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De Simone v. VSL Pharmaceuticals, Inc.

United States District Court, D. Maryland

June 20, 2019

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

          MEMORANDUM OPINION

          THEODORE D. CHUANG, UNITED STATES DISTRICT JUDGE

         On November 20, 2018, after a 14-day trial, the jury returned a verdict (1) in favor of Plaintiff Claudio De Simone against Defendant VSL Pharmaceuticals, Inc. ("VSL") on Count II of his Complaint, a claim for breach of contract, and awarded damages in the amount of $967, 435; (2) in favor of De Simone against VSL and Defendant Leadiant Biosciences, Inc. ("Leadiant") on Count III of his Complaint, a claim for unjust enrichment, and awarded damages in the amount of $1, 874, 602 against VSL and $172, 004 against Leadiant; (3) in favor of Plaintiff ExeGi Pharma, LLC ("ExeGi") against Leadiant and Defendant Alfasigma USA, Inc. ("Alfasigma") on Count VI of its Complaint, a claim for false advertising in violation of the Lanham Act, 15 U.S.C. § 1125(a) (2012), and awarded damages in the amount of $15, 000, 000 against Alfasigma; and (4) in favor of Counterclaim Defendant De Simone against Counterclaim Plaintiff VSL on Count IV of VSL's Counterclaim, alleging breach of fiduciary duty.

         Before the case was submitted to the jury, VSL, Leadiant, and Alfasigma (collectively, "the VSL Parties") each made Motions for Judgment as a Matter of Law under Federal Rule of Civil Procedure 50(a). The Court reserved its decision on these motions. See Fed. R. Civ. P. 50(b). The VSL Parties have now each renewed their Rule 50 motions and have also filed Motions for a New Trial under Rule 59. See Fed. R. Civ. P. 50(b), 59. De Simone and ExeGi (collectively, "the De Simone Parties") have opposed the Motions. 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 Motions are DENIED.

         DISCUSSION

         I. Motions for Judgment as a Matter of Law

         A. Legal Standard

         A district court may overturn a jury verdict by rendering judgment as a matter of law only if there is no "legally sufficient evidentiary basis to find for the [prevailing] party on that issue." Fed R. Civ. P. 50(a). Thus, a party is entitled to judgment as a matter of law under Rule 50 only "if the nonmoving party failed to make a showing on an essential element of his case with respect to which he had the burden of proof." Price v. City of Charlotte, N.C., 93 F.3d 1241, 1249 (4th Cir. 1996) (citations omitted). In determining whether the non-moving party has carried its burden as a matter of law, the district court "may not substitute [its] judgment for that of the jury or make credibility determinations." Id., see generally U.S. Const, amend VII (guaranteeing the right to a civil trial by jury and requiring that "no fact tried by a jury ... shall be otherwise reexamined in any Court of the United States"). The court must instead "view the evidence in the light most favorable to the non-moving party and draw legitimate inferences in its favor." Anheuser-Busch, Inc. v. L&L Wings, Inc., 962 F.2d 316, 318 (4th Cir. 1992). Thus, if there is any evidence on which a reasonable jury could return verdicts in favor of the non-moving party, the court must deny a Rule 50 motion. Price, 93 F.3d at 1249-50. However, courts must not merely "rubber stamp" a jury verdict, as they "have a duty to reverse the jury verdict[] if the evidence cannot support it." Id. at 1250.

         B. False Advertising

         The jury found both Alfasigma and Leadiant liable to ExeGi for false advertising, in violation of the Lanham Act, 15 U.S.C. § 1125(a). Although ExeGi did not seek damages from Leadiant on this claim, it sought monetary relief from Alfasigma in the amount of $27, 843, 149, representing Alfasigma's profits from sales of VSL#3 from July 1, 2016 through the end of trial, as calculated by ExeGi's damages expert, Bryan Callahan. The jury awarded ExeGi $15, 000, 000 on its false advertising claim against Alfasigma.

         Alfasigma and Leadiant seek judgment as a matter of law on the false advertising claim on the grounds that ExeGi failed to establish each of the elements of the claim. To prevail on a Lanham Act claim of false advertising, a plaintiff must establish that:

(1) The defendant made a false or misleading description of fact or representation of fact in a commercial advertisement about its product or the product of another;
(2) The misrepresentation is material, in that it is likely to influence the purchasing decision;
(3) The misrepresentation actually deceives or has the tendency to deceive a substantial segment of its audience;
(4) The defendant placed the false or misleading statement in interstate commerce; and
(5) The plaintiff has been or is likely to be injured as a result of the misrepresentation, either by direct diversion of sales or by a lessening of goodwill associated with its product.

