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De Simone v. VSL Pharmaceuticals, Inc.

United States District Court, D. Maryland

October 9, 2018

CLAUDIO DE SIMONE and EXEGI PHARMA, LLC, Plaintiffs/Counterclaim Defendants,
v.
VSL PHARMACEUTICALS, INC., LEADIANT BIOSCIENCES, INC., and ALFASIGMA USA, INC., Defendants/Counterclaim Plaintiffs,
v.
DANISCO USA, INC., Counterclaim Defendant.

          MEMORANDUM OPINION

          THEODORE D. CHUANG UNITED STATES DISTRICT JUDGE.

         Plaintiffs and Counterclaim Defendants Claudio De Simone and ExeGi Pharma, LLC ("ExeGi") (collectively, "the De Simone Parties") have filed a Motion for Summary Judgment seeking summary judgment on all of their claims and all counterclaims asserted by Defendants and Counterclaim Plaintiffs VSL Pharmaceuticals, Inc. ("VSL"), Leadiant Biosciences, Inc. ("Leadiant") and Alfasigma USA, Inc. ("Alfasigma") (collectively, "the VSL Parties"). The VSL Parties, in turn, have filed a consolidated Cross Motion for Partial Summary Judgment. Having reviewed the submitted materials, the Court finds no hearing necessary. See D. Md. Local R. 105.6. For the reasons set forth below, the De Simone Parties' Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART, and the VSL Parties' Cross Motion for Partial Summary Judgment is GRANTED IN PART and DENIED IN PART.

         This case centers on disputes among the parties relating to the formulation used in a probiotic known by the tradename VSL#3 and the "Know-How," developed by De Simone, consisting of a unique biochemical profile, formulae, processes, data, and other technical and non-technical information. Broadly speaking, the parties disagree on which party owns the Know-How; whether De Simone, as the Chief Executive Officer ("CEO") of VSL, breached a fiduciary duty as he departed the company to launch Visbiome, a probiotic using the same formulation then found in VSL#3 ("the De Simone Formulation"); whether De Simone and his new company, ExeGi, infringed the VSL#3 trademark owned by VSL while launching and marketing Visbiome; and whether either side has engaged in false advertising as each seeks to market the competing probiotics.

         Relevant factual background is set forth in the Court's September 23, 2015 Memorandum Opinion on the First Motion for a Preliminary Injunction, De Simone v. VSL Pharm., Inc., 133 F.Supp.3d 776, 780-88 (D. Md. 2015), and the June 20, 2016 Memorandum Opinion on the Second Motion for a Preliminary Injunction, De Simone v. VSL Pharm., Inc., No. TDC-15-1356, 2016 WL 3466033 at *1-12 (D. Md. June 20, 2016). Additional facts and procedural history are provided below as necessary.

         DISCUSSION

         Following the Court's ruling on the parties' Motions to Dismiss, the remaining claims generally consist of: (1) claims relating to the ownership of the Know-How; (2) claims relating to the alleged breach of fiduciary duty owed to VSL by De Simone; (3) claims relating to sales of VSL#3 by VSL between 2014 and 2016, after De Simone resigned from VSL; and (4) trademark infringement and false advertising claims under the Lanham Act, 15 U.S.C. §§ 1051-1141n (2012). The De Simone Parties seek summary judgment on all claims asserted by all parties in this case. The VSL Parties seek summary judgment on the following claims relating to the ownership of the Know-How, the alleged breach of fiduciary duty, the 2014-2016 sales of VSL#3, and ExeGi's claim of false advertising: Counts I, III, IV, V, and VI of the De Simone Parties' currently operative Complaint ("the Complaint"); Counts I, IV, and XXVIII of VSL's currently operative Counterclaim ("the VSL Counterclaim"); Counts I and II of Leadiant's currently operative Counterclaim ("the Leadiant Counterclaim"); and Counts III and IV of Alfasigma's currently operative Counterclaim ("the Alfasigma Counterclaim"). The VSL Parties seek partial summary judgment on the following claims relating to the alleged breach of fiduciary duty, trademark infringement, and false advertising, consisting of: VSL's Counts XXI and XXII; Leadiant's Counts IV, V, VI, VII, and VIII; and Alfasigma's Counts I and II.

