Elorac, Inc. v. Henson et al

Filing 67

MEMORANDUM Opinion and Order Status hearing set for 3/16/2017 at 09:30 AM. Litigants' counsel should come prepared to address what has been set out in this memorandum opinion and order. Signed by the Honorable Milton I. Shadur on 3/13/2017:Mailed notice(clw, )

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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ELORAC, INC., Plaintiff, v. RICK HENSON, et al., Defendants. ) ) ) ) ) ) ) ) ) Case No. 16 C 11522 MEMORANDUM OPINION AND ORDER Pharmaceutical company Elorac, Inc. ("Elorac"), a company that specializes in the development, marketing and sale of treatments for skin diseases, characterizes its 2014-introduced prescription work removal treatment "UltraSal®-ER" as the only such treatment in the United States that has a patented 1 extended-release formulation of its active ingredient, salicylic acid. Elorac also asserts that other UltraSal®-ER ingredients provided documented virucidal activity. Elorac has sued four defendants -- KMM Pharmaceuticals, LLC ("KMM"), Rick Henson, Stayma Consulting Services, LLC and BioComp Pharma, Inc. 2 -- charging that the product (the "KMM Product") that was originally marketed and sold as "Salicylic Acid 28.5%" was then, without any change in ingredients, relabeled "Salicylic Acid 28.5% Extended Release." And that label change has assertedly created a false portrayal that has sharply undercut the market for UltraSal®-ER 1 2 Elorac is allegedly the exclusive licensee from the patent holder. Those three first-named defendants are the only targets of Elorac's opening-gun prayer for preliminary injunctive relief, so they will collectively be referred to as "Defendants" in this memorandum opinion and order. because the KMM Product has consequently been perceived as a much cheaper generic equivalent of Elorac's product. 3 Because Elorac viewed that situation as not adequately redressable by any remedy at law, it has moved for preliminary injunctive relief. And because Elorac's Complaint satisfies the Twombly-Iqbal "plausibility" requirement both substantively and in terms of the inadequacy of any remedy at law, this Court responded favorably to Elorac's prayer for preliminary injunctive relief -- not in terms of granting a preliminary injunction as sought by Elorac (a remedy that requires an evidentiary hearing), but rather in terms of granting a temporary restraining order ("TRO"). 4 Such a solution, however, is at odds with the literal language of the Fed. R. Civ. P. ("Rule") 65(b) format for such a remedy, which prescribes a limited 14-day life for a TRO with a similarly limited 14-day renewal provision -- requirements that, in any case posing more than modest evidentiary demands, may make it infeasible to have a seamless transition from TRO status to the entry of a preliminary injunction, instead leaving a gap of indeterminate length while the parties are gearing up for a full-blown preliminary injunction hearing to allow the Court to decide the contested issues and find whether a preliminary injunction decree is appropriate. 5 If a District Court seeks to bridge that gap by extending a TRO beyond the literal Rule-65(b)-prescribed timetable referred to in the preceding paragraph, the caselaw (not Rule 65(b) itself) teaches that such an extension must be supported by appropriate findings of fact and 3 Neither UltraSal®-ER nor the KMM Product has been approved by the Federal Food and Drug Administration for distribution. 4 It should of course be emphasized that this Court has not engaged in any fact-finding -instead it has appropriately accepted the well-pleaded allegations of the Complaint as true for current purposes. 5 See Appendix. -2- conclusions of law -- and that of course can create a Catch-22 situation, for those are the same types of findings and conclusions that are needed to support the preliminary injunction toward which the TRO is aimed as an interim measure. Federal courts have been wrestling with that dilemma for more than a half century -- see the discussion by the Court of Appeals for the Second Circuit in Pan Am. World Airways, Inc. v. Flight Eng'rs' Int'l Assoc., FAA Chapter, AFL-CIO, 396 F.2d 840, 842-43 (2d Cir. 1962). In all events, however, the formulation of an appropriate TRO presents difficulties of its own. Defendants have advanced a contention that seeks to make light of the seemingly suspicious circumstance that their initial promotion of the KMM Product lacked the term "Extended Release" (one of the two featured focal points of Elorac's assertedly patent-supported claim), but then later turned up on the KMM Product label even though no change at all had been made in its ingredients. To say the least, that has given rise to substantial concern on the part of this Court. Each side has now tendered to this Court a competing version of a "Proposed Temporary Restraining Order," based on this Court's oral exposition at the time of the parties' initial presentation. Although the litigants have tendered different proposals for action by this Court, their statements en route have presented much the same picture (though defendants' submission has unsurprisingly been marked by advocacy for their legal position as well). Just as Elorac's plausible allegations in its Complaint may and should be credited at this threshold stage of the litigation, paragraphs 1 through 12 of its Proposed Temporary Restraining Order fairly set out what should be treated arguendo as a predicate for dealing with the case at this point. Hence those paragraphs have been annexed as Ex. 1 and are incorporated as part of this opinion. -3- Where then does that leave the matter? It may well be that the essential final aspect of preliminary injunctive relief -- the requirement of an appropriate bond to be posted by Elorac against the possibility that such a remedy has been improvidently granted, measured against the necessary assurance that Elorac can be made whole in damages if a preliminary injunction is improvidently denied -- might tip the scales. That information as to both sides' financial situation would appear to be the appropriate first line of inquiry, requiring the least effort in terms of discovery and factual development, to assist this Court in the decisional inquiry. In the meantime the position advanced by defense counsel, relying on a kind of semantic word play that appears to assert, in Gertrude Stein fashion, "salicylic acid is salicylic acid is salicylic acid," oversimplifies the matter dramatically. Anyone who is subjected to the television commercials that hawk products of all kinds is familiar with the endless litany of potentially dangerous consequences that, if taken literally, would contraindicate ever buying the product that is being hawked. No indication whatever is given in those commercials as to the potential incidence, however minute, of the perils involved in the laundry list rattled off by the hawkers. Just so here -- the fact that the KMM Product also contains some salicylic acid substance does not necessarily correlate with the "extended release" feature that Elorac claims is the key advantage of its product. At the same time this Court believes, as defense counsel has sought to invoke in his oral presentation, in a freely competitive market. But such free competition should be based on an informed presentation, rather than the type of nonjudgmental disclosure that is apparently provided by First DataBank and like drug information databases (see Ex. 1 ¶ 5). That view has led this Court to the conclusion articulated in the rest of this opinion. -4- First, as stated earlier, both sides must promptly disclose their financial situations to enable this Court to engage in the competitive analytical decision referred to above. To avoid prejudice to either side, that may be done under seal on a counsel's-eyes-only basis until further order of court. Next and vitally, to create the level playing field essential to free market competition, the drug information databases such as First DataBank should be apprised promptly of the facts that there is litigation pending in this Court in which a challenge has been made to the claimed generic equivalence of the KMM Product to UltraSal®-ER and that this Court has that issue under consideration and is in the process of receiving the input of counsel for the parties to that end. That information, when made available publicly to everyone involved in the process (such as physicians, drug wholesalers, distributors, pharmacies and pharmacists) will enable them and the consuming public to reach their respective decisions on an informed basis -- something that is not possible today because of the manner in which First DataBank and other drug information databases function. Finally, this action has earlier been set for a status hearing at 9:30 a.m. March 16, 2017. At that time the litigants' counsel should come prepared to address what has been set out here. __________________________________________ Milton I. Shadur Senior United States District Judge Date: March 13, 2017 -5- APPENDIX This Court has long been puzzled at the manner in which Rule 65(b) has been structured, forcing the federal judiciary that is called on to deal with it to operate without the informed guidance that the Rules of Civil Procedure were intended and designed to provide. Most importantly, it is bizarre that the Rule deals in detail with the permitted duration of the infrequent TRO that is granted without notice, while remaining totally silent as to the temporal limits and related procedures applicable to the far more common TROs that are entered with both plaintiffs and defendants having their say in a contested proceeding. That drafting gap has given rise to what essentially amounts to a judicial amendment that often tends to apply the identical time limits (14 days plus a possible 14-day extension) to that much more common situation as well. And as the text of this opinion has said, the result has typically been to render preliminary injunctions of lesser utility unless the relationship between a lawsuit's adversaries results in a mutual agreement to allow the TRO greater life in order that the preliminary injunction process can generate a considered decision on a developed evidentiary record. And absent such mutual agreement, a court is forced to demonstrate a justification for a TRO's extended life that has to be based on a factual showing too often dependent on the very underpinning that is ultimately needed to support the preliminary injunction itself (the Catch-22 problem referred to in the opinion's text). This Court has not been privy to any consideration that the Advisory Committee on the Rules of Civil Procedure may have given to the problem and potential dilemma briefly addressed here -- its own service by way of designation by the Judiciary Conference has been its 10-year tenure (the last 3 years as Chairman) on the Advisory Committee on the Federal Rules of Evidence. But it does seem astonishing that an important part of federal practice, that involving TROs, is addressed by Rule 65(b) solely in terms of the comparatively rare TRO issued without notice (just look at the Rule and its subparts) and that the Advisory Committee Notes give no indication that the limited focus of Rule 65(b) as originally generated has ever been the subject of any potential revision that would provide Rule-directed guidance on the subject. -2-

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