Rebecca Tushnet

230 protects anti-malware vendor against noncompetitors

Posted on March 30, 2020 by rtushnet

Asurvio LP v. Malwarebytes
Inc., No. 5:18-cv-05409-EJD, 2020 WL 1478345 (N.D. Cal. Mar. 26, 2020)

Despite unfavorable
precedent, Malwarebytes secures dismissal of this Lanham Act false advertising
(and common law disparagement/tortious interference/unfair competition/ violation of the Texas Theft Liability Act
(TTLA)) case against its designation of software as malware or as a
“potentially unwanted product” (PUP) on CDA §230 and other grounds.

According to the
complaint, “Asurvio provides premium full-service technical support services to
consumers.” Asurvio’s services include: “(i) software solutions that work in
real time in the background of the operating system to optimize processing and
locate and install all missing and outdated software drivers; and (ii)
technical support services for the removal of Spyware and Malware and all other
facets of personal computer use.” Asurvio’s software executes “fixes” including
driver updates and provides the consumer access to telephone-based human assisted
technical support.

In 2016,
Malwarebytes categorized Asurvio’s DRIVER SUPPORT and DRIVER DETECTIVE software
with a negative PUP rating and labeled it a security risk. “Asurvio’s customers
who also used Malwarebytes received regular warnings from Malwarebytes that all
folders of Asurvio’s software were ‘threats’ quarantined on their computers
that should be uninstalled.” Asurvio tried to convince Malwarebytes that it
complied with industry leading standards and requirements, including the Clean
Software Alliance Guidelines, Microsoft and Google’s standards and other
anti-malware vendor certifications by McAfee and Symantec, but Malwarebytes
refused to delist the software as a PUP and referred Asurvio to AppEsteem for
third party certification; when Asurvio secured that, Malwarebytes delisted its
products.

In 2017, Asurvio
began listing its technical support services in its boilerplate terms and
conditions, including technical support for removing Spyware/Malware. Id. In
2018, Asurvio learned that Malwarebytes had relisted Asurvio’s products as PUPs
and was barring customers from Asurvio’s websites.

Asurvio alleged that
a Malwarebytes staff member identified as “Metallica” posted “Removal
instructions for Driver Support” on Malwarebytes’ message board forum. The post
stated that Asurvio’s DRIVER SUPPORT product uses “intentional false positives”
and advised consumers that the best way to uninstall DRIVER SUPPORT is to use
Malwarebytes’ software. Malwarebytes blog “moderators” identified as “Porthos”
and “exile360” described DRIVER SUPPORT as “a bogus program” and “unnecessary
snake oil with no real utility” that typically does more harm than good. A Malwarebytes
blog “moderator” posted that “Driver Updates” (allegedly a generic term to
describe Asurvio’s services) are a “pure scam,” a “useless product” and “can
damage your system to the point where a reinstall of Windows will be needed.” Asurvio
alleged similar statements on a different website by a person who allegedly
received “monetary or in-kind benefits from Malwarebytes for each sales lead or
software download generated from his post.”

And Malwarebytes
allegedly wrongfully profited from the use of Asurvio’s products by redirecting
clicks from Asurvio’s website to Malwarebytes’ website. “When a Malwarebytes
free version software user opens a search engine in his own web browser and
searches for DRIVER SUPPORT or ACTIVE OPTIMIZATION, Asurvio’s ads or website
links will prominently appear in the search engine results. However, instead of
going directly to Asurvio’s official website when clicking these links, it
redirects consumers to the Malwarebytes website for the purpose of executing a
Malwarebytes sale.” This was the
specific basis of the TTLA claim, which provides in pertinent part that an
actor commits “theft of service” when, “having control over the disposition of
services of another to which the actor is not entitled, the actor intentionally
or knowingly diverts the other’s services to the actor’s own benefit or to the benefit
of another not entitled to the services.”

§230(c)(2)(B)
immunity applied to most of the conduct, including the redirection of consumers
from Asurvio’s website. (A previous
order in the case explained that the redirect page notifies the user that
Malwarebytes blocked driversupport.com “due to PUP.” It also informs the user: “Learn
about PUP. If you don’t want to block this website, you can exclude it from
website protection by accessing Exclusions.” This was a type of “action” that
enables or makes available to others the “technical means” to restrict access
to statutorily defined objectionable material. The court commented: “The
statute does not contain qualifiers, conditions, or exceptions for ‘actions’
that have the secondary effect of depriving PC Drivers of the benefits of the
page-click advertising it purchased from a third party.”)

Although Enigma
Software Group USA, LLC v. Malwarebytes, Inc., 946 F.3d 1040 (9th Cir. 2019),
held that (c)(2)(B) didn’t apply to “blocking a competitor’s program for
anticompetitive reasons,” the parties here aren’t direct competitors. Each software
security provider “generates its own criteria to determine what software might
threaten users.” Asurvio, by contrast, didn’t sell malware detection software
designed to scan a computer and report PUPs. Rather, Asurvio sells driver
update software that doesn’t provide provide any anti-spyware or anti-malware
functionality as Malwarebytes does. Its “technical support services for the
removal of Spyware and Malware,” disclosed only in fine print, was “a secondary
value added service … limited to removal of Spyware and Malware,” which was “significantly
dissimilar from computer security software like Malwarebytes’ that once
installed, automatically identifies and blocks Spyware and Malware.” It was not direct competition merely because
both parties offer software services “to assist in the overall performance of
individual computers” and both sell to “self-help” computer users. Such a broad
reading of competition would “render the statutory immunity meaningless.” Thus,
all claims based on filtering were dismissed without leave to amend.

Comment: one of the original issues with the 9th Circuit’s opinion in Enigma is that the source of the “anticompetitive” exclusion is not evidently grounded in any principle of law. Neither antitrust nor false advertising–the two best candidates for such a principle I can see–limit their protections to direct competitors. This case highlights the fact that Enigma invented a new exclusion and now we have to figure out what that means.

As for the other
challenged statements, §230(c)(1) applied to the postings on its online forum.
Asurvio failed to plead facts showing that “Porthos” and “exile360” were forum
“moderators,” much less any facts showing they had any express or implied
authority to speak on Malwarebytes’ behalf. The fact that the forum identifies
“Porthos” as a “Trusted Advisor” and “exile360” as an “Expert” weren’t enough;
the mere possibility that Malwarebytes made these designations didn’t support a
plausible inference that Malwarebytes was responsible for the “Trusted Advisor”
and “Expert” designations, and further that Malwarebytes is responsible for the
content of the posts made by “Porthos” and “exile360.”

Even without
immunity, the complaint failed to state a claim. The allegedly false and
disparaging statements (e.g. that Asurvio’s products are PUPS, use “false
positives,” are “bogus,” a “scam,” and “snake oil”) weren’t pled to be
objectively verifiable as opposed to non-actionable opinion. Tortious interference claims failed to allege
facts showing that Malwarebytes willfully and intentionally interfered with a
specific contractual obligation. Instead, the complaint alleged that
Malwarebytes instructs computer users to choose whether to continue using Asurvio’s
products.

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“no soy protein” claim for dog food plausibly indicates no soy

Posted on March 23, 2020 by rtushnet

Rice-Sherman v. Big
Heart Pet Brands, Inc., No. 19-cv-03613-WHO, 2020 WL 1245130 (N.D. Cal. Mar.
16, 2020)

Plaintiffs alleged
that Big Heart falsely markets its Grain Free Easy to Digest Salmon Sweet
Potato & Pumpkin Recipe Dog Food as “Grain Free,” and as containing “No
Corn” and “No Soy Protein.” Most of the claim survived, though claims for
injunctive/equitable relief and punitive damages survived. Of note: “no soy
protein” is plausibly understood as meaning “no soy.”

Purchasers of such
products allegedly “pay a premium in order to alleviate their pets’ allergies
and provide various health benefits associated with a grain-free diet.” Plaintiffs
allegedly would not have purchased the Product if the actual ingredient list had
been fully disclosed. According to plaintiffs, “independent testing of Nature’s
Recipe Food confirms that these representations are false because “[it] does,
in fact, contain significant amounts of both corn and soy protein.” This
testing was allegedly consistent with numerous academic studies that have found
companies in the pet-food industry have inaccurate product labels,
non-conforming ingredients, and cross-contamination. Some of the named
plaintiffs also alleged that their dogs began displaying allergy symptoms after
eating the product, incurring hundreds of dollars in veterinarian costs.

Big Heart argued
that plaintiffs lack Article III standing because they didn’t specifically
allege how, where, and why the “independent testing” was performed, and whether
each specific Nature’s Recipe product purchased by each named plaintiff was
tested. Those weren’t necessary for Article III standing, which was satisfied
by allegations that they “spent money that, absent defendants’ actions, they
would not have spent.” While Big Heart cited Wallace v. ConAgra Foods, Inc.,
747 F.3d 1025 (8th Cir. 2014), for the proposition that plaintiffs are required
to specifically allege that the particular product they bought contained the undisclosed
ingredients, that’s not the law in the Ninth Circuit. As another court said, “if
a customer has paid a premium for an assurance that a product meets certain
standards, and the assurance turns out to be meaningless, the premium that the
customer has paid is an actual, personal, particularized injury that is
cognizable under Article III.”

Nor were plaintiffs
required to allege that independent testing was done on their bags. In other
cases finding insufficient allegations, the alleged contamination was sporadic
and plaintiffs failed to allege that “all or even most” of the accused products
were falsely advertised; therefore they were required to allege that the
particular products they purchased were part of a subset of accused products
that were falsely advertised. In the absence of such allegations, their claims
were too speculative. Here, however, plaintiffs
focused on a particular product and argued that it was falsely advertised because
it did, in fact, contain “significant amounts of both corn and soy protein.” Plaintiffs
didn’t have to use the magic word “all,” given a fair reading of the complaint.
In assessing standing on a motion to dismiss, the court must “presume that [ ]
general allegations,” like the ones alleged here, “embrace those specific facts
that are necessary to support the claim.”

Failure to state a
claim: The complaint satisfied Rule 9(b). It alleged when and where each
plaintiff bought the products; described the “Grain Free,” “No Corn,” and “No
Soy Protein” representations on the Product packages which they relied on; described
and included photographs of the false or misleading information on the packages
and on Big Heart’s website; and alleged that the claims are false because
independent testing revealed that the Products in fact contain corn and soy.
They were not required to “provide definitions of grain, corn, soy, and soy
protein or explain the parameters of the alleged independent testing.” As for definitions, “[t]he relevant question
is not what those terms mean, but rather what they mean to reasonable
consumers, which cannot be resolved on a motion to dismiss.” Plaintiffs
plausibly alleged that reasonable consumers would consider the representations
“No Corn” and “No Soy Protein” to mean that the Product is free of corn and
soy. Big Heart alleged that there was a
gap between “soy” and “soy protein,” but the court found that “hardly a logical
gap.” Big Heart also argued over whether corn is a grain, but even if it isn’t,
plaintiffs also alleged an explicit “No Corn” claim.