         I. Legal Standard

         Under Federal Rule of Civil Procedure 56, the Court grants summary judgment if the moving party demonstrates that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In assessing the Motion, the Court must believe the evidence of the non-moving party, view the facts in the light most favorable to the nonmoving party, and draw all justifiable inferences in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

         The nonmoving party has the burden to show a genuine dispute on a material fact. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). "A material fact is one that might affect the outcome of the suit under the governing law." Spriggs v. Diamond Auto Glass, 242 F.3d 179, 183 (4th Cir. 2001) (quoting Anderson, 477 U.S. at 248). A dispute of material fact is only "genuine" if sufficient evidence favoring the nonmoving party exists for the trier of fact to return a verdict for that party. Anderson, 477 U.S. at 248-49.

         "When faced with cross-motions for summary judgment, the court must review each motion separately on its own merits 'to determine whether either of the parties deserves judgment as a matter of law.'" Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003) (quoting Philip Morris, Inc. v. Harshbarger, 122 F.3d 58, 62 n.4 (1st Cir. 1997)).

         II. The Know-How Claims

         A. Prior Rulings

         As part of the First Motion for a Preliminary Injunction, VSL asserted that the Know-How associated with the De Simone Formulation is a trade secret and that VSL owns that secret. VSL traced its claim of ownership to the Mendes Assignment, a September 2000 agreement between VSL and Mendes SRL ("Mendes"), a company owned by De Simone. The Mendes Assignment was signed by De Simone on behalf of Mendes and VSL Chief Financial Officer Antonio Nicolai on behalf of VSL. That agreement transferred to VSL the trademark rights for the term "VSL#3." It also transferred "any and all rights to any intellectual property owned or licensed by [Mendes] and which relates to" the VSL#3 trademark, as well as "proprietary information," including "trade secrets" and "know-how" relating to the VSL#3 trademark. De Simone, 133 F.Supp.3d at 790.

         In adjudicating whether VSL was likely to succeed on its claims of ownership of the Know-How, the Court found that the language of the Mendes Assignment was ambiguous because it did not "clearly establish that the Know-How relates to the VSL#3 trademark," such that extrinsic evidence of the parties' intent needed to be considered. Id. Evaluating the available extrinsic evidence, the Court found that other agreements between the parties provided "specific evidence" that the Mendes Assignment did not transfer the Know-How to VSL. Id. at 792. In particular, the 1999 Option Agreement between De Simone and Sigma-Tau Pharmaceuticals, Inc., ("Sigma-Tau"), Leadiant's predecessor-in-interest, explicitly stated that De Simone had granted to Sigma-Tau an option for an exclusive license relating to the Know-How and thus demonstrated that when De Simone wished to convey rights in the Know-How, he did so expressly, rather than by implication. Id. at 792-93. The 1999 Option Agreement also established that as of November 1999, De Simone himself, not Mendes, continued to own the Know-How. Id. The Court found that because the Assignment transferred only intellectual property owned or licensed by Mendes, the Know-How could be included in the sweep of the Mendes Assignment only if there were evidence that in the brief period between the 1999 Option Agreement and the 2000 Mendes Assignment, De Simone had conveyed the Know-How to Mendes. Id. No such evidence was presented to the Court on that Motion. Id. at 793.

         The Court also found that the 2001 Patent License Agreement, in which De Simone granted to VSL a license to the patent underlying the De Simone Formulation ("the 615 Patent"), contradicted VSL's broad characterization of the intellectual property transferred through the Mendes Assignment. Id. As the Court noted, if VSL's reading of the intended scope of the Mendes Assignment were correct, the patent would have been swept up in it, leaving the parties with no need the following year for De Simone to agree to license the patent to VSL. Id. at 792-93. Other, later agreements referenced by the parties did not warrant a different conclusion. Id. at 793-94.

         Furthermore, considering documentary evidence relating to the VSL#3 trademark, the Court noted that at the time of the Mendes Assignment, VSL#3 was an "unattached signifier" not firmly linked to a probiotic using the De Simone Formulation, such that "it could not have been the understanding of the parties that in transferring the trademark VSL#3, De Simone was also transferring the Know-How." Id. at 791.

         Finally, the Court was unpersuaded by VSL's argument, made at the hearing on the First Motion for a Preliminary Injunction, that the Know-How necessarily had to be transferred with the VSL#3 trademark because one cannot practice a trademark without its associated goodwill, and that goodwill includes "scientific formulations and methodology such as the Know-How." Id. at 791-92. The Court found no support for that argument in the law, and noted that, regardless, at the time of the Mendes Assignment there was not yet a product branded VSL#3, and thus there could be no goodwill associated with the mark. Id. at 792.

