Merck Eprova AG v. Brookstone Pharmaceuticals, LLC

Filing 184

OPINION AFTER BENCH TRIAL: THAT, no later than March 15, 2013, Merck shall submit a fee application to the Court, including a sworn declaration providing each attorney's background, experience, and billing rate at the time the work was expended, as well as copies of the attorneys' time sheets. Acella may submit papers opposing the amount of fees requested, though not the imposition of fees themselves, no later than March 31, 2013. The Clerk of the Court is respectfully directed to enter judgment in favor of Merck and to terminate the motion located at docket entry 127. (Signed by Judge Richard J. Sullivan on 1/31/2013) (cd)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
_____________________
No. 09 Civ. 9684 (RJS)
_____________________

MERCK EPROVA AG,
Plaintiff,
VERSUS

BROOKSTONE PHARMACEUTICALS, LLC
A/K/A ACELLA PHARMACEUTICALS, LLC, ET AL.,
Defendants.
_____________________
OPINION AFTER BENCH TRIAL
January 31, 2013
_____________________

RICHARD J. SULLIVAN, District Judge:
Plaintiff Merck & Cie (“Merck”),
formerly known as Merck Eprova AG, a
producer of pharmaceutical and dietary
ingredients, brings this action against
Defendant Acella Pharmaceuticals LLC
(“Acella”), formerly known as Brookstone
Pharmaceuticals LLC, a corporation that
develops, markets, and sells low-cost
vitamins and nutritional supplements; Merck
also names two of Acella’s officers as
defendants (collectively, “Defendants”). In
this action, Merck alleges that Acella falsely
labeled its folate products, leading
customers to believe that Acella’s mixture
products were identical to Merck’s
chemically pure folate product. Merck
further alleges that this false labeling

prompted pharmaceutical databases to “link”
the cheaper Acella products to the more
expensive
Merck
product,
inducing
pharmacies and others to believe that
Acella’s folate could be substituted for
Merck’s despite their different chemical
compositions. As a result, Merck seeks to
hold Acella and its officers liable for false
advertising, contributory false advertising,
and deceptive trade practices under both
federal and state law. Acella, by turn, seeks
a declaratory judgment that it did not engage
in false advertising.
It also brings a
counterclaim against Merck, alleging that it
improperly marketed its folate products.

Having presided over a bench trial in
this action, the Court issues the following
findings of fact and conclusions of law
pursuant to Federal Rule of Civil Procedure
52(a). For the reasons set forth below, the
Court finds that: (1) Acella engaged in false
advertising in violation of the Lanham Act;
(2) Acella engaged in contributory false
advertising under the Lanham Act; and (3)
Merck failed to meet its burden to prove that
Acella engaged in a deceptive trade practice
or false advertising in violation of New
York state law. Accordingly, the Court
hereby enters judgment for Merck and
awards Merck damages in the amount of
$11,606,400.00 plus interest, as well as
injunctive relief and attorneys’ fees. Further,
the Court dismisses Acella’s request for a
declaratory judgment and counterclaim.

On April 15, 2011, Merck filed its
Second Amended Complaint, adding Harold
Arthur Deas (“Deas”), Acella’s Chief
Operating Officer, and Thomas Jeffrey
Bryant (“Bryant”), Acella’s Director of
Business Development, as defendants. The
Second Amended Complaint also dropped
Merck’s prior claims for federal and
common law unfair competition. Acella
answered and made counterclaims against
Merck on April 29, 2011, and Deas and
Bryant both answered the Complaint on
May 12, 2011. Merck filed its Third
Amended Complaint, which consisted of
minor alterations and clarifications, on
August 11, 2011. Defendants answered on
September 1, 2011, reasserting their
counterclaims.
The case proceeded to trial on November
14, 2011. The trial was conducted without
objection in accordance with the Court’s
Individual Rules for the conduct of non-jury
proceedings.
Accordingly, the parties
submitted affidavits containing the direct
testimony of their respective witnesses, as
well as copies of all the exhibits and
deposition testimony that they intended to
offer as evidence at trial. The parties were
then invited to call those witnesses whom
they wished to cross-examine at trial. In all,
thirteen witnesses submitted affidavits, and
twelve witnesses testified before the Court at
trial. Closing arguments took place on
December 7, 2011.
The parties then
submitted post-trial memoranda on January
6, 2012 and reply post-trial memoranda on
January 20, 2012.

I. PROCEDURAL HISTORY
Merck filed this action on November 20,
2009. The case was assigned to my docket
because it was related to a case already
before me. See Merck Eprova AG v. Gnosis
S.p.A., No. 07 Civ. 5898. At a December 3,
2009 conference, Acella made an oral
motion to transfer this action to the Northern
District of Georgia. Merck moved for a
preliminary injunction on December 4,
2009. By Order dated December 15, 2009,
the Court denied both motions.
Merck filed an Amended Complaint on
January 13, 2010. Acella answered the
Amended
Complaint
and
made
counterclaims against Merck on January 29,
2010. On August 5, 2010, Merck filed a
motion for partial summary judgment, and
Acella filed a motion for summary
judgment. The Court heard oral argument
on the parties’ motions on March 10, 2011,
and, in a Memorandum and Order dated
March 17, 2011, the Court denied both
parties’ motions.

2

II. FINDINGS OF FACT 1

Georgia, with its principal place of business
in Alpharetta, Georgia. (Id. ¶ 2.) Deas is
Acella’s Chief Operating Officer, and
Bryant is its Director of Business
Development.
(Id. ¶¶ 5, 7.)
Acella
develops, markets, and sells lower cost,
finished consumer pharmaceutical products.
(Id. ¶ 10.)

