continued claim, including failure to edit existing YouTube video, leads to contempt finding

De Simone v. VSL Pharmaceuticals, Inc., 2020 WL 4368103, No.
TDC-15-1356 (D. Md. Jul. 30, 2020)

Disclosure: I filed an amicus brief in support of De Simone
on one legal issue (the proper standard for a Lanham Act literal falsity
finding) in the appeal that is pending in this case. Of broader relevance: failing to edit previously published YouTube videos and captions is treated as contumacious. And I continue to worry about the injunction here to the extent that it prohibits truthful statements about the ingredients in VSL’s products (as studied in what is now the De Simone product).

As the court explains, this was a dispute between former
business partners about a proprietary formulation (“the De Simone Formulation”)
used in a probiotic previously known by the tradename VSL#3 and now known by
the tradename Visbiome. In November 2018, a jury returned a verdict in favor of
the De Simone parties, including for false advertising of VSL#3 in violation of
the Lanham Act. The court permanently enjoined the VSL parties from making
certain representations about VSL#3; De Simone moved to hold them in contempt. The
court granted it in part and denied it in part.

The injunction, issued in June 2019, barred the VSL parties

(1) stating or suggesting in VSL#3
promotional materials directed at or readily accessible to United States
consumers that that the present version of VSL#3 produced in Italy (“Italian
VSL#3”) continues to contain the same formulation found in 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 versions of VSL#3;

 (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. [Side note: the difference in First
Amendment treatment of the FDA versus private plaintiffs seeking government’s
aid, in the form of a court, to suppress speech is quite stark here.]

After the jury verdict, the VSL parties posted on the VSL#3
website a letter to healthcare providers that recounted the verdict but
asserted that the trial evidence “confirmed that … Italian-made VSL#3
contains the same 8 strains of bacteria” as the De Simone Formulation and that
“Italian-made VSL#3 is equivalent to” the De Simone Formulation. The letter also
stated that prior clinical studies of the De Simone Formulation could “be
relied on to show the efficacy and safety” of Italian VSL#3. After the
permanent injunction issued, the VSL parties took some steps to remove the letter,
but it remained accessible until September 10, 2019.

In the same time frame, the VSL#3 Facebook page and the
written summaries accompanying numerous YouTube videos contained the statement
that VSL#3 is “clinically proven in the dietary management of IBS, ulcerative
colitis and ileal pouch.” The videos were posted several years prior to the
permanent injunction, but remained accessible at least through November 4, 2019.
At least one posting connected to a YouTube video stated that VSL#3 has “more
than a decade of patient support and use” and that it “is one of the most
studied” probiotics of its kind.

During September 2019, VSL#3 representatives responding to
consumer questions about the composition of VSL#3 on the VSL#3 Facebook page
repeatedly offered the assertions that “VSL#3 was not recalled or discontinued,
there are no safety or efficacy concerns and the formulation has not changed,”
and that “In January 2016 manufacturing of VSL#3 was moved back to its original
site in Italy and the lactose was removed from the product. No changes to the
current formula have been made.”

In a September 9, 2019 press release touting a victory for
the VSL parties in Italian litigation about VSL#3, Luca Guarna, the Chief
Executive Officer of VSL, affirmed VSL’s commitment to “making the VSL#3
probiotic available to our dedicated customers and healthcare providers notwithstanding
De Simone and ExeGi’s aggressive efforts to sell their competing, generic
probiotic product.” The press release appeared on numerous websites.

On July 26, 2019, the VSL parties sent a letter to
wholesalers and distributors of VSL#3 relaying the terms of the permanent injunction,
asserting that it was not retroactive, and stating that no recall of, or
corrective advertising about, previously packaged VSL#3 was required. They
advised that Alfasigma was removing product information sheets from remaining
VSL#3 packages still within its facilities, that future VSL#3 product
information sheets would be revised to remove any comparison of Italian VSL#3
to the De Simone Formulation, and that the sheet would be posted on the VSL#3
website. On August 20, 2019, Alfasigma advised VSL#3 wholesalers and
distributors that they should either remove the old product information sheets
from all VSL#3 packages remaining in their inventory before sale, or return the
unsold product to Alfasigma for credit.

The key questions were whether the VSL parties violated the
injunction and whether the De Simone parties suffered harm as a result. For
civil contempt, there’s no requirement of willfulness. But the order allegedly
violated must be one that sets forth in “specific detail an unequivocal
command.” This specificity requirement is not unlimited; “[i]t is enough
protection for defendants if close questions of interpretation are resolved in
the defendant’s favor in order to prevent unfair surprise.”

Statements that clearly violated the injunction: (1) the
January 31, 2019 letter on the VSL#3 website stating that, despite the jury
verdict, Italian VSL#3 was equivalent to the De Simone Formulation; (2)
statements on Facebook by VSL#3 representatives, in response to consumer
questions, that the formulation for VSL#3 has not changed; and (3) statements
on Facebook and YouTube that VSL#3 is “clinically proven.” Even if the
consumers in (2) were “plants,” it iddn’t matter, because the repeated use of
the same language “reveals that the VSL Parties clearly had a script from which
they were working,” which script violated the permanent injunction. As for (3),
there was no evidence that Italian VSL#3 was the subject of clinical studies,
so the reference could only fairly be construed as referring to the clinical
studies performed on the De Simone Formulation and thus suggesting that those
prior studies are “relevant or applicable to Italian VSL#3,” especially given
related statements about the product’s history. Although there was no evidence
that Italian VSL#3 was “clinically ineffective,” that was “a far cry” from a
claim that it is “clinically proven.”

