TM/false advertising interface: “same formulation” statement w/o more infringes

De Simone v. VSL Pharmaceuticals, Inc., No. TDC-15-1356, 2016
WL 3466033 (D. Md. Jun. 20, 2016)
This case sends us deep into the weeds of the distinctions
between trademark and false advertising, and approves rather onerous
requirements for apparently truthful statements about the relationship between
the parties’ products.
De Simone was one of the inventors of a probiotic that he
then brought to the US market through a partnership with VSL, marketed under
the trademark VSL#3.  In 2015, De Simone
parted ways with VSL and began a partnership with ExeGi Pharma to bring his
formulation to market under the name Visbiome. 
VSL alleged that De Simone and ExeGi infringed the VSL#3 mark and
falsely advertised that VSL#3 was no longer on the market or that Visbiome was
the rebranded version of that product.  The court previously granted a preliminary
injunction in favor of VSL barring certain conduct by the De Simone parties as
infringing, including depictions of Visibiome that referred to it as “Original
Formula VSL#3 Probiotic Blend” and “Visbiome/VSL#3 blend”; the phrase “Same as
Original Formula VSL#3 Probiotic Blend”; references to clinical studies as
“Reported as VSL#3”; and the general statement that Visbiome is “the same” as
VSL#3.
The court also provided safe harbor language that was likely
fair use: (1) “Compare to Ingredients in VSL#3,” as long as it was accompanied
in close proximity by the disclaimers that VSL#3 was a registered trademark of,
and manufactured exclusively for, VSL, and that Visbiome wasn’t affiliated
with, endorsed by, or distributed by VSL; (2) the statement that “Visbiome
contains the same strains, in the same concentrations and proportions, as the VSL#3
probiotic blend as produced before [Date],” one time in the Visbiome materials,
accompanied by the same disclaimer; (3) accurate information about De Simone’s
role in developing VSL#3 that made clear that there was no current affiliation
between Visbiome/ExeGi and VSL#3/VSL. 
E.g.,

In the mid-1990s, Professor Claudio De Simone, M.D. invented a proprietary
blend of probiotic strains and collaborated with VSL Pharmaceuticals, Inc. to
produce and market it as ‘VSL #3,’ a trademark owned by VSL Pharmaceuticals,
Inc. In 2014, Professor De Simone decided to leave VSL Pharmaceuticals and is
now collaborating with ExeGi Pharma, LLC to produce Visbiome, a probiotic using
the same proprietary blend of probiotic strains that De Simone originally
invented.
ExeGi launched Visbiome on February 1, 2016, the day after
the agreement between VSL and Danisco, the original manufacturer of VSL#3 and
current manufacturer of Visbiome, expired on January 31, 2016.   ExeGi issued a press release and a LinkedIn
posting using the safe harbor language with a disclaimer in a footnote.  The press release also redefined the strains
and concentrations in VSL#3 as the “De Simone Formulation,” to indicate a
continuity with VSL#3 without the actual use of that trademark, and asserted
that the De Simone Formulation had undergone numerous scientific trials and was
the subject of “over 60 peer-reviewed studies.”
The press release also said: “The license agreement between
Professor De Simone and VSL Pharmaceuticals, Inc., which provided VSL
Pharmaceuticals, Inc. the rights to market the De Simone Formulation using the
‘VSL#3’ trademark, expired on January 31, 2016.”  Likewise, on LinkedIn, ExeGi sent a message
to its 85 LinkedIn followers stating: “Have you prescribed the medical food
VSL#3 in the past to your patients with IBS, Pouchitis or Ulcerative Colitis?
The De Simone formulation you’ve been prescribing to your patients will now be
available as Visbiome.”  The posting did
not contain the disclaimer.
After further infighting, the court issued an additional
order requiring ExeGi to remove the language about license expiration from
future communications and generally refrain from stating or suggesting that the
license agreement had expired or that VSL#3 wouldno longer be on the market,
and include the disclaimer in close proximity. 
VSL objected to statements on the Visbiome website (multiple
uses of the safe harbor statements, references to clinical trials that included
VSL#3 in their titles, and claims to exclusivity of the formulation), ads that
appeared in response to Google searches, and statements made by ExeGi sales
representatives and the sales training materials they received and used.  [I note, with respect to the clinical trials,
if they really did use VSL#3 in their titles, and if ExeGi really is using the
formulation tested, there would appear to be a severe First Amendment problem
with banning any references to those trials. 