This case concerns a brand-name
pharmaceutical manufacturer, a developer of
generic substitutes, and the inner-workings
of the pharmaceutical substitution process.
Merck, the brand-name manufacturer,
produces a chemically pure version of the
nutritional
supplement
folate
called
Metafolin. Acella, the generic substitute
developer, sells mixed folate products
known as Xolafin and Xolafin-B. Though
their products indisputably differ, Merck
alleges that Acella labeled its substitute
products to appear identical to and
interchangeable with Merck’s, in violation
of the Lanham Act and state law. In
response, Acella asserts that Merck
mislabeled its own products and seeks a
declaratory judgment that its labeling is
truthful, because the labels properly identify
their products’ active – if not inactive –
ingredients.

B. Chemical Concepts 2
Stereochemistry refers to the spatial
arrangement of atoms within a molecule.
(Id. ¶ 31.) Stereoisomers are molecules that
have the same composition of atoms and
bond connectivity of atoms, but may differ
with respect to the arrangement of those
atoms in space. (Id. ¶ 30.) When two
stereoisomers have different configurations,
they are called “diastereoisomers,” and
when two or more diastereoisomers are
combined, they create a diastereoisomeric
mixture. (Id. ¶¶ 32-33.) Despite their
identical
molecular
formulas,
diastereoisomers can have different physical,
chemical, and biological properties due to
their different structural formations; thus,
they may also have different effects in the
human body. (Aff. of Dr. Jesse Gregory,
dated Oct. 14, 2011 (“Gregory Aff.”) ¶ 34;
Aff. of Daniel W. Armstrong, dated Oct. 7,
2011 (“Armstrong Aff.”) ¶ 35.)

A. The Parties
Plaintiff Merck is a Swiss corporation
with its principal place of business in
Schaffhausen, Switzerland. (PTO Facts ¶
1.) Merck manufactures and distributes
pharmaceutical and dietary ingredients to
the pharmaceutical and nutritional industry
for use in final consumer products. (Id. ¶ 8.)
Accordingly, Merck does not directly sell
any finished products to consumers. (Id. ¶
9.) Instead, Merck’s customers use Merck
ingredients to manufacture their own
finished consumer products. (Id. ¶ 8.)

The
naming
conventions
for
stereoisomers are similarly complex.
However, for present purposes, it is
necessary only to know that stereoisomers
can be identified by several prefixes,
including “R” and “S” under the CahnIngold-Prelong rules, “D” and “L” under the
Fischer-Rosanoff convention, and “(+)” and

Defendant Acella is a limited liability
corporation organized under the laws of
1

To the extent that any finding of fact reflects a legal
conclusion, it shall to that extent be deemed a
conclusion of law, and vice versa. As indicated,
many of these factual findings are taken directly from
the parties’ experts’ affidavits and the Joint Pretrial
Order (“PTO”).

2

These facts are largely undisputed; however, the
Court believes that it would be impossible to
understand the contested issues in this case without a
brief explanation of stereochemical terms and naming
conventions related to the products at issue.

3

“(-)” under a third convention based on
optical activity, which are also referred to as
“d” and “l.” (Gregory Aff. ¶ 34.) When a
mixture of different isomers, rather than a
pure isomer, is referenced, this may be
indicated by using the symbols “D,L,” “R,S,”
or “(±)” as a prefix before the chemical name.
(Armstrong Aff. ¶¶ 27, 30).

D,L-5-MTHF is the diastereoisomeric
mixture of the two that is created in the
synthetic manufacturing process. (Gregory
Aff. ¶ 52.)
Finally, these distinct stereochemical
forms have distinct effects on the human
body.
L-5-MTHF is the predominant
naturally occurring folate and, as would be
expected, is easily used and absorbed by the
human body. (Gregory Aff. ¶¶ 28; 38, 48.)
D-5-MTHF, in contrast, is not active in the
body, is not easily absorbed, and its full
impact on the body is unclear. (Id.)

C. Folates
The products at issue in this case are types
of folate, a B vitamin essential to creating
new cells. Though folate is essential for all
living things, it is notably used to lessen the
risk of certain cancers and cardiovascular
disease, as well as to promote prenatal
health in women. (Gregory Aff. ¶¶ 18-20.)
The most recognizable form of folate, folic
acid, does not occur naturally in large
quantities, but because it is relatively easy to
synthesize, it is the primary folate form used
in
food
fortification
and
dietary
supplements. (Id. ¶ 24.) In contrast,
tetrahydrofolates are the predominant
naturally occurring forms of folate and are
more easily metabolized and processed by
the human body.
(Id. ¶¶ 25-26, 40.)
However, tetrahydrofolates are much more
difficult to synthesize. (Id. ¶ 35.) This is
because tetrahydrofolate exists in nature in
the “L” stereochemical form, but when
synthetically manufactured, takes the form
of a stereochemical mixture, having both
“L” and “D,” “S” and “R,” or “(-)” and
“(+)” stereoisomers. (Id. ¶ 25.) In general
terms, L-5-methyltetrahydrofolate (“Lmethylfolate” or “L-5-MTHF”), refers to the
naturally occurring isomer, whereas D-5methyltetrahydrofolate (“D-5-methylfolate”
or “D-5-MTHF”) refers to the synthetic
isomer. 3 (Id. ¶¶ 38, 48-50; PTO Facts ¶ 39.)