Independent testing:
“Big Heart does not need more background information about the independent
testing at the pleading stage in order to defend against plaintiffs’ claims.”
Its results are accepted as true at the pleading stage.

As for the specific
California claims, the arguments were largely repetitive of those rejected on
9(b). “These labels are not as ambiguous as such labels as ‘all natural’ or ‘healthy’;
even if they were, the question of whether a reasonable consumer would likely
be deceived is a factual dispute that cannot be resolved at the motion to
dismiss stage.” Plaintiffs weren’t required to allege “that the corn or soy at
the level detected would cause a health issue or nutritional deficiency.” They
specifically alleged materiality, and also that Big Heart knew or had reason to
know that consumers are likely to regard the matter as important given that
they allege that Big Heart touts the “Benefits of Grain Free” on its website.

Warranty claims also
survived. For implied warranty, plaintiffs used two theories: (1) there is a
general warranty in all sales contracts that the product is fit for the
ordinary purpose for which such good is used; and (2) the product does not conform
to the promises or affirmations of fact made on the container or label. Plaintiffs plausibly alleged (1) by alleging that
Nature’s Recipe Food was specifically marketed for dogs with grain allergies,
and that because it contains corn and soy it causes dogs to suffer allergic
reactions and therefore is not fit for its ordinary purpose. And the court didn’t
require privity for either theory.

Injunctive relief: In
the Ninth Circuit, “a previously deceived consumer may have standing to seek an
injunction against false advertising or labeling, even though the consumer now
knows or suspects that the advertising was false at the time of the original
purchase, because the consumer may suffer an ‘actual and imminent, not
conjectural or hypothetical’ threat of future harm.” This includes cases where
“the threat of future harm may be the consumer’s plausible allegations that she
will be unable to rely on the product’s advertising or labeling in the future,
and so will not purchase the product although she would like to,” and where
“the threat of future harm may be the consumer’s plausible allegations that she
might purchase the product in the future, despite the fact it was once marred
by false advertising or labeling, as she may reasonably, but incorrectly,
assume the product was improved.” But plaintiffs didn’t make those allegations
here.

Equitable relief
under the UCL, FAL, and CLRA: only available where there were no damages; the
complaint didn’t make clear whether the claims for equitable relief and damages
are based on the same theory (false advertising) or on separate distinct
theories. Motion to dismiss granted (with leave to amend, as above).

Punitive damages: Not
recoverable under the UCL or FAL, or for breach of express warranty under the
California Commercial Code. A consumer seeking damages under the CLRA may
recover punitive damages, but plaintiffs failed to allege the necessary
elements: “both ‘oppression, fraud, or malice’ and that the conduct at issue
was performed or ratified by an ‘officer, director, or managing agent.”

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Statements in book promoting addiction treatment protected by Cal anti-SLAPP law

Posted on March 23, 2020 by rtushnet

Selkirk v. Grasshopper
House, LLC, 2020 WL 1241565, No. B294568 (Cal. Ct. App. Mar. 16, 2020)

Defendants Grasshopper
House and Passages Silver Strand “are luxury facilities that purport to treat
drug and alcohol addiction.” Former patients sued them for allegedly making false
statements about the efficacy of their treatment programs. Under the anti-SLAPP
law, Passages showed that some of its statements were protected speech and
plaintiffs didn’t show enough merit to proceed; remanded with directions issue
a new order striking certain allegations, although the denial of the motion to
strike some other allegations wasn’t appealable.

The Passages
facilities allegedly “are among the most expensive” rehabilitation centers “on
the planet,” charging between $40,000 and $100,000 for a 30-day stay. Neither founder
(including Pax Prentiss) has any education or training in the treatment of substance
abuse. Passages allegedly advertises it discovered a novel treatment approach
that “cured” Pax of his addictions and that can cure others. E.g., the Passages
Malibu website stated: “The program we created for Pax, the one that is now the
Passages program, was primarily based on finding out the ‘why’ behind his
addiction. It worked. Pax finally discovered his ‘why’ and we knew that he was
cured, that he would never again use drugs or alcohol.” The website also stated
that the “treatment method … has cured thousands of people at Passages.” Passages
also claims in its advertising the program can cure addiction within 30 days.

Passages allegedly made
similar statements in Internet, television, and print advertisements, in
“television and other media interviews,” during lectures and personal
appearances by the Prentisses, and in a book: The Alcoholism and Addiction
Cure: A Holistic Approach to Total Recovery.

Passages filed a
special motion to strike. Plaintiffs argued that their claims were based on
Passages’ specific misrepresentations about the efficacy of the Passages
treatment program and that promotional statements by a business about its
services were commercial speech to which California’s anti-SLAPP did not apply.
Plaintiffs submitted evidence that Pax continued to use drugs after the
Prentisses opened Passages Malibu and that since 2004 Passages has not
documented whether its clients remained sober after leaving its facilities. But
they didn’t submit evidence that they were aware of Passages’ alleged
misrepresentations before enrolling at the facilities.

The trial court
ruled that all statements “arising out of television ads, internet advertising,
and Defendants’ website constitute commercial speech which comes within the
exception” to the anti-SLAPP law, but that the statements in the Prentisses’
book weren’t commercial speech under the law, which “specifically exempts from [the
commercial speech rule] claims based upon the dissemination of a literary
work.” Then, the trial court ruled as to the book statements that the
plaintiffs demonstrated a probability of prevailing on each of their causes of
action except their cause of action for negligence.

On appeal, Passages
conceded that the statements about Pax’s personal history of addiction and
abuse (whether those statements were book statements or non-book statements) weren’t
eligible to be struck. They appealed as to the statements about addiction,
treatment, and the Passages facilities, and plaintiffs cross-appealed.

The appeals court
ruled that the trial court correctly held that the book statements were
protected speech. In the book, Chris Prentiss states that he and Pax “use[d]
what [they] learned curing [Pax] to help others discover the roots of their
addiction or alcoholism and break free” and that, “having healed thousands of
people,” Chris “can write with complete certainty that alcoholism and addiction
are not diseases.” The book also tells readers that, if patients “set up …
intense therapy” at Passages, they “should be able to cure [their] addiction in
thirty days or less.” These were statements relating to the public interest and
contributed to public debate about addiction treatment; the purpose of the book
wasn’t solely to advertise Passages but to discuss conventional treatment
methods, why the authors believe addiction is not “incurable,” and why they
believe their “holistic” treatment method is better than other treatment
methods. “To be sure, the statements about the efficacy of the Passages
treatment program and the number of patients the program has successfully
treated may help Passages solicit new clients. But those statements also
provide context and explain the Prentisses’ views on addiction and treatment.
The statements about their views contribute to the public discussion of the
issue.” The book also made claims that it could help readers treat their
addictions on their own, without paying Passages for treatment: “Within the
covers of this book, I will show you how you can cure your alcoholism or
addiction” and “how to put together your own personalized program to achieve
total recovery and optimum health by enlisting the help of several key health
practitioners.” Their views might be
against the medical consensus, and might even “harm some persons who would
receive better treatment from medical professionals.” But the question is
whether the Prentisses “participated in, or furthered, the discourse,” not “the
social utility of the speech at issue, or the degree to which it propelled the
conversation in any particular direction.” The book as a whole, and not just the
challenged statements, had to be considered. And even if the challenged
statements were false (or even Central Hudson commercial speech), that
didn’t make them unrelated to an issue of public interest, an issue determined
by the anti-SLAPP law and not by the Constitution.

With that out of the
way, plaintiffs failed to show that their book-based claims had merit. The
standard is like summary judgment: the court “accepts the plaintiff’s evidence
as true, and evaluates the defendant’s showing only to determine if it defeats
the plaintiff’s claim as a matter of law.” Plaintiffs didn’t submit evidence
that they attended Passages because of the alleged misrepresentations, or that
they heard or read the misrepresentations, or that they relied on these
statements, or that they suffered any economic injury as a result of these
alleged statements.

However, the order denying the special motion to
strike the non-book statements wasn’t reviewable in this appeal, because where
a trial court denies the motion on the grounds that the commercial speech
exemption applies, that’s not immediately appealable, per the anti-SLAPP law
itself, even if other parts of the order are appealable and even if the
district court erred in keeping opinion statements in the case when the
exemption only applies to statements of fact in commercial speech.

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Mislabeled image of competitor’s LED screen as LG’s gets LG in trouble

Posted on March 23, 2020 by rtushnet

Sansi North America,
LLC v. LG Electronics USA, Inc., 2019 WL 8168069, No. CV 18-3541 PSG (SKx)
(C.D. Cal. Nov. 14, 2019)

LG used a picture of
Sansi’s LED displays in an article for a trade publication and accidentally
labeled it as LG displays. This lawsuit followed.

LG is currently the
only manufacturerer of OLED displays, “a specific, advanced, version of LEDs
that allow for flexibility and superior viewing angles to standard LED
technology.” In 2017, LG hired Robin Dugan to create an eBook about
developments in the digital signage industry, with a focus on LG OLED displays.
“The eBook included pictures of non-LG displays, including a featured
photograph of a display at Salesforce’s San Francisco headquarters, which was
produced by Plaintiff Sansi; the caption did not mention Defendant LG or OLED.”
LG did ask if it had permission to use all of the images. Roughly a year later,
LG hired NewBay Media to prepare a similar article for a magazine, Digital
Signage Magazine, with about 11,000 subscribers. NewBay based some of its work
on the eBook, and believed that the Salesforce display was OLED. It mistakenly
captioned the picture of the display as an OLED screen, and mistakenly updated
the caption to read “LG OLED.”

The text then said: “The
Salesforce San Francisco office has a custom-built LG OLED screen in their
lobby that is 12K resolution, with over 7 million pixels, and measures close to
107 feet long. The content ranges from amazing waterfall visuals to
California’s Redwood National Park and is synced with the local weather to play
content that matches the weather.”

Initial book, which just said Salesforce had a custom-built screen:

Second version with wrong attribution:

Downloadable eBook
version with wrong attribution:

A few months later,
Sansi informed LG and NewBay of the problem; NewBay took down the online
version of the article, and LG agreed to take steps to correct the mistake,
including asking NewBay to remove the publications, working with NewBay to
draft a correction, and advising marketing staff of the error and to correct
any misidentifications of the project. Sansi nonetheless sued for false
designation of origin, false advertising, trade dress infringement, trade libel,
and unfair competition.