The court focused on the fact that the
webpage listing studies didn’t contain a disclaimer or explain why VSL#3 was
being referenced.]
ExeGi used both static and dynamic AdWords ads. Static ads
display pre-drafted text, while dynamic ads incorporate searched-for keywords
into the text of an otherwise pre-drafted ad. “A line of code for a dynamic ad
might read ‘Best treatment for {keyword},’ with the user’s search term to be
inserted in place of ‘{keyword}’ when the ad appears.”  For its static ads, ExeGi used ads such as
one beginning “Have You Ever Used VSL#3?/If So, Check Out Visbiome….”  For dynamic ads, it used ads such as one
beginning “{ Keyword: Have You Ever Used VSL#3}/If So, Check Out Visbiome….”  The ads didn’t have a disclaimer, and some of
the ads actually appeared as “VSL#3/www.visbiome.com/If So, Check Out Visbiome
High-Potency Probiotic….”  VSL’s expert
witness on AdWords and SEO testified that this truncation to the keyword alone occurs
“when the proposed dynamic headline, including the keyword, would exceed 25
characters.”  ExeGi maintained that it
never intended for VSL#3 to appear by itself without the question, and it paused
the ads when Google was unable to explain the truncation.
VSL’s expert witness also said that Visbiome’s website showed
“keyword stuffing”: repeatedly using VSL#3 to increase the likelihood that
Google’s search algorithm will associate the website with that term and thereby
increase the prominence of that site in search results relating to that term. “VSL”
was the second most frequently used term on the Visbiome website, used even
more frequently than “ExeGi.” “VSL#3” frequently appeared “below the fold,” “a
placement that may indicate that the term is used more to influence the search
algorithm than as text intended for website users.”  ExeGi responded that it put the Disclaimer on every page of the website to be responsive to
VSL’s concerns, at the bottom of the page in a “black box” to signal its
importance to medical professionals.
VSL also complained that ExeGi sales reps told people in at
least three doctors’ offices that VSL#3 was no longer being sold.
VSL moved to hold the De Simone parties in civil contempt,
which requires violation of the terms of a valid decree that caused harm to the
movant. There is no requirement that the violation be willful.  But, because intent is irrelevant, the order
allegedly violated must be one that sets forth in “specific detail an
unequivocal command.”  
VSL argued that the use of the safe harbor statements on the
Visbiome website was excessive and the disclaimer wasn’t close enough to the
use of the mark.  The court found that it
was unreasonable for the De Simone parties to interpret the term “only once in
the Visbiome materials” as permitting multiple uses on the Visbiome website, up
to once on each individual page of the website. 
Thus, they violated the spirit of the order, though not its letter, because
the order never expressly barred any particular number of uses of VSL#3 or
other approved language.  The multiple
uses went outside the safe harbor, which was for a single use, but didn’t
violate the order.  The order also
required the disclaimer to be in “close proximity” to use of VSL#3, and the court
found no violation there—sometimes the disclaimer was in text shortly after the
reference to VSL#3, and when it was in a footnote, it had the same font, same
size, and same color as the main text. “The use of a footnote and placement of
the Disclaimer ‘below the fold’ may reduce the likelihood that a user will read
it, but with Visbiome’s own content at times requiring the reader to scroll
down, the Court cannot say that there is clear and convincing evidence that
ExeGi has placed its required disclaimers at a distance too far from the VSL#3
mark to satisfy the requirement of ‘close proximity.’”
However, the court was “troubled” by the lack of footnote
reference markers next to the term VSL#3 when it was used in study names.  This appears to me to be excessively
formalistic.  Anyone looking at the
references would likely have plenty of opportunity to see the disclaimer
already, and as the court itself noted, readers would need to understand the
relationship between VSL#3 and Visbiome to understand why these were listed as
references. But the court reasoned otherwise: “The failure to direct the reader
to the Disclaimer substantially decreased the likelihood that it would be
noticed, so this omission could be viewed as indicating an intent to obfuscate
the fact that the clinical trials were performed on a product offered by a
different company.”  Still, the
disclaimer was at the bottom of the clinical references page, and so there was
no violation of the order.