Scotts Co. v. United Indus. Corp. , 315 F.3d 264, 272 (4th Cir. 2002). The contested statement may either be "false on its face" or "although literally true, likely to mislead and to confuse consumers given the merchandising context." Id. (quoting C.B. Fleet Co. v. SmithKline Beecham Consumer Healthcare L.P., 131 F.3d 430, 434 (4th Cir. 1997)). If an advertisement is literally false, a party can succeed on a false advertising claim without evidence of any consumer deception. Id. at 273. However, "if a plaintiffs theory of recovery is premised upon a claim of implied falsehood, a plaintiff must demonstrate, by extrinsic evidence, that the challenged advertisements tend to mislead or confuse consumers." Id. When a false advertising claim involves multiple statements, a plaintiff "may not mix and match statements, with some satisfying one Lanham Act element and some satisfying other"; rather, at least one challenged statement must satisfy all five elements. Verisign, Inc. v. XYZ.Com, LLC, 848 F.3d 292, 299 (4th Cir. 2017).

         In arguing that ExeGi's evidence was legally insufficient to support the verdict on false advertising, Alfasigma broadly asserts that none of the challenged advertisements meets all of the requirements of a Lanham Act false advertising claim. At trial, ExeGi's false advertising claim against Alfasigma was based largely on three challenged items: a page of the VSL#3 website entitled "VSL#3: new formula dairy-free" ("the VSL#3 Webpage"), Trial Exhibit ("Tr. Ex.") 412; an August 31, 2016 press release that was then posted, in whole or in part, on the VSL#3 website entitled "VSL#3, A Leader in Probiotic Medical Foods, is Now Dairy Free," ("the VSL#3 Press Release"), Tr. Ex. 341; and statements made on the VSL#3 Facebook page ("the VSL#3 Facebook Page"), Tr. Ex. 375. The false advertising claim against Leadiant centered on the following two items: a frequently asked questions ("FAQ") training document entitled, "Potential Future HCP Objections, Misconceptions, Questions, or Concerns . . . and Answers," Tr. Ex. 1203; and a May 17, 2016 letter from Mary Ocnean, Vice President of Sigma-Tau Pharmaceuticals, Inc. ("Sigma-Tau"), Leadiant's predecessor company, with the salutation, "Dear Healthcare Provider" ("the Healthcare Provider Letter"), Tr. Ex. 297. In arguing that no single item satisfied all five elements of a false advertising claim, Alfasigma asserts several evidentiary deficiencies, specifically, that (1) the contested statements are not literally false; (2) the contested statements are not actionable under the Lanham Act because they are a matter of scientific debate; (3) some of the contested statements do not constitute commercial advertising; and (4) the trial evidence was legally insufficient to establish proximate causation of injury.

         Viewing the evidence in the light most favorable to ExeGi, as the Court is required to do, the Court finds that, as discussed below, the evidence was sufficient to establish that at a minimum, the VSL#3 Webpage, Tr. Ex. 412, satisfies all of the elements of false advertising as to Alfasigma. The VSL#3 Webpage included a statement by Ocnean that "[m]oving VSL#3 back to the original manufacturing facility in Italy allowed the brand to revert back to an established process that removes all dairy while maintaining the original proprietary mix of eight strains of live bacteria." Tr. Ex. 412. As for the false advertising claim against Leadiant, as discussed below, the Court finds that the Healthcare Provider Letter, Tr. Ex. 297, which was sent to hundreds of doctors around the United States, satisfies all five elements of false advertising. That letter stated, as relevant here, that "VSL#3 is the same quality product, containing the same genus and species of bacteria, in the same proportions that you have come to expect." Tr. Ex. 297.

         1. Commercial Advertising in Interstate Commerce

         On the first element, whether the defendant made a false or misleading statement in a commercial advertisement about its product or the product of another, Alfasigma concedes that the VSL#3 Webpage was posted on the VSL#3 website during the time period when Alfasigma was the distributor of VSL#3 in the United States, but it generally claims that ExeGi failed to establish that Alfasigma was responsible for the statements made on that webpage. In her testimony, however, Ocnean specifically stated that the VSL#3 Webpage was an excerpt from the VSL#3 Press Release that had been issued by Alfasigma. Because the Alfasigma Licensing Agreement, Tr. Ex. 1366, established that Alfasigma had an exclusive license to "promote, distribute, offer for sale and sell" VSL#3 in the United States, the jury could reasonably infer that Alfasigma was responsible for the posting of the VSL#3 Webpage. The Court thus rejects Alfasigma's nonspecific contention that Alfasigma did not make the statements contained in the VSL#3 Webpage for purposes of liability for false advertising. As for the Healthcare Provider Letter, issued by Sigma-Tau, Leadiant makes no claim that it is not responsible for the statements contained in it. Although the VSL Parties argue that certain alleged items of false advertising did not constitute commercial advertising within the meaning of the Lanham Act, there is no dispute that both the VSL#3 Webpage and the Healthcare Provider Letter were disseminated in a manner sufficient to constitute commercial advertising placed in interstate commerce, so the evidence was sufficient to establish the first element of a false advertising claim.

         2. Literal Falsity

         As to falsity, the Court finds that the evidence was sufficient to support the conclusion that both the VSL#3 Webpage and the Healthcare Provider Letter contained literally false statements. At a minimum, the Court finds that the evidence supports a finding that the statement in the VSL#3 Webpage that VSL#3 "maintain[s] the original proprietary mix of eight strains of live bacteria," Tr. Ex. 412, and the statement in the Healthcare Provider Letter that "VSL#3 is the same quality product, containing, the same genus and species of bacteria, in the same proportions that you have come to expect," Tr. Ex. 297, were false. See Scotts Co., 315 F.3d at 274 ("In analyzing whether an advertisement is literally false, a court must determine, first, the unambiguous claims made by the advertisement, and second, whether those claims are false.").