C. The Products
Synthetic tetrahydrofolate, or D,L-5MTHF, has been available in the United
States as a dietary supplement in varying
levels of purity since the turn of the century.
(Gregory Aff. ¶¶ 28, 51; Tr. 17:11-15; DTX
157.) However, after expending tens of
millions of dollars on research and
development, Merck was the first company
to offer a substantially pure L-5-MTHF
product. (PTO Facts ¶¶ 8, 9, 11, 13;
Affidavit of Roger Weibel, dated May 20,
2010 (“Weibel Aff.”), at ¶¶ 8, 9.) In
September 2000, Merck submitted to the
Food and Drug Administration (“FDA”) a
“new dietary ingredient notification”
(“NDI”) – which is required to sell a dietary
ingredient in the United States – specifying
that its product, Metafolin, contained at least
ninety-nine percent L-5-MTHF. (DTX 158;
PTX 286; Tr. 28:3-9.) As such, Metafolin
both set and satisfied the international
standard for L-5-MTHF purity. (Tr. 1403.)
That standard – which was later adopted by
the FDA, the United Nations and World
Health Organization’s Joint Food and
Agriculture Organization Expert Committee
on Food Additives (JECFA), and the

3

Merck challenges Acella’s use of the terms “Lmethyfolate” and “6(S)-5-MTHF” on its labels.
These terms are both synonyms for the pure, natural
isomer. Throughout the trial, however, the parties
referred to the pure isomer as “L-methylfolate” and

“L-5-MTHF.” Accordingly, the Court will continue
to use those terms throughout the Opinion.

4

approximately $10,000 per kilogram,
whereas the racemic form of 5-MTHF was
$2,000 per kilogram. (Tr. 1697:11-17.)
After traveling to China, Acella entered into
a supply agreement with the Chinese
producer, Jinkang, to purchase the 5-MTHF
compound. (PTX 18.) In the supply
agreement with Jinkang, Acella specified
that it was developing “racemic 5methyltetrahydrofolate, calcium salt.” (Id.)
Moreover, a certificate of analysis regarding
the Jinkang folate referred to the compound
as
“5-methyltetrahydrofolate
calcium
(racemate)” (PTX 22), and e-mails between
Bryant and Jinkang refer to the product as
“racemic methylfolate.” (PTX 119.)

European Food and Safety Authority (EFSA)
– limits D-5-MTHF impurities to one
percent. (Id.) In time, Merck’s pure isomer
product outpaced its competitors, which had
previously offered D,L-5-MTHF mixture
products with approximately fifty percent of
the natural isomer and fifty percent of the
synthetic D-isomer. (Tr. 17:11-15, 71:1772:9; DTX 157.)
As the only substantially pure entrant in
the synthetic tetrahydrofolate market, Merck
built a following of customers who touted
the inclusion of Metafolin in their products
as a unique selling point. (PTO Facts ¶ 14.)
Included in Merck’s customers list were
Pamlab, LLC (“Pamlab”) and Sciele
Pharma, Inc., now known as Shionogi
Pharma, Inc. (“Sciele”). (Id. ¶ 13.) As a
Merck customer, Pamlab both produces its
own finished consumer products containing
Metafolin, and, under a license agreement
with Merck, sells Metafolin to Sciele for use
in Sciele’s Prenate Elite, Prenate DHA, and
Prenate Essential prescription prenatal
dietary supplements (the “Sciele products”).
(Id. ¶ 16.)

Following its purchase of the racemic
folate source from Jinkang, Acella
developed its own folate product called
Xolafin that contained a mixture of
approximately fifty percent L-5-MTHF and
fifty percent D-5-MTHF. (Id. ¶¶ 20, 21; Tr.
1240:8-11; 1264:25-1265:1.) Acella began
selling finished consumer products with
Xolafin in 2009, making if the first company
to directly compete with Metafolincontaining products. 4
(Tr. 164:17-19.)
Nevertheless, despite the mixed contents of
the Acella product, the company labeled its
folate source as “L-methylfolate” – the name
of the pure L-isomer – without
acknowledging the presence of D-5-MTHF
in the product. (Tr. 1292:3-8.) This was in
marked contrast to the GNC fifty-fifty
mixture product, which labeled its folate
source as “D,L-methylfolate” – a fact of
which Acella was well aware. (DTX 157.)

Recognizing an opportunity to enter a
market with limited competition, Acella
initially tried to purchase L-5-MTHF from
Merck through a proposed licensing
agreement. (Tr. 1677:13-15.) When Merck
rebuffed that offer, Acella began to develop
its own folate source to compete with the
Sciele and Pamlab finished consumer
products. (Tr. 1679:21-1680:8.) In 2009,
after seeing an internet advertisement by a
Chinese manufacturer of pharmaceutical
ingredients for the “racemic” form of 5MTHF – that is, a folate compound with
equal parts L-5-MTHF and D-5-MTHF –
Acella officers Deas and Bryant, along with
Acella’s Chief Executive Officer Mark
Pugh, traveled to China to buy the mixture.
(Tr. 1250:7-1251:20; 1660:3-13; PTX 19.)
At the time, the cost of pure L-5-MTHF was

4

The supplement store GNC has marketed a folate
product since 1998. However, its product was a fiftyfifty mixture of the natural isomer and the synthetic
isomer, was labeled as such, and as a result, it did not
directly compete with Merck’s pure isomer product.
(Tr. 18: 20; 20:5-6.)

5

folate market in November 2009. (Hofmann
Aff. ¶ 25, Figures 1 & 2.)

In 2010, Acella replaced Xolafin with a
successor folate source, Xolafin-B, in
several prescription dietary supplements.
(PTO Facts ¶ 20.) Unlike Xolafin, XolafinB contains between ninety and ninety-five
percent L-5-MTHF and between five and ten
percent D-5-MTHF. (Id. ¶ 22.)

D. Pharmaceutical Substitution
In
the
pharmaceutical
industry,
“pharmaceutical substitution” is the process
by which a pharmacist chooses to dispense a
different product – generally a less
expensive, generic product – in place of the
product specifically prescribed by a
healthcare professional. (Id. ¶ 41.) The
process of “pharmaceutical substitution”
begins when a pharmaceutical database,
such as Medi-Span and First DataBank,
collects
product
information
from
pharmaceutical manufacturers for entry into
their electronic data banks. (Id. ¶ 42.)
Based on the information provided by the
manufacturers – such as labels and package
inserts – databases then decide whether to
“link” products containing the same
ingredients. (Tr. 38:23-39:2.) Databases
generally “link” products that contain the
same active ingredients, and generally do
not “link” products whose ingredients differ.
(Tr. 1372:16-23.) This is because a “link” is
meant to inform pharmacies and health care
professionals that a generic product is an
appropriate substitute for a brand name
prescription. (Id.) Once databases collect
product information and make linking
choices, the information is then sent to
pharmacies and health care professionals
who use the data – often in conjunction with
state
law
governing
pharmaceutical
substitutions – to decide whether to
substitute one product for another. (Tr.
39:2-5; 67:13-20.)