         In their Motion to Dismiss VSL's Counterclaim, the De Simone Parties returned to the issue of the Know-How and argued that the Court should decide the question on the pleadings as a matter of law. In declining to do so, the Court explained that although on the First Motion for a Preliminary Injunction it had considered certain extrinsic evidence such as the additional agreements discussed above, it could not be certain that "those materials constitute the only relevant extrinsic evidence" on whether the Mendes Assignment transferred the Know-How to VSL. The Court thus allowed the case to proceed to discovery on that question. De Simone v. VSL Pharm., Inc., No. TDC-15-1356, 2017 WL 66323 at *4 (D. Md. Jan. 7, 2017).

         B. Discovery Evidence

         Discovery has produced no additional direct evidence of the parties' intent on whether the Mendes Assignment transferred ownership of the Know-How to VSL. In his deposition, Luca Guarna, VSL's corporate representative, reiterated the company's position that VSL owns the Know-How and traces its entitlement to the Know-How to the Mendes Assignment. As for evidence to support VSL's interpretation of the parties' intent in the Mendes Assignment and the other relevant agreements, Guarna admitted that VSL does not have "any other source of information apart from the text of those contracts," but asserted that "the content of these contracts were very, very clear" and thus should be the source for "what the intentions of the various parties were." Joint Record ("J.R.") 134. More generally, Guarna asserted that the Know-How was "valuable" but he stopped short of stating that it was a trade secret, explaining that whether something was a trade secret was a legal determination he did not have the training to make. J.R. 138.

         As for circumstantial evidence of the parties' intent, over the De Simone Parties' objection, VSL has submitted the Declaration of Mauro Bove, the former Chief Operating Officer of VSL. Bove participated in numerous aspects of the original commercialization of VSL#3. Presumably based on that involvement, he states that "[i]n 2000, when VSL was formed, all of the parties to the various agreements fully understood that any reference to VSL#3 referred to an already existing product that was called 'VSL#3' and would be sold by VSL under the 'VSL#3' trademark." J.R. 2463. Asserting that VSL#3 had already been the subject of various clinical studies, he concludes that it is "incorrect to say that the parties did not know to what they were referring in listing VSL#3 in the schedule of the Mendes Assignment Agreement." Id. He further asserts that the 615 Patent is "broader than just the VSL#3 product alone." J.R. 2464.

         The VSL Parties also cite to De Simone's June 2000 U.S. trademark application for the mark "VSL#3." In that application, De Simone stated his "bona fide intention" to use the mark VSL#3 in U.S. commerce and defined the product to which the mark VSL#3 would be attached as "pharmaceutical, veterinary and sanitary preparations; dietetic substances adapted for medical use, food for babies; nutraceuticals; food supplements." J.R. 2459. The VSL Parties also reference two clinical studies of VSL#3, one published in 1999 and one in 2000. Finally, the VSL Parties include in the record, over the De Simone Parties' objection, a November 1, 2000 letter from Dr. R. Balfour Sartor to Antonio Croppo of Sigma-Tau and an accompanying proposed consulting agreement. Through that consulting agreement, Sigma-Tau retained Dr. Balfour Sartor to conduct a study as part of the "scientific development" of VSL#3. J.R. 3719. The stated estimated completion date for that study was October 2001. In the letter, Dr. Balfour Sartor reported that he and De Simone had "begun" their study into VSL#3 and wished Sigma-Tau and VSL "the very best in your development of VSL #3." J.R. 3718.

         The De Simone Parties, in turn, cite an April 2, 2002 Letter of Intent, relating to the export of VSL#3 outside the United States, signed by De Simone and Nicolai. In that letter, De Simone describes VSL#3 as a product "manufactured according to my know how and patent licensed to VSL." J.R. 420.