The court did find the De Simone parties in contempt for the
AdWords ads.  “While the Court agrees
that the headline ‘VSL#3,’ accompanied by no other text, would appear to be an
aggressive attempt to co-opt the VSL#3 mark, the Court has issued no orders
barring advertising through Google AdWords, employing dynamic ads, or using
VSL#3 as a keyword for such ads, so the fact that a dynamic ad resulted in such
a headline, intentionally or unintentionally, does not specifically implicate
any of the Court’s prior orders.”  But
the disclaimer was required, and several of the AdWords ads didn’t have it.  Even if AdWords text didn’t have enough space
for the disclaimer, the court’s order provided no exceptions for space
limitations in particular advertising media. 
Nor was “close proximity” satisfied by having the disclaimer available
once someone clicked on the ad.  “The De
Simone Parties’ interpretation of proximity as ‘one click away’ defines that
term as a physical act, not a measure of distance, and thus cannot be deemed a
reasonable interpretation of the language of the February 2016 Order.”  (I think it’s a bit odd for the court to say
that proximity requires physical distance in this context, but ok.)  This shifted the burden of compliance to
Google’s users, who needed to click to see the disclaimer. 
The court also found that the initial use of the statement
that the De Simone formulation was “exclusively available” from ExeGi, coupled
with the website’s assertion that the De Simone Formulation is the same as that
used in VSL#3, led to “the unmistakable conclusion that VSL#3 is no longer
available for sale,” thus violating the court’s order.  The De Simone parties might have intended
only to go up to the acceptable line, but they crossed it.  By contrast, statements that De Simone was
“collaborating exclusively” with ExeGi “merely states that De Simone has
changed companies and does not suggest that VSL#3 is no longer on the market.”  (Interesting how thinly the court is slicing
this, given that the targeted consumers probably don’t make these distinctions—or
care.)
The court then turned to VSL’s false advertising claims,
which turned on ExeGi’s claims to exclusivity/claims that VSL#3 had been
discontinued.  Given that VSL had
stockpiled the older formulation of VSL#3 and could still sell it, plus the
fact that VSL was going to reformulate the product, these claims were false or
misleading.  De Simone’s statement “my
formulation is now exclusively available from ExeGi Pharma” as Visbiome was
likely literally false while VSL’s plentiful stockpiles were available.  This was likely to harm VSL; the court noted
that when an ExeGi sales rep made similar statements to one gastroenterologist’s
office, that office accepted Visbiome samples and declined to accept any more
VSL#3 samples.  
However, the court found that the sales reps’ statements
weren’t likely to constitute advertising or promotion.  The Fourth Circuit hasn’t interpreted that
language in the Lanham Act.  The court
cited the Seventh Circuit’s since-renounced holding that for purposes of a
false advertising claim, “[a]dvertising is a form of promotion to anonymous
recipients, as distinguished from face-to-face communication.” First Health
Group Corp. v. BCE Emergis Corp., 269 F.3d 800, 803 (7th Cir. 2001).  [See Neuros Co., Ltd. v. KTurbo, Inc., 698
F.3d 514 (7th Cir. 2012)]. But the court here agreed with the Second Circuit that
such a reading “collapsed the disjunctive statutory language ‘commercial
advertising or promotion’ into only commercial advertising.”  Using the relevant parts of Gordon & Breach, the court followed
the Second Circuit’s lead, looking for (1) commercial speech; (2) for the
purpose of influencing consumers to buy defendant’s goods or services; (3) disseminated
sufficiently to the relevant purchasing public to constitute “advertising” or
“promotion” within that industry.  Element (3) was not satisfied on the present
record.  Since Visbiome’s launch, ExeGi
sales reps had made sales calls at about a thousand doctors’ offices; three
alleged instances of false statements weren’t sufficient in that context.
VSL argued that the court should consider the sales reps’ statements
as part of an organized campaign along with the website statements and find
them collectively to qualify as “widespread dissemination.”  The court here declined to hold that “face-to-face
statements could be combined with distinct forms of commercial advertising,
such as websites or press releases, to satisfy this requirement.”