Taken together, Acella’s Xolafin and
Xolafin-B products either compete or
competed with the following Metafolioncontaining Sciele products: (1) Acella’s
PNV Select competes with Sciele’s Prenate
Elite; (2) Acella’s PNV-DHA competed
with Sciele’s Prenate DHA; and (3) Acella’s
PNV Omega competes with Sciele’s Prenate
Essential. (Id. ¶ 23.) The folate content of
both Sciele’s Metafolin-containing products
and Acella’s Xolafin- and Xolafin-Bcontaining products appear on the labels and
package inserts associated with these
products.
Specifically, Sciele’s Prenate
Elite states that its one milligram of folate is
present as “L-methylfolate calcium 676 mcg
(as Metafolin) molar equivalent to 600 mcg
of Folic Acid” with 400 micrograms of folic
acid. (DTX 375.) In a near mirror image,
Acella’s PNV Select states that its one
milligram of folate is present as “Lmethylfolate calcium as Xolafin-B 600mcg”
with 400 micrograms of folic acid. (DTX
27; see also PTX 11 (Acella’s prior PNV
Select label, which described its folate
content as “L-methylfolate as Xolafin 600
mcg” with 400 micrograms of folic acid).)
After Acella entered the market with its
purported L-methylfolate product, the sales
of the Merck-licensed products plunged.
(Tr. 1048:6-12; Aff. of Ivan T. Hofmann,
dated Nov. 9, 2011 (“Hofmann Aff.”) ¶ 25.)
For example, while average sales per unit of
Prenate Elite and Prenate DHA steadily
increased from their respective launches in
2004 and 2006, their sales tumbled for the
first time upon Acella’s entrance into the

As a manufacturer of generic substitutes,
Acella aims to have pharmaceutical
databases link their products with branded
products in order to open new channels for
sales. (Tr. 1372:12-15.) To that end, Acella
provides databases with the labels and
package inserts of its products.
(Tr.
6

1375:10-17.) In or around November 2009,
Acella provided pharmaceutical databases
with the labels and package inserts for its
Xolafin-containing PNV Select and PNVDHA products, and around March or April
of 2010, Acella supplied the databases with
labels and package inserts for its Xolafin-Bbased PNV Omega product. (PTO Facts ¶¶
43, 44.) Acella’s admitted business strategy
was to ensure that each of its products was
linked to a higher-priced product that
contained Metafolin. (1375:24-1376:2.)

of proof to present evidence in support of the
allegations set forth in its Complaint and to
prove those allegations by a preponderance of
the evidence, as does Acella for its
counterclaims.
McNeil-P.C.C., Inc. v.
Bristol-Myers Squibb Co., 938 F.2d 1544,
1548-49 (2d Cir. 1991). “‘The burden of
showing something by a preponderance of
evidence . . . simply requires the trier of fact
to believe that the existence of a fact is more
probable than its nonexistence.’” Metro.
Stevedore Co. v. Rambo, 521 U.S. 121, 137
n.9 (1997) (quoting Concrete Pipe & Prod.
Of Cal., Inc. v. Constr. Laborers Pension
Trust for S. Cal., 508 U.S. 602, 622 (1993)).
As the finder of fact, the Court is entitled to
make credibility findings of the witnesses and
testimony.

However, in order for a database to link
the Acella and Metafolin-containing
products, the supplements typically had to
have identical active ingredients.
(Tr.
1372:16-23.) If the labels listed different
ingredients, there was a significant risk that
the databases would not link the products – a
risk Acella was mindful of based on at least
one database’s refusal to link its product
with Sciele’s Prenate DHA due to a
temporary difference between their labels.
(See PTX 32; Tr. 1374:8-1375:9.)
Consequently, Acella actively monitored the
labels of Metafolin-containing products to
make sure that Acella’s own products had
identical ingredients listed on its labels. (Tr.
1376:3-6.) Indeed, the trial record reflects
that every single time a Metafolin-containing
product changed its label, Acella made a
corresponding change to the labels of its
products to avoid “delinkage.”
(Tr.
1422:25-1428:21.)

A. Jurisdiction
The Court has jurisdiction over this action
pursuant to 28 U.S.C. §§ 1331 and 1338. The
Court has supplemental jurisdiction over the
state law claims pursuant to 28 U.S.C. § 1367.
Venue in the Southern District of New York
is proper under 28 U.S.C. § 1391.
B. Standing
“[I]n order to establish standing under
the Lanham Act, a plaintiff must
demonstrate (1) a reasonable interest to be
protected against the alleged false
advertising and (2) a reasonable basis for
believing that the interest is likely to be
damaged by the alleged false advertising.”
Famous Horse Inc. v. 5th Ave. Photo Inc.,
624 F.3d 106, 113 (2d Cir. 2010). It is not
required that litigants be in competition, but
competition is viewed “as a strong
indication of why the plaintiff has a
reasonable basis for believing that its
interest will be damaged by the alleged false
advertising.” Id.

