De Simone v. VSL Pharm., Inc.

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

Civil Action No. TDC-15-1356

UNITED STATES DISTRICT COURT DISTRICT OF MARYLAND

July 30, 2020

MEMORANDUM OPINION

This case involved a dispute between former business partners as to the ownership of a proprietary formulation ("the De Simone Formulation") used in a probiotic previously known by the tradename VSL#3 and now known by the tradename Visbiome. In November 2018, a jury returned a verdict in favor of Plaintiff and Counterclaim Defendant Claudio DeSimone and Plaintiff ExeGi Pharma, LLC ("ExeGi") (collectively, "the De Simone Parties") on all counts against Defendant and Counterclaim Plaintiff VSL Pharmaceuticals, Inc. ("VSL"), Defendant Leadiant Biosciences, Inc. ("Leadiant") and Defendant Alfasigma USA, Inc. ("Alfasigma") (collectively, "the VSL Parties"), including a verdict in favor of the De Simone Parties on their claim against Leadiant and Alfasigma for false advertising of VSL#3 in violation of the Lanham Act, 15 U.S.C. § 1125(a) (2018). In light of that verdict, and pursuant to a motion filed by the De Simone Parties, this Court issued a permanent injunction on June 20, 2019 barring the VSL Parties from making certain representations about VSL#3. The De Simone Parties now assert that the VSL Parties have violated the terms of that injunction and have thus filed a Motion for an Order of Civil Contempt against VSL and Alfasigma. The VSL Parties oppose the Motion. Having reviewed the briefs and submitted materials, the Court finds no hearing necessary. D. Md. Local R. 105.6. For the reasons set forth below, the De Simone Parties' Motion is GRANTED IN PART and DENIED IN PART.

BACKGROUND

Prior 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); its 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); its October 9, 2018 Memorandum Opinion on the Parties' Cross Motions for Summary Judgment, De Simone v. VSL Pharm., Inc., 352 F. Supp. 3d 471 (D. Md. 2018); its June 20, 2019 Memorandum Opinion on the VSL Parties' Rule 50 and 59 Motions, De Simone v. VSL Pharm., Inc., 395 F. Supp. 3d 617 (D. Md. 2019); and its June 20, 2019 Memorandum Opinion on the De Simone Parties' Motion for a Permanent Injunction, De Simone v. VSL Pharm., Inc., No. TDC-15-1356, 2019 WL 2569574 (D. Md. June 20, 2019). Additional facts and procedural history are provided below as necessary.I. The Permanent Injunction

On June 20, 2019, the Court issued an Order ("the Permanent Injunction") enjoining the VSL Parties from:

(1) stating or suggesting in VSL#3 promotional materials directed at or readily accessible to United States consumers that that the present version of VSL#3 produced in Italy ("Italian VSL#3") continues to contain the same formulation found in versions of VSL#3 produced before January 31, 2016 ("the De Simone Formulation"), including but not limited to making statements that VSL#3 contains the "original proprietary blend" or the "same mix in the same proportions" as earlier versions of VSL#3; and

(2) citing to or referring to any clinical studies performed on the De Simone Formulation or earlier versions of VSL#3 as relevant or applicable to Italian VSL#3.

June 20, 2019 Order at 2, ECF No. 930. The De Simone Parties contend that since the issuance of this Order, the VSL Parties have repeatedly violated its terms.

I. Online Media

On January 31, 2019, after the jury verdict, the VSL Parties posted on the VSL#3 website a letter to healthcare providers (the "Healthcare Providers Letter") that recounted the verdict but asserted that the trial evidence "confirmed that ... Italian-made VSL#3 contains the same 8 strains of bacteria" as the De Simone Formulation and that "Italian-made VSL#3 is equivalent to" the De Simone Formulation. Healthcare Providers Letter, ECF No. 981-2. The Healthcare Providers Letter also stated that prior clinical studies of the De Simone Formulation could "be relied on to show the efficacy and safety" of Italian VSL#3. Id. Upon issuance of the Permanent Injunction, the VSL Parties took some steps to remove the Healthcare Providers Letter from the VSL#3 website, but it remained accessible until September 10, 2019.

