfair competition claims against the pharmaceutical manufacturer of the brand drug Botox for allegedly entering into an exclusive license agreement with the foreign manufacturer of a competing neurotoxin product in order to prevent the competitor’s impending entry into the U.S. market, the federal district court in Santa Ana, California has decided. Thus, the drug company’s motion to dismiss was denied (Tawfilis v. Allergan, Inc., October 20, 2015, Staton, J.).

Allergan, Inc. is a multinational pharmaceutical company that produces Botox, an injectable neuromodulator derived from the neurotoxin, botulinum toxin, for the treatment of facial wrinkles. Botox is the leading drug in the U.S. for injectable neurotoxins for cosmetic use, with a market share of 85 percent. Adel Tawfilis—a licensed dentist, oral and maxillofacial surgeon, and principal of the Carmel Valley Center for Oral and Maxillofacial Surgery—purchased Botox for use in cosmetic procedures.

Medytox, a Korean company, manufactures and distributes an injectable neurotoxin for cosmetic use in Asia, Eastern Europe, and Latin America. In 2010, Medytox filed a U.S. patent application for its albumin-free neurotoxin to be marketed under the brand name Innotox, which would cost significantly less than Botox. After Medytox received regulatory approval in Korea for Innotox, in September 2013, Allergan entered into an exclusive license agreement with Medytox to market Innotox worldwide.

In February 2015, Tawfilis filed a complaint against Allergan, alleging violations of Section 1 of the Sherman Act and California’s Cartwright Act and Unfair Competition Law (UCL). Specifically, Tawfilis asserted that Allergan restrained competition and allocate markets for Botox by entering into an exclusive license agreement with Medytox in order to prevent the impending entry of Innotox into the U.S. market. Allergan moved to dismiss the complaint.

Antitrust injury. The court found that the plaintiff sufficiently alleged an injury that the antitrust laws were intended to prevent. Allergan’s argument that the complaint alleges certain pro-competitive aspects of the Allergan-Medytox license agreement and that Medytox needed a provider within the U.S. to sell Innotox was rejected. The plaintiff alleged that Medytox could obtain FDA approval and did not need a U.S. provider to sell its albumin-free neurotoxin products in the U.S. The complaint also specifically alleged that Allergan’s unlawful conduct was a horizontal agreement between actual and potential competitors and caused injury to the plaintiff, who paid supra-competitive prices for his Botox purchases.

Directness of injury. Additionally, the plaintiff alleged in detail that Medytox had the requisite intent and preparedness to enter the market and showed a direct “line of causation” between the license agreement and claimed inflated prices for Botox. According to the court, the plaintiff claimed that Medytox had extensive experience selling drugs worldwide, including products that directly compete with Botox, and had planned to enter the U.S. market after receiving Korean regulatory approval. A key element of the plaintiff’s claim was that Allergan did not wait until Innotox was ready to be sold in the U.S. before entering into the exclusive license agreement. Any lack of background and experience related to the U.S. appeared directly attributable to the anticompetitive conduct the licensing agreement represented.

Causation. The court also determined that the plaintiff alleged sufficient facts to show Allergan’s conduct caused the plaintiff’s injury. Allergan’s argument that Medytox’s hypothetical entry depended on a speculative chain of events was rejected. The court noted that the complaint alleged that Medytox’s Innotox product line would have competed against Allergan’s Botox and posed a price constraining competition. The plaintiff also alleged that the license agreement maintained Allergan’s existing monopoly power in the U.S. market for injectable neurotoxins for cosmetic use.

State law claims. Since the parties agreed that the plaintiff’s state law claims were derivative of his federal antitrust claims, the court concluded that he had sufficiently alleged violations of California’s Cartwright Act and UCL.

The case is No. 8:15-cv-00307-JLS-JCG.

Attorneys: Ralph B. Kalfayan (Krause Kalfayan Benink and Slavens LLP) for Adel Tawfilis, DDS. Alfred C. Pfeiffer, Jr. (Latham and Watkins LLP) and Bryan A. Merryman (White and Case LLP) for Allergan, Inc.

Companies: Allergan, Inc.

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