III. CONCLUSIONS OF LAW
As noted above, Merck alleges the
following claims in this action: (1) false
advertising under Section 43(a)(1)(B) of the
Lanham Act; (2) contributory false
advertising under Section 43(a) of the
Lanham Act; (3) deceptive trade practices in
violation of New York law; and (4) false
advertising in violation of New York law. To
prevail on its claims, Merck bears the burden
7

misrepresentation, either by direct diversion
of sales or by a lessening of goodwill
associated with its products. S.C. Johnson &
Son, Inc. v. Clorox Co., 241 F.2d 232, 238 (2d
Cir. 2001); Cashmere & Camel Hair Mfrs.,
Inst. v. Saks Fifth Ave., 284 F.3d 302, 310-11
(1st Cir. 2002). “[T]he touchstone of whether
a defendant’s actions may be considered
‘commercial advertising or promotion’ under
the Lanham Act is that the contested
representations are part of an organized
campaign to penetrate the relevant market.
Proof of widespread dissemination within the
relevant industry is a normal concomitant of
meeting this requirement.” Fashion Boutique
of Short Hills, Inc. v. Fendi USA, Inc., 314
F.3d 48, 57 (2d Cir. 2002).

Merck clearly has standing to bring these
claims. Although Merck and Acella are not
direct competitors, insofar as Merck does
not produce finished consumer products,
Merck and Acella both produce competing
sources of folate for use in dietary
supplements. Accordingly, Merck’s “stake
in the [folate] market gives it a reasonable
interest to be protected against the alleged
false advertising.” Johnson & Johnson v.
Carter-Wallace, Inc., 631 F.3d 186, 190 (2d
Cir. 1980). For the same reasons, Merck has
standing to pursue its claims under New
York state law.
C. False Advertising Under Lanham Act
Section 43(a)(1)(B)
Merck challenges Acella’s labeling of its
Xolafin and Xolafin-B products. Specifically,
Merck asserts that Acella’s use of the natural
isomer names “L-methylfolate” and “6(S)-5MTHF” on its labels and package inserts for
certain Acella mixture products was false and
therefore violated the Lanham Act. (See Pl.
Post-Trial Mem. at 3.)

To prove the first element of a Lanham
Act claim, a plaintiff must show either: (1)
that the “challenged advertisement is literally
false, i.e., false on its face,” or (2) “that the
advertisement, while not literally false, is
nevertheless likely to mislead or confuse
customers.” Tiffany (NJ) Inc. v. eBay, Inc.,
600 F.3d 93, 112 (2d Cir. 2010). To succeed
under a “literal falsity” theory, a plaintiff
must show that the challenged advertisement
is “false on its face” or “explicitly false.”
Johnson & Johnson Vision Care, Inc., 348
F. Supp. 2d at 178. That is, the message
must be unambiguous. Time Warner Cable,
Inc. v. Directv, Inc., 497 F.3d 144, 158 (2d
Cir. 2007). When a plaintiff demonstrates the
literal falsity of an advertisement, consumer
deception is presumed. Id. at 153. Thus,
“[w]here the advertising claim is shown to
be literally false, the court may enjoin the
use of the claim ‘without reference to the
advertising’s impact on the buying public.’”
Johnson & Johnson Vision Care, Inc., 348
F. Supp. 2d at 178 (citing McNeil-P.C.C.,
Inc. v. Bristol-Myers Squibb Co., 938 F.2d
1544, 1549 (2d Cir. 1991)). Further, injury
may be presumed when the plaintiff is an
obvious competitor with respect to the

The Lanham Act expressly forbids false
or misleading descriptions or representations
of fact “in commercial advertising or
promotion”
concerning
“the
nature,
characteristics, qualities, or geographic origin
of . . . goods, services, or commercial
activities.” 15 U.S.C. § 1125(a)(1)(B). To
establish a false advertising claim under
Section 43(a) of the Lanham Act, a plaintiff
must prove the following elements: (1) the
defendant has made a false or misleading
statement; (2) the false or misleading
statement has actually deceived or has the
capacity to deceive a substantial portion of the
intended audience; (3) the deception is
material in that it is likely to influence
purchasing decisions; (4) the defendant
placed the false or misleading statement in
interstate commerce; and (5) the plaintiff has
been injured as a result of the
8

are diastereoisomeric mixtures of D,Lmethylfolate. However, several witnesses at
trial testified that, technically, the labels
properly identified the presence of the active
L-isomer – or “L-methyltetrohydrofolate” –
and the net amount of that isomer, even if
they did not identify the presence and
amount of the inactive D-isomer. (Tr. at
324; 350; 416-17; 526-28.) Under this
interpretation, Acella’s labels would be
deemed literally true because they properly
identify the net amount of L-isomer in their
products – they simply neglect to disclose
the amount of D-isomer. Because Acella’s
labels are thus “susceptible to more than one
reasonable interpretation,” Time Warner
Cable, Inc., 497 F.3d at 158, the Court finds
that Merck has not proven by a
preponderance of the evidence that Acella’s
labels were literally false.

misrepresented product. Reckitt Bensicker v.
Motomco Ltd., 760 F. Supp. 2d 446, 453
(S.D.N.Y. 2011).
However, “if the language . . . is
susceptible to more than one reasonable
interpretation, the advertisement cannot be
literally false.” Time Warner Cable, Inc.,
497 F.3d at 158. Then, “a plaintiff can show
that the advertisement, while not literally
false, is nevertheless likely to mislead or
confuse customers.” Time Warner, 497 F.3d
at 153. “[P]laintiffs alleging an implied
falsehood are claiming that a statement,
whatever its literal truth, has left an
impression on the listener [or viewer] that
conflicts with reality.’” Id. (quoting Schering
Corp. v. Pfizer Inc., 189 F.3d 218, 229 (2d
Cir. 1999). In a case where a plaintiff seeks
to prove that an advertisement is implicitly
false, the plaintiff must put forth extrinsic
evidence of consumer deception.
Id.
Nevertheless, there is a “narrow exception to
this rule” – where a plaintiff demonstrates that
a defendant has “intentionally set out to
deceive the public, and the defendant’s
deliberate conduct in this regard is of an
egregious nature, a presumption arises that
consumers are, in fact, being deceived.”
Tiffany (NJ), Inc. v. eBay, Inc., 04 Civ. 4607
(RJS), 2010 WL 3733894, at *3 (S.D.N.Y.
Sept. 13, 2010) (quoting Johnson & Johnson
* Merck Consumer Pharm. Co. v. Smithkline
Beecham Corp., 960 F.3d 294, 298 (2d Cir.
1992).
The burden then shifts to the
defendant to show that consumers were not
misled or confused. Id.