The court presumed irreparable harm because the literally
false statements were functionally comparative advertising. The public interest
is against misleading advertising, and so a more expansive preliminary
injunction was warranted.
“The evidence presented has amply established that the De
Simone Parties’ activities in all three areas continue to be likely to cause
confusion over whether Visbiome and VSL#3 are the same product.”  I note that stated this way, this is purely
false advertising, not confusion over source or sponsorship—and if they have
the same formulation, reasonable consumers might well consider them to be the “same
product.” Nonetheless, the court proceeded as if this were a trademark
case, holding that the repeated use of VSL#3 on the Visbiome website went too
far.  The court cited 15 U.S.C.
§1115(b)(4) and descriptive fair use cases, not nominative fair use cases, even
though the use is very clearly not descriptive in the ordinary trademark sense.  Also, this result highlights the silliness
that the “too much” inquiry can lead to—the ultimate question should be “is this
use confusing?” and the fact that a website has a single footer that it uses on
every page doesn’t plausibly increase the likelihood of confusion. 
The court also didn’t like that the disclaimer frequently
appeared only in a footnote at the bottom of the page, “barely within ‘close
proximity’ to the VSL#3 mark.”  So too with the references to clinical trials, which the court previously allowed “so
long as the VSL# 3 trademark was not used in such references,” and the De
Simone parties’ use of the added parenthetical “Reported as VSL#3” in
connection with clinical studies was expressly barred by the prior court order.
 In the court’s view,
the combination of the repeated
claim throughout the website that the De Simone Formulation has been the
subject of over 60 clinical trials and this listing of numerous clinical
studies with VSL #3 in the title without a cross-reference to the Disclaimer
creates significant confusion whether VSL#3 and Visbiome are the same product.
Even if ExeGi has a reason to refer to those studies because Visbiome is, as a
scientific matter, the same formulation that was subjected to those trials,
that scientific equivalence cannot be used as an opportunity or excuse to erode
VSL’s trademark.
And here we have the guts of the problem: “eroding” a
trademark isn’t actually a claim under the Lanham Act.  If the use causes confusion as to source or
sponsorship, that’s trademark infringement, but the court seems to think that
confusion over what’s in Visbiome
(which might be understanding, not confusion!) is also trademark
infringement.  The classic Smith
v. Chanel case
, like many others,
makes clear that the remedy for this latter claim, if it’s false, is in false advertising. 
In fairness, the fact that trademark now is so expansive and
covers immaterial confusion makes it easy for the court to conflate the
two.  The court appealed to testimony
from one staff member in a doctor’s office who apparently came to believe that
VSL#3 had changed its name to Visbiome, which “implicates not just false
advertising concerns, but also trademark infringement concerns, because the
staff member appears to have believed that Visbiome was the same product, made
by the same company, as VSL#3.”  I do
note that this testimony appears to have been submitted by an affidavit
solicited by VSL, without too much inquiry into how much the staff member distinguished
between the two propositions (what’s in the product/who sold the product in the US) or cared.  
One useful feature of nominative fair use, for all its
flaws, is that it insists on the basic right of people in the market to make
truthful claims.  If, as I expect is the
case, some set of consumers will always understand “Visbiome has the
formulation that used to be available in VSL#3” to indicate some continuity
between the responsible companies (which is at least true-ish in this case!),
that shouldn’t prevent the seller from stating the truth of that fact.  We can pile on further disclaimer
requirements, but most disclaimers don’t work, so this is often just courts
making themselves feel better about inevitable confusion.  In this situation, perhaps, doctors will have
an incentive to listen and learn that “VSL#3 is still on the market, but with a
new formulation, and we’ll be the only supplier of the formulation you know and
love once stockpiles of existing VSL#3 run out.” But that’s probably rare.
The court also found that prior statements on the website, “asserting
that the formulation used in VSL#3 was now ‘exclusively available’ as Visbiome,
created additional confusion whether VSL#3 had simply been renamed as Visbiome.”  Again, the court is mushing together two
questions—who produces Visbiome (a particularly tricky inquiry given that, in
fact, VSL#3 used to get its formulation from the same manufacturer now
providing it only to ExeGi in the US) and what’s in Visbiome.  A reasonable consumer could easily understand
these claims to be about what’s in Visbiome, and as far as I can tell from what’s
written in the opinion, that interpretation renders the claim true, with the exception
of the stockpiled VSL#3. The court doesn’t even indicate that the inactive
ingredients differ.
