pharma databases as commercial speech? court says maybe

Alfasigma USA, Inc. v. First Databank, Inc., 2019 WL 3532844, No. 18-cv-06924-HSG (N.D. Cal. Aug. 2, 2019)

Alfasigma sued First Databank for state and federal false advertising after it re-classified Alfasigma medical food products from Class F (prescription) to Class O (over-the-counter) in its widely-used MedKnowledge database. First Databank moved to strike under California’s anti-SLAPP statute and to dismiss; it failed in the first but was partially successful in the second.

Federal law defines a medical food as “a food which is formulated to be consumed or administered enterally under the supervision of a physician and which is intended for the specific dietary management of a disease or condition for which distinctive nutritional requirements, based on recognized scientific principles, are established by medical evaluation.” Alfasigma markets its medical foods “directly to physicians.”

MedKnowledge is the largest and most widely used drug database, and insurers rely on it to decide which products to cover.  It uses F and O codes to divide the products in its database between Rx and OTC.  Subscribers allegedly “universally understand[ ] that a product designated ‘O’ is an OTC drug, available over-the-counter and without physician supervision.” The Alfasigma Products were allegedly “historically and correctly” designated as F-Class, meaning that “their cost was often covered by insurance plans that limit coverage to prescription products,” which improved usage and compliance.

In 2016, First Databank reclassified the Alfasigma products to Class O, allegedly “falsely representing that these products are available OTC, when in fact they are available by prescription, and should not be taken by a patient without physician supervision.” First Databank claimed that it moved the Alfasigma Products from the F-Class to the O-Class to be “in alignment with [ ] FDA standards.” But this was allegedly not based on any FDA request or advice, and the FDA’s Medical Director for the Infant Formula and Medical Foods Staff allegedly told it that “[m]edical foods are not OTC drugs” and that its “misinterpretation of FDA’s position and policies on medical foods” was leading to patients losing insurance coverage because “their insurance providers belie[ve] that the [Alfasigma Products] are over-the-counter (OTC) drugs.” The reclassification allegedly caused confusion in the marketplace, including causing physicians to stop prescribing the products and pharmacies to not stock them.

In 2018, First Databank announced that it was creating a new Q-Class for the MedKnowledge database, in order to “distinguish” medical foods “from over-the-counter drugs and devices.” Class Q will include products “that are neither drugs nor devices, such as dietary supplements (including prenatal and other vitamins), medical foods, herbal preparations, and bulk flavorings or colorants.” But Alfasigma argued that “[n]one of these products are regulated as medical foods, and none of them carry a federal requirement that they be used under physician supervision.” It thus alleged that putting its foods into the Q-Class “will cause further confusion among physicians and other prescribers, pharmaceutical wholesalers and distributors, pharmacies, pharmacists, and insurers, to Alfasigma’s continuing injury.” [This allegation reads like it involves some fancy footwork: is there really a “federal requirement” in the sense that one violates the law by providing medical foods to someone who is not currently under physician supervision?  How would one even check that this was so?]

Anti-SLAPP law: First Databank’s reclassification was a speech act about matters in the public interest within the scope of the anti-SLAPP statute. To survive an anti-SLAPP motion, the plaintiff must “show a reasonable probability of prevailing in its claims,” and “the trial court does not weigh the evidence or determine questions of credibility; instead the court accepts as true all of the evidence favorable to the plaintiff.”

First Databank argued that the information in its database was pure noncommercial speech and thus outside the scope of the UCL/FAL and unfair competition common law.  But the database was at “the heart of every pharmacist claims processing system,” and was in fact designed and marketed to be that vital to reimbursement. First Databank cited Dex Media West, Inc. v. City of Seattle, 696 F.3d 952 (9th Cir. 2012), in which the Ninth Circuit held that “telephone listings and community information contained in [a yellow pages phone book directory] constitute noncommercial speech.” The court thought that case was sufficiently different in procedural (and perhaps factual) posture. Nor was the database equivalent to consumer-posted reviews. Alfasigma’s allegations, including that First Databank customers “rely on the information drug databases provide to make decisions about which products to prescribe, purchase, dispense, and reimburse,” created a reasonable probability that Alfasigma would be able to show that First Databank engaged in commercial speech. [I’m not sure that the argument that the audience uses the speech for self-regarding commercial purposes makes the speech itself commercial—the question of whose motives need to be commercial here is an interesting one.]

Alfasigma also adequately alleged falsity. Misleadingness: First Databank argued that its database was entirely accurate: “the ‘O’ Class value explicitly includes medical foods” because “the products do not require a prescription under federal law.” But Alfasigma sufficiently pled that MedKnowledge database subscribers “universally understand[ ] that a product designated ‘O’ is an OTC drug, available over-the-counter and without physician supervision,” making the classification of the Alfasigma products as OTC drugs false or misleading.  [This suggests that the previous classification was also false, albeit not harmful to Alfasigma.] “Even if First Databank has redefined Class O to expressly include medical foods, the understanding and expectations of its subscribers based on an earlier, stable definition may override a subtle definitional change, particularly when Alfasigma has pled that consumers are confused.”

Alfasigma also argued that First Databank misled its subscribers when it claimed that “the source of its information” about the classes was Alfasigma and the FDA. “Taken at face value, the FDA’s statements, as relayed by Alfasigma, tend to support Alfasigma’s inference that First Databank could not be telling the truth when it said that it decided to reclassify the Products based on information received from the FDA.” [Though harm causation might be a problem here; the reclassification itself, and not its source, seems like the key issue .]

Motion to dismiss: as above, commercial speech was sufficiently pled.  But not “commercial advertising and promotion.” The Ninth Circuit uses the Gordon & Breach test (though the court indicated its approval of the consensus that Lexmark deleted the competition prong).  Alfasigma didn’t plausibly allege that First Databank’s representations were made “for the purpose of influencing customers to purchase” First Databank’s services. Influincing decisions that consumers made to buy Alfasigma’s goods wasn’t enough.  Alfasigma argued at oral argument that the second alleged falsity—claiming data came from the FDA—was made to encourage consumers to buy subscriptions, but the complaint didn’t allege that with respect to the false advertising causes of action. Alfasigma was given leave to amend. 

Note: state law claims survived, as did what the court described as “false description” claims under the Lanham Act, though I don’t see the basis for a §43(a)(1)(A) unfair competition claim here.  It might mean just theory two of the falsity claims?