2. Implied Falsity
Although Merck has not demonstrated
that Acella’s labels are literally false, it may
still succeed on its Lanham Act false
advertising claim on an implied falsity
theory. Typically, to demonstrate implied
falsity, a plaintiff must present evidence of
consumer deception or confusion. That is,
“a district court must rely on extrinsic
evidence [of consumer deception or
confusion] to support a finding of an
implicitly false message.” Time Warner
Cable, 497 F.3d at 153 (internal quotation
marks and citation omitted). Such extrinsic
evidence is generally provided by customer
surveys exhibiting consumer confusion.
“‘[T]he success of a plaintiff’s implied
falsity claim usually turns on the
persuasiveness of a consumer survey’ that
shows that a substantial percentage of
consumers are taking away the message that
the plaintiff contends the advertising is
conveying.” Procter & Gamble Co. v.
Ultreo, Inc., 574 F. Supp. 2d 339, 345
(S.D.N.Y. 2008) (quoting Johnson &

1. Literal Falsity
Merck claims that Acella’s use of the
term “L-methylfolate” or “6(S)-5-MTHF”
on its products’ labels and package inserts is
literally false because the ingredient used in
Acella’s products is not pure L-methylfolate.
Acella admits that both Xolafin and XolafinB are not pure L-methylfolate – rather, both
9

Johnson*Merck, 960 F.2d at 297). “After a
plaintiff has established that a substantial
number of consumers [has] taken away the
purported message, the district court must
then evaluate whether the message is false
or likely to mislead or confuse, and may
consider factors such as the commercial
context, the defendant’s prior advertising
history, and the sophistication of the
advertising audience.” Id. at 346.

conducted by Hal Poret (“Poret”) in June
2011, attempted to determine whether the
designation “L-methylfolate” conveyed to
pharmacists and physicians that Xolafin is
made up of the “substantially pure isomer.”
(Poret Aff. at 7.) The second, designed by
Dr. Brian Reisetter (“Reisetter”), a
pharmacist and pharmacy expert, attempted
to assess product substitutions by
pharmacists.

However, where a plaintiff “‘adequately
demonstrates that a defendant has
intentionally set out to deceive the public,’
and the defendant’s ‘deliberate conduct’ in
this regard is of an ‘egregious nature,’” a
court may presume that consumers are being
deceived. Johnson & Johnson*Merck, 960
F.2d at 298 (quoting Resource Developers,
Inc. v. Statue of Liberty-Ellis Island Found.,
Inc., 926 F.2d 134, 140 (2d Cir. 1991). In
such cases, a plaintiff need not rely on
consumer surveys to prove an implied falsity
claim; instead, the defendant must disprove
consumer confusion. Id.

In his survey, Poret showed participants
Acella labels and package inserts and asked
questions to determine what the term “Lmethylfolate” on those labels and inserts
communicated to them. (Poret Aff. at 4.)
Both the pharmacist group and the physician
group had a Test Group and a Control
Group. (Id. at 4-9.) The Test Group was
shown an actual Acella label, which read:
“Folate (L-methylfolate as Xolafin 600
mcg),” while the Control Group was shown
a modified label that read “Folate (D,Lmethylfolate as Xolafin 600 mcg).” (Id. at
6.) Survey participants were then asked,
“What, if anything, does this communicate
to you about the folate ingredient termed
Xolafin contained in this vitamin?” (id. at
6), and, “Do you think that the folate
ingredient termed Xolafin contained in this
vitamin is or is not a substantially pure
isomer?” (Id. at 7 (emphasis in original).)

For the reasons set forth below, the
Court finds that although Merck cannot
prove literal falsity, it has proven implied
falsity.
a. Consumer Surveys
In determining whether a challenged
advertisement is likely to confuse or mislead
customers, courts must look to the person to
whom the advertisement is addressed. Am.
Home Products Corp. v. Johnson &
Johnson, 577 F.2d 160, 166 (2d Cir. 1978).
Because Acella’s labels and package inserts
were intended to encourage product
substitution, and thus directed in part to
pharmacists and physicians (Tr. 1372:121376:2), Merck surveyed those groups.
Specifically, Merck conducted two surveys
to assess confusion among pharmacists and
physicians.
The first, designed and

Among the pharmacists surveyed, 45%
of the Test Group indicated that the Xolafin
designated L-methylfolate is a substantially
pure isomer, and 9% answered that it is not.
(Id. at 9-10.) In the Control Group, 24% of
the pharmacists answered that the Xolafin
designated
D,L-methylfolate
is
a
substantially pure isomer. (Tr. 601:20602:12.) Thus, Poret’s study concluded that
a net of 21% of pharmacists believed that
Xolafin was a substantially pure isomer
based on the “L” designation. (Tr. 601:20602:12.)

10

of the respondents believed that Acella
products were appropriate for substitution
for Pamlab products.
(Id. ¶ 94.)
Respondents most often based this
conclusion on their belief that the products
contained the same ingredients, as stated on
Acella’s labels. (Id. ¶ 94.) Conversely,
when asked whether a mixture product
would be an appropriate substitute for the
pure Pamlab product, only 10% of
respondents said that it would be without
contacting the prescribing physician. (Id.
¶ 98.)

