De Simone v. VSL Pharmaceuticals, Inc. et al

Filing 1030

MEMORANDUM OPINION. Signed by Judge Theodore D. Chuang on 7/15/2021. (heps, Deputy Clerk)

UNITED STATES DISTRICT COURT
DISTRICT OF MARYLAND

CLAUDIO DE SIMONE and

EXEGIPHARMA,LLC,
Plaintiffs/Counterclaim Defendants,
V.

VSL PHARMACEUTICALS,INC.,
LEADIANT BIOSCIENCES,INC. and
ALFASIGMA USA,INC.

Civil Action No. TDC-15-1356

Defendants/Counterclaim Plaintiffs,
V.

DANISCO USA,INC.,
Counterclaim Defendant.

MEMORANDUM OPINION

Pending before the Court is the latest conflict in a long-standing dispute between former
business partners about 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.

PlaintiffExeGi Pharma,LLC("ExeGi")has filed a Motion for an Order of Civil Contempt against
Defendant and Counterclaim Plaintiff VSL Pharmaceuticals, Inc. ("VSL") and Defendant

Alfasigma USA, Inc. ("Alfasigma") (collectively, "the VSL Parties") asserting that they have
violated this Court's June 20,2019 permanent injunction("the Permanent Injunction") barring the
VSL Parties from making certain representations about their new version of VSL#3 manufactured

in Italy ("new VSL#3" or "Italian VSL#3"). Defendant Leadiant Biosciences, Inc. is not named

in the Motion. 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 Motion will be DENIED.
BACKGROUND

Prior relevant factual background and rulings are 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(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 (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); its June 20, 2019
Memorandum Opinion on Plaintiffs' Motion for a Permanent Injunction, De Simone v. VSL
Pharm., Inc., No. TDC-15-1356,2019 WL 2569574(D. Md. June 20, 2019); and its July 30,2020
Memorandum Opinion on Plaintiffs' Motion for an Order of Civil Contempt, De Simone v. VSL
Pharm., Inc.,'Ho. TDC-15-1356,2020 WL 4368103(D. Md. July 30,2020). Additional facts and
procedural history are provided below as necessary.
In November 2018, a jury returned a verdict in favor of Claudio De Simone and ExeGi

(collectively, "the De Simone Parties") on all counts against the VSL Parties, including a verdict
finding Leadiant and Alfasigma liable for false advertising of VSL#3 in violation of the Lanham
Act, 15 U.S.C. § 1125(a)(2018). In light ofthat verdict, and pursuant to a motion filed by the De

Simone Parties, on June 20,2019, the Court issued the Permanent Injunction, which enjoined the
VSL Parties firom:

(1) stating or suggesting in VSL#3 promotional materials directed at or readily
accessible to United States consumers that the present version of VSL#3

produced in Italy ("Italian VSL#3")continues to contain the same formulation
found in versions ofVSL#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.

Permanent Injunction at 2, ECF No. 930.

In De Simone v. Alfasigma USA, Inc., 847 F. App'x 174 (4th Cir. 2021),the United States

Court of Appeals for the Fourth Circuit affirmed the jury verdict and this Court's rulings on posttrial motions, and it largely affirmed the Permanent Injunction, vacating its terms only as to the

prohibition on "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." Id. at 184.
In so narrowing the Preliminary Injunction, the Fourth Circuit clarified that:

To the extent that this language is intended to prohibit the VSL Parties from citing
or referring to the clinical studies as though they were performed on Italian VSL#3
(rather than on the Danisco-made version), it's superfluous to prohibiting claims of
continuity between the products. But prohibiting the VSL Parties from citing or
referring to the clinical studies as even relevant to Italian VSL#3 goes too far, as
they could feasibly do so without claiming continuity between their old product and
their new one.
Id.
DISCUSSION

