Friday, June 17, 2022

4th Circuit upholds contempt ruling in false advertising case: scrub your website and FB account!

De Simone v. VSL Pharmaceuticals, Inc., --- F.4th ----, 2022 WL 2036293, No. 20-1846, No. 20-1869 (4th Cir. Jun. 7, 2022)

The court upheld a contempt finding based on an underlying false advertising claim. Of potential broader interest because of its discussion of content that is still live on one’s website but no longer linked to and of Facebook comments.

The underlying permanent injunction barred defendants from suggesting in promotional materials that their probiotic contained the same formulation as one marketed by De Simone. [Short refresher: De Simone took his formula with him when he parted with a defendant, and went into competition with the original formula, while defendants reformulated and said that the two were the same in ways ultimately found deceptive.] In particular, it barred them from

(1) stating or suggesting in VSL#3 promotional materials directed at or readily accessible to United States consumers that the present version of VSL#3 produced in Italy (“Italian VSL#3”) continues to contain the same formulation found in the versions of VSL#3 produced before January 31, 2016 (“the De Simone Formulation”), including but not limited to making statements that VSL#3 contains the “original proprietary blend” or the “same mix in the same proportions” as earlier version[s] of VSL#3; and (2) citing to or referring to any clinical studies performed on the De Simone Formulation or earlier versions of VSL#3 as relevant or applicable to Italian VSL#3.

In its contempt motion, ExeGi identified three relevant violations: (1) a letter Alfasigma sent to healthcare providers, (2) comments on Facebook, and (3) a press release.

The letter to healthcare providers was posted on Alfasigma’s website before the court issued the permanent injunction. It claimed that evidence “confirmed” that “Italian-made VSL#3® contains the same 8 strains of bacteria as the [original] product ... ; Italian-made VSL#3® is equivalent to the [original] product; and Studies previously performed on the [original] product can be relied on to show the efficacy and safety of the Italian-made product.” After the injunction, Alfasigma removed links to the letter from its website, but it was still on the server and Google still indexed it. Alfasigma broke the link to the letter when ExeGi informed it of that fact.

Facebook comments: Alfasigma also rendered VSL#3’s Facebook page inaccessible once the injunction issued. When Alfasigma brought the page back online, in response to consumers’ questions, Alfasigma repeatedly responded: “VSL#3® was temporarily not available for sale while a packaging update was being made to comply with the court’s final order. The court did not prohibit the sale of VSL#3®. VSL#3® was not recalled or discontinued, there are no safety or efficacy concerns[,] and the formula has not changed.”

Also, a press release that discussed separate litigation in Italy about who owned VSL#3’s bacterial strains, unfairly compared VSL#3 and Visbiome referred to plaintiffs’ “aggressive efforts to sell their competing, generic probiotic product.” The problem here was the use of the term “generic.”

The court of appeals rejected defendants’ claim of substantial compliance, despite their claims that they took down the letter and FB answers as soon as they learned about them.

The healthcare providers’ letter violated the injunction; even if leaving it up wasn’t willful, that wasn’t required for contempt. (Likewise with content left up on YouTube that was not unlawful when posted but became so after the injunction—be careful about that content!) The FB comments did too and the commenters were clearly working from a script, even if Alfasigma took the comments down after plaintiffs complained.

As for the press release, VSL didn’t show that it used “generic” in the sense of “unpatented.” At the time of the press release, “generic” was contemptuous because of its equivalence meaning.

The district court found that these violations caused harm because they “were designed to create a false continuity between Italian VSL#3 and the De Simone Formulation so that VSL#3 could keep its prior customers and potentially poach new ones.” Although ExeGi didn’t “identify[ ] a direct link between the violations of the Permanent Injunction and” its lost sales, it “establish[ed] that customer confusion over whether VSL#3 still contains the De Simone Formulation ... caused ExeGi to lose business.” In particular, two consumers said that they continued to take VSL#3 after it stopped using the De Simone Formulation because none of the product’s marketing disclosed the formula change.

The court declined to award lost profits because De Simone and ExeGi didn’t show “quantifiable damages,” instead awarding attorneys’ fees.

Civil contempt requires a showing, by clear and convincing evidence of: (1) the existence of a valid decree in the movant’s favor of which the alleged contemnor had actual or constructive knowledge; (2) conduct violating the terms of the decree, with knowledge (at least constructive knowledge) of such violations; and (3) resulting harm to the movant.

The district court didn’t abuse its discretion in finding these present.