In the physician sample, 37% of the Test
Group responded that the Xolafin designated
as L-methylfolate is a substantially pure
isomer and 4% answered that it was not.
(Poret Aff. at 11.) By contrast, 26% of the
physicians in the Control Group responded
that Xolafin designated as D,L-methylfolate
is a substantially pure isomer. Thus, 11% of
the surveyed physicians believed that
Xolafin was a substantially pure isomer
based on the “L” designation. (Id.) Because
the labels for the Acella products that
contain Xolafin-B provide the same
information as the products containing
Xolafin, Poret concluded that it “is highly
likely [that] pharmacists and physicians
observing Xolafin-B labels and inserts
would have similar responses as they did to
Xolafin labels and inserts.” (Pl. Post-Tr.
Mem. at 13.)

Similarly, in his study of Sciele
products, Dr. Reisetter found that 75.3% of
respondents concluded that, based on the
respective products’ package inserts, Acella
products were an appropriate substitute for
Sciele products. (Id. ¶ 101.) Again, when
asked whether they would reach the same
conclusion for a racemic mixture product,
only 33.3% of the pharmacists said that they
would substitute the Acella product without
first contacting the prescribing physician.
(Id.) Consequently, Dr. Reisetter concluded
that a “majority of pharmacists would not
substitute Acella’s products for any of the
branded Metafolin-containing products if
they had the full information that the
products did not meet the compendia purity
standards for L-methylfolate by the use of
D,L-methylfolate in their formulation.” (Id.
¶ 104.) Thus, the labels on Acella products
“resulted in the market believing these
products to be pharmaceutically equivalent
and,
therefore,
appropriate
generic
substitutes.” (Id. ¶ 1.)

Dr. Reisetter’s study surveyed retail
pharmacists to determine whether Acella’s
labeling materially affected pharmacists’
decisions regarding product substitution.
(Aff. of Dr. Brian Reisetter, dated Oct. 14,
2011, PTX 292 (“Reisetter Aff.”), at ¶ 7.)
Essentially, the goal of Dr. Reisetter’s
survey was to determine whether
pharmacists and databases treated Acella
products as “pharmaceutical equivalents” of
Merck products, which would result in the
generic Acella products being substituted for
the more expensive Merck products. (Id.
¶ 49, 58, 74.)
To do this, Dr. Reisetter conducted
studies comparing the Acella products with
the Metafolin-containing Pamlab and Sciele
products, in turn. In the Pamlab study, Dr.
Reisetter surveyed 150 pharmacists, and
posed questions about how similar the
Pamlab and Acella products were based on
the labels, and whether mixture products
would be an appropriate substitute for
Pamlab products. (Id. ¶ 86.) From these
surveys, Dr. Reisetter concluded that 45.3%

Although Acella attempts to poke holes
in these surveys (see Def. Post-Tr. Mem. at
6-7, 11), the Court nonetheless finds them to
be sufficiently reliable. Both surveys used
adequate control groups, which “enable[d]
the surveyor[s] to separate the wheat (the
effect of the advertisement, alone, on the
participant) from the chaff (the effect of the
11

pharmacists and physicians reading Acella
labels were often led to believe that Xolafin
products contained the pure L-isomer, an
unsurprising result given labeling customs
and database linkage. Accordingly, Merck
has provided sufficient extrinsic evidence of
consumer confusion to prove implicit falsity.

participant’s prior knowledge and/or prior
(mis)conceptions).” Procter & Gamble, 574
F. Supp. 2d at 351 (quoting Pharmacia
Corp. v. GlaxoSmithKline Consumer
Healthcare, L.P., 292 F. Supp. 2d 594, 601
(D.N.J. 2003)). Furthermore, by showing
survey participants labels for products
containing Metafolin and Xolafin, both
surveys “replicate[d] real-world conditions
with respect to packaging.” See Gucci Am.,
Inc. v. Guess?, Inc., 831 F. Supp. 2d 723,
744 (S.D.N.Y. 2011). Considering that 21%
of the pharmacists and 11% of the
physicians surveyed in Poret’s studies, and
even larger numbers of pharmacists in Dr.
Reisetter’s studies, believed that Xolafin
was the pure L-isomer, the Court has little
difficulty concluding that the surveys
demonstrate that “a substantial percentage of
consumers are taking away the message that
the plaintiff contends the advertising is
conveying.” Procter & Gamble, 574 F.
Supp. 2d at 345. Compare Paco Sport, Ltd.
v. Paco Rabanne Parfums, 86 F. Supp. 2d
305, 322-24 (S.D.N.Y. 2000) (“[T]he levels
of confusion are negligibly low (below 5%)
and virtually indistinguishable from levels
of confusion in the control group.”).

b. Deliberate Misconduct
Even without the consumer surveys, the
Court finds that Merck is entitled to a
presumption of consumer deception because
it has demonstrated that Acella intentionally
set out to deceive its consumer base.
“[W]here
a
plaintiff
adequately
demonstrates that a defendant has
intentionally set out to deceive the public,”
and the defendant’s “deliberate conduct” in
this regard is of an “egregious nature,” a
presumption arises “that consumers are, in
fact, being deceived.” Resource Developers,
Inc., 926 F.2d at 140. Although a “high
level [of evidence is] required to show the
kind of ‘egregious’ misconduct required to
meet this standard,” Stokely-Can Camp, Inc.
v. Coca-Cola Co., 646 F. Supp. 2d 510, 527
(S.D.N.Y. 2009), Merck has met this bar by
demonstrating that Acella intentionally
marketed Xolafin and Xolafin-B to create
the impression in customers that the Acella
products were identical to Merck’s
Metafolin.