The court treated
false designation, trade dress infringement, and unfair competition as the same
claim with different names. “[C]laiming
another’s accomplishments and history as one’s own” can be false designation of
origin (or false advertising). LG argued that no claim for reverse passing off
could succeed because no product was sold. Sansi argued that no physical removal of a
name from a physical product was required, particularly where the plaintiff
sells a service. The court agreed that Sansi’s claim was tenable because LG published
an article containing an image of Sansi’s service [???] and labeled it as its
own. “Other courts have upheld claims under § 1125(a) where the defendant has
taken credit for and represented as its own the service or accomplishments of
the plaintiff.” [The court does not discuss Dastar, though I think this
does constitute an explicit misrepresentation of the origin of the item depicted
in the picture, as opposed to anything about the picture itself.]

Was confusion
likely? Sansi identified four clients and four industry contacts who indicated
confusion about the caption. Anyway, actual confusion isn’t required [for (a)(1)(A)].

False advertising:
The caption was a false statement of fact, and the evidence of some consumers’
confusion plus literal falsity allowed a presumption of actual deception and
materiality. There was a genuine dispute of fact on materiality and deception.

Trade dress: LG
argued that all aspects of the Salesforce display were utilitarian in that was
a video screen; according to LG the only way to tell who designed the display
would be to pull off the panel, or ask someone, and that the emitting of light was
the display’s only function. In addition, Sanci didn’t own the shape of the
display and content displayed.

Sansi argued that its
display had elements that, combined, could be “distinctive and aesthetic”
[sigh, very much not the same things; consider how many of the adjectives in
the description mean “works better”]:

Sansi’s Salesforce display consists of a unique arrangement of numerous
elements intended to make it more spectacular, attention-grabbing, striking,
and unusual, all of which are hallmarks of Sansi’s unique designs and high
quality products. For example, it is 107 feet long, when it could have just as
easily been shorter. It has a 4 millimeter pixel pitch, when it could have used
a different pixel pitch. It has approximately 8 million pixels, when it could
have had less (or more). It has a hundred layers of processing to give it a
three-dimensional effect, which is unique and not essential to the function of
a digital wall display. Its shape follows the architecture of the building in
which it is installed and surrounds the elevator bank entrances, when it could
have simply been a rectangular shape above the elevator banks. Numerous other
elements of the design were subjective choices by Sansi in order to make this a
standout design, such as the selection of PCB board widths, product supply
widths, the pitch distinction between product, the streamlined assimilation of
the display design with the building architecture, and countless other design
elements.

So many problems. None
of this indicates distinctiveness in the trademark sense, and it definitely
doesn’t mean distinctiveness for Sansi instead of for Salesforce, any more
than an ad agency has trademark rights in the successful campaigns it does for
others. Nonetheless, the court decided that “the Salesforce display including
its size, pixel pitch, number of pixels, layers of processing, unique shape,
and other elements of its design, taken together,” could be found by a jury to
be “aesthetic and not entirely functional.”

LG did at least get
monetary remedies kicked out of the case (at least pending Romag). In the
Ninth Circuit, disgorgement requires willful infringement. LG provided evidence
that the caption was a mistake, and that LG took action as soon as it was
discovered. Sansi didn’t provide any evidence to the contrary. And Sansi couldn’t show actual damages in the
form of lost profits or otherwise. “[C]ompensatory damages are appropriate only
where a plaintiff has shown that in fact it has been injured; it still must
present non-speculative evidence that goodwill and reputation—that is, the
value of its mark—was damaged in some way.” Sansi was unable to show lost customers,
sales, or other injury. Sansi doesn’t sell OLED products, so it can’t claim to
have missed out on any OLED sales. And none of the companies whose people
downloaded the NewBay feature placed an order for an LG LED display; only one bought
an OLED, and that company had been an LG customer for years. Sansi asked its
dealers why they weren’t giving more business to Sansi, and none mentioned LG
as the reason.

Sansi argued that it
had shown instances of confusion, and a sales decrease concurrent with the
article’s publication, which an expert calculated as $6.88 million in losses,
which it argued should be enough to get to a jury. However, Sansi didn’t
disclose any damages calculations to LG during discovery or before the
dispositive motion deadline. Thus, the
court declined to rely on the expert report now. Given how generous it was to Sansi’s theory
of the case, one wonders if the court would have looked favorably even on a
fairly implausible damages calculation if it had been properly disclosed.

Trade libel:
requires actual malice; none shown.

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Selling scammy books is protected by the First Amendment when selling scammy products isn’t

Posted on March 12, 2020 by rtushnet

Federal
Trade Comm’n v. Agora Financial, LLC, 2020 WL 998734, No. 1:19-cv-3100-SAG (D.
Md. Mar. 2, 2020)

The defendants do relatively well here by
selling scammy and deceptive books. To the extent that the deception is
contained in the books, they get to advertise the contents of those books, but
when they make claims beyond those contained in the books, the FTC can stop the
marketing. The incentives for the defendants’ book-writing—which is pretty
clearly parasitical on their marketing—are not good. That said, I’m not sure I see a safer rule.

Defendants Agora and NewMarket are publishing
entities under the umbrella of M&C, which owns more than eighty separate
entities.

NewMarket’s ads for its book The Doctor’s
Secret to REVERSING Diabetes in 28 Days had a Dr. Gerhauser promoting it for
treatment of Type 2 Diabetes without pharmaceuticals. His representations
included: “[A]fter 37 years in practice, I recently discovered a simple,
at-home treatment for Type 2 diabetes. And no, it has nothing to do with diet
or exercise. It doesn’t involve a single drug either. Yet this new treatment is
scientifically proven to reverse every symptom of your diabetes in 28 days.” Other
parts of the ad: “World famous doctor and diabetes expert, Dr. Richard
Gerhauser, just made a shocking announcement. He said ‘Type II Diabetes is not
caused by what you eat.’ ” “Shocking study shows 100% cure rate.” “It has
nothing to do with changing your diet or exercising more.” “Can this new
treatment really reverse Type II Diabetes in 28 days? Without diet, exercise,
or a single drug? Sure, it sounds impossible…But according to a new study
from the University of Kansas, it’s true…” “How to Reverse Diabetes Without
Dieting.”

The actual guide has eleven modules, one of
which ontains dietary recommendations,
including that protocol followers “[e]at a seasonal, low-carb, organic diet
with plenty of seafood,” and engage in intermittent fasting. The book initially
sold for $150, then $250.

As for Agora, it developed the idea of using
“Congressional Checks” as a metaphor for the anticipated tax-advantaged
treatment of certain pass-through dividend income that would result from the
2017 Tax Cuts and Jobs Act (“TCJA”) passed by the Republican Congress in 2017.
At least one news article had suggested that the real estate tax breaks in the
TCJA would personally benefit some Republican lawmakers. The resulting book, Congress’
Secret $1.17 Trillion Giveaway, “identifies 13 companies with high yield
potential.” It was given to those who
signed up for a free trial of Agora’s financial newsletter, which cost $99/year
if they didn’t cancel.

It was promoted with ads including the
claims: “In case you haven’t heard yet,
a small group of in-the-know Americans are now collecting ‘Congressional
Checks’ of up to $6,235 each. In fact, there is $ 1.17 Trillion at stake thanks
to section 199A of Trump’s new tax law. And if you follow the instructions on
the next page, you could add your name to the list, too. But if you do not act
by the October 18th deadline, you will miss out on the next check, and…your
money will be sent to somebody else…To prevent your check from being sent to
someone else, you must get on the list for the next ‘Congressional Check’ by
Thursday, October 18.” “[T]he law dictates that this pile of cash MUST be
distributed! That’s not a question of if…It’s the law! These cash
distributions are contractually required by the U.S. government…So if you
don’t collect someone else will.” “You just need to add your name to the list
of check payees before October 18th.” “As a taxpayer, nobody deserves this
money more than you. Remember, this is wide open to the public. There’s no
income requirement. No age limit.” “Again, you could potentially collect a 6k
check for doing nothing except applying what was perfectly within your rights
anyways!” “The average Social Security monthly stipend of about $1,400 simply
isn’t enough to pay for housing, groceries, and medical bills. Fortunately,
there’s hope…If you’re looking for retirement income, I strongly encourage
you to check out what’s inside this book.”

The ads include imaged of consumers holding
checks with their names and the amounts received, and the words “Congressional
Check” or “Republican Check” across the top in large writing, with the seal of
the United States Congress. Those photos were actually edited stock photos, as
was an alleged version of then-Congressman Darrell Issa’s Financial Disclosure
Report, indicating that he had received either a “Congressional Check” of
$410,000 or a “Republican Check” of $410,000, which was not true.

The “Congressional Checks” promotion was
changed to “Republican Checks,” apparently to better target its audience. Also,
consumers were immediately charged $49 rather than being given a free trial.
Some of the later “Republican Checks” ads specified that the checks would be
paid by “private sector institutions known as ‘fiscally transparent entities.’
” In later 2018, a new ad included as part of a Q&A the statement “don’t
take the term ‘Congressional check’ too literally. It’s a nickname for the
payments politicians receive from REITs, master limited partnerships and other
pass-through securities…Cutting taxes on pass-through earnings was almost
like giving law makers a special bonus for voting in favor of the bill. So I
decided to call the payouts from pass-through entities Congressional checks.
But really, they’re just the regular payouts that these kinds of companies
always make.”

The House of Representatives contacted
agencies including the FTC about this promotion, noting that “[t]he Clerk has
already received seven letters from individuals attempting to apply to the
Clerk to collect their ‘Congressional Checks.’ ” Defendants ultimately stopped
promoting the book.

As to the diabetes book, the FTC argued that
five health claims were unsubstantiated by reliable clinical trials and
therefore false and misleading: that the protocol in the book would “cure,
treat, or mitigate type 2 diabetes or its symptoms,” that it didn’t require
restricted or changed diet; that “Supplements, including Himalayan Silk, Epsom
Blue, and Chromanite, will, either alone or in combination, cure, treat, or
mitigate type 2 diabetes or its symptoms,” that “Type 2 diabetes is caused by [non-ionizing
radiation] exposure,” and that “[c]onsumers can prevent Type 2 diabetes through
the use of Non-Ionizing Radiation ‘blockers,’ or by otherwise avoiding NIR.” The
FTC also alleged that the claim that the protocol “is scientifically proven to
cure, treat, or mitigate type 2 diabetes or its symptoms in 28 days” was a
false establishment claim.

However, the court declined to impose the
standard requiring “competent and reliable scientific evidence” to substantiate
health claims, because defendants were selling books, not medical supplements,
devices, or services. “In the cases cited by the FTC, the respective defendants
marketed products that would be sold for the buyer to consume, and purportedly
reap the alleged benefits. The FTC has not identified any case in which a court
has applied the health-related efficacy standard in the circumstances presented
here.” The FTC conceded that the book
was free to exist, and the book wasn’t itself commercial speech. As the court
pointed out, unlike with a drug or device, the consumer could read the book and
decide not to use the advice, and the book would still have succeeded in its
intended function: being read.