In the wake ofthe Fourth Circuit's opinion, ExeGi has filed a Second Motion for an Order

of Contempt, asserting that the VSL Parties have continued to violate the Permanent Injunction.
Specifically, ExeGi argues that the VSL Parties should be found in contempt based on (1) the
December 2020 publication in a scientific journal of an article reporting results of a clinical study
on Italian VSL#3 and citing to the prior clinical studies conducted on the De Simone Formulation;

(2) the posting on the VSL#3 website of a Fact Sheet that allegedly impermissibly implies
continuity between Italian VSL#3 and Visbiome, and Alfasigma's responding to inquiries on

Facebook about whether VSL#3 had changed by directing consumers to the Fact Sheet; and(3)an
email from Luca Guama, VSL's Chief Executive Officer, to various practitioners in the probiotic
field asserting that the Fourth Circuit's decision allows prior clinical studies of VSL#3 to be cited
without restriction in discussing Italian VSL#3.
1.

Legal Standard

To support a finding of civil contempt, each ofthe 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 ofthe 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).
As to the third element,in determining whether there was a violation ofa court order, there

is no requirement that the violation was willfiil. "Civil as distinguished from criminal contempt is
a sanction to enforce compliance with an order ofthe court or to compensate for losses or damages
sustained by reason of noncompliance. Since the purpose is remedial, it matters not with what

intent the defendant did the prohibited act." McComb v. Jacksonville Paper Co., 336 U.S. 187,
191 (1949)(internal citations omitted). However, because intent is irrelevant, the order allegedly
violated must be one that sets forth in "specific detail an unequivocal command." In re General
Motors Corp., 61 F.3d 256,258-59(4th Cir. 1995)(internal citation omitted). A party therefore

should not be found in civil contempt where there is"afair ground ofdoubt as to the wrongfulness
of[their] conduct." Taggartv. Lorenzen, 139 S. Ct. 1795, 1801 (2019). However, civil contempt

need not be limited to addressing only activities that were "specifically enjoined," because such a
narrow requirement "would give tremendous impetus to [a] program of experimentation with
disobedience of the law." McComb, 336 U.S. at 192. Instead, "[i]t is enough protection for
defendants if close questions of interpretation are resolved in the defendant's favor in order to

prevent unfair surprise." Schering Corp. v. III. Antibiotics Co.,62 F. 3d 903, 906 (7th Cir. 1995).
Here,there is no dispute that the first two elements are satisfied. The dispute centers only

on whether the VSL Parties' conduct violated the Permanent Injunction and, if so, if any such
violations resulted in harm to ExeGi. Because the Court does not find that the conduct violated

the Permanent Injunction, it need not, and so does not, address the issue of harm.
II.

The Journal Article

ExeGi asserts that the publication in the scientific journal Inflammatory Bowel Diseases of
an article entitled "Impact of the Trophic Effect of the Secretome From a Multistrain Probiotic
Preparation on the Intestinal Epithelia"("the Journal Article"), authored by 15 scholars including

Valentina Petito, Antonio Gasbarrini, and Lucrezia Laterza, violated the Permanent Injunction.
The article reports the results of a clinical study conducted on Italian VSL#3 and cites to prior
clinical studies conducted on the De Simone Formulation. Petito and Gasbarrini are on the

Scientific Advisory Board of Actial, a company owned by the Cavazza family, which also owns
VSL. Laterza is a consultant for Actial. Based on these connections, ExeGi asserts that the article

is a VSL#3 "promotional piece masquerading as a scientific study," and that because it cites to the
prior clinical studies, it runs afoul of the Permanent Injimction. Mot. at 5,EOF No. 1015.

