Last month the Third Circuit reversed an order of dismissal issued by the District of New Jersey regarding a putative class action brought by consumers of prescription eye medication. See Cottrell v. Alcon Labs, 16-ap-2015 (3d Cir. October 18, 2017). The plaintiffs alleged that the manufacturers and distributors of eye drops packaged the medication in a manner that forced consumers to waste it, in violation of the plaintiffs’ home states’ consumer protection statutes. The District Court dismissed the entire action for lack of jurisdiction, holding that the consumers’ allegations of injury were insufficient to confer standing. The Third Circuit reversed.
Prescription eye drops, which are approved by the FDA, are sold in liquid form and packaged in plastic bottles. Bottles are sold at set prices and pre-packaged with a fixed volume of medication—e.g., 50 milliliters (mLs). The bottle’s labeling does not indicate how many doses or days of treatment a patient will be able to extract from the bottle.
Drops are applied directly to a patient’s eye via a dropper tip. And the dimensions of a dropper tip determine the size of each drop dispensed from the bottle—the larger the tip, the larger the drop. There is no way to dispense less than one drop at a time.
Scientific studies have concluded that a normal adult’s interior fornix—the area between the eye and the lower lid—can hold approximately 7–10 microliters (µLs) of fluid. As any four-eyed reader (like this author) is aware, all liquid in excess of that capacity is “expelled” from the eye and sent streaking down the user’s face. Or, in the words of the plaintiffs, the medication is “entirely wasted.”
To combat this issue, the scientific studies recommend that eye drops should be between 5 and 15 µLs to maximize the amount of medication entering the inner eye. Despite “scientific consensus” on drop size, all of the defendants’ products allegedly emit drops significantly larger than 15 µLs—some selling products with 50 µL drop sizes. In other words, according to the plaintiffs, at least half of every drop of medication goes to waste, allegedly causing the plaintiffs “substantial” economic injury.
In September 2014, the plaintiffs sued, alleging that the defendants violated prohibitions on unfair or deceptive trade practices. The District Court dismissed the complaint for lack of standing, without prejudice. In June 2015, the plaintiffs amended the complaint and supported their allegations with (i) scientific literature opining on the cost savings occasioned by smaller drop sizes, and (ii) charts showing each plaintiff’s expenses. The District Court again granted the defendants’ motion to dismiss for lack of standing.
To establish the minimum requirements for Article III standing, the plaintiff bears the burden of demonstrating (i) an injury in fact, (ii) that is fairly traceable to the defendant’s alleged conduct, and (iii) that is likely to be remedied by a favorable judicial decision. Notably, standing is distinct from any assessment of the merits of a plaintiff’s claim. And because the court assumes the plaintiff’s claims are valid, the major focus is whether the plaintiff is the proper party to bring those claims.
The Third Circuit’s opinion principally addressed the first prong in the standing analysis: injury in fact. This requirement is “very generous” to the plaintiff and requires only that the claimant allege some specific, “identifiable trifle” of injury. Of course, he or she must allege an invasion of some legally protected interest. But where the plaintiff alleges financial harm, standing is often assumed without discussion.
According to the Third Circuit, while the District Court “provided a detailed recitation of standing law,” it failed to apply standing’s individual components to the plaintiffs’ allegations. Rather, the District Court focused its discussion around broader principles and theories, which—in the Third Circuit’s view—caused the analysis to improperly, if inadvertently, cross over into a merits determination.
Ultimately, the Third Circuit concluded that the plaintiffs’ allegations “fit comfortably” into categories of “legally protected interests” readily recognized by federal courts. The plaintiffs claimed economic loss—money spent on medication that was impossible to use. They sought monetary compensation as a remedy, and alleged that their claimed interest arose from state consumer protection statutes that provide monetary relief to private individuals who are damaged by business practices that violate those statutes.
In so doing, the Third Circuit diverged from a Seventh Circuit opinion concerning “materially identical” allegations against many of the same defendants. In Eike v. Allergan, Inc., 850 F.3d 315 (7th Cir. 2017), the Seventh Circuit held that the plaintiffs lacked standing due to the absence of fraud-based allegations. The Third Circuit declined to Adopt Eike’s rationale because that decision failed to recognize a category of business practices entirely separate from practices that are fraudulent, deceptive, or misleading—i.e., unfair business practices. The Third Circuit further criticized Eike as flipping the standing inquiry inside out, morphing it into a test of the legal validity of the plaintiffs’ claims of wrongful conduct. But as the Third Circuit stressed, a valid claim is not a prerequisite for standing.
The dissent, on the other hand, took issue with the plaintiffs’ theory of economic loss as too speculative. In essence, the plaintiffs argued that, had the dropper tips been properly sized, either (i) each bottle would cost less, saving the plaintiffs money, or (ii) cost the same, but last longer, saving the plaintiffs money. The dissent found this theory to be overly speculative and untenable because it was contingent upon the behavior of third-party actors, the pharmaceutical companies.
Furthermore, according to the dissent, pharmaceutical companies engage in “value-based pricing,” which deemphasizes the overall volume of medicine in favor of an assessment of the value—measured in part by effective doses—received by the patient. Therefore, the defendants would likely raise prices in response to a new dropper design. As a result, for the dissent, the assumptions that the plaintiffs asked the court to make regarding dropper design and the downstream consequences were too unreasonable to plausibly allege standing.
On some level, both the plaintiffs and the dissent are probably correct. Changing the dropper design does not affect the input costs of the solution within the bottle, so the manufacturers could charge less. But they probably wouldn’t. As each bottle would last longer, per-unit demand would go down, assuming prescription rates remained constant. On the other hand, however, the per-bottle profit would remain unchanged—setting aside research and development costs for new tops—so long as price stayed the same. In other words, manufactures could develop less product and make the same amount of money on each bottle. But because overall demand is depressed, overall supply could also fall, reducing the overall input costs borne by the defendants, and thereby increasing overall profits. Therefore, it’s possible that smaller droppers would benefit not only consumers, but manufacturers, too. Regardless, what is clear from the decision is plaintiffs have standing to bring these claims, at least in the Third Circuit.
Earlier this month the defendants filed a petition for rehearing and rehearing en banc. We’ll keep an eye on this litigation and other consumer protection issues here at the Monitor.