Noncommercial speakers can be liable for contributory false advertising

ExeGi Pharma, LLC v. Pacifici, 2022 WL 889275, No. 1:21-CV-2134-TWT (N.D. Ga. Mar. 25, 2022)

I know it probably seems sometimes like I approve of every expansive use of false advertising law, but sometimes even I find an aggressive position to go too far. Here, ExeGi sues a doctor for producing some of the materials ExeGi’s rivals use to promote themselves, and the court approves a contributory false advertising claim, reasoning that the “commercial advertising and promotion” requirement applies only to the underlying speech, not to the doctor’s speech. That seems doctrinally correct but not quite the point: The real question ought to be whether the imposition of liability on the doctor’s noncommercial speech satisfies strict scrutiny. Maybe it does, but I have doubts. Also, we really need a federal anti-SLAPP law.

As with other ExeGi cases, the core is “competing probiotic products used to treat certain gastrointestinal diseases.” De Simone created an eight-strain combination probiotic product known as the De Simone Formulation. This was first used by VSL, marketed as VSL#3. De Simone then split from VSL, which eventually lost the license for the De Simone Formulation and attempted to reverse engineer it/replace it. After a trial, VSL was barred from advertising its new formulation as the same as the De Simone Formulation and from relying on studies performed on the De Simone Formulation.

Defendant Pacifici “is a professor at Emory University who has been studying the clinical application of probiotics since at least 2012.” He conducted a study on the De Simone Formulation’s effect on bone loss of mice during menopause. He became an advisor to VSL after the split from De Simone, and gave a presentation in Italy where he allegedly presented data from studies performed on the De Simone Formulation as if the data represented analysis of the Italian Formulation.

He also, allegedly at VSL’s request, joined a “GRAS Panel” regarding the Italian Formulation with two other professors and ultimately signed a report on it, which ExeGi alleged was “fatally flawed” by its reliance on studies performed on the De Simone Formulation. The report concluded that the Italian formulation qualifies both as “GRAS” and as a “medical food” under US law, allegedly giving credence to these claims. [I want to pause for a moment and consider how this would go as a consumer protection lawsuit, where courts are often totally happy to allow marketing claims based on studies vaguely in the area of the defendant’s ingredients.] Anyway, ExeGi sued for contributory false advertising/unfair competition under the Lanham Act, a violation of Georgia’s unfair competition statute, and tortious interference.

The Eleventh Circuit allows contributory false advertising claims where there is direct false advertising and the defendant contributed to that conduct either by knowingly inducing or causing the conduct, or by materially participating in it. Liability requires “that the defendant had the necessary state of mind—in other words that it ‘intended to participate in’ or ‘actually knew about’ the false advertising.” It is enough if a defendant provides “a necessary product or service, without which the false advertising would not be possible.”

The court found that claim preclusion didn’t apply and that the FDCA did not preclude the Lanham Act claims. Defendant argued that the Lanham Act claims here would require the Court “to interpret and apply a complex web of statutory and regulatory provisions about the requirements for a ‘medical food’ and ‘GRAS’ substances.” Even though ExeGi argued that it wasn’t making a “technical” argument but just that the designations were “claimed fraudulently and wholly unsupported,” the court cut to the heart of the claim and held that, even accepting the allegations as true, using data from the De Simone Formulation didn’t mean that the Italian Formulation was neither “medical food” nor “GRAS.” Those things depended on whether the proper tests had been performed, and “[t]his scientific inquiry is decidedly one left to the exclusive jurisdiction of the FDA under the FDCA.”

However, the contributory false advertising claim also was based on defendant’s claim that the two formulations were equivalent, which was not precluded.

ExeGi sufficiently alleged primary false advertising, and that the GRAS Report signed by Pacifici serves as the “underpinning of much of the false advertising engaged in” by the primary defendants. It was plausible that Pacifici’s signature on the report and decision not to withdraw that signature constituted participation in the alleged false advertising. The Eleventh Circuit has held:

It is also conceivable that there could be circumstances under which the provision of a necessary product or service, without which the false advertising would not be possible, could support a theory of contributory liability. In determining whether a plaintiff has adequately alleged facts to support such a claim, we look to whether the complaint suggests a plausible inference of knowing or intentional participation, examining the nature and extent of the communication between the third party and the defendant regarding the false advertising; whether or not the defendant explicitly or implicitly encouraged the false advertising; whether the false advertising is serious and widespread, making it more likely that the defendant knew about and condoned the acts; and whether the defendant engaged in bad faith refusal to exercise a clear contractual power to halt the false advertising.

Here, ExeGi alleged “that the GRAS Report materially supported a third party’s false advertising, that Pacifici knew of the alleged false equivalence being expressed in the Report, that he was informed by De Simone and an attorney for a rival company that these statements indicated equivalence between the formulations, and that he refused to rescind his signature after being presented with this information.” That was enough here.

ExeGi was not required to allege that Pacifici’s speech was commercial, because that’s only a requirement for the primary false advertising.

§43(a)(1)(A) unfair competition: ExeGi alleged that Pacifici’s continued authorization of the GRAS Report causes confusion as to whether the Italian Formulation’s is certified as GRAS and a medical food, whether the medical community has a consensus view that the Italian formation is safe for its intended use, and that the Italian Formulation “is of a particular standard and quality.” But ExeGi failed to allege that the GRAS report caused confusion about equivalence, and the rest of this was precluded by the FDCA, so it was kicked out. (Also, using §43(a)(1)(A) as a cut-rate false advertising claim does pose some First Amendment problems, but the court doesn’t say anything about that!)

Georgia’s Uniform Deceptive Trade Practices Act creates a cause of action against a person who, “in the course of his business, vocation, or occupation, [r]epresents that goods or services are of a particular standard, quality, or grade or goods that are of a particular style or model, if they are another[.]” Defendant didn’t sufficiently brief preemption, as opposed to preclusion, but the UDTPA does not apply to “[c]onduct in compliance with ... a statute administered by a federal, state, or local governmental agency[.]” Because the FDCA gives the FDA the ability to monitor and enforce false claims of GRAS or medical food designations, the UDTPA didn’t apply.

Tortious interference: This requires an allegation “that the defendant directly induced adverse behavior by the third party.” But ExeGi failed to allege that customers read the GRAS Report or made their purchasing decisions on that basis, and instead explicitly alleged that it led to false advertising that then induced others to act.