         ExeGi introduced evidence, in the form of testimony from Dr. Patrick Gillevet, an expert on human gastrointestinal microflora, that the new version of VSL#3 produced in Italy ("Italian VSL#3") had only seven strains of live bacteria, not eight, and was thus genetically different from the version of VSL#3 produced by Danisco USA under De Simone's guidance ("the De Simone Formulation"). Dr. Gillevet was "100%" certain of this conclusion. 11/7/18 AM Tr. at 96. Dr. Gillevet also testified that based on a fermentation analysis, the two products would degrade compounds differently and thus function differently. Dr. Gillevet's testimony thus directly contradicted the claim that Italian VSL#3 has eight strains of bacteria. This testimony provided a sufficient basis for the jury to conclude that the claims in the VSL#3 Webpage and the Healthcare Provider Letter to the effect that Italian VSL#3 has "the original proprietary mix of eight strains of live bacteria" was a literally false description of fact. See C.B. Fleet Co., Inc. v. SmithKline Beecham Consumer Healthcare, L.P., 131 F.3d 430, 434 (4th Cir. 1997) ("Whether an advertisement is literally false is an issue of fact.").

         Moreover, Luca Guarna, the President and Chief Executive Officer of VSL, acknowledged in his testimony that after De Simone left VSL, because VSL did not have access to the specific formulation of, and the proportions of each bacteria contained in, the De Simone Formulation, VSL arranged for scientists to reverse engineer the product in an attempt to "understand[] what was in the product" by "isolating] the strains" so VSL could then re-create the De Simone Formulation and produce its own version of VSL#3. 11/7/18 PM Tr. 60, 63. Guarna acknowledged that in doing so, "you can determine a certain range of the presence of the strains but you cannot precisely assess the exact quantity of the strains," so their scientists were "not able to give a precise indication of the percentage of each strain[] contained" in VSL#3, or a "formal" range for such proportions, but instead could only measure the amount of each strain with a margin of error of 30 percent. 11/7/18 PM Tr. 61-65. Viewed in the light most favorable to the verdict, this testimony supports a conclusion that the claim that Italian VSL#3 had the "originally proprietary mix" or the "same proportions" of bacterial strains as in original VSL#3 was false. This conclusion is reinforced by Dr. Gillevet's testimony that fermentation analysis revealed that Italian VSL#3 would degrade compounds differently and thus function differently.

         In the face of such evidence, Alfasigma asserts, citing In re GNC Corp., 789 F.3d 505 (4th Cir. 2015), that when the statement underlying a Lanham Act false advertising claim is based on scientific representations, the statement cannot be found to be literally false unless "all reasonable experts in the field agree that the representations are false." Id. at 516. Alfasigma argues that it is entitled to judgment as a matter of law because the testimony of Dr. Rodolphe Barrangou, the VSL Parties' designated expert on the issue of the genetic and functional equivalence of VSL#3 and Visbiome, precludes a finding of literal falsity. Barrangou testified that Italian VSL#3 had eight strains of bacteria, and that the relative ratios of strains was "[i]ndistinguishable within one percent," 11/13/18 PM Tr. 77, but he did not testify that the ratio of the strains in Italian VSL#3 were the same as the "original proprietary mix" of the De Simone Formulation. Although Barrangou referenced variability in the composition of VSL#3 over the years, the testimony of Scott Bush, a Danisco food scientist who was involved in the manufacture of the De Simone Formulation when it was sold as VSL#3, established that this variability arose not from any imprecision in the ratios of strains in the De Simone Formulation, but from the need to add more bacteria to the product than actually set forth in the original proprietary mix-an overage-to account for bacteria die-off, and the changing estimates of the amounts necessary to include to ensure that when the probiotic gets to the consumer, it has the correct ratio of bacteria called for in the De Simone Formulation.

         In GNC, the plaintiffs advanced a Lanham Act false advertising claim by alleging the literal falsity of promotional statements asserting the effectiveness of vitamin supplements containing glucosamine and chondroitin in relieving joint pain, but also acknowledged in their complaint that "the scientific evidence regarding the efficacy of glucosamine and chondroitin is equivocal." Id. at 515. In affirming the district court's grant of a motion to dismiss, the United States Court of Appeals for the Fourth Circuit stated that "[w]hen litigants concede that some reasonable and duly qualified scientific experts agree with a scientific proposition, they cannot also argue that the proposition is 'literally false."' Id. GNC thus does not broadly hold that a false advertising claim based on a statement grounded in science must fail if the defendant presents an expert witness supporting its position. In the absence of a concession that the statement is the subject of reasonable scientific debate, that question is properly decided by the jury.

If an alleged false statement states a scientific proposition, and you find that there is a reasonable difference of scientific opinion about that proposition, that is, duly qualified experts in the field have a reasonable disagreement about the accuracy or validity of the ...

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