Tuesday, April 05, 2011

Merck keeps two falsity cases alive against supplement ingredient makers

Merck Eprova AG v. Brookstone Pharms., LLC, 2011 WL 1142989 (S.D.N.Y.)

Merck sued Brookstone for false advertising, contributory false advertising, unfair competition, and deceptive trade practices. The parties cross-moved for summary judgment, and both were denied.

Merck makes Metafolin, sold to manufacturers as a source of folate in vitamin supplements. Brookstone makes its own supplements with a folate source caled Xolafin. Brookstone’s products state on their labels that L-methylfolate is an ingredient. Merck argues that this is literally false, because Brookstone’s products actually contain the diasteromeric mixture D,L-5-methyltetrahydrofolate, which is a mixture of two isomers, L-methylfolate and D-methylfolate. (I assume there is some reason this is material, but the court doesn’t discuss it.)

The parties submitted conflicting evidence on literal falsity. Merck provided scientific articles, submissions to regulatory bodies, expert reports, and deposition testimony indicating that it was literally false to refer to the diastereoisomeric mixture D,L-methylfolate as L-methylfolate. Brookstone offered testimony from a doctor and a pharmacist that L-methylfolate means the L-isomer, whether alone or present in a mixture. This dispute was for a factfinder to resolve, but that didn’t mean Brookstone was entitled to summary judgment. Merck didn’t have the burden of proving falsity to avoid summary judgment against it; it had the burden to show that a reasonable jury could find literal falsity, which burden it met by providing evidence that L-methylfolate has only one meaning and that Brookstone’s labeling was therefore false.

Brookstone also argued FDCA preclusion. A Lanham Act claim can’t be based on a court’s prospective determination of how FDA regulations should be interpreted. But a Lanham Act claim isn’t precluded just because it deals with an FDA-regulated label. The key is whether the fact at issue can be determined without having the FDA resolve some question. In a sister action to this case, another judge found that the claims were not precluded by the FDCA because Merck didn’t claim the defendant violated an FDA regulation or FDCA provision, and didn’t rely extensively on FDA regs or the FDCA in support of its claims. Instead, Merck was asking the court to determine falsity based on "accepted standards in the scientific and dietary supplement community." The court here agreed. (Note that FDA interpretations are likely to have a powerful, even controlling, influence on accepted scientific standards, but this is indirect.) “While one may question the wisdom of having a jury of lay persons determine whether this assertion [of scientific meaning] is accurate, the Court agrees … that the claim is not precluded by the FDCA.”

Merck Eprova AG v. Gnosis S.P.A., 2011 WL 1142929 (S.D.N.Y.)

Merck sued Gnosis for the same causes of action on which it sued Brookstone. Gnosis produces dietary ingredients, including a source of folate it calls Extrafolate. The issue here was whether the term "L-5-MTHF" could be properly used to refer to defendants' product. Merck argued that the term could only be used to describe ingredients, such as Merck’s, that are “substantially pure.” Gnosis argued that it was using the term differently, with the "L" in L-5-MTHF referring to the "configuration of the glutamic acid" in Extrafolate.

Gnosis argued that it was entitled to summary judgment on literal falsity because L-5-MTHF was susceptible to more than one reasonable interpretation. Merck argued that it was entitled to summary judgment in its favor because of its overwhelming evidence that L-5-MTHF could only be used to describe the pure or substantially pure isomer ingredient, not the isomeric mixture D, L-5-MTHF. Gnosis offered an expert report supporting its interpretation from a Princeton Ph.D. professor of chemistry at the University of Zurich. Merck’s challenge to the expert required the court to weigh the evidence and/or make a credibility determination, so that was inappropriate for summary judgment, though a Daubert motion might be appropriate. A factfinder could conclude that Merck’s experts on literal falsity were credible and Gnosis’s weren’t, meaning that there was only one reasonable interpretation of the term. Thus, summary judgment was denied for both sides.