Without reaching the question of whether the citations improperly suggest a continuity
between Italian VSL#3 and the De Simone Formulation, the Court finds that the Joumal Article

cannot support a finding of contempt. Federal Rule of Civil Procedure 65(d) defines the persons

bound by a federal court injunction as "parties; the parties' officers, agents, servants, employees,
and attorneys; and other persons who are in active concert or participation with [any ofthe parties
named above]" if they have received "actual notice" of the injunction by "personal service or
otherwise." Fed. R. Civ. P. 65(d)(2)(A)-(C). The named authors of the Journal Article are not

parties to this action, nor is there any allegation that they are officers, agents, servants, or
employees of VSL or Alfasigma. Nor can they be characterized as persons in active concert with
VSL or Alfasigma. "Active concert" encompasses parties "identified with [the enjoined party] in
interest, in 'privity' with them, represented by them or subject to their control." Regal Knitwear
Co. V. N.LR.B.y 324 U.S. 9, 14(1945). There is no allegation or evidence that any of the named
authors has any direct relationship with VSL or Alfasigma or is in any way controlled by them.

ExeGi instead identifies some of the authors as affiliated with Actial. But Actial cannot simply
stand in for VSL. "[A] court must legally identify the participant with the named party before
enjoining both persons." Little v. Associated Tech. Training Servs., Inc., 12 F.3d 205, 1993 WL
498282, at *4 (4th Cir. 1993)(unpublished table decision). Where this Court has never made a
finding that would extend the Permanent Injunction to Actial,and the Motion provides no evidence
to support such a determination, there is no basis to stretch the Permanent Injunction's scope even
further to include individuals with some affiliation with Actial. Finally, even ifthere were support
for a finding that the identified authors could be deemed to be subject to the Permanent Injunction,
Rule 65 imposes the further requirement of"actual notice." Fed. R. Civ. P. 65(d)(2). There is no
evidence that Actial or the identified authors have received actual notice of the Permanent

Injunction. The Joumal Article thus provides no basis for a finding of contempt.

III.

The Fact Sheet

As to the online VSL#3 Fact Sheet and responses to inquiries on VSL#3's Facebook page,
ExeGi takes issue with the statement on the Fact Sheet that"VSL#3 continues to be sold under the

same brand." Mot. Ex. E, ECF No. 1015-6. In particular, ExeGi asserts that Alfasigma violated
the Permanent Injunction by responding to a consumer Facebook posting stating "Original

formula? I had heard there was a dispute with another company. Just wanted to make sure nothing
has changed" by directing the consumer to that Fact Sheet. Mot. Ex. D,ECF No. 1015-5. ExeGi
argues that Alfasigma representatives needed to affirmatively inform consumers that the new
VSL#3 no longer contains the De Simone Formulation.

On these facts, the Court finds no violation of the Permanent Injunction. As to the Fact
Sheet brand assertion, the Court appreciates ExeGi's argument that the statement, "VSL#3®
continues to be sold under the same brand ..." might potentially be construed as an assertion that
Italian VSL#3 is the same product as the prior VSL#3, which contained the De Simone
Formulation. Mot. Ex. E. But where the Fact Sheet statement makes no reference to the contents

or composition ofItalian VSL#3,does not claim that it has the same formulation as prior versions,
and instead arguably asserts only a continuity of use of the VSL#3 trademark,the Court finds that
the statement, while it dangerously skirts the line of the Permanent Injunction, does not cross it.
Nevertheless, the Court reminds the VSL Parties that this Court has already considered, and found
unpersuasive, the argument that the VSL#3 trademark necessarily brings with it other intellectual
property rights. See De Simone, 133 F. Supp. 3d at 791-92. The Court cautions them against
future efforts to evade the strictures ofthe Permanent Injunction by hiding behind the shield ofthe
VSL#3 trademark.

As to whether the VSL Parties can be held in contempt because their representatives are
not affirmatively informing customers that VSL#3 no longer contains the De Simone Formulation,
ExeGi is reminded that as part of the De Simone Parties' Motion for a Permanent Injunction, the
Court denied their request that the VSL Parties be required to issue affirmative, corrective
advertising. De Simone, 2019 WL 2569574, at *4. Because the VSL Parties are not required tO
issue affirmative, corrective advertising, they cannot be held in contempt for failing to do so.
IV.