Thus, when the ads for the book just describe
the contents of the book, they’re protected to the same level as the book
itself. However, defendants’ marketing
material didn’t stick to the book. The
ads claimed that consumers didn’t need to change their diets, while the book
recommended specific dietary changes. “[T]he divergent statements made in the
promotion can be isolated and differentiated from the protected statements made
in the book.”

Nonetheless, in determining whether
defendants made false or misleading claims in advertising, the court did not
require competent and reliable scientific evidence for the claims from the
book; it asked only whether defendants misrepresented the contents. [Of course,
that begs the question: are the contents “a way to cure diabetes” or are they
“a set of claims about the way to cure diabetes”? Only if the latter is the proper description
of the contents did defendants properly represent them.] The proper question
is: “do the advertisements accurately represent the content of The Doctors’
Guide, such that consumers can make an informed decision about whether they
want to purchase the book?” This standard allows people to publish and
advertise noncommercial speech that makes dumb claims without chilling speech
by requiring them to disclose how limited their evidence is. (The court
rejected the FTC’s suggestion that Dr. Gerhauser could advertise a book
suggesting that NIR causes diabetes if the advertisement said, “one study shows
that consumers whose diet we don’t know, who lived near a cell phone tower, may
have had increased diabetes rates,” as “utterly implausible.”)

The court rejected the FTC’s analogy to Cher v. Forum Int’l Ltd, 692 F.2d 634
(9th Cir. 1982), which found an ad not entitled to constitutional protection
because the ad indicated that Cher “told” Forum certain things when, in fact,
she hadn’t told it anything. That was “patently false,” and the FTC didn’t
demonstrate that the content of the book was “patently false.” “Neither this
Court nor the FTC is well-equipped to determine the validity of a human
clinical trial in India, and whether it indicates what Dr. Gerhauser believes
it indicates, in his medical opinion. Similarly, neither this Court nor the FTC
can state with certainty whether non-iodizing radiation has any causal
relationship to a patient’s development of Type II Diabetes. Those types of
untested theories are best assessed by qualified medical professionals
exchanging opinions in the marketplace of ideas.” [And here’s where the really shaky stuff
begins. If the relevant claims been used to advertise a drug or anti-radiation device,
I hope and believe the court would have found that it and the FTC were plenty
competent to evaluate the facts. There’s an epistemology of evaluating claims
for drugs & devices, and if we withhold that epistemology for books it’s
not because our methods of knowing don’t work but because books are special
even when we are sure the books are wrong.] In a footnote, the court commented
that it might ultimately broaden the injunction, if for example the claims
about mulberry extract, magnesium, and chromium were patently false, and thus
entitled to no First Amendment protection.

The court proceeded
to ask whether the ads matched the content of the book, keeping in mind that
it’s possible to mislead with a series of true-in-isolation statements. As the
Supreme Court said, “Laws are made to protect the trusting as well as the
suspicious.” There were two actionable misrepresentations: the
no-need-to-change-diet claims, and the claim that the protocol has been
“scientifically proven” to “reverse your diabetes in just 28 days.” In fact, there
was no evidence that the protocol had been subject to any testing. And the book
relied on studies that indicate a longer timeline for any potential success,
e.g., “after just 24 weeks, the patients taking magnesium had normal blood
sugar.” [Note how helpful it was for the court to shorthand the book as The
Doctor’s Guide: since the title is actually The Doctor’s Secret to
REVERSING Diabetes in 28 Days, the title does claim 28-day efficacy.
But apparently the title is an explicitly false misrepresentation of the
content of the book, which is not surprising.] “Those two misrepresentations
are material in that they would induce a reasonable consumer, who does not want
to abide by a medically restricted diet, to purchase the publication.”

The court reasoned
similarly with respect to Congress’ Secret. The ads claimed, expressly or by implication,
that “consumers are entitled, by law or otherwise, to money from Congressional
Checks or Republican Checks,” that consumers could get money “just by adding
their name to ‘the list of check payees,’ ” that the checks were “affiliated or
furnished by Congress or another government agency program,” and that “anyone
can collect hundreds to thousands of dollars in Congressional or Republican
Checks.” These misrepresentations were
likely to mislead consumers: they didn’t accurately portray the content of the
book. The ads “do not even hint to the consumer that the book is an investment
guide recommending the purchase of shares in thirteen private companies. The
handful of isolated references to ‘investment’ or ‘investors,’ in the lengthy
video presentation about ‘Congressional Checks,’ do not salvage the overall
misleading impression conveyed to consumers about the book’s content.” Though the book used the term “Congressional
Checks,” that didn’t make its ideas the same as those of the ads. “The book
makes clear what the advertisement does not – that ‘Congressional Checks’ are
actually dividend payments consumers obtain by investing in a variety of
private companies, because the returns will be tax-advantaged as a result of a
law passed by Congress. The overall impression in the advertising is entirely
different, exacerbated by the stock photos appearing to depict happy customers
holding faux checks emblazoned, ‘Congressional Checks,’ or ‘Republican Checks.’”
Even the later version of the video ad, while slightly better, still left the
same overall impression. “Essentially, consumers were led to think that
Congress’ Secret would instruct them as to how they could put their name on a
list to receive checks, without needing to have significant resources to
invest.”

That was both
misleading and material; the court pointed out that the ads were expressly
geared to people without significant investment capital, e.g., “I know that
without these income secrets…You’ll likely retire on Social Security. And I
think we can both agree that’s just not enough income, right? I mean, the
average retiree’s monthly budget is currently $1,305. That’s barely above the
federal poverty line.” As the court noted, “[t]he target customer described in
that advertisement is unlikely to have the resources to invest in enough shares
of a company to receive substantial dividend payments.”

Defendants invoked FTC
v. Shire Viropharma, Inc., 917 F.3d 147 (3d Cir. 2019), and claimed that the
FTC couldn’t get any relief because it had voluntarily stopped both promotions
and thus they were not “violating, or … about to violate” the FTC Act. But in Shire,
the violations were definitely not going to resume in the foreseeable future,
while here, the FTC had “reason to believe” that defendants will continue to
violate the FTC Act. The defendant in Shire had divested itself entirely
of the product, while defendants could re-start their promotions at any time,
and the harm from Congress’ Secret was ongoing because customers had
ongoing subscriptions to defendants’ newsletter. “[N]othing short of injunctive
relief would prevent Defendants from resuming the sales, including the
misleading representations in their advertising. Thus, Defendants’ voluntary
cessation of their marketing practices does not moot the FTC’s claim.”

But the FTC’s requested relief was too broad; defendants were publishing
companies. Thus, the court would not require defendants to cite randomized
clinical trials for any health-related claims. And defendants “offer a large
and varied number of promotions and publications. It would be simply too broad
to speculate that Defendants are engaged in deceptive marketing as to each of
their publications, without specific information to support that claim.” [Do
many of them use the “Secret” format?] Instead, the court would enjoin the
“disconnect” between the ads and publication content.

The FTC also wanted
defendants to provide a copy of the order to each “client” and give the FTC a
list of the names, addresses, phone numbers, and email addresses of each person
who received a copy of the Order. The court did require defendants to send a
copy of its order to each customer who purchased the books, but not to provide
the list to the FTC. Instead, they were
required to provide the FTC with a sworn statement that they had complied with
the court-ordered distribution provisions. [Query: why would you believe the
defendants at this point? Why not let the FTC do the mailing and be sure?]

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negative inference about other juices from “no sugar added” on D’s juice is implausible

Posted on March 12, 2020 by rtushnet

Shaeffer v. Califia
Farms, LLC, 44 Cal.App.5th 1125, No. B291085 (Feb. 6, 2020)

Califia sells a
“100% Tangerine Juice.” The front label includes “100% Tangerine Juice,” “No
Sugar Added,” and “Never From Concentrate.” Shaeffer brought the usual California
claims, alleging that she chose Califia’s Cuties juice over “other, similar
tangerine juices” because its label “stated ‘No Sugar Added’ ” and because “she
is diabetic.” She alleged that the label falsely implied that other, similar tangerine
juices had added sugar. The court thought that wasn’t a reasonable inference
from the truthful statements on the label as a matter of law. A reasonable consumer was unlikely to make those
inferential leaps, which would make almost any truthful claim about product
attributes “fodder for litigation”: “Assume that a new airline runs an ad with
a tagline, ‘No Hijackers Allowed.’ Is a reasonable consumer likely to infer
that other airlines do allow hijackers and that the new airline is consequently
the safer choice? We think the answer to this question is ‘no.’” Deceptiveness is usually a factual question,
but not here.

Shaeffer also
alleged that the label was “unlawful” under the UCL because it does not comply
with two of the five prerequisites that must be satisfied before a label may
state “no sugar added” under a federal labeling regulation: (1) “the [product]
that [Cuties Juice] resembles and for which it substitutes”—that is, “100%
tangerine juice”—does not “normally contain added sugars,” and (2) the label
does not also “bear[ ] a statement that it is not ‘low calorie’ or ‘calorie
reduced’ ” and does not “direct[ ] consumers’ attention to the [product’s]
nutrition panel.” The court rejected the
first argument—although there is a judicial split on this, the court found that
a product cannot substitute for itself. Some courts reason that the
“substitute” food for “juices with no added sugar” are “juices with added
sugar, fruit-flavored soft drinks sweetened with sugar, or other
sugar-sweetened beverages,” but the court didn’t resolve the question of
whether the universe was tangerine juice or some larger class of juices because
there was no allegation that either of these broader universes of foods does
not “normally contain added sugars.”

As for the second, failure
to use a statement disclaiming low/reduced caloric content, Shaeffer didn’t
allege that she relied on the omission of the calorie statment. Shaeffer argued
that “ ‘a presumption, or at least, an inference of reliance arises whenever
there is a showing that a misrepresentation [or omission] is material’ ” and
that the omission of the “not ‘low calorie’ or ‘calorie reduced’ ” statement
from the label was material as a matter of law because its inclusion is
(sometimes) mandated by the federal regulation. Even if this presumption were
relevant to a claim based on unlawfulness and even assuming that it applies to
a named plaintiff as well as to class members, the presumption was rebutted by her
affirmative allegations that she actually relied on other reasons in deciding
whether to buy the juice. Shaeffer also argued that reliance could come from an
omission being “a substantial factor[ ] in influencing [her] decision” to buy a
product, but she didn’t allege that low calorie content was one of many reasons
for her purchase. And her diabetes made sugar material to her, but did not justify
the inference that calorie content mattered.

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commercial advertising & promotion post-Lexmark: 10th Circuit preserves old test

Posted on March 10, 2020 by rtushnet

Strauss v. Angie’s
List, Inc., — F.3d —-, 2020 WL 1126523, No. 19-3025 (10th Cir. Mar. 9,
2020)

Lexmark, most courts have recognized, changed prong
2 of the standard Gordon & Breach test for “commercial advertising
or promotion.” Unfortunately, the Tenth Circuit casts unwarranted doubt on that
change, potentially rendering meaningless Lexmark’s rejection of a direct
competition requirement, despite the fact that the textualist arguments behind Lexmark
apply equally to the meaning of “commercial advertising or promotion” as to the
specific requirement of direct competition. And it wasn’t even necessary to
affirm the dismissal of these claims!

