false advertising is harder to prove than TM infringement because of the injury requirement (not to mention materiality)

ImprimisRx, LLC v. OSRX, INC., 2023 WL 8604148, No. 21-cv-01305-BAS-DDL (S.D. Cal. Dec. 12, 2023)

The parties are compounding pharmacies that focus on medications used in optometry and ophthalmology. Section 503A compounding pharmacies fill prescriptions for individual patients. Section 503B compounding pharmacies produce compounded products in large quantities that are not necessarily tied to a specific patient, sold to practitioners and hospitals as “office stock” to be available for use on an as-needed basis. Plaintiff ImprimisRx operates both a Section 503A pharmacy and a Section 503B pharmacy, while defendants operate only a Section 503A pharmacy.

Section 503A allows for drugs compounded “for an identified individual patient ... [that are] necessary for the identified patient” to be exempted from the typical FDCA drug-approval requirements if certain conditions are met, including: (1) the drug compounding occurs after the receipt of a valid, individual prescription; or (2) the drug compounding occurs before the receipt of a valid, individual prescription “based on a history of ... receiving valid prescription orders for the compounding of the drug product” within an “established relationship” between the compounding pharmacy and the prescriber. There are other requirements, including for sterile manufacturing.

The court addressed motions for partial summary judgment on whether the statement that “OSRX operates in full compliance with Section 503A regarding compounded drugs as defined in the [FDCA]” violated the Lanham Act. Imprimis had two theories of falsity: (1) Defendants instruct prescribers to place bulk product orders, rather than for particular patients, and provide “office stock” for use by unspecified future patients; and (2) defendants fail to compound drugs in a sterile manner. The truth/falsity of these theories was subject to material dispute.

On materiality, literal falsity wasn’t enough to presume materiality. Defendants argued that their claims were in tiny print on the website and thus could not be observed by consumers. “While the statements may be presented in a small font, possible purchasers could still see them on Defendants’ website and order forms.” Imprimis also provided declarations by four ImprimisRx customers that claim Section 503A compliance was an important factor in their purchasing decisions and survey evidence that 54.1% of surveyed prescribers indicate that whether a compounding pharmacy “operates in full compliance with Section 503A” is an important factor in selecting a compounding pharmacy. But defendants’ own expert and survey evidence created a material issue of fact. (Even on sterile manufacturing?!?)

Injury: Injury too could not be presumed despite the fact that the parties were direct competitors; this wasn’t false comparative advertising. “Instead, Plaintiff must provide some proof of past injury or risk of future injury caused by Defendants’ false statements” to get money.  

Email correspondence where defendants attempted to poach Imprimis’s customers and other evidence of direct competition wasn’t sufficient to presume injury. This wasn’t mostly a two-player market, and the allegedly false statements did not harm the entire market. Although the parties were two of the largest compounding pharmacies within the post-operative ophthalmological market, Allergan, Novartis, and Bio Tissue manufacture competing products. “Because prescribers have many options in selecting post-operation ophthalmological drugs, the Court cannot assume Plaintiff’s sales were necessarily reduced by any increases to Defendants’ sales due to the false statements.”

And Imprimis provided evidence of materiality, but not of injury.  The evidence of poaching didn’t show that these customers were poached as a result of the alleged false statements. Although a precise calculation of damages is not required under the Lanham Act, a showing of some injury is required. Thus, defendants received summary judgment on Imprimis’s monetary damages and unjust enrichment claims.

In addition, Imprimis didn’t show irreparable injury, which would be required for a permanent injunction.

Counterclaims: Defendants alleged that Imprimis falsely advertises that it “compl[ies] with all cGMP requirements which are the most stringent standards in the nation.” All four challenged claims were publicly available three years before defendants lodged their counterclaims (three years being the California fraud statute of limitations, which the parties agreed was the most analogous). Defendants had the burden of showing why they lacked the means to discover the statements to invoke the discovery rule. They didn’t. “Indeed, because Plaintiff is a main competitor for Defendants, one assumes Defendants would be aware of the content hosted on Plaintiff’s website or the claims Plaintiff makes regarding its products.” So there was a presumption of laches. But there was no evidence of prejudice, so summary judgment on the laches defense was denied.

Once again, there were disputed fact issues on falsity and materiality. Once again, the counterclaimant couldn’t show any lost customers or any other actual harm, thus no irreparable harm, so there was summary judgment on monetary damages and injunctive relief.

(I guess what’s left is disgorgement?)