The court found that ExeGi’s use of this language was “a
telling indicator of ExeGi’s market posture,” which was to use VSL#3 “to define
what Visbiome itself is. The Court therefore can draw no other conclusion than
that ExeGi has and continues to use the VSL#3 mark on the Visbiome website in a
way that creates confusion and thereby enables Visbiome to impermissibly ‘profit
from another’s reputation.’”  Why this
isn’t the same mechanism used in Smith v.
Chanel
is an open question.
For AdWords, VSL didn’t argue that mere use of VSL#3 as a
keyword would be infringing, and there wasn’t enough evidence to find that the
De Simone parties were “keyword stuffing”; search results showed Visbiome
appearing as part of one of ExeGi’s Google AdWords ads, but not as a result of
organic search results, and the court noted that, in recent years, courts have
understood that such conduct probably doesn’t improve search ranking anyway.  However, the Google ads using just VSL#3 in
the top line “exacerbated the confusion in the marketplace between Visbiome and
VSL#3.”
The court declined to treat the De Simone parties as
adjudicated infringers required to keep a “safe distance” from VSL’s mark, in
the absence of a final ruling on the merits. 
The court declined to prohibit use of VSL#3 entirely, but expanded the
injunction given the De Simone parties’ demonstrated willingness to “go as
close as possible to any line drawn by this Court.”
As a result, the De Simone parties were allowed to use the “same
strains” language and “De Simone history” language only once on the entire
Visbiome website, with the disclaimer in immediately adjacent text, not a
footnote.  [I wonder if you could change
the website so that it was just frames for other parts, so that these always
stayed on top ….] “Any other phrases using VSL#3 must be approved by the Court
and may appear only once on the website, again with the Disclaimer in the
immediately adjacent text.”  They had to
remove the footer from any page that didn’t use VSL#3 in text.
Further, the website couldn’t claim that any clinical study
using “VSL#3” in the study title constituted a study relating to the “De Simone
Formulation” and couldn’t not list such studies on the website or the package
inserts.  [Hold on!  I take it that all the studies, whether or
not they used VSL#3 in their titles, used VSL#3 on their subjects.  Thus, the parties
seem to agree that it’s truthful to refer to studies that used VSL#3 to show
the likely effect of Visbiome on patients. 
Given these predicates, how is this injunction compatible with the First
Amendment?  Either it’s truthful to
attribute VSL#3 results to the formulation, or it’s not; that can’t turn on the
study’s name.]
AdWords text couldn’t include VSL#3 unless the court
approved text including the substance of the disclaimer.  And the DeSimone Parties had deliver to each
medical office on its sales list a letter, with language pre-approved by the court,
stating that VSL#3 has not been discontinued or scheduled to be discontinued,
that VSL#3 did not change its name to Visbiome, and that Visbiome is a
competing probiotic produced by a different company. The letter couldn’t
address the status of licensing agreements or rights to produce a probiotic
using the same formulation as VSL#3 prior to January 31, 2016.  [But could the letter say that VSL#3’s formulation
will change?  Because that seems like
really, really important information for people to know, if they have patients
who are doing well on the formulation.]
While the case was pending, “all Visbiome promotional and
marketing materials, including the website, package inserts, sales scripts, and
any other materials to be provided to or used in discussions with potential
customers or medical offices” had to be submitted to VSL’s counsel and, if
there were disputes, preapproved by the court.

As for false advertising, the De Simone parties were
enjoined from misleading customers and medical professionals into believing
that (1) VSL#3 is or will in the future no longer be on the market; (2) that
the De Simone Parties were the exclusive provider of the De Simone Formulation
or the probiotic formulation in VSL#3; (3) that VSL#3’s license to sell this
formulation has expired or would expire; (4) that VSL#3 had a new name or that
Visbiome was a rebranded version of VSL#3. 

from Blogger http://ift.tt/29bpeI9

Advertisements
This entry was posted in Uncategorized and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s