Strauss sued Angie’s
list for Lanham Act violations (all that’s at issue on appeal). During the
relevant period, Strauss owned a tree trimming/removal business, Classic Tree Care.
Angie’s List is a consumer ratings forum “on which fee-paying members can view
and share reviews of local businesses.” Strauss alleged that “the membership
agreement between Angie’s List and its members leads members to believe that
businesses are ranked by Angie’s List according to unedited consumer
commentaries and endorsements when, in reality, the order in which businesses
are ranked is actually based on the amount of advertising the business buys
from Angie’s List.” Over about ten years, Strauss paid $200,000 to Angie’s List
“in an effort to appear higher” in search results. But Strauss alleged he
failed to appear in search results for a three-month period and then was
“buried” in search-result listings even though he had numerous favorable
reviews and a high rating from consumers.

The only non
time-barred claims were based on three statements Angie’s List made in 2016. Straus
alleged that Angie’s List stated that his business (1) had no consumer ratings
or reviews; (2) had not met the criteria set by Angie’s List for inclusion on
its website; and (3) had no local offers to extend to consumers.

The Tenth Circuit
adopted Gordon & Breach’s four-part test for commercial advertising
or promotion in its own P&G case: “(1) commercial speech; (2) by a
defendant who is in commercial competition with plaintiff; (3) for the purpose
of influencing consumers to buy defendant’s goods or services … [and] (4)
must be disseminated sufficiently to the relevant purchasing public to
constitute ‘advertising’ or ‘promotion’ within that industry.” The district
court concluded Strauss’s complaint failed to plausibly allege that the 2016 statements
were made for the purpose of influencing consumers to buy Angie’s List’s goods
or services.

Strauss argued that Lexmark
abrogated P&G. I think he’s right that it altered prong (2), but not
prong (3), which the district court found was part of his problem. The Tenth
Circuit noted that Lexmark has a footnote expressing no opinion on the
commercial advertising or promotion issue and found that P&G remains
the law of the circuit. Of course, the reason the statements in Lexmark might
still not have been commercial advertising or promotion was that they were made
to Lexmark’s competitors, which is still a problem under prong (3)—it’s
not super plausible that they were designed to directly generate sales of
Lexmark’s products, though they could have decreased the supply of competing
products indirectly. Given the rationale of Lexmark, the Gordon &
Breach test should really be: “(1) commercial speech; (2) by a defendant
whose relationship to the plaintiff puts the plaintiff within the statute’s
zone of interests [or, to use Scalia’s disfavored but useful summary term, ‘as
to which the plaintiff has standing’]; (3) for the purpose of influencing
consumers to buy defendant’s goods or services … [and] (4) must be
disseminated sufficiently to the relevant purchasing public to constitute
‘advertising’ or ‘promotion’ within that industry.”

Anyway, P&G
remains the law of the circuit—the court doesn’t clarify whether it thinks
prong (2)’s commercial competition requirement remains unaltered. I strongly believe that it doesn’t, and this
case doesn’t really hold otherwise, but it sure can and will be cited that way,
especially given the footnote that two other circuits post-Lexmark have
adopted only prongs (1), (3), and (4) but that P&G still binds 10th
Circuit panels.

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“complete” vitamin is plausibly deceptive where essential nutrients are lacking

Posted on March 10, 2020 by rtushnet

Devane v. Church
& Dwight Co., No. 3:19-cv-09899-BRM-LHG, 2020 WL 998946 (D.N.J. Feb. 28,
2020)

Plaintiffs brought
consumer protection claims based on Church & Dwight’s purportedly false
labelling of several multivitamins, including L’il Critters Multivitamins,
Vitafusion Women’s Complete Multivitamins, and Vitafusion Men’s Complete
Multivitamins, which allegedly lacked at least three essential vitamins
identified by the FDA as being “necessary for human health” (vitamin K,
thiamin, riboflavin, and, in one case, niacin) but were nonetheless marketed as
a “complete multivitamin” containing all “essential nutrients.” They brought claims under New Jersey and
Florida law.

The court first
rejected the doctrine of primary jurisdiction; there were no relevant proceedings
or FDA rulings that would justify deference. C&D argued that defining the
term “complete” in regard to a dietary supplement is “squarely within the FDA’s
particular filed of expertise and discretion.” But the claim here didn’t
require a general definition of “complete,” but rather a determination of whether
labeling the products as “complete multivitamins” was misleading. Misleadingness
is “within the conventional experience of district courts.” Next, the court found that plaintiffs had
Article III standing for past injury, but not for injunctive relief.

Plaintiffs
adequately pled they were deceived by the labeling plus the alleged fact that
at least three essential nutrients were missing. They also adequately alleged
ascertainable loss as required for NJCFA claims. Because the product couldn’t
function as a “complete multivitamin,” it was plausibly “entirely valueless” for
that purpose. Although reliance isn’t
required, loss must be suffered “as a result of” the defendant’s unlawful
conduct, which can occur when people “saw the challenged advertisements” and
“would not have purchased the [product] but for the challenged advertisements.”
This was adequately alleged. Similar FDUTPA claims also survived. New Jersey warranty claims, but not Florida
warranty claims, also survived.

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discovery of trade secrets in a false advertising case

Posted on March 10, 2020 by rtushnet

Monster Energy Co. v.
Vital Pharm., Inc., 2019 WL 8112506, No. 5:18-cv-01882-JGB (SHKx) (C.D. Cal.
Oct. 16, 2019)

I don’t cover many
discovery disputes, but this one has some passing interest for the substance of
false advertising law. Monster & Vital filed a stipulated protective order
providing two tiers of protection, allowing a producing party to designate
documents or information it provides as either “Confidential” or “Highly
Confidential – Attorney’s Eyes Only.” The latter was to be “limited to such
documents, testimony, information or other things that the Designating Party
believes, in good faith, contain information the disclosure of which is likely
to cause substantial harm to the competitive position of the Designating Party,
contain information subject to the right of privacy of any person, or contain
information alleged to be a trade secret. None of the restrictions set forth in
this Stipulated Protective Order shall apply to any documents or other
information that are or become public knowledge by means not in violation of
the provisions of this Stipulated Protective Order, or any law or statute.” Unless otherwise ordered by the court or
permitted in writing by the Designating Party, a Receiving Party could disclose
such material only to outside counsel, experts/consultants to whom disclosure
was reasonably necessary and who had signed a confidentiality agreement, court-
or mediation-related people, and people who already had the information.

Now the parties
disputed what should be disclosed. “There is no absolute privilege for trade
secrets and similar confidential information,” but trade secret status is to be
weighed in the analysis. Monster sought disclosure of VPX’s energy drink
formula, including the amount of each ingredient. The core dispute is about claims about creatine,
an ingredient (or creatyl-L-leucine, the ingredient in VPX’s BANG products,
known as Super Creatine—previous
blogging on the case). VPX refused on the grounds that the formula was a
trade secret and noted that Monster just introduced a competitive energy drink.

At this stage of the
case, the court wasn’t going to make a judicial finding that the formulation
for BANG was a trade secret, but did consider the extent to which VPX treated
it as one. VPX apparently disclosed the entire
ingredient list and quantities of ingredients in its Red Line beverage, and the
amount of CoQ10 in BANG, it didn’t seem to have publicly disclosed the entire
ingredient list or their quantities for BANG. That was enough to meet VPX’s burden
at this stage.

Monster argued that
the formulations of BANG were relevant and necessary to prosecute several of
its claims, specifically that, even if creatyl-L-leucine were potent, “there is
not enough of it in BANG for it to materially impact the body.” VPX rejoined
that Monster didn’t allege that customers chose BANG over Monster products
because VPX claimed any particular quantity of any ingredient. But that goes to
the merits, not to relevancy in discovery. The formulations of at least those
BANG drinks advertised to contain “creatine” or “Super Creatine” were relevant
because “relevancy should be construed ‘liberally and with common sense’ and
discovery should be allowed unless the information sought has no conceivable
bearing on the case.” In addition, the information being sought appeared “necessary”
for Monster to prove its case that VPX was misrepresenting the contents of BANG
drinks advertised to contain “creatine” or “Super Creatine.”

This need had to be
balanced against the need for protection against injury caused by disclosure;
the balance “virtually always” tilts in favor of disclosure once relevance and
necessity have been shown. However, “courts have routinely recognized that
disclosure to a competitor is more harmful that to a noncompetitor.” But the
court had no reason to believe that counsel would disregard the restrictions in
the “letter and spirit” of the protective order. Although it wasn’t expressly
stated in the protective order, the court understood that “this type of
information received by outside counsel cannot be used in any way to assist
Plaintiff in formulating or otherwise advising Plaintiff with respect to any
current or future products.”

Nor was it
sufficient to tell Monster to engage in reverse engineering instead. “Defendants
do not claim and do not provide any information to show that producing this
information, under strict controls, would be difficult, time consuming, or
expensive. Comparatively, the testing, and any likely subsequent questioning of
that testing, would be unnecessarily time consuming and is not warranted, with
the controls that are in place.”

In return, VPX
sought the formulation of Monster’s competing REIGN in order to evaluate Monster’s
claims and VPX’s defenses, including unclean hands and a lack of damages. But
merely reciting “unclean hands” in an answer doesn’t put a plaintiff on notice
that a defendant intends to raise unclean hands allegations regarding plaintiff’s
labeling as a whole. The “misconduct that forms the basis for the unclean hands
must be directly related to plaintiff’s use or acquisition of the right in
suit.” Here, the relevant allegations were about creatine and “Super Creatine.”
VPX didn’t show that the overall formulation, not having to do with that ingredient,
was relevant or necessary. Thus, VPX’s motion to compel was denied. [I am
somewhat persuaded by VPX’s argument that, if Monster is arguing that there are
ingredients whose presence in an energy drink is too minimal to justify
advertising their benefits, then Monster’s own practices with respect to
touting ingredients versus the reality of their amounts in Monster’s products are
relevant, but I see the court’s point in terms of proper notice. Something for
the next defendant to keep in mind.]

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FDA/FTC Workshop on a Competitive Marketplace for Biosimilars

Posted on March 9, 2020 by rtushnet

FDA Licensure Process
and U.S. Biosimilar Markets [I entered in media res]

· Eva Temkin, Acting Director for Policy, Office of Therapeutic Biologics
and Biosimilars, CDER, FDA

· Christine Simmon, Executive Director, Biosimilars Council, AAM: barriers
to entry for biosimilars: exclusionary contracts, rebates, stakeholder
misinformation. misinformation can include explicit and implicit, including
policies such as naming conventions and the very existence of the interchangeable
category, which is unique to the US. [I
think she was saying that the existence of the interchangeable category may
mislead consumers about the suitability of the existing approved biosimilars;
right now all approved biosimilars are approved for substitution but not for
interchangeability, the latter of which means that there’s evidence that
patients can go back and forth between the drugs as opposed to switching once.]