In the same time frame, the VSL#3 Facebook page has contained the statement that VSL#3 is "clinically proven in the dietary management of IBS, ulcerative colitis and ileal pouch." VSLFacebook Page, ECF No. 981-7. That assertion is repeated in the written summaries accompanying numerous VSL#3 YouTube videos, all of which remained accessible at least through November 4, 2019 but which were posted several years prior to this Court's Permanent Injunction. At least one posting connected to a YouTube video states that VSL#3 has "more than a decade of patient support and use" and that it "is one of the most studied" probiotics of its kind, VSL#3 & Me: Dr. Pat Raymond (Oct. 7, 2016) at 1, ECF No. 984-13.

During September 2019, VSL#3 representatives responding to consumer questions about the composition of VSL#3 on the VSL#3 Facebook page repeatedly offered the assertions that "VSL#3 was not recalled or discontinued, there are no safety or efficacy concerns and the formulation has not changed," and that "In January 2016 manufacturing of VSL#3 was moved back to its original site in Italy and the lactose was removed from the product. No changes to the current formula have been made." Facebook Conversations, ECF Nos. 981-8-981-14.

II. Press Release

In a September 9, 2019 press release touting a victory for the VSL Parties in Italian litigation about VSL#3, Luca Guarna, the Chief Executive Officer of VSL, affirmed VSL's commitment to "making the VSL#3 probiotic available to our dedicated customers and healthcare providers notwithstanding De Simone and ExeGi's aggressive efforts to sell their competing, generic probiotic product." Sept. 9, 2019 Press Release at 2, ECF No. 981-6. That press release appeared on numerous websites, including markets.financiaIcontent.com, biospace.com, businesswire.com, citizentribune.com, finance.yahoo.com, and streetinsider.com.

III. Product Information Sheets

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

The revised product information sheet, first posted on the VSL#3 website on August 14, 2019, contains no citations to any clinical studies. However, it states multiple times that "VSL#3 is a probiotic medical food intended for the dietary management of Irritable Bowel Syndrome (IBS), Ulcerative Colitis (UC) or an ileal pouch," and that VSL#3 has been manufactured using ingredients "Generally Recognized as Safe" (GRAS) for their intended use." Revised Product Info. Sheet, ECF No. 981-5.

DISCUSSION

The De Simone Parties ask this Court to find VSL and Alfasigma in contempt of the Permanent Injunction based on statements in Italian VSL#3 promotional materials, statements of representatives of VSL#3, and statements in the Italian VSL#3 product information sheet. The VSL Parties argue primarily that the De Simone Parties are seeking an expansion of the Permanent Injunction rather than enforcement of it and that such expansion is beyond the power of this Court. They also argue that their challenged conduct did not violate the Permanent Injunction. Lastly,the VSL Parties argue that to the extent any of their actions did violate the terms of the Permanent Injunction, such violations were inadvertent and swiftly corrected.

I. Legal Standard

To support a finding of civil contempt, each of the following elements must be established by clear and convincing evidence: (1) the existence of a valid decree of which the alleged contemnor had actual or constructive knowledge; (2) that the decree was in the movant's favor; (3) that the alleged contemnor by its conduct violated the terms of the decree and had knowledge or constructive knowledge of such violation; and (4) that the movant suffered harm as a result. Ashcraft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000) (internal citation omitted). Here, there is no dispute that the first two elements are satisfied. Where the Court's analysis will focus only on whether the Permanent Injunction was violated and must be enforced, rather than on whether the Permanent Injunction should be expanded, the Court has the authority to rule on the Motion even while this case is on direct appeal.

In determining whether there was a violation of a court order, there is no requirement that the violation was willful. "Civil as distinguished from criminal contempt is a sanction to enforce compliance with an order of the court...