Court trebles damage award based on willful false advertising, over advisory jury verdict

Concordia Pharmaceuticals, Inc. v. Method Pharmaceuticals, LLC, No. 3:14CV00016, 2017 WL 837688 (W.D. Va. Mar. 2, 2017)

A jury found that Method engaged in false advertising; that Concordia was entitled to $733,200.00 in actual or compensatory damages; and that the false advertising wasn’t willful. Concordia subsequently filed a motion for JMOL or a new trial on willfulness, a motion for enhanced damages and prejudgment interest, and a motion for attorneys’ fees and costs.

Concordia acquired the Donnatal line of products from PBM Pharmaceuticals, Inc.  Donnatal is a line of prescription combination phenobarbital and belladonna alkaloid (“PBA”) products used in the treatment of irritable bowel syndrome and acute enterocolitis. (Side note: wow, that is quite a combination.  Who knew it (allegedly) had therapeutic properties?)  Donnatal was first introduced in the 1930s, before safety and efficacy showings were required; its safety has now been FDA-approved but not its effectiveness.  In 2011, generic manufacturers began to leave the market, leaving Donnatal as the only line of PBA products available.  Method wanted to change that.

Method is a wholesale drug distribution company owned by defendant Tucker, and Christopher Boone served as the company’s VP of operations during the relevant period.  Instead of a sales force, Method uses pharmaceutical databases to promote its products. Its business strategy is to ensure that its products are “linked” to existing drugs in the databases, which are used to determine whether generic substitutes are available for brand name products.

In 2013, Method began making plans to market a new PBA product that would be pharmaceutically equivalent to Donnatal, named Me-PB-Hyos. However, the company Method approached to make it never performed the stability testing necessary to develop Me-PB-Hyos, and no finished product was made.   Still, in March of 2014, Method moved forward by using the product labels and package inserts for Donnatal tablets and elixir to create labels and inserts for Me-PB-Hyos tablets and elixir.

“Method then proceeded to list the nonexistent Me-PB-Hyos products with two of the major pharmaceutical databases, Medi-Span and First Databank,” taking pains to have them liked to Donnatal at lower listed prices, which prices were supposedly effective as of April 2014.  (Later, the Medi-Span listing showed a marketing start date of June 2014, which Method knew.)  Medi-Span duly linked the products, though First Databank refused without validation from DailyMed, a website operated by the National Library of Medicine. Method therefore sent DailyMed the product labels for the nonexistent Me-PB-Hyos products.  After successfully listing Me-PB-Hyos with DailyMed, Method resubmitted the product labels to First Databank, indicating that its planned launch date was June 1, 2014, a day that had already passed, although it knew that it didn’t have any products ready and that its information would be relied on by members of the pharmaceutical industry. The products were listed in First Databank’s pharmaceutical database in early June 2014.

After this lawsuit was filed, Method contacted the manufacturer to whom it had initially reached out and indicated that it knew that the manufacturer had not started anything on the project, and that Method had decided that it “might be best to bail on [the] project.” But that same day, in response to an inquiry from Medi-Span, Method advised Medi-Span that “Me-PB-Hyos is an active product and will be available to ship by November 15, 2014.” Method also confirmed that “[t]he pricing and label ... are current and correct.”   The products never launched, and a bit later, Medi-Span removed the listings for the Me-PB-Hyos products, while First Databank moved its listings from active listings to archived listings.

After the listings, Donnatal prescriptions and unit sales decreased. The parties disputed the cause; Method presented evidence indicating that a number of other factors contributed to the reduction in Donnatal unit sales, including significant increases in the prices of Donnatal products. Concordia spent $885,015.00 on a coupon buy-down program to combat the negative effects of the listings for Me-PB-Hyos; it also revamped its marketing strategy and engaged in increased promotional efforts targeting pharmacies and prescribers.  The court excluded Concordia’s expert witness Hofmann’s lost profits calculations, which attributed all of the measured lost profits to the database listings for Me-PB-Hyos.

The court first concluded that the jury’s verdict on willfulness was advisory, not binding, making Concordia’s motion for JMOL or a new trial moot.  Instead, the court found that Concordia should recover enhanced damages, which are allowed, “according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount.”  Such damages must be compensatory, not punitive, even though willfulness is a consideration in whether to award them.  [Weird, statute. Very weird.]  The Fourth Circuit considers: “(1) whether the defendant had the intent to confuse or deceive, (2) whether sales have been diverted, (3) the adequacy of other remedies, (4) any unreasonable delay by the plaintiff in asserting his rights, (5) the public interest in making the misconduct unprofitable, and (6) whether it is a case of palming off.”

The court found that defendants acted willfully, or at a minimum with indifference to the truth or falsity of their statements, but said that even if it found otherwise it would enhance damages.  In particular, sales diversion was shown by the decline in Donnatal sales and Concordia’s expenses mitigating the impact of the Me-PB-Hyos listings. Thus, the court was convinced that the jury award didn’t provide adequate compensation.  Nor would an injunction adequately remedy Concordia’s lost sales.  Concordia didn’t unreasonably delay, and there was a public interest in making the misconduct unprofitable, despite the defendant’s statutory right not to be assessed a penalty. Thus, the court trebled the actual damages to nearly $2.2 million.  The court declined to award prejudgment interest, given the trebling of damages. 

However, the court—applying the Octane Fitness standard—found that this case wasn’t “exceptional” for the purpose of granting fees.  The defendants’ position on liability wasn’t frivolous or objectively unreasonable; before trial, the court denied Concordia’s dispositive motions on the issue of liability, both at the summary judgment stage and at the close of the defendants’ evidence. Nor was the case litigated unreasonably. Willfulness, standing alone, “is no longer sufficient to show that a case is ‘exceptional.’ ”  Nor did deterrence or compensation concerns merit a fee award, given the trebling of damages.