· Molly Burich, Director of Public Policy, Boehringer Ingelheim

· Surya Singh, President, Singh Healthcare Advisors, LLC

Moderated Panel Discussion

Meredyth Andrus, Attorney,
Health Care Division, Bureau of Competition, FTC

Does the designation
of interchangeability still have value in the US?

[I don’t think I can
attribute statements given where I am in the room and what I can see.] Depends
on the product. Primary draw: automatic substitution that can occur at pharmacy
level. If the drug isn’t distributed that way, then there isn’t much point. All
15 approved/in use products are physician administered. There are several
approved self-administered biosimilars, but none actually launched; have some
time before we see products where interchangeability would make a difference.

Have heard from
pharmacists that a different name may deter them from switching/may deter
patients. Some state laws on this may also have to be addressed.

Why are 11 of 26 biosimilars
approved not actively marketed in the US?

Singh: (1) patent
thickets. One drug has over 100 patents, 89 of which filed after the drug was
launched. (2) commercial & contracting issues. Same manufacturers/partners
are innovator/originator of biologic and also of biosimilar. (3) Rebates.
Different on medical benefit (physician-administered) side from pharmacy
benefit side. If a few major entities are doing most of the contracting on the
pharmacy benefit side, bundling is more common compared to more splintered
market for doctor-administered drugs. Manufacturers are waiting to see if the
rebate trap is going to be addressed.

Susan Collins introduced
bill to require patents to be listed in Purple Book for biosimilars. Would help
litigation, clarity. $3 million to litigate a patent, which is a big expense. Humira:
5 biosimilars approved, none on the market; some will be entering, but only b/c
of patent settlement agreements. 11 years earlier than otherwise might be
possible. FTC has done a lot to ensure that patent settlement agreements are
pro-competitive; put the rest the idea of pay for delay. Inter partes review is
good but is under threat.

Singh: [discussion
of market structure/treatment modalities] doesn’t think that misinformation
influences providers’ decisions. Survey data, leaders at large practices: there’s
no more reluctance to use biosimilars. The market is being driven by economics.
[One way to read this is as a terrific indictment of our broken health care
system.] Explanation of how contracts
can limit doctors from using the drug of choice for patients: specialty
pharmacy delivers drug to practice despite what they have chosen for inventory.
“Fail first” policies are used extensively and increasingly for medical benefit
(doctor delivered) drugs to ensure use of their preferred drugs. When a practice
chooses what biosimilar to prescribe, it’s in inventory and interchangeability
doesn’t matter. Pharmacy benefit side: now interchangeability does matter—the pharmacy
needs the right to substitute w/o going back to prescriber, and the only way to
get that right is interchangeability.

FDA and FTC
Approaches to Help Ensure Truthful and Non‐misleading Advertising and

Promotional
Communications

Lowell Schiller,
Principal Associate Commissioner for Policy, FDA: have seen troubling
communications suggesting biosimilars are less safe/less effective than
reference products or that there may be clinically meaningful differences b/t
them when biosimilars can’t be approved unless there are no clinically
meaningful differences. Even absence of explicit falsity can be misleading
overall and potentially harmful to public health by series of statements each
true on its own but misleading overall in combination w/omissions. Seen this
before w/Hatch-Waxman w/communications about generics suggesting they were
outdated or less effective.

Dominic Cirincione,
Regulatory Counsel, Office of Prescription Drug Promotion, CDER,

FDA: Fair balance is
required in labeling/ads. FDA relies on statutory authority to regulate
labeling/ads. OPDP: Surveillance/communication program, including response to
voluntary requests for comment on draft materials; industry guidance; social
science research program (researches issues on DTC and advertising to physicians—learn
about studies on their website);
review of disseminated materials/ “BadAd” program/warning or untitled letters;
work with DOJ to pursue enforcement actions.

Common issues
observed by OPDP in prescription drug ads & promotional labeling: omission
of risk; minimization of risk; overstating effectiveness (unsupported
claims/misrepresent data from clinical studies); misleading drug comparisons
(e.g., comparing two different studies that may have different patient
populations or methodologies). Warning letters 2015-2020: omissions/minimization
of risk are largest share of letters, but false/misleading comparative/benefit
claims are also taken seriously.

Richard Cleland,
Assistant Director, Advertising Practices, Bureau of Consumer Protection, FTC: FTC
covers only commercial speech. Looks to content (promoting demand for a
product/service or denigrating competitor’s product; specific product references;
information about type, price, quality or other attributes, including health
benefits); means used to publish the speech (would it be recognized as
advertising); and speaker’s economic motivation for disseminating speech. Peer
reviewed scientific article or press release may or may not be commercial
speech depending on how disseminated/used.

Falsity/misleadingess
is covered including failure to disclose that is misleading. Companies are
responsible for both express and implied claims. Net impression is what
matters, to a reasonable person in target audience. Thus net impression may
differ as between an ad targeted to a diabetes patient or a doctor treating
diabetes. Reasonable consumers don’t read an entire ad; a footnote will rarely
alter the net impression. Reasonable doesn’t have to mean majority; if a significant
number of consumers would take a message away then the advertiser is responsible
for that message. Can be liable for
misleading interpretation even though a nonmisleading interpretation is
possible. A consumer might interpret the use of “not interchangeable” in a
misleading way—to mean that a biosimilar couldn’t be prescribed in place of the
reference product.

Specific claims:
clinically meaningful differences b/t reference product & biosimilar; “there’s
still a chance the patient may react differently”; claims about greater safety
of reference product. Could all be false, unsubstantiated, and failing to
disclose material information.

FDA Draft Guidance
for Industry: Promotional Labeling and Advertising Considerations for

Prescription
Biological Reference and Biosimilar Products Questions and Answers

Catherine Gray,
Staff Director, Office of Prescription Drug Promotion, CDER, FDA

Elizabeth Pepinsky, Health
Science Policy Analyst, Office of Prescription Drug Promotion,

CDER, FDA: Draft
guidance issued by OPDP in consultation w/other groups focusing on biosimilars.
The basic rules are the same: truthful and nonmisleading, risk/benefit balance,
and disclose material facts. Companies should specifically identify the
product/products to which the information applies: e.g., if it applies to reference
product & biosimilars, say that; if promo materials use studies referencing
non US licensed comparator, then that status should be accurately identified in
the materials. If presenting info from
studies on reference product that are relevant to conditions of use for
biosimilar, should refer to biosimilar’s FDA-approved labeling for information
about the biosimilar. Data from studies conducted to support biosimilarity that
aren’t included in the FDA-approved labeling should, if presented, be truthful,
nonmisleading, and consistent w/FDA-approved labeling. Statements implying
superiority where the differences in adverse reactions are not clinically
meaningful would be misleading. Individual statements of accurate information
could contribute to a misleading presentation when provided in comparative
context. E.g., if biosimilar is licensed for fewer indications than reference
product, a comparative presentation suggesting less safety in the licensed
indications would be misleading.

Dominic Cirincione,
Regulatory Counsel, Office of Prescription Drug Promotion, CDER,

FDA: Examples of
presentations that conform w/guidance. Scenario: promo materials say that one
drug in a clinical study had a numerically higher overall response rate than
another drug, but it’s not clinically significant: touting the numerically
higher response rate would be misleading. Looking forward to stakeholder input
on draft guidance, especially about how to convey interchangeable information.

Pepinsky: keep net
impression in mind: individual claims aren’t enough to be nonmisleading about
safety and efficacy, not just for comparative claims but for all claims.

What’s at Stake? The Benefits of Competition

Alison Falb,
Regulatory Counsel, Office of Therapeutic Biologics and Biosimilars, CDER,
FDA

• Murray Aitken,
Executive Director, IQVIA Institute: Many dynamics in market. Biologics=growing
share of market with significant growth over 5 yrs relative to small molecule.
42% of total medicine market by price in 2018, up from 30% in 2014; represents almost
all of the growth; adjusting for inflation and population growth/per capita
spending, small molecules declined 12% while biologics increased 50%. R&D
pipeline suggests growth will continue across most disease areas, including
those traditionally based on small molecules. Reach market through multiple
channels & pay times, each w/own payment dynamics, including private
insurance, Medicare types (both pharmacy and physician provided), Medicaid
(ditto), fee for service, cash, commercial office/physician sites. Different
incentives, reimbursement levels for each segment. Largest originator brands
have significant sales since launch: each of the top 10 has cumulative sales of
over $40 billion since launch, on market more than 17 years.

About 40% of small molecule
market sales are accessible to generics. By 2019, 17% of biologics market is
accessible to biosimilars, which have 20% market share. Including approved but
not launched, 50% of biologic market sales could face biosimilar competition
(that won’t happen until 2023 at the earliest).

[I think] David R.
Schmidt, Assistant Director, Applied Research and Outreach, FTC It’s early days for biosimilars, and early to
be analyzing these markets. Look at whether different payors (and dispensing
location) are treating biosimilars differently from the small molecule drugs
those payors handle.

Andreas Schick,
Director, Economics, Office of Program and Strategic Analysis, CDER, FDA: Also
lessons in comparing different biologics. W/generics, we don’t see wide
disparities by payor type. Reasonable to think that there shouldn’t be. Would
be concerned if saw very different behaviors in Medicaid and non-Medicaid markets.

• Inma Hernandez,
Assistant Professor of Pharmacy and Therapeutics, University of Pittsburgh
School of Pharmacy: W/o interchangeability, we can’t pay for biosimilars the
way we’ve been paying for generics.
Discounts are proprietary so we have trouble knowing what payors
actually pay. Have some data from SSR Health; calculating average revenue for
unit of product, net of discounts including rebates and other discounts
including cards given to patients. Can separately estimate for Medicaid and
other payors. Have showed robustness of data in paper in JAMA. One example of
biosimilar entry: List and net prices increased in parallel until 2013; net
prices started to decrease in 2015 when competition began, driven by increasing
discounts to payors other than Medicaid. Another three examples: similar story,
sometimes net prices begin to drift down before entry. Sometimes there are
factors other than biosimilars (here: in-class competition by non-biosimilar
drugs), also including public pressure over insulin prices for one of the
examples, insulin glargine. List prices stagnated after competition, but net
prices decreased due to discounts. Unclear whether decreases related to number of
biosimilars or only number of years post-biosimilar entry.

What about rebates for
drugs covered under Medicaid managed care organizations, collected by states pursuant
to ACA? Market share of Basaglar (biosimilar to initial version of insulin
glargine) is basically zero unless states have MCOs with no preferred drug lists
(there are several other possible models). Preferred drug lists prevented
uptake by listing it as non-preferred; results reflect strong financial
incentives of rebates. More states are implementing preferred drug lists, so
this is a timely result. Competition is
happening in discount, not in list price.

