pharma database isn't commercial speech about listed products

Alfasigma USA, Inc. v. First Databank, Inc., 2021 WL 930453, No. 18-cv-06924-HSG (N.D. Cal. Mar. 11, 2021)

Previous opinion. Alfasigma makes medical foods, which are allegedly not properly described as OTC. It sued First Databank for coding implemented in the latter’s pharmaceutical database:

Historically, the “class value” field in the MedKnowledge database indicated whether manufacturers identified their products as prescription-only. Code “F” identified product labels that indicated a prescription was required, and “O” identified when the product label did not contain any dispensing limitations. Plaintiff alleges that subscribers “universally understand[ ] that a product designated ‘O’ is an [over-the-counter (“OTC”) ] drug, available over-the-counter and without physician supervision.”

Although Alfasigma’s products were historically designated as F, First Databank reclassified them as O.

This allegedly falsely represented that they were available OTC, “when in fact they are available by prescription, and should not be taken by a patient without physician supervision.” Then First Databank created a new class value, Q. Q was to be for “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.” This was allegedly still false and misleading, and First Databank allegedly falsely advertised that it “compile[s]” the relevant information in its database and for its coding determinations from the FDA and from manufacturers, such as Alfasigma.

Alfasigma sued for false advertising and contributory false advertising under the Lanham Act and related state law claims. Previously, the court denied First Databank’s anti-SLAPP motion because Alfasigma had shown a reasonable probability of success on the merits of its state law claims, but had not plausibly alleged that the coding changes were made for the purpose of influencing subscribers to purchase First Databank’s own products or services, as required under the Lanham Act. Alfasigma amended its complaint.

The 9^th Circuit applies the motion to strike and attorneys’ fees provisions of the anti-SLAPP statute to state law claims in federal cases because there is no “direct collision with the Federal Rules,” but the court still expressed the concern that this interpretation of the statute “vastly understates the disruption when federal courts apply the California anti-SLAPP statute,” particularly as it interacts with Rule 12 and its plausibility standard.

Alfasigma continued to allege that the recoding decisions were false and misleading, and that First Databank misrepresented that the FDA and manufacturers were the source of the information in the database.

Previously, the court found that Alfasigma sufficiently alleged that the database constituted commercial speech for purposes of surviving the motion to strike, but (1) now there are additional allegations, and (2) Ariix, LLC v. NutriSearch Corp., 985 F.3d 1107 (9th Cir. 2021), provided further guidance, so the law of the case did not control.

The database provides information about third-party pharmaceutical products, not First Databank’s own products. Other third parties then use this information to determine which products to prescribe and dispense, and to decide whether to reimburse for these pharmaceutical products. This isn’t a traditional ad; representations about the database may be ads, but that doesn’t make the database itself an ad. There were product references in the database, but that didn’t establish that it was commercial speech, so the court turned to defendant’s motivation for the speech.  Alfasigma alleged that it was commercial because (1) “pharmaceutical product manufacturers and distributers have...come to rely on [the] database as a crucial promotional channel for their products”; (2) the database is directed toward third parties “to influence their decisions whether to prescribe, purchase, dispense and/or pay for” Plaintiff’s products; and (3) Defendant collaborates with its subscribers in making changes to the database.

Alfasigma persuasively alleged that the database is critical to the billion-dollar pharmaceutical industry. “These allegations, however, only underscore that third parties—not Defendant—use the information contained in the database as part of their own commercial transactions.” First Databank didn’t make any of these economic decisions itself. Alfasigma maintained that First Databank’s editorial decisions in maintaining and updating the database were driven by subscribers’ feedback, and that Defendant “generates revenue by selling subscriptions to MedKnowledge.” First Databank allegedly decided to change the class value of Alfasigma’s products at least “[i]n part to satisfy the preferences of certain customers....” But a profit motive didn’t distinguish First Databank from a newspaper.

Ariix, which found that a guide to supplements was commercial speech, emphasized that its decision was “a narrow one that is tied specifically to the troubling allegations in this case,” involving payments to the CEO for better reviews and similar pay-to-play allegations making the guide a disguised ad rather than true editorial content. Here, by contrast, there was no allegedly hidden financial arrangement; First Databank just made more money from more sales. Alfasigma argued that many pharmacy benefit manager customers preferred to have products O-rated so they didn’t have to reimburse patients for their costs, so at least some subscribers wanted medical foods recoded. But which products were covered by which insurance wasn’t within First Databank’s control, nor did Alfasigma allege that it was compensated more based on whether specific claims were paid or denied. Under Alfasigma’s logic, “any speech could be commercial if eventually relied on by third-party actors who conduct business.” That was too extensive, so the claims all failed.

Even if the database were commercial speech, the coding-based Lanham Act claims independently failed for want of “commercial advertising and promotion.” After Lexmark, the test seems to be: “(1) commercial speech, (2) for the purpose of influencing consumers to buy defendant’s goods or services, and (3) that is sufficiently disseminated to the relevant purchasing public.” The failure here was on (2): Alfasigma didn’t plausibly allege that the database was created for the purpose of influencing consumers to buy First Databank’s goods or services. The court saw an inconsistency in Alfasigma’s theory that sounds more like heterogeneity to me: while some subscribers would benefit financially if the coding changed, Alfasigma alleged that other subscribers were confused, and “did not know that [Plaintiff’s] recoding was a commercial decision intended to enhance the profits of PBM and insurance company customers, rather than based on information from the FDA or [Plaintiff].” The FDA’s medical director even “expressed concern” that “patients...are losing or have lost insurance coverage for their products marketed as medical foods” because “their insurance providers belie[ve] that the products are over-the-counter (OTC) drugs....”

The allegation that First Databank inaccurately changed its coding to promote its own services wasn’t plausible given that, as Alfasigma acknowledged, “[i]t is important for [Defendant’s] customers that the compendia services and products they purchase be accurate.” Confusing subscribers and providing them with false information that was later challenged by the FDA itself wouldn’t plausibly promote First Databank’s own products or services. Anyway, “[a]ny publication would be deemed an advertisement if the defendant had an interest in encouraging others to purchase it,” so that definition is too broad. Ariix suggested that something like an agency relationship would be vital, and there was no indication here that there was such a relationship with the PBMs or other financial stake in specific sales of a product. “The database does not list any of Defendant’s own products or additional services. Rather, the database itself is Defendant’s product.”

Contributory false advertising: First Databank’s representations allegedly induced its subscribers to falsely advertise that Alfasigma’s products were “OTC drugs.” “It is unclear in this Circuit if contributory false advertising can apply to non-commercial speech in any context because the Lanham Act, as a whole, applies only to commercial speech.” Anyway, because the database wasn’t commercial speech, this claim also failed; it also failed because Alfasigma didn’t allege that First Databank knowingly or intentionally induced, or materially participated in, its subscribers’ alleged false advertising. To the contrary, Alfasigma alleged how PBMs and insurers have their own incentives to code its products as “O” and to refuse coverage.

Information source allegations: Rule 9(b) applied because Alfasigma alleged that the false statements were knowing or intentional. And the complaint failed to meet the heightened pleading standard because it was “devoid of specifics about when and where the alleged ‘source’ misstatements were made.” It wasn’t enough to identify some specific statements like brochures that told manufacturers, “You tell us. We tell the world,” and undated statements that it made the changes to be “in alignment with [ ] FDA standards.”