Wednesday, September 26, 2018

modifying a false advertising injunction is justified when likelihood that claim is false has changed

De Simone v. VSL Pharmaceuticals, Inc., No. TDC-15-1356, 2018 WL 4567111 (D. Md. Sept. 24, 2018)

De Simone sought modification of a preliminary injunction governing statements it could make about a probiotic product, VSL#3 and its relationship to De Simone’s now-competing product, Visbiome.  (I was a bit critical at the time.) They sought to be able to advertise that ExeGi Pharma was the exclusive provider of the “De Simone Formulation,” the term they have coined for the combination of probiotic strains developed by De Simone and first commercialized in the United States as VSL#3; to cite clinical studies with the term “VSL#3” in the title as part of their promotional materials; and to engage in other speech critical of VSL#3.

As relevant here, the prior order required ExeGi to refrain from “stating or suggesting that the license agreement” between De Simone and VSL had “expired,” or asserting that “VSL#3 will no longer be on the market.” At the time, both products, though differently branded, used the same formulation. Thus, Visbiome’s exclusivity statements were false advertising. The court also enjoined (apparently 100% truthful) Visbiome statements that studies with “VSL#3” in the title constituted studies relating to the “De Simone Formulation.”

The De Simone parties returned to court, arguing that the VSL product was no longer made under De Simone’s formulation, resulting in a clinically different composition; VSL agreed that production was now elsewhere but argued that the changes weren’t clinically significant, and that any changes were the result of De Simone’s breach of his fiduciary duty so they shouldn’t be allowed to be communicated to the public.  [You can tell my feelings about that last part.]

A court has the power “to modify an injunction in adaptation to changed conditions.”

The court didn’t let De Simone speak truthfully by citing studies that use the term VSL#3 in the title (while studying the De Simone formulation). The court previously found the extensive use of the citations to be confusing and concluded that “[e]ven if ExeGi has a reason to refer to those studies because Visbiome is, as a scientific matter, the same formulation that was subjected to those trials, that scientific equivalence cannot be used as an opportunity or excuse to erode VSL’s trademark.”  Again, “eroding” a trademark isn’t a thing, but the court determined that the change in the VSL product’s formulation didn’t constitute a relevant change for trademark purposes.  [Which is an interesting variant on the fact that trademark doesn’t actually protect the public from changes in quality initiated by the trademark owner.]  So now, the De Simone defendants are infringing if they truthfully refer to the studies, while VSL might be falsely advertising (if the formulation is indeed materially different) if they refer to the studies. 

However, conditions did change as to representations of exclusivity. At the time of the old order, while the license agreement between De Simone and VSL had recently expired, VSL continued to have inventory of product produced under that agreement, so De Simone’s statements at that time that they were the “exclusive” provider of the De Simone formulation constituted false advertising. That’s no longer true, and promotional materials including those touting VSL#3 as dairy-free, now made clear that VSL#3 and Visbiome were no longer exactly the same, removing the factual predicate of the injunction about exclusivity statements. At a minimum, the likelihood of success of a false advertising claim against the exclusivity statements had changed: though VSL had offered explanations for the composition discrepancies, and criticized De Simone’s published studies as biased, they hadn’t submitted a comparable published study indicating that the current versions of VSL#3 and Visbiome were identical or even functionally equivalent. Plus, the balance of equities had shifted because VSL#3 has been marketed as “the same quality product, containing the same genus and species of bacteria, in the same proportions that you have come to expect,” while ExeGi couldn’t dispute that.

Thus, the injunction would no longer bar assertions that the licensing agreement between De Simone and VSL has expired and that ExeGi is the exclusive provider of the De Simone formulation, but the court refused to declare broadly that ExeGi is free to “engage in commercial speech critical of its competitor’s products.” This was warranted particularly because the De Simone parties had a history of stretching the court’s orders to the breaking point, and also because a trial was upcoming to resolve the factual disputes. Until trial, the exclusivity statement would have to read: “We believe that ExeGi is the exclusive provider of the De Simone Formulation because it is our position that the current version of VSL#3 uses a different formulation. Whether VSL#3 presently uses the De Simone Formulation is the subject of pending litigation in federal court.”

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