Merck argued that it was entitled to summary judgment on implied falsity, but the Second Circuit says that "the success of a plaintiff's implied falsity claim usually turns on the persuasiveness of a customer survey," Johnson & Johnson * Merck Consumer Pharm. Co. v. Smithkline Beecham Corp., 960 F.2d 294, 298 (2d Cir.1992), and “persuasiveness” is a question for a factfinder. This might be an overreading of J&J, and reminds me of the historic reluctance of courts to grant summary judgment in copyright cases. Gnosis argued that it was entitled to summary judgment on implied falsity because Merck didn’t do a survey.

Extrinsic evidence is required for an implied falsity claim, and “[s]urveys are certainly the regular method, but a plaintiff is only required to introduce evidence showing how the statements are perceived by those who are exposed to them, and the Court sees no reason why this could not be done in the form of depositions in a case like this where the number of potential direct consumers is arguably fairly small.” The size of the intended audience was in dispute, but if it was fairly small, the deposition testimony might suffice. (Gnosis argued that small audience size meant no “advertising or promotion,” but the court disagreed.)

Gnosis also contested materiality, known in the Second Circuit as whether the falsity involved “an inherent characteristic or quality of their product.” The court rejected this argument: “the very nature of what a manufacturer is selling is an inherent quality of that product.” While Gnosis argued that industry custom and practice was to test raw ingredients independently prior to buying, and therefore any mislabeling couldn’t affect purchasing decisions, Merck identified at least one alleged purchaser that didn’t test to distinguish D, L-5-MTHF from L-5-MTHF.

Gnosis also failed to kick out the compensatory damages claim. To the extent that willfulness is required, Merck had enough evidence to go to a factfinder: defendants made the conscious choice to use the term L-5-MTHF, and Merck presented some evidence that they benefited from this choice.

The contributory false advertising claim survived because the primary violation of the Lanham Act needed to go to the factfinder.

The court, however, rejected Merck’s §43(a)(1)(A) “unfair competition” claim, since that’s about source. Merck argued that Gnosis improperly capitalized on the L-5-MTHF market created by Merck, but Merck was complaining about the characteristics of the goods, not their source, and Merck had no evidence that anyone believed they were purchasing Merck’s product, as opposed to a product identical to Merck’s product, when they bought from Gnosis.

NY deceptive trade practices: A section 349 claim requires (1) consumer-oriented acts or practices, (2) misleading in a material way, (3) causing injury to the plaintiff as the result of the deceptive act. The conduct here was “certainly” consumer-oriented. “While Defendants directly sold their product to manufacturers and distributors of nutritional supplements, those nutritional supplements are later sold to individual consumers.” As found above, Merck had sufficient evidence to go to trial on materiality and falsity. Actual injury was a closer call. Merck argued that defendants’ placing goods in the stream of commerce was sufficient to demonstrate injury, analogizing from a trademark case. The court saw no reason why the same wouldn’t also apply in a false advertising case, at least where the plaintiff presented evidence of direct competition. A Section 350 false advertising claim also survived; this has the additional element of actual reliance, but Merck provided testimony from several manufacturers who relied on Gnosis’s information.

An FDA preclusion argument was rejected for the same reasons as in the previous opinion.

In a fees dispute related to discovery disputes, Merck was awarded $600/hour for the work of two Alston & Bird partners (who billed at a stated amount of $700/$735 an hour), and also awarded fees at a slightly greater discount for the associates on the case. It further reduced the fees because some of the work was performed by overqualified persons, overstaffed, unnecessarily extended, and unclear in its billing. “While Defendants' actions made the discovery process more difficult than it needed to be, and surely required senior attorneys to be more involved than in the average case, the involvement of five different attorneys does seem somewhat excessive and those lawyers spent more time than seems necessary on certain tasks ….” So Merck only received a hair under $90,000, a 35% haircut from the requested amount—though this was on top of a $25,000 fine for Gnosis.

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