Court trebles damage award based on willful false advertising, over advisory jury verdict

Concordia
Pharmaceuticals, Inc. v. Method Pharmaceuticals, LLC, No. 3:14CV00016, 2017 WL
837688 (W.D. Va. Mar. 2, 2017)
A jury found that Method engaged in false
advertising; that Concordia was entitled to $733,200.00 in actual or compensatory
damages; and that the false advertising wasn’t willful. Concordia subsequently
filed a motion for JMOL or a new trial on willfulness, a motion for enhanced
damages and prejudgment interest, and a motion for attorneys’ fees and costs.
Concordia
acquired the Donnatal line of products from PBM Pharmaceuticals, Inc.  Donnatal is a line of prescription combination
phenobarbital and belladonna alkaloid (“PBA”) products used in the treatment of
irritable bowel syndrome and acute enterocolitis. (Side note: wow, that is
quite a combination.  Who knew it
(allegedly) had therapeutic properties?) 
Donnatal was first introduced in the 1930s, before safety and efficacy
showings were required; its safety has now been FDA-approved but not its
effectiveness.  In 2011, generic
manufacturers began to leave the market, leaving Donnatal as the only line of
PBA products available.  Method wanted to
change that.
Method is
a wholesale drug distribution company owned by defendant Tucker, and Christopher
Boone served as the company’s VP of operations during the relevant period.  Instead of a sales force, Method uses pharmaceutical
databases to promote its products. Its business strategy is to ensure that its
products are “linked” to existing drugs in the databases, which are used to
determine whether generic substitutes are available for brand name products.
In 2013,
Method began making plans to market a new PBA product that would be
pharmaceutically equivalent to Donnatal, named Me-PB-Hyos. However, the company
Method approached to make it never performed the stability testing necessary to
develop Me-PB-Hyos, and no finished product was made.   Still, in March of 2014, Method moved
forward by using the product labels and package inserts for Donnatal tablets
and elixir to create labels and inserts for Me-PB-Hyos tablets and elixir.
“Method
then proceeded to list the nonexistent Me-PB-Hyos products with two of the
major pharmaceutical databases, Medi-Span and First Databank,” taking pains to
have them liked to Donnatal at lower listed prices, which prices were supposedly
effective as of April 2014.  (Later, the
Medi-Span listing showed a marketing start date of June 2014, which Method knew.)  Medi-Span duly linked the products, though
First Databank refused without validation from DailyMed, a website operated by
the National Library of Medicine. Method therefore sent DailyMed the product
labels for the nonexistent Me-PB-Hyos products. 
After successfully listing Me-PB-Hyos with DailyMed, Method resubmitted
the product labels to First Databank, indicating that its planned launch date was
June 1, 2014, a day that had already passed, although it knew that it didn’t
have any products ready and that its information would be relied on by members
of the pharmaceutical industry. The products were listed in First Databank’s
pharmaceutical database in early June 2014.
After
this lawsuit was filed, Method contacted the manufacturer to whom it had
initially reached out and indicated that it knew that the manufacturer had not
started anything on the project, and that Method had decided that it “might be
best to bail on [the] project.” But that same day, in response to an inquiry
from Medi-Span, Method advised Medi-Span that “Me-PB-Hyos is an active product
and will be available to ship by November 15, 2014.” Method also confirmed that
“[t]he pricing and label … are current and correct.”   The products never launched, and a bit later,
Medi-Span removed the listings for the Me-PB-Hyos products, while First
Databank moved its listings from active listings to archived listings.
After the
listings, Donnatal prescriptions and unit sales decreased. The parties disputed
the cause; Method presented evidence indicating that a number of other factors
contributed to the reduction in Donnatal unit sales, including significant
increases in the prices of Donnatal products. Concordia spent $885,015.00 on a
coupon buy-down program to combat the negative effects of the listings for
Me-PB-Hyos; it also revamped its marketing strategy and engaged in increased
promotional efforts targeting pharmacies and prescribers.  The court excluded Concordia’s expert witness
Hofmann’s lost profits calculations, which attributed all of the measured lost
profits to the database listings for Me-PB-Hyos.
The court
first concluded that the jury’s verdict on willfulness was advisory, not
binding, making Concordia’s motion for JMOL or a new trial moot.  Instead, the court found that Concordia
should recover enhanced damages, which are allowed, “according to the
circumstances of the case, for any sum above the amount found as actual
damages, not exceeding three times such amount.”  Such damages must be compensatory, not
punitive, even though willfulness is a consideration in whether to award
them.  [Weird, statute. Very weird.]  The Fourth Circuit considers: “(1) whether
the defendant had the intent to confuse or deceive, (2) whether sales have been
diverted, (3) the adequacy of other remedies, (4) any unreasonable delay by the
plaintiff in asserting his rights, (5) the public interest in making the
misconduct unprofitable, and (6) whether it is a case of palming off.”
The court
found that defendants acted willfully, or at a minimum with indifference to the
truth or falsity of their statements, but said that even if it found otherwise
it would enhance damages.  In particular,
sales diversion was shown by the decline in Donnatal sales and Concordia’s
expenses mitigating the impact of the Me-PB-Hyos listings. Thus, the court was
convinced that the jury award didn’t provide adequate compensation.  Nor would an injunction adequately remedy
Concordia’s lost sales.  Concordia didn’t
unreasonably delay, and there was a public interest in making the misconduct
unprofitable, despite the defendant’s statutory right not to be assessed a
penalty. Thus, the court trebled the actual damages to nearly $2.2 million.  The court declined to award prejudgment
interest, given the trebling of damages. 

However,
the court—applying the Octane Fitness
standard—found that this case wasn’t “exceptional” for the purpose of granting
fees.  The defendants’ position on
liability wasn’t frivolous or objectively unreasonable; before trial, the court
denied Concordia’s dispositive motions on the issue of liability, both at the
summary judgment stage and at the close of the defendants’ evidence. Nor was
the case litigated unreasonably. Willfulness, standing alone, “is no longer
sufficient to show that a case is ‘exceptional.’ ”  Nor did deterrence or compensation concerns merit
a fee award, given the trebling of damages.

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