         C. Ownership of the Know-How

         VSL maintains that the language of the Mendes Assignment plainly transfers the Know-How to VSL. The Court previously rejected that argument and instead found that the Mendes Assignment was ambiguous on the question of whether the reference to the transfer of the VSL#3 trademark from De Simone to VSL implicitly transferred ownership of the Know-How as well. De Simone, 133 F.Supp.3d at 790. VSL cites no new facts or legal authority on this point, so the Court does not revisit its prior determination as to the ambiguity of the Mendes Assignment. On summary judgment, when a court "determines as a matter of law that the contract is ambiguous, it may yet examine evidence extrinsic to the contract that is included in the summary judgment materials, and, if the evidence is, as a matter of law, dispositive of the interpretative issue, grant summary judgment on that basis." Washington Metro. Area Transit Auth. v. Potomac Inv. Properties, Inc., 476 F.3d 231, 235 (4th Cir. 2007). The Court thus turns to extrinsic evidence of the parties' intent.

         Although the parties have submitted additional evidence collected through discovery, the most persuasive extrinsic evidence on the proper interpretation of the Mendes Assignment remains the 1999 Option Agreement and the 2001 Patent Agreement. These agreements bookend the Mendes Assignment and so are particularly probative on the issue of how the parties understood and defined the multiple forms of intellectual property involved in these contractual relationships. Indeed, VSL's corporate representative acknowledged that the language of the parties' various agreements is the best source for the parties' intentions. The Court reaffirms its previous analysis of these agreements:

The 1999 Option Agreement specified that De Simone "co-owns the Patent and fully owns the Know-How" related to the 615 Patent, and that he was granting to Sigma-Tau "an exclusive option for an exclusive license related to his right on the Patent and on the Know-How" for the purpose of commercializing the 615 Patent in the United States as a drug. This agreement provides specific evidence that the Mendes Agreement did not effect the transfer of ownership of the Know-How for two reasons. First, it establishes that De Simone personally owned the Know-How as of November 1999, and there is no evidence that he transferred it to Mendes prior to September 2000. Because the Mendes Assignment only transferred intellectual property owned or licensed by Mendes, the Know-How could not have been conveyed through that agreement. Second, the 1999 Option Agreement shows that when De Simone, in his dealings with the Sigma Tau Group, wished to convey rights to the 615 Patent and its Know-How, he knew how to do so and would use those specific terms, rather than rely on broad definitions of generic terms to effect such a conveyance. ...
The 2001 Patent License Agreement, which explicitly granted a license to the 615 Patent, including "any other proprietary rights" relating to it, also undermines VSL's argument that the Mendes Assignment transferred the Know-How to VSL. Under VSL's overly broad reading of that Assignment, the 615 Patent would, like the Know-How, constitute "intellectual property" relating to the VSL#3 trademark and therefore would also have been transferred to VSL through that Assignment. If VSL's interpretation of the Mendes Assignment were correct, then, there would have been no need for the 2001 Patent License Agreement, because VSL would already have obtained De Simone's ownership interest in the 615 Patent in 2000. The fact that De Simone and VSL entered into a license agreement relating to the 615 Patent in 2001 thus further establishes that De Simone did not transfer the Know-How through the Mendes Assignment.

De Simone, 133 F.Supp.3d at 792-93 (internal citations omitted). The various other agreements previously offered by VSL, including the 2002 Confidential Disclosure Agreement, do not alter this analysis. See Id. at 793-94. Rather, it is bolstered by an additional document offered by De Simone, a 2002 Letter of Intent signed by De Simone and Nicoli, in which De Simone states that he authorizes VSL to "sell and export U.S. product which is manufactured according to my know how and patent licensed to VSL." J.R. 420 (emphasis added). Where this letter was signed by the same individuals who signed the Mendes Assignment, the characterization of the Know-How as belonging to De Simone is consistent with the conclusion that the parties' did not understand the Mendes Assignment to have transferred ownership of the Know-How to VSL. Finally, the Court's interpretation is consistent with the numerous later documents in which De Simone's continuing ownership of the De Formulation or the Know-How are referenced, including the 2006 Confidential Disclosure Agreement that was signed by Maurizio Terenzi, a representative of VSL's parent companies.

         The additional evidence offered by VSL with its Motion fails to undermine the Court's prior conclusion. The deposition testimony of Guarna, VSL's corporate representative, establishes that there is no direct, extrinsic evidence of the parties' intent in entering into the Mendes Assignment. VSL instead relies on the Bove Declaration, the clinical studies, and the 2000 trademark application to advance its argument that the transfer of the trademark VSL#3 was intended to include the transfer of the Know-How.

