On November 23, 2016, ALJ MaryJoan McNamara issued the public version of Order No. 7 granting-in-part a motion for summary determination to dismiss the Fifth Affirmative Defense—titled “Invalidity of Complainants’ NDA and Unclean Hands Based On Misconduct Before FDA (Food and Drug Administration)”—asserted by Respondents Virtus Pharmaceuticals, LLC, Virtus Pharmaceuticals OPCO II, LLC, and Viva Pharmaceutical Inc. (collectively, “Respondents”) in Certain Potassium Chloride Powder Products (Inv. No. 337-TA-1013).

By way of background, this investigation is based on a complaint filed by Lehigh Valley Technologies, Inc. (“Lehigh”), Endo Global Ventures, Endo Ventures Limited, and Generics Bidco I, LLC (d/b/a Par Pharmaceutical and Qualitest Pharmaceuticals) (collectively, “Complainants”) alleging violation of Section 337 by way of unlawful importation into the U.S., selling for importation, and/or selling within the U.S. after importation certain potassium chloride powder products that are allegedly not approved by the U.S. Food and Drug Administration (“FDA”), and unfairly competing with Complainants through the false and misleading packaging, marketing, promotion, distribution, and sale of the Respondents’ unapproved potassium chloride powder products. See our June 15, 2016 post for more details on the complaint and our July 22, 2016 post for more details on the Notice of Investigation.

According to Order No. 7, the “essence” of Respondents’ unclean hands defense is that Complainants improperly transferred applications for the powder potassium chloride product at issue in this investigation (as well as another product) to certain small businesses in a type of quid pro quo arrangement in order to avoid paying some $2 million dollars in fees to the FDA. Specifically, Respondents allege that Lehigh was the original sponsor of the relevant New Drug Application (“NDA”) submitted to the FDA for potassium chloride. Lehigh then transferred these applications to small companies that had not previously developed any drugs, but which were then, allegedly, able to obtain User Fee Waivers from the FDA for which Lehigh would have been ineligible. Respondents also claim that the small businesses involved in the allegedly fraudulent arrangement were actually affiliates of Lehigh or under its control. According to Respondents, after the NDAs were submitted and Lehigh avoided substantial FDA fees, the small businesses that obtained the FDA approvals transferred the applications and licenses pertaining thereto back to Complainants. Respondents thus alleged that the NDAs were untrue and invalid.

Complainants denied the allegations and argued in their motion that, inter alia, because Respondents raised the substance of their unclean hands defense in a Citizen Petition filed with the FDA, the matters Respondents also raise in their unclean hands defense in this investigation are within the exclusive jurisdiction of the FDA, and therefore precluded by the Food, Drug and Cosmetic Act (“FDCA”). The Commission Investigative Staff (“OUII”) supported the motion in part, arguing that the portion of Respondents’ unclean hands defense that pertains solely to the validity of the NDAs should be dismissed because only the FDA has authority to invalidate an NDA under the FDCA and the Commission therefore has no jurisdiction over such matters. To the extent that Respondents’ unclean hands defense also raises a defense to Complainants’ allegations of violation of Section 337, however, the OUII contended that the motion should be denied. In opposition, Respondents agreed with the OUII and further argued that unclean hands is a well-recognized defense to a Lanham Act false advertising claim that can vitiate a complainant’s claim where, as alleged here, Complainants engaged in bad faith actions directly related to the false advertising claims asserted by them. Respondents also argued that the Citizens’ Complaint pending before the FDA does not extinguish or conflict with Respondents’ right to defend themselves in this investigation with the same unclean hands defense they raised with the FDA.

ALJ McNamara agreed with Respondents that they submitted a “well-recognized” unclean hands defense to Complainants’ Section 337 and Lanham Act claims. Moreover, the ALJ observed that Respondents have a right to defend themselves in this investigation, consistent with Commission practice, “[e]ven if the Commission has no authority to decide the validity of the NDA at issue because such authority resides exclusively within the jurisdiction of the FDA.” In addition, ALJ McNamara determined that nothing in Respondents’ unclean hands defense “even suggests that the Commission would have the jurisdictional authority to rule on the validity of any of the Complainants’ NDAs,” but nonetheless found that a factual dispute exists with regard to the facts underlying Respondents’ unclean hands defense insofar as that defense pertains only to Complainants’ Section 337 and Lanham Act claims against Respondents. Accordingly, the part of Complainants’ motion relating to Respondents’ Fifth Affirmative Defense that pertains solely to the validity of Complainants’ NDAs (or any similar determination that would fall under the exclusive jurisdiction of the FDA) was granted. To the extent that Respondents’ Fifth Affirmative Defense raises a legitimate defense to Complainants’ Section 337 and Lanham Act claims, the motion was denied. The ALJ further stated that Respondents are entitled to any relevant discovery necessary to prove their Fifth Affirmative Defense as it pertains to the claims in this investigation within the jurisdiction and statutory authority of the Commission.