Guarna Email

Lastly, ExeGi argues that a February 19, 2021 email from Luca Guama to unspecified

recipients, which ExeGi asserts has made its way to doctors and publishers of probiotic
publications in the United States, violates the Permanent Injunction. The email, sent in the wake
of the Fourth Circuit's limited modification of the Permanent Injunction, asserts that the Fourth

Circuit's opinion means that "citing to historical clinical studies, even those performed on earlier
versions of VSL#3, was permissible." Mot. Ex. C,ECF No. 1015-4. Guama further claimed that
the Fourth Circuit ruled that the prior clinical studies "can be cited without restriction or threat of
contempt." Id.

Although Guama egregiously misstated the Fourth Circuit's holding, the Court finds that
his statement does not fall within the ambit of the Permanent Injunction because it does not itself

assert continuity between Italian VSL#3 and the De Simone Formulation but instead claims only
that references to prior studies of the De Simone Formulation, for whatever purpose, would be
permissible under the Permanent Injunction as modified by the Fourth Circuit.
While the Court will not find that the email violates the Permanent Injunction, the
substance of Guama's email makes it necessary to state that his assertion is completely incorrect.

The Fourth Circuit did not hold that prior clinical studies of VSL#3 could be cited, as Guama

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claimed,"without restriction"in relation to Italian VSL#3. Id. Rather,the Fourth Circuit narrowed
the injunction because it concluded that the VSL Parties'"citing or referring to the clinical studies"

could be permissible to the extent that it could be done "without claiming continuity between their
old product and their new one." De Simone,847 F. App'x at 184. It specifically stated, however,

that "citing or referring to the clinical studies as though they were performed on Italian VSL#3
(rather than on the Danisco-made version)" remained barred because the Permanent Injunction
more broadly prohibited the VSL Parties from making claims of "continuity between the
products." Id. Where "citing or referring to the clinical studies as though they were performed on
Italian VSL#3"remains barred by the Permanent Injunction, Guama's claim that the Fourth Circuit

held that the prior clinical studies "can be cited without restriction or threat of contempt," Mot.
Ex. C, grossly misrepresents the Fourth Circuit's holding and invites future violations of the
Permanent Injunction.

Because Guama's statement is such a gross misrepresentation of the law, the Court finds
that it is reasonable to infer that Guama's statement was made in bad faith, and that to the extent

it was drafted with the advice and approval of counsel, counsel acted in bad faith in advising that

the statement correctly characterized the Fourth Circuit's mling. As a result, Guama and the VSL
Parties are strongly encouraged to issue a corrective statement to the recipients ofthe Guama email
informing them that citing or referring to the clinical studies "as though they were performed on
Italian VSL#3"remains barred by the Permanent Injunction. See De Simone,847 F. App'x at 184.
Ifthey fail to do so,they will be held responsible for any subsequent citations or references to the
prior clinical studies "as though they were performed on Italian VSL#3" that are made directly or
indirectly by the recipients ofthe Guama email, even if not made by VSL or Alfasigma itself.

Moreover, the Court forewarns Guama,the VSL Parties, and their counsel that any future,
similar mischaracterizations of court rulings could result in a finding of contempt and imposition
ofsanctions, and that given the uniquely legal nature ofsuch statements, the Court will specifically

hold counsel for the VSL Parties directly responsible for any such mischaracterizations, including
potentially referring counsel of record to this Court's Disciplinary and Admissions Committee.
See Md. Rule Professional Conduct 19-304.1 (West 2020)(prohibiting attorneys from knowingly
making false statements of material fact or law to a third person); D. Md. Local R. 704 (adopting
the Maryland Rules of Professional Conduct); D. Md. Local R. 705 (setting forth this Court's

disciplinary process). On this point, the Court also reminds counsel for the VSL Parties that by
the terms of Rule 65,they, too, are subject to the constraints ofthe Permanent Injunction. Fed. R.
Civ. P. 65(d)(2)(B).
CONCLUSION

For the reasons set forth above, ExeOi's Motion for an Order of Civil Contempt, ECF No.
1015, will be DENIED, A separate Order shall issue.

Date: July 15, 2021

THEODORE D.CHH^G
United States District Juc

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