         At a threshold level, the Bove Declaration's assertions about the intent of the parties to the Mendes Assignment, such as the claim that "all of the parties to the various agreements fully understood that any reference to 'VSL #3' referred to an already existing product that was called 'VSL#3' and would be sold by VSL under the 'VSL#3' trademark," are not competent evidence on the Motion. An affidavit submitted in support of a motion for summary judgment "must be made on personal knowledge [and] set out facts that would be admissible in evidence." Fed.R.Civ.P. 56(c)(4). Where Bove was not a signatory to the Mendes Assignment, and thus is characterizing the intentions of other individuals on both sides of that transaction, he lacks' personal knowledge of these assertions. To the extent that his knowledge is based on the statements of those other individuals to him, his statements would constitute inadmissible hearsay. See Fed. R. Evid. 801(c), 802 (stating that, except in certain situations not present here, hearsay is inadmissible at trial); Fed.R.Civ.P. 56(c)(2) (stating that parties may object to evidence submitted on summary judgment on the basis that it "cannot be presented in a form that would be admissible in evidence"); Evans v. Tech. Applications & Serv. Co., 80 F.3d 954, 962 (4th Cir. 1996) (stating that Rule 56 requires that "affidavits submitted on summary judgment contain admissible evidence" and thus that they cannot be "based on hearsay"); Md. Highways Contractors Ass'n, Inc. v. State of Md., 933 F.2d 1246, 1251-52 (4th Cir. 1991) (stating that "hearsay evidence, which is inadmissible at trial, cannot be considered on a motion for summary judgment"). VSL's argument that the Declaration is admissible because, at trial, unnamed witnesses would provide direct testimony as to the parties' intent is unpersuasive because it runs afoul of the plain language of Rule 56, which requires that declarations "be made on personal knowledge" and "show that the affiant or declarant is competent to testify on the matters stated." Fed.R.Civ.P. 56(c)(4) (emphasis added).

         Even if the Court were to consider Bove's statements, they would not create a material dispute of fact on the parties' intent. Read in the light most favorable to VSL, Bove's statements establish, at most, that the trademark "VSL#3" was, at the time of the Mendes Assignment, already associated with a product that VSL planned to bring to market. But the linking of the trademark "VSL#3" to a particular probiotic does not mean that transferring the trademark necessarily effected the transfer of all rights to the Know-How. VSL has already made, and this Court has already rejected, the argument that as a matter of trademark law, the Know-How necessarily travels with the trademark. See De Simone, 133 F.Supp.3d at 791-92.

         Finally, the additional evidence that De Simone filed a U.S. trademark application for VSL in 1999 and that there Were clinical studies relating to VSL#3 before the Mendes Assignment does not provide a basis to alter the Court's interpretation of the Mendes Assignment. The Court previously discussed the relevance of the VSL#3 trademark application and pre-Mendes Assignment studies of VSL#3 to the question whether the transfer of the trademark necessarily included transfer of the Know-How and found neither form of evidence to be probative. See Id. Although the proffered studies provide more specific evidence that a probiotic known as VSL#3 was under study prior to the Mendes Assignment, they do not necessarily show that VSL#3 was a finished product understood to be synonymous with the trademark, much less that a transfer of the trademark would necessarily include a transfer of the specific Know-How underlying the present-day De Simone Formulation. Indeed, where Dr. Balfour Sartor was hired in November 2000 expressly to aid in the "scientific development" of "VSL#3," J.R. 3719, it appears that VSL#3 continued to be in development after the Mendes Assignment was executed, thus illustrating the disjuncture between the Know-How and the trademark.

         In the end, the most significant flaw in the additional evidence submitted by VSL is that it fails to show in any way that De Simone transferred the Know-How to Mendes prior to the Mendes Assignment. Regardless of what the parties believed the term "VSL#3" to mean, if Mendes did not own the Know-How at the time of the Mendes Assignment, there is no way to read it as having transferred the Know-How to VSL.

         Where the ambiguity of the Mendes Assignment can be resolved by consideration of other, contemporaneous agreements between the parties, specifically, the 1999 Option Agreement and the 2001 Patent License Agreement, and VSL provides no other evidence that fairly draws that interpretation into question, the Court finds those agreements to be "dispositive of the interpretative issue." Potomac Inv. Properties, Inc., 476 F.3d at 235. The Court thus concludes that, as a matter of contract interpretation, De Simone owns the Know-How.

         D. ...


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