February 19, 2019

February 19, 2019

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February 18, 2019

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$15 Million False Ad Verdict Boosts Damages In Probiotic IP Dispute

On November 20, 2018, a years-long dispute before Judge Theodore Chuang in the District of Maryland over probiotics culminated in a gut-wrenching $18 million jury verdict against defendant pharmaceutical companies.  The case is De Simone v. VSL Pharmaceuticals, Inc. et al., No. 8:15-cv-01356.

The dispute involved numerous claims and counterclaims, including both a claim and a counterclaim for false advertising under the Lanham Act. While the advertising-related issues appeared initially to be only a small part of the case, overshadowed by the 50-plus other claims and counterclaims asserted by the various parties, plaintiff’s false advertising claim ultimately proved the most lucrative part of the case, making up a hearty $15 million of the $18 million verdict.

The lawsuit was initiated by Claudio De Simone, the inventor of the probiotic formula at issue, and ExeGi Pharma, the company currently licensed to sell De Simone’s probiotics. In 2000, De Simone co-founded VSL Pharmaceuticals, which entered into a joint venture with Alfasigma USA and Leadiant Biosciences  to sell De Simone’s probiotic formula under the name VSL#3. De Simone later left VSL, ended the joint venture, and began selling his probiotic formula with ExeGi under a new name, Visbiome. De Simone and ExeGi advertised Visbiome as the only probiotic on the market that contains De Simone’s original probiotic formula. Meanwhile, defendants Alfasigma and Leadiant continued to sell a probiotic formula under the VSL#3 name, and advertised that product as being exactly the same as De Simone’s original probiotic formula. De Simone and ExeGi subsequently filed this lawsuit, asserting a variety of claims, including breach of license agreement, unjust enrichment, and false advertising under the Lanham Act. Defendants responded with over fifty counterclaims, including with their own Lanham Act false advertising claim.

At the heart of both sides’ false advertising claims was the question of whether defendants’ current formula for VSL#3 was clinically equivalent to Visbiome and to De Simone’s original formula of VSL#3 sold during the joint venture. Defendants argued it was. Therefore, they alleged that De Simone and ExeGi engaged in false advertising by marketing Visbiome as the only brand that contains the original De Simone probiotic formula. On the flip side, De Simone and ExeGi argued that defendants’ current VSL#3 product was different from Visbiome and from De Simone’s original probiotic formula, and that Alfasigma and Leadient therefore engaged in false advertising in marketing their new version of VSL#3 as being exactly the same as De Simone’s original probiotic formula. Specifically, De Simone argued that defendants’ new version was made with cheaper, untested ingredients, and was therefore less effective.

The jury ultimately sided with De Simone and ExeGi, finding that the defendants’ new VSL#3 product differed from De Simone’s original probiotic formula, and that Alfasigma and Leadient engaged in false advertising in marketing their new product as identical to De Simone’s formula sold during the time of the joint venture. The jury also found defendants liable for breach of contract and unjust enrichment, but it was the $15 million it awarded for the Lanham Act false advertising claim that truly made this judgment a bitter pill for defendants to swallow . Briefing concerning damages calculations under the Lanham Act were filed under seal, so it is not entirely apparent how the jury arrived at this $15 million figure, particularly for a claim that did not initially seem to be a focal point of the case.  However, certain trial briefings and jury instructions suggest that Plaintiffs sought to disgorge Defendants’ profits that were attributable to Defendants’ false advertising of the VSL#3 product. In addition, Defendants’ motion for a new trial filed on December 19, 2018 argues that an inflamed jury improperly inflated the false advertising damages as “quasi-punitive damages” based on Plaintiffs’ counsel’s improper argument on the safety of VSL#3, which was not at issue in the case.

Watch this space for further developments.

© 2019 Proskauer Rose LLP.

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About this Author

Lawrence I Weinstein, False Advertising and Trademark Copywright Law, Proskauer
Partner

Larry Weinstein is a Partner in Proskauer's Litigation Department. He is co-head of the firm’s Intellectual Property Litigation Group, and also co-head of the firm’s False Advertising & Trademark Practice. Larry is both a distinguished trial lawyer and counselor, whose practice covers a broad spectrum of intellectual property law, including Lanham Act false advertising and trademark cases, consumer class action cases, NAD and FTC proceedings, and trade secret and copyright litigations, as well as sports, art and other complex commercial cases.

212-969-3240
Daniel Werb, Proskauer Rose, litigation attorney
Associate

Daniel Werb is an associate in the Litigation Department.

Prior to joining Proskauer, Dan was a judicial intern for the Honorable Eric N. Vitaliano of the U.S. District Court for the Eastern District of New York. At Columbia Law School, he served as an Articles Editor of the Columbia Journal of Law & the Arts and was an extern at Volunteer Lawyers for the Arts.

212-969-3273
Russell Kostelak, Litigation Department  Proskauer Rose, New York,
Associate

Russell Kostelak is an associate in the Litigation Department. He focuses on complex litigation in federal and state courts with an emphasis on intellectual property, including copyright, trademark and advertising law. Russell has handled copyright infringement and ownership disputes on behalf of textbook and music publishing companies; trademark infringement, clearance and prosecution matters; and false advertising cases implicating consumer fraud allegations. He also has experience in securities litigation matters, including shareholder class actions and insider...

212-969-3216