Last week, the U.S. Court of Appeals for the Fourth Circuit issued an opinion in De Simone v. VSL Pharms., Inc. et al., Nos. 20-1846, -1869 (June 7, 2022), affirming a district court’s decision finding the appellants in contempt for violating a permanent injunction.
De Simone developed a patented probiotic used to treat intestinal conditions. He licensed it to VSL, which sold it under the name VSL#3. After years of working with VSL, De Simone cut ties in 2015 and licensed his formulation to ExeGi, which sold it under the name Visbiome. VSL developed a new probiotic in Italy, which it sold under the name VSL#3. It advertised its new probiotic as “clinically equivalent” to the prior version using De Simone’s formulation. De Simone and ExeGi sued VSL and its partners for false advertising and breach of license. A jury found VSL liable and awarded it $16 million, and the district court permanently enjoined VSL and its partners from promoting the new VSL#3 as the same formulation as the original VSL#3. A few months later, the district court found VSL in contempt for violating the injunction because prohibited promotional materials remained accessible on VSL’s website and Facebook page, and because VSL’s parent company issued a press release misleadingly comparing VSL#3 and Visbiome. The district court also awarded fees to De Simone. VSL appealed.
The Fourth Circuit affirmed. First, the Court rejected VSL’s argument that it had substantially complied with the injunction by removing links to the prohibited material, even though it had not removed the material, and that any violation was a mere “technicality.” The Court held that VSL “needed to take ‘all reasonable steps’ to ensure compliance,” which included preventing anyone from accessing the material through a simple internet search. The Court further held that VSL should have identified and removed commentary from its Facebook page, posted by company employees, that violated the injunction. Finally, the Court rejected VSL’s argument that the press release, which described De Simone’s and ExeGi’s competing product as “generic” in comparison to VSL#3, was not prohibited by the injunction. The press release constituted promotional material, and it was misleading. The Court held the “consumer confusion” caused by VSL’s actions caused “informational harm” to De Simone and ExeGi. Lastly, the Court upheld the award of attorney’s fees as soundly within the district court’s discretion, even though there was no finding of willful disobedience.
Coauthored by John Winemiller and Benjamin Dooley.