Defendants argued that they didn’t know about the healthcare providers letter and made reasonable efforts to comply. In the civil contempt context, parties have constructive knowledge of their websites, which sufficed, even though consumers couldn’t access the letter from Alfasigma’s homepage. “[T]he way in which consumers could access the Letter is irrelevant to Alfasigma’s constructive knowledge that it remained on the website.” They didn’t substantially comply (a defense to civil contempt), even though Alfasigma disabled direct links and redirected other links to a different portion of the website. These were not “all reasonable steps” required: “[V]erifying that the Letter wasn’t readily accessible via external links is a reasonable step.” The court noted that “the search terms that yielded the Letter (‘vsl3 litigation’) were basic—the product’s name and a major event surrounding it. So there’s a good chance Alfasigma would have discovered the link had it tried to do so. And there’s no dispute that once discovered, the link was easily broken.”

Facebook comments: Also subject to constructive notice, even though they appeared on Facebook, not Alfasigma’s website. “Alfasigma maintained its Facebook page, just like its website. And had Alfasigma exercised reasonable diligence in managing the page, it would have known about the Commentary.” The key here seems to be that Alfasigma’s agents, responding to questions, authored the comments post-injunction, pursuant to a script. “If Alfasigma gave its employees that script before the court issued its injunction, Alfasigma should have instructed its employees to stop using it. And if Alfasigma issued the script after the court ruled, then it actively sought to violate the injunction.” Neither showed good faith.

[The FB comments and the YouTube materials contained identical offending statements that VSL#3 was “clinically proven” to alleviate gastrointestinal symptoms.]

Press release: A press release is “promotional material” covered by the injunction. The injunction didn’t define the term, but since it was based on a Lanham Act violation, “commercial advertising or promotion” was the proper guidepost. Although there was arguably noncommercial content in the release—detailing the factual and procedural background of the dispute—its final sentence emphasized VSL#3’s commercial availability: “VSL#3® is available for purchase in the U.S. and many markets globally.” “So the district court reasonably viewed the message as an attempt to realize economic gain,” and the offending statements weren’t inextricably intertwined with the rest of the press release. And the press release statements “cast De Simone and ExeGi in a negative light, calling their ‘efforts to sell’ Visbiome ‘aggressive.’ And they diminish Visbiome, labeling it ‘competing’ and ‘generic.’ The statements also evince an intent to steer consumers away from Visbiome and toward VSL#3.” [Not sure about that “diminish” bit—competition isn’t a bad thing nor is genericity.] Anyway, that was “commercial advertising or promotion.” And it was “directed at or readily accessible to United States consumers,” republished on online websites.

“Generic”: Defendants pointed out that the permanent injunction didn’t explicitly prohibit use of the term “generic.” But the permanent injunction didn’t include a comprehensive list of banned terms, though it listed “original proprietary blend” and “same mix in the same proportions” as impermissible comparisons.

And the court rejected defendants’ argument that “generic” has multiple meanings, including “unpatented.” The permanent injunction prohibits the bound parties from “stating or suggesting ... that the present version of VSL#3 ... continues to contain the same formulation found in [earlier] versions of VSL#3.” “So even if the Actial Press Release intended a certain meaning for ‘generic,’ the injunction’s restraint on avoiding a different suggestion applies.” “Generic” can mean not distinctive. “Suggesting that VSL#3 and Visbiome aren’t distinct is a stone’s throw from saying they have the same formulation.” And ExeGi’s own prior references to its product as “generic” date from when it didn’t use the De Simone formulation and thus didn’t count.

Harm: Movants weren’t required to show a direct connection between each violation and the harm it caused, or that any consumers had seen the healthcare providers letter or press release. The jury “awarded ExeGi $15 million in damages after Alfasigma falsely advertised VSL#3 by referencing studies done on the De Simone Formulation,” and the district court found an intent to cause confusion. Thus, a binding judgment established the presence of harm. Also, for civil contempt, the court accepted “informational harms not connected to any specific monetary loss,” including consumer confusion. Here, the information had “caused customers to continue to purchase VSL#3 and thus to withhold their trade from ExeGi.” “So even if informational harms must be apparent, the misleading information VSL and Alfasigma spread meets that requirement.”

Also, there was no relevant difference between trademark and false advertising cases in terms of accepting informational harm. [Someday I really have to track cases in which courts say the two causes of action are the same v. cases that distinguish them.]

Did consumers see the mateirals? Two consumers who continued to use VSL but were unhappy “researched VSL#3 online and learned of this litigation,” and though they didn’t mention the letter or press release, “their statements show that consumers took to the internet for answers” and thus constituted “some evidence that consumers saw the contemptuous statements.” [Look, nobody is covered in glory here, but this is a real stretch. In any other case, especially a case brought by a deceived consumer, would a court find that the existence of an internet search was evidence that a consumer saw a particular search result, especially with no evidence of its position in that search?]

More significantly, there was no need to prove that consumers saw the statements. “Because the Lanham Act doesn’t require proof that consumers saw the statements, the injunction needn’t have required such proof either.” [Again, this is a stretch unless we just admit that contempt is for punishing things that cause risk whether or not the risk materialized. This seems like Lexmark-barred reasoning.]

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