Press release describing Visbiome as the “generic” version
of VSL#3: This also violated the Permanent Injunction. it clearly suggested an
equivalence between the products’ formulation “and did so a way that signaled
that Visbiome was the later copy while Italian VSL#3 was the original version.”
This constituted “passing off Italian VSL#3 as the authentic De Simone
Formulation,” which “squarely violates the Permanent Injunction’s bar on ‘stating
or suggesting’ that Italian VSL#3 ‘continues to contain’ the DeSimone
Formulation.” The use of “generic” didn’t have its patent-specific meaning “in
a press release widely circulated to diverse media outlets.” When the VSL
parties began to manufacture their own version in Italy using a different
formulation, “it was no longer accurate to describe Visbiome as a generic
version of VSL#3.”

Product information sheets: failure to take steps to ensure
the removal of old product information sheets inserted into packages before the
permanent injunction didn’t amount to civil contempt. The court didn’t
specifically order retroactive action, and the De Simone parties didn’t show
evidence of harm.  The VSL parties’
actions to direct the removal of package inserts still in the possession of
wholesalers and distributors adequately addressed the issue.

Content of the revised VSL#3 product information sheets: The
De Simone parties argued that  representations that VSL#3 has been
manufactured with ingredients that have been deemed “Generally Recognized as
Safe,” (“GRAS”), and that it is “a probiotic medical food intended for the
dietary management of Irritable Bowel Syndrome (IBS), Ulcerative Colitis (UC)
or an ileal pouch,” violated the injunction’s requirement that the VSL Parties
not cite to or refer to clinical studies as relevant or applicable to Italian
VSL#3. The court disagreed. None of these statements on their face suggested or
implied any continuity between products or cited clinical studies of the De
Simone Formulation.

The De Simone parties argued that the GRAS designation
implied equivalence because it was granted after an analysis that included
consideration of the De Simone Formulation’s history of clinical studies. [This
argument sounds like it has FDA preemption/preclusion problems.] But the GRAS
report was based on a review of Italian VSL#3, not of the De Simone Formulation.
It didn’t conclude that the formulation was the same, but focused on the safety
of the ingredients, which substantially overlap with those of the De Simone
Formulation, and apparently relied on De Simone Formulation studies to conclude
that those ingredients are safe. The chain of reasoning was “too attenuated” to
support a violation of the injunction.

So too with the characterization of Italian VSL#3 as a
“medical food.” The De Simone parties argued that “medical food” is a
statutorily defined term that may be applied only when there is significant
scientific agreement that it is clinically effective. Since Italian VSL#3 has
never been tested clinically to determine its effectiveness, the use of the
term allegedly implied that prior clinical studies on the De Simone Formulation
may be appropriately considered as applicable to Italian VSL#3. Again, this was
too indirect.

And here my questions about the First Amendment and FDA
preclusion limits on the injunction really spiked:

To be sure, in using these terms,
the VSL Parties run the risk that they may not be able to adequately respond to
any consumer inquiries into the GRAS or medical food designations without
violating the Permanent Injunction. For example, if asked to provide support
for these designations, they would be unable to provide or even refer to either
the earlier clinical studies or the GRAS report, which references those studies
in a way that would make them “relevant” to Italian VSL#3.

But the sheet alone didn’t violate the injunction.

The violations that did occur, “which 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,”
caused harm to the De Simone parties. There was evidence customer confusion
over whether VSL#3 still contains the De Simone Formulation caused ExeGi to
lose business.

The De Simone parties asked for some or all of the profits
derived from the sale of VSL#3 during the relevant time period, but there
wasn’t “evidence of quantifiable damages of such a magnitude as would warrant
such a remedy.” And the letter and some of the statements that VSL#3 is
“clinically proven” predated the injunction and might have been left in place
inadvertently; the press release was limited to a single occasion “not focused
on establishing an equivalence between VSL#3 and the De Simone Formulation.”

Thus, the court instead ordered VSL and Alfasigma to (1)
remove the remaining contumacious statements from the relevant media, review
all promotional materials and online postings, including the audio content of
any YouTube videos referenced, for the same or similar statements and to remove
them, and instruct all relevant personnel to refrain from using the same or
similar language going forward; and (2) pay the De Simone Parties’ reasonable
attorney’s fees expended in advancing the Motion. This was justified because “certain
violations, such as the September 2019 Facebook statements, were blatant violations
of the Permanent Injunction, and other violations, such as the claims that
VSL#3 is ‘clinically proven,’ persisted over an extended period of time.
Moreover, the number of different violations demonstrates that the VSL Parties’
efforts to avoid violations of the Permanent Injunction were notably deficient.”
The court found that there was no requirement of a showing of willful
disobedience or obstinacy for a fee award upon a finding of civil contempt.

And the court cautioned that the VSL parties were “on notice
of the identified violations and of potential violations that could arise from
the use of the clinical studies in support of the GRAS and medical food claims,”
so “any such violations occurring in the future will likely result in more
severe sanctions.”

I see risks here, especially if the De Simone parties
really do have “plants” asking Facebook questions about what the VSL parties are hiding, as alleged by the VSL
parties. Ultimately, the injunction should be modified to allow the VSL parties
to truthfully explain that GRAS and similar determinations can be made based on
ingredient assessments, including studies on other products that don’t have the
exact same ingredient list. It’s hard to see how that could be deceptive and
easy to see the anticompetitive risks imposed by the court’s current bar on any
kind of reference to clinical studies.

from Blogger

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