Comment by someone:
seeing very different behavior for reference products in biologics space v.
responses to generics in small molecules.

Aitken: we should
get beyond saying they’re different from small molecules and say that fee for
service Medicaid is different from managed care Medicaid and so on.

Alex Brill, Resident
Fellow, American Enterprise Institute: Barriers to competition can be good and
bad, big and small. Barriers to biosimilar entry: some are appropriate to
protect innovator/producers and consumers (patents, exclusivity periods, approval
process); others thwart healthy competition. Barriers to biosimilar utilization
once entry occurs are uniformly bad. Bad barriers: myopic contracting practices
by payors that discourage maturing of biosimilar marketplace; rebate traps;
frivolous late-stage patents; inadequate physician and patient education not
comparable to education that has taken place for small molecule generics.

Undue barriers to
biosimilar entry/utilization: extends excessive monopoly rents; higher patient cost;
less biosimilar discounting; fewer biosimilar competitors. Uncertainty
associated w/ the viability of the market is a barrier: uncertainty of
reference product price; legislative/legal/regulatory uncertainty; competitor
biosimilar behavior—many of these are natural in a free market and will resolve
over time w/experience, but we can strive to mitigate them. Exclusivity periods
are specific and clear w/clear duration; patent thickets lack predictability. Regulators
should try to minimize costs related to approval. Should be willing to incentivize
participants to stop waiting—manufacturers, prescribers waiting for more
information. Worth considering goosing the system to get over initial hurdle.

Improving
Stakeholder Engagement: Education and
Understanding

Sarah Ikenberry,
Senior Communication Advisor, Office of Therapeutic Biologics and Biosimilars,
CDER, FDA

FDA has health care
provider materials/fact sheets. Biosimilar basics for patients. Working on
additional materials. Highlights similarities of biosimilars and reference biologics,
benefits of increased access; urges patients to find out more from doctors/FDA.
Going to create fact sheet for health care providers to address misconceptions,
as well as teaching resources for medical/pharmacy/nursing schools.

Elizabeth Jex,
Attorney Advisor, Office of Policy Planning, FTC

• Cheryl Koehn,
Founder & President, Arthritis Consumer Experts: emphasizes importance of
disclosure of material connections. Patients have seen white noise about
safety/efficacy/lack of identicality/lack of interchangeability from
originators: contributes to nocebo effect. Nocebo effect is real. Negative
words, body language, subtle or not-so-subtle words are import and
strategically deployed. Canada is ahead in switching: several provinces have switched
most patients to biosimilars, with about 1% requesting exemptions and 1%
granted. Can buy a lot of health care for $2 billion Canadian.

• Sameer Awsare,
Associate Executive Director, The Permanente Medical Group: 12 million
patients, $8 billion on pharma. Business model for drug use management is
predicated on ability to move market share. Leverage exists b/c KP can deliver
more than 90% of given market in short time; 12.2 million members are aout 4%
of covered lives. Physician & pharmacist driven drug selection allows KP to
promise & deliver, moving market w/99% physician compliance. Education of
physicians & pharmacists with general biosimilar education; biosimilar
data; then were able to show that KP patients did well. 80% of KP patients
using Remicade successfully switched to biosimilar Inflectra; used medical
records to guide the switch and to show outcomes. Found no increased risk of
disease worsening in IBD patients switched to Inflectra. Similar experiences
w/two other biosimilars. Once doctors were comfortable with the first biosimilar
they were more willing to switch to others.

• Michele Andwele,
Editorial Director for Health Content, Arthritis Foundation: key concerns:
effectiveness? Could switching from reference product make me flare up? Are they
safe? Will I pay less? Can a pharmacist substitute w/o doctor’s approval? One patient: I pay $35/month; don’t have a
financial incentive to switch if it’s working for me. Language matters: inconsistent terminology
use/unconscious bias in communication w/patients. Need provider
consensus/patient advocacy group consensus on how products are described.
Provider concerns: time constraints in discussing biosimilars in short time w/patients
who may have many issues. Insurance coverage/patient assistance programs are
issues; liability exposure in absence of interchangeability designation. Educational initiatives shouldn’t be
influenced by industry; learn from partners in Canada and Europe.

• Hillel P. Cohen,
Executive Director, Scientific Affairs, Sandoz (trade group rep for Biosimilars
Forum): has seen several types of disparagement. Information that is technically
correct but omits info; negative framing of factual statements that matters to
consumers. Sometimes factually incorrect claims. Safety, quality, and
regulatory messages. E.g., efficacy is not fully proven, or may not be as good
as the reference product. Seen comments about extrapolation: some doctors/patients
say extrapolation is inappropriate. Seen safety not fully proven, or potential
for more bad effects. Switching: there are comments that we don’t have enough data
to conclude that switching is safe, implying that it may be unsafe. Doctors can
already prescribe the appropriate product; you don’t need interchangeability
for that. Quality: that it may not be the same as the reference product/it’s
only similar or highly similar, not identical, even though differences aren’t
clinically relevant—that’s difficult to understand. Statements that
interchangeability is a higher standard, implying that biosimilars are of lower
quality than interchangeable biologics, even though they are structurally
identical. Regulatory pathway has created some of the problem: “abbreviated”
pathway. Some people say it’s not as rigorous as pathway for reference products,
despite rigor.

Recommendations:
truthful & complete information should be required. Positive framing of
benefits; easy to understand messages. Messages should be based on FDA
documents but tailored to their audiences. Large orgs and patient advocacy groups
have done the research and are on board w/biosimilars, but the average patient
is not knowledgeable. Need to educate them, via educating physicians—rheumatologists
know more than gastroenterologists right now.
FDA should prevent disparagement/misinformation. Incorporate biosimilar
education into educational curriculum for doctors, nurses, pharmacists. Patient
groups should disclose funding & conflicts of interests—it’s fine to speak
your positions, but full disclosure is important.

Koehn: on language,
biosimilars are biologics; if you use two different terms people think
they’re not the same thing.

Andwele: Also need
an influencer strategy: patients as peers.

Cohen: highlight the
rigor of the process used to approve the biosimilar. Sound scientific policy.
Doctors are used to clinical trials; it’s a different methodology, but does
assure safety & efficacy. Coordinated effort w/professional societies and
patient groups is necessary.

Andwele: message
segmentation. Treatment-naïve patients v. someone stable on a biologic.

Biosimilar
Disparagement as an Antitrust or Consumer Protection Cause of Action

• Richard Cleland,
Assistant Director, Advertising Practices, Bureau of Consumer

Protection, FTC

• Randall Weinsten,
Attorney, Health Care Division, Bureau of Competition, FTC

Michael A. Carrier,
Distinguished Professor, Rutgers Law School: statements like “we need to
proceed cautiously so we don’t end up with another thalidomide, or all the things
that happen when safety isn’t considered”; claims that it would disrupt
continuity of care/could put patient in ER/could bring patient out of
remission. Not appropriate given definition of biosimilars.

More subtle: claims
that the biosimilar is not identical to, or acts differently from, reference
product. Pfizer citizen petition contains many claims: it’s not just apples to
apples; patient may react differently. Genentech says: the FDA requires highly
similar but not identical. FDA is good at taking on these misrepresentations.

Another category:
interchangeability. There are some intimations that not interchangeable = not
meeting highest standards of safety & efficacy.

Most subtly: company
says the drug acts “similarly.” Jansen says “you may be asked to switch to a drug
that acts similar to Remicade.” FDA’s
guidance addresses that.

Rebecca Tushnet,
Frank Stanton Professor of First Amendment Law, Harvard Law School

Elements of a Lanham
Act claim: key elements are falsity or misleadingness, materiality to a
reasonable consumer’s purchase decision, and likelihood of harm to the
plaintiff.

Mostly unique to the
Lanham Act cause of action, compared to an FTC or state consumer protection law
claim: the sharp doctrinal difference between false and misleading claims.
Although both falsity and misleadingness are actionable, the burden on the
challenger is much greater if a claim is misleading than if it is literally
false. That puts a premium on distinguishing falsity from misleadingness. How
does a plaintiff establish a claim is false? Courts ask: What is the explicit
meaning of a claim. Once you know the explicit meaning, you can then determine
whether that factual claim is false. However, sometimes courts are willing to
make general inferences from disparagement. Also important to distinguish lay
audiences and expert audiences: dictionary meaning may not be as important as
what people are likely to understand.

How does a plaintiff
establish a claim is misleading? Relevant when the claim is ambiguous and has
potentially true and potentially false meanings; the question is what message
reasonable consumers receive. Usually through surveys of the relevant
consumers. If 15% or more of consumers, net of control, receive a false message,
then P is likely to prevail.

When is empirical
evidence of consumer reaction necessary? Not in literal falsity cases; literal
falsity is presumed to reach a substantial number of reasonable consumers. Basically
always required in misleadingness cases. [Intent, direct testimony from
deceived consumers as possible but unlikely substitutes] 7th Circuit case, Eli
Lilly v. Arla Foods (2018): Eli Lilly sued over images portraying rBST, a
hormone given to cows to increase milk production, as a scary toothed monster
with electric fur. The 7th Circuit finds there’s no literal falsity, but still
affirms an injunction: “The use of monster imagery, ‘weird stuff’ language, and
child actors combine to colorfully communicate the message that responsible
consumers should be concerned about rbST-derived dairy products.”

Impact of First
Amendment: Courts have generally said that the Lanham Act false advertising
cause of action raises no constitutional issues because by definition it
targets only false or misleading commercial speech, which can constitutionally
be banned.

According to Supreme
Court doctrine, when it comes to direct gov’t regulation of speech, there is a
distinction between inherently or actually misleading v. potentially
misleading: Whether the speech can just be banned or whether instead a
disclosure must be added to try to draw the sting of the misleadingness. This
isn’t well worked out and has largely been done by courts guessing, or worse,
about what’s inherently or actually misleading versus correctable and only
potentially misleading. Much room for presenting courts with facts about
misleadingness. Not the same distinction
as is made in Lanham Act cases, where misleadingness is grouped into one
category distinct from falsity.

Relationship between
private and public enforcement: Courts in private litigation often defer to the
FDA’s factual findings about what is true but without a lot of explanation
about why they’re deferring.

First Amendment may
also bear on the question of de novo review of agency determinations: what are
the medical facts versus what are consumers’ perceptions of the messages they
receive? The former—the facts of safety
and efficacy—may as a practical matter receive more deference than agency determinations
about misleadingness, even though both are subject to ordinary mechanisms of
proof.

Q: role of consumer
protection claims?

RT: likely to be
limited b/c of barriers to class actions.

Cleland: POM case:
DC Circuit said deceptive = no First Amendment protection. Should go into
relief ordered, not into whether it is actionable.

