Supplement maker can’t enjoin database changes, but avoids anti-SLAPP dismissal

Exeltis USA Inc. v. First Databank, Inc., 2017 WL 6539909, No.
17-cv-04810 (N.D. Cal. Dec. 21, 2017)
This is an interesting case about the FDA/Lanham Act
interaction. Exeltis sells prenatal vitamins that contain 1 mg of folic acid.  They aren’t available without a prescription
and are labeled and sold “by prescription only.” First Databank publishes a
database of information about pharmaceutical products, including Exeltis’s
prenatal vitamins. Medicaid and insurance providers (payors) use the database
to make reimbursement decisions.
Historically, the “class value” field in the database
signified whether manufacturers identified their products as prescription-only.
In 2016, the FDA issued guidance that medical foods cannot be properly labeled
“prescription only,” and that any such label would be false and misleading; it
hasn’t issued similar guidance for supplements. 
(Meanwhile—this will be important later—reimbursement under Medicaid is,
in most circumstances, permitted only for “covered outpatient drugs,” and all
state Medicaid programs must cover “prescription prenatal vitamins.”)
As a result, First Databank amended its “class value”
database field to “identif[y] a product’s prescription status” under federal
law. Code “F” signifies “[d]rugs that are prohibited by federal law from being
dispensed without a prescription” and code “O” signifies “[p]roducts with no
federal legal prescription requirement, including medical foods, dietary
supplements, non-prescription medical devices, and over-the-counter drugs.” For
a while, code “F” still explicitly included “prenatal vitamins labeled as
prescription.” First Databank announced that it planned to remove the reference
under “F” to prenatal vitamins and change its coding for all dietary
supplements and medical foods — including Exeltis prescription prenatal
vitamins — to “O.”
Exeltis argued that the coding decision to categorize all
prenatal vitamins as “O” instead of “F” was false and misleading, which also falsified
First Databank’s statements that its database was “robust, reliable, and
[offers] effective medication decision support solution[s].” The change
allegedly would cause “widespread denial of Medicaid and insurance coverage for
[prenatal vitamins],” thus interfering with prevention of serious birth defects
such as anencephaly and spina bifida. It could also “destroy” Plaintiff’s
business model, in which only 6% of its prenatal vitamins are paid for
out-of-pocket. Exeltis sued for violations of the Lanham Act, California’s UCL
and FAL, common-law intentional interference with prospective economic
advantage, and trade libel.
The court declined to grant a preliminary injunction.  First, the request might amount to an
unconstitutional prior restraint, requiring a heavy burden of justification.
Even assuming that the database was commercial speech, the court still the
general presumption against prior restraints, given that falsity was the key
issue in dispute and the court declined to take the risk of “erroneously
enjoining truthful, protected speech on the basis of an incomplete record.” Even
though “commercial speech may be more durable than other kinds…[s]ince
advertising is the Sine qua non of commercial profits,” the speech at issue
here wasn’t advertising, but instead concerned third-party products.
Even without constitutional doubt, Exeltis wasn’t entitled
to a preliminary injunction. The court wasn’t persuaded that the database
constituted commercial speech, a requirement for all the claims. Considering
(per Nike v. Kasky) “the speaker, the intended audience,
and the content of the message,” Exeltis argued that the database was
commercial because it was available for purchase and used by “commercial
actors” to complete “commercial transactions” among third-parties (payors,
pharmacies, and consumers). The court disagreed.  The Supreme Court hasn’t even held that false
statements about another’s product or service can be commercial speech (though
it’s hard for me to see why disparaging statements about a competitor wouldn’t
be). Under Exeltis’s interpretation, though, “any speech could be commercial if
eventually relied on by third-party actors who conduct business,” such as a
newspaper that printed information on which third parties relied in making
decisions.  “That a publisher compiles
information, or even provides its own interpretation of that information, for
commercial actors is not enough to transform it into commercial speech.”  The database wasn’t a traditional ad; First
Databank wasn’t promoting any of the products identified, nor was its
compensation contingent in any way on payors’ reimbursement decisions.  Thus, Exeltis didn’t show likely success on
the merits.
The court also was dubious about Exeltis’s falsity
theory.  Exeltis argued that payors
commonly understand the codes “F” and “O” to mean prescription and
over-the-counter respectively, making the change confusing to payors. But First
Databank’s revised definitions of “F” and “O” weren’t binary in that way.  “F” was for “[d]rugs that are prohibited by
federal law from being dispensed without a prescription” and “O” was for
everything else: “[p]roducts with no federal legal prescription requirement,
including medical foods, dietary supplements, non-prescription medical devices,
and over-the-counter drugs.”  The court
wasn’t persuaded that payors would overlook this change, even though it was
subtle; First Databank sent a letter to subscribers explaining its view that
neither dietary supplements nor medical foods were drugs subject to the FDCA’s
prescription requirement. The letter was careful to acknowledge that “the fact
that there is no federal requirement for a prescription does not mean an item
cannot be prescribed by a physician.” Thus, First Databank said that it would
“provide supplemental descriptive attributes for [non-drug] products…to
identify them as…‘Marketed as Prescription Prenatal Vitamin,’ etc.” The new
“class value” field definition included a text box, which noting that First
Databank “provides additional information regarding labeler representations” in
a separate table.  Thus, in context, the
statements weren’t established to be false.
Exeltis argued in the alternative that its products were in fact “subject to federal legal
prescription requirements.” The Medicaid Act requires state programs to cover