RT: agree, but
courts are often not great at signaling their order of operations.

Cleland: materiality
to competitors?

RT: to consumers,
which then affects competitors when consumers’ decisions are affected. [in
response to Q] Could be patients or doctors; both have substantial influence on
what drugs are prescribed.

Carrier:
monopolization claims: these are highly concentrated markets, w/few
substitutes. Liability requires monopoly power + exclusionary conduct. Some courts
have rejected any liability for disparagement; others have made it very hard/impossible
to find liability; others say it’s case by case. In the first bucket, 5th &
7th circuits say that false advertising is pro-competitive by increasing
competition in the market for advertising. This is nonsense. It’s at least
possible to get/maintain monopoly power by disparaging rivals. Rivals can’t fix
it; can have significant effect on overall market.

Second approach: de
minimis rule: assumes disparagement is de minimis without a showing of lots of
things: clearly false, clearly material, clearly likely to induce reasonable
reliance, made to buyers w/o knowledge, continued for prolonged periods, not
subject to neutralization. The bar is just too high—taken from leading
Areeda/Hovenkamp treatise. Was adopted at a time when the standards for false
advertsing weren’t clear. There are a lot of instances of false advertising that
aren’t monopolization, but false advertising in a monopoly context can harm
markets.

Clearly false: you
can have deceptive statements even if they aren’t clearly false, as has been
delineated here. That standard is too high.
Clearly material: yes, deals with safety/health; would induce reasonable
reliance for that reason. Knowledge of subject matter: the drug companies have
better knowledge. These drug monopolies go on for years. It’s hard to
neutralize: biologic company says “you could go to the ER” and that’s tough to
rebut.

Third bucket: case
by case approach of 3d, 8th, and DC. False statements can be so unfair as to
constitute an unreasonable restraint: e.g., does it lock in decisionmaking? Does
it make it harder for competitor to get financing? Hard to get financing if you’re
subject to claims about safety/efficacy. Relevant also: the regulatory setting.
Wonderful to see FDA/FTC working on this, but the agencies might not be able to
solve the problem on their own. Drug companies think it’s in their bottom line
interest to get away w/slap on wrist, maintain monopoly power. Role for courts
to police barriers to entry, especially given other barriers to entry like
trade secrets, patent thickets, etc. Bundling existing and new patients makes
it harder for new patients to get the biosimilar.

Weinstein: do we
need private antitrust enforcement?

Carrier: we need all
three: private antitrust, false advertising, and regulatory enforcement. No
matter what agencies can do, bad actors may be able to cross the line and
commit antitrust violations. The benefit is that it focuses on market effects:
increased price, reduced output—antitrust is uniquely able to deal with that.
It has treble damages, attorneys’ fees, injunctions: it can consider all kinds
of anticompetitive conduct in their full context and interactions. Suboxone: an
overall course of conduct can violate the law. The companies aren’t doing just
one thing, they’re pursuing many strategies.

Weinstein: would a consumer
class action work here?

Carrier: courts aren’t
always receptive, especially given the nuanced role of the misinformation here.
FTC uniquely has §5 power to go after unfair/deceptive acts or practices, with
more leeway than private antitrust.

RT: Right now some
courts do a “heads I win, tails you lose” approach: Becton Dickinson in the 5th
Circuit, P lost its antitrust claim because false advertising couldn’t affect
the market in general, then lost its false advertising claim b/c it affected the
market in general and P couldn’t show which of the sales it had lost v. its
rivals.

Carrier: our
forthcoming article (watch this space) lays out how you should think about presuming
anticompetitive effect when false advertising is done by a monopolist. Our test
applies to monopolists, and it doesn’t make all false advertising into an antitrust
problem. We take the learning from false advertising law and apply it to
antitrust: a well developed body of law.

We’d need to figure
out what it takes to have real competition in biologics.

Q: how do you
establish competitive harm? Is deception enough?

Carrier: for a
biologic w/monopoly power, I think that’s enough. Biosimilars are injured;
regulatory scheme is impaired b/c biosimilars are supposed to play a crucial
role in lowering price. Competitor harm = consumer harm.

Q: belief that it
would be hard to deceive prescribing physicians about safety/effectiveness. If
true, is there still a role here for harm to competition?

Carrier: yes, b/c we
have a price disconnect. Not like any other market where price/quality
determination is made by any one party. Doctors, payors/insurers, consumers:
lots of room for anticompetitive conduct w/r/t patients and pharmacy benefit
managers. Pharma gives us whack a mole
all the time: every time you think you’ve figured out what is going on, there’s
something else. Gilead case: new combination of settlements and product hopping
we haven’t seen any more. Transferred patents to Native American tribe to try
to avoid PTO review. This is just the next stage in that process of invention.
Antitrust is well equipped to deal w/variety of shenanigans.

Q: rulemaking as a
possibility. Comm’r Chopra wants more FTC rulemaking.

Carrier: may well be
useful. Yes to rulemaking and yes to enforcement in the courts. Could shed
light on the problem, as does the guidance FDA has offered. Make clear you can’t
hide behind clear falsity: deception/misleadingness is a problem.

Q: gov’t v. private
actors?

Carrier: sometimes this conduct is nuanced. Safety intimations; an ideal recipe
for FTC action.

RT: at some point
companies should step up and go to court to defend their own interests if they’re
losing millions. But public harm also matters and can justify gov’t intervention.
Antitrust prides itself on its hard-headed empiricism but the majority tests presently
ignore all the learning we have about false advertising’s effects. That should
change.

Carrier: Pfizer is
suing J&J; it is possible, b/c entering the market w/ a biosimilar requires
lots of resources.

Open Public
Comment

• Sarah Ikenberry,
Senior Communication Advisor, Office of Therapeutic Biologics and Biosimilars,
CDER, FDA

• Eva Temkin, Acting
Director for Policy, Office of Therapeutic Biologics and Biosimilars, CDER,
FDA

• Catherine Gray,
Staff Director, Office of Prescription Drug Promotion, CDER, FDA

• Antara Dutta,
Economist, Bureau of Economics, FTC

• Armine Black, Attorney,
Health Care Division, Bureau of Competition, FTC

Juliana Reed, Pfizer/
Biosimilars Forum: continued problems of misleadingness, but that’s not the
only barrier.

U Pitt pharmacy
school professor: Europeans are fine prescribing biosimilars b/c of nearly 2
decades of experience. Physician confidence is high uniformly but uptake varies
by country, which probably reflects other factors including payor practices.
Health care practitioners in the US are also not skeptical; they are enthusiastic
about biosimilars.

Marilyn Feldman, Alliance
for Safe Biologic Medicines: rheumatologists were willing to prescribe, but
clinicians are often hesitant to change b/c it can take years to stabilize a
patient. And they’ve become sensitized to non-medical changes based on
formularies that have changed patients’ medicines every 6 months in order to
make higher profits. They even switch patients to completely different
biologics. So doctors are leery of a great switching experiment. Biosimilars
are behind the 8-ball because of financial incentives. Incentives that benefit
the physician can undermine trust in doctors. Considering the perception that
US lags behind Europe, 5 years out there were 11 products but we have 26: FDA
deserves thanks for building out approval so quickly.

Sundar Raman [sp],
biosimilar company: Data for biosimilarity should also suffice for interchangeability;
no more is required and practically they are already interchangeable. But the
difference allows anticompetitive behavior by originators, including misrepresentations
and payment practices.

Andrew Spiegel, GCCA,
Alliance for Safe Biologic Medicines: Unaware of any attempt to undermine
confidence of patients & doctors in biosimilars. Patients & providers
have accepted biosimilars as part of health care.

Kim Caldwell,
pharmacist, PCMA (pharm benefit manager ass’n): 270 million Americans in
covered plans. Patent thickets are bad; product substitution is good—should lower
barriers to substitutions. Patients & clinicians may be uncertain about switching/substitution.

Andrew Greenspan,
Jansen Pharm./J&J: patients should have data on alternating before that
happens; implying that alteration/interchangeability is fine for a biosimilar
is misleading w/o data. Some molecules are more immunogenic than others; patients
may face switching every 6 months and need good info.

Ad compliance guy:
Dr. Google is often the driver of patients to particular sites. FDA Warning
letter last month specific to search ads on Google: request that final guidance
documents specifically get into how biosimilar guidance applies to marketing
platforms w/character space limits, and to brand-connected ads: ads that don’t
mention a brand themselves and then link directly to a brand website.

Rheumatologist: hasn’t
seen disparagement in educational materials, offices, etc. Don’t believe that’s
responsible for impaired patient access. The access problem, which exists, lies
elsewhere. Manipulations designed to maximize profits from fees, rebates, and
other schemes. Don’t address those and access won’t happen; far outweigh the
effects of deceptive marketing. Formulary decisions are rarely if ever based on
medical outcomes. Overly consolidated industry of unregulated middlemen with
unfettered power demanding ever increasing tolls from patients and pharmacos.
Major driver of rising costs. Should not be allowed to continue. Insurers,
large pharmacies, and PBM conglomerates are main barriers to access for biosimilars
and indeed all pharmaceuticals.

Laura Brandt (sp),
Amgen: US market is emerging but robust; the current market structure is good.

Andre Barlow (sp) on
behalf of Coalition to Protect Patient Choice: highlights the role of rebate walls:
agencies should prohibit rebate policies that block biosimilar competition.
Such policies raise the cost of drugs overall. Go to PBMs rather than
consumers; perverse incentives to negotiate higher list prices, requiring
higher coinsurance payments from patients b/c of higher list costs. Rebate
wall/trap: use existing market power to secure formulary access w/volume based
rebates on condition that they deny formulary access to rival drugs, bundled across
drugs for many conditions that can’t be matched by new entrants—even if the
biosimilar is offered at greater discount or for free. Most PBMs require
patients to fail first on the more expensive branded drugs, instead of the
historical fail first on generic requirements. Step therapy rules used to
foreclose competition.

PhRMA rep: Physician
education is good. Meaningful rebate reform would promote access and competition.

Corey Greenblatt
(sp) Global Health & Living Foundation: nonprofit for chronically ill
patients. Pricing is the key. Nonmedical switching needs to be defined;
patients/doctors should be able to nonmedically switch when it benefits them,
not when it benefits the PBM. Forced nonmedical switching only profits PBMs/insurers.
Patient is the only one who shows up w/a checkbook and no power. You can change
this by strictly regulating insurance practices & creating market
incentives for uptake.

Laura McKinley,
Pfizer: Should be able to extrapolate for additional indications even in the
absence of clinical data, speed up approvals. Biosimilar exclusion contracts withholding
rebates for both current and future patients exclude biosimilars. Prevents doctors/patients
from trying biosimilars.

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Posted in Uncategorized | Tagged conferences, false advertising, fda, FDA/FTC Workshop on a Competitive Marketplace for Biosimilars antitrust, ftc | Leave a comment

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Rebecca Tushnet

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