“prescription prenatal vitamins.” However, the Medicaid Act didn’t define
“prescription prenatal vitamins,” nor did it mandate which products actually
require a prescription. The Medicaid Act’s definition of “covered outpatient
drugs” generally turns on the FDA’s determination of approved “prescription
drugs” under the FDCA. However, the FDA sent a letter to First Databank stating
that it “has been made aware of patients who are losing or have lost insurance
coverage for their products marketed as medical foods” because “insurance
providers belie[ve] that the products are over-the-counter (OTC) drugs.” This
letter said nothing about the prescription requirements for prenatal vitamins. Anyway,
the FDA clearly stated throughout the letter that the FDA “does not require [medical
foods] to be dispensed by prescription” because they “are not drugs.”  
There is indeed an apparent disconnect between Medicaid
policy and the FDA; if “prescription prenatal vitamins” must be covered by
state programs, “it follows that some category of prenatal vitamins are
properly available by prescription.” Still, there was no federal law that requires Exeltis products to be
dispensed by prescription only. “That Plaintiff would prefer Defendant to
organize its information or code Plaintiff’s products differently does not
render the database false or misleading.”
Exeltis also failed to show irreparable harm to itself: harm
to third parties (pregnant women and their fetuses) wasn’t properly considered in
the irreparable harm inquiry.  Exeltis
argued that it would suffer “financial loss[es]” and an “accompanying loss of
goodwill.” It described goodwill as the company’s “reputation for quality and
its relationships with business partners,” but when pushed to explain further,
Exeltis argued that “pharmacists will stop stocking, doctors will stop
prescribing, and patients will stop using [Plaintiff’s] products.” This alleged
“goodwill” injury was merely “a lost revenue proxy.”  And economic injury alone does not support a
finding of irreparable harm.  There’d be
no competitive disadvantage because the change would affect all prenatal
vitamin supplement manufacturers.  Even
if the court found the injury not measurable by money damages, it was too
speculative, based as it was on independent decisions made by several third-parties:
Exeltis failed to explain why payors would ignore the revised definitions and
additional notes, given their independent obligations to determine which
products they must cover under federal law.  “Assuming payors misinterpret federal law and
erroneously deny coverage for prenatal vitamins, the wrongful conduct lies with
the payors, and not with Defendant. Yet an injunction against Defendant would
not control payors’ reimbursement decisions.”
However, the court also declined to grant First Databank’s
anti-SLAPP motion as to the state law claims. 
The information was a matter of public interest, even though it was only
available to paying subscribers who were sophisticated parties, given that drug
coverage/pricing and the prescription status of prenatal vitamins were matters
of public interest. “In the absence of clear directives from either the FDA or
CMS, Defendant weighed in to express its interpretation of the ‘inconsistent if
not conflicting’ legal landscape.”  Nor
was the database exempt from anti-SLAPP protections, because the commercial
speech exemption only covers “a person primarily engaged in the business of
selling or leasing goods or services” if: (1) their speech “consists of
representations of fact about that person’s or a business competitor’s business
operations, goods, or services, that is made for the purpose of obtaining
approval for, promoting, or securing sales or leases of, or commercial
transactions in, the person’s goods or services, or the statement or conduct
was made in the course of delivering the person’s goods or services”; and (2)
the “intended audience is an actual buyer or potential buyer or customer, or a
person likely to repeat the statement to, or otherwise influence, an actual
buyer or customer….”  The database didn’t
make representations about First Databank’s own products or those of a
competitor, and the statements at issue contained in the database itself, not
made in the course of selling or delivering the database.  (Query why results delivered to consumers don’t
count as “delivering” the database, but that doesn’t really matter given part
For anti-SLAPP purposes (especially given the tension between
anti-SLAPP laws and the FRCP), survival of Exeltis’s claims only required “a
reasonable probability of prevailing.” This meant “only a minimum level of
legal sufficiency and triability.” Significantly, “the trial court does not
weigh the evidence or determine questions of credibility; instead the court
accepts as true all of the evidence favorable to the plaintiff.” Under the more
lenient standard than that applicable to a preliminary injunction, Exeltis
showed the necessary “minimal merit” to survive a motion to strike.

Exeltis contended that the database was the linchpin of
payors’ reimbursement decisions, not merely a factor—the database was used to
instantly provide coverage decisions, and was designed for this use. Commercial
speech status is fact dependent, and “payors’ actual use of the database and
the database’s primacy in actually effectuating reimbursement decisions may
suggest that the database is commercial in nature.” Likewise, Exeltis made a
legally sufficient argument that the new coding was false or misleading. The
coding revision was subtle, removing “prenatal vitamins labeled as prescription”
from the F category.  “Even assuming a
reasonable payor would review these definitions in detail, the documentation
does not highlight the change on its face. It … says nothing about prenatal
vitamins or the latent ambiguity in their prescription status.” The letter to
subscribers said more, but “the Court cannot say that this stage that no
reasonable factfinder could conclude from the legal morass described in the
letter that the database misleads payors into concluding that Plaintiff’s
products are available over-the-counter and that payors should withhold
coverage on this basis.”  Ultimately, “this
is not the kind of obviously meritless or harassing case that the anti-SLAPP
statute was designed to discourage.”

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