Having determined that Acella’s labels
delivered the alleged message, the Court
must next “evaluate whether [that] message
is false or likely to mislead or confuse.”
Procter & Gamble Co., 574 F. Supp. 2d at
346. The Court finds that the Xolafin and
Xolafin-B labels were plainly false and
designed to confuse. First, as evidenced by
GNC’s labeling practices, in the context of
folate sales, mixture products customarily
identify the presence of the D-isomer.
Acella’s labels pointedly failed to do so.
The fact that Acella purposefully sought out
a “racemic” mixture product also
underscores the deceptive nature of its “Lmethylfolate” labels. Finally, while Acella’s
target audience was a sophisticated one,
Merck has demonstrated that the

Simply put, D,L-methylfolate and Lmethylfolate are chemically distinct
substances. Acella purposefully sought out
the former mixture product with complete
knowledge that it was distinct from the latter
pure product.
Despite that knowledge,
Acella then labeled its mixture product
identically to the pure product. Acella’s
actions thus dictate a finding of intentional
consumer deception.
First, prior to Acella’s production of
Xolafin, Bryant drafted a proposal
12

Acella struggles to avoid this conclusion,
claiming that its labels merely reflect that
the “active ingredient” in Xolafin and
Xolafin-B is the L-isomer, and that the Disomer is an “impurity” not requiring
acknowledgement.
However,
this
explanation does not obscure the fact that
Acella purposefully blended that L- and Disomers in its products, and that Acella’s
failure to acknowledge that blend was part
of a deliberate effort to compete with the
pure Metafolin products. (Tr. 1238-39.)
Thus, the Court does not find Bryant’s
explanation of wanting to avoid infringing
Merck’s patents credible, nor does it credit
Bryant’s testimony that identifying only the
L-methylfolate component of Acella’s
diasteroisomeric mixture comported with his
understanding of FDA requirements. (PTX
327; Tr. 1561:19-1564:23.) Indeed, these
explanations are contradicted by Acella’s
own internal references to its folate
ingredient as a mixture product, as well as
Acella’s identification of “subcomponents”
of ingredients in its other product labels.
(See Tr. 1342-46; 1355-56.) Furthermore,
Acella’s
contract
manufacturer
for
producing Xolafin, Arizona Nutritional
Supplements, referred to Acella’s products
as “D,L-methylfolate.” (Trial Tr. 1244-47.)
Moreover, Bryant admitted that Acella was
aware of the FDA, JECFA, and EFSA
labeling standard for pure folate products,
which limits the presence of D-isomers to
one percent, and even cited these standards
in communication with Arizona Nutritional
while making its labeling decisions. (Tr.
1403-06.) Finally, it would have been
illogical for Acella to initiate development
of Xolafin-B – with its purer chemical
makeup – if the amount of D-isomer is
irrelevant, as several Acella witnesses
suggested at trial.

suggesting that Acella not use pure Lmethylfolate in order to avoid infringing
Merck’s patents – clear evidence that Acella
understood the difference between its own
products and Metafolin. (Tr. 1253-54.)
Furthermore, Bryant testified that, when
seeking out a folate source, he purposefully
inquired as to whether Jinkang could
produce an impure or “racemic” mixture –
again belying knowledge of the distinction
between its products and Merck’s pure Lmethylfolate product.
(Tr. 1253-54.)
Though Bryant disputes the apparent import
of that inquiry, he admits that Acella
intended to develop a “custom blend” of
D,L-methylfolate to avoid purchasing the
purest form of the L-isomer. (Tr. 1254.)
Finally, throughout the course of their
extended electronic communications, Bryant
never once referred to purchasing Lmethylfolate from Jinkang, but instead
consistently referred to a “racemic mixture.”
(PTX 327, PTX 330, PTX 19.) In short,
Acella knew that its products were a D,Lmethylfolate blend that was distinct from
Merck’s pure, and more expensive, product.
Nevertheless, Acella made the conscious
decision to label its products with the pure
chemical name so that pharmaceutical
databases would link Xolafin and Xolafin-B
to Metafolin-containing products.
(Tr.
1375:24-1376:6; 1427:22-1428:22; 1455:161456:15; 1481:4-10; 1723:24-1729:25;
1772:22-1773:5.) The intentional nature of
this decision is obvious from the continual
labeling changes Acella made to track the
ingredients of Metafolin-containing products
and thereby avoid de-linking. (Tr. 1376:3-6;
1418:24-1419:9; 1639:24-1641:23; 1723:241729:25.) Significantly, when questioned
by a pharmaceutical database employee on
the specific chemical makeup of Acella’s
folate products, Deas deliberately avoided
answering the question, knowing that a
truthful response would likely result in
delinking. (PTX 34, 35.)

Given these glaring incongruities, the
Court must conclude that Acella’s
explanations are nothing more than post-hoc
13

presumption that consumers are, in fact,
being deceived.” (internal quotation marks
omitted)).

rationalizations for a policy that was
designed to track Sciele’s and Pamlabs’s
labels at all costs. Acella sold a D,Lmethylfolate product that was distinct from
the pure L-methylfolate product. Acella’s
folate supplier knew this, Acella’s contract
manufacturer knew this, and it is clear that
Acella knew this.
Acella admittedly
endeavored to make a product distinct from
and cheaper than Merck’s Metafolin. It did
so by using a significantly less expensive
mixture ingredient while nevertheless
insisting through its labels that Xolafin and
Xolafin-B were identical to Metafolin.
These labels, in intent and effect, obscured
the true chemical composition of Acella’s
mixture products from consumers. As a
result, Acella was able to capture a portion
of the lucrative folate market that otherwise
would have been closed to it.

Once a plaintiff has made a proper
showing of deliberate deceptive conduct, the
burden shifts to the defendant to
demonstrate the absence of consumer
confusion. Johnson & Johnson Vision Care,
Inc. v. Ciba Vision Corp., 348 F. Supp. 2d
165, 179 (S.D.N.Y. 2004) (quoting Resource
Developers, Inc., 926 F.2d at 140)). Acella
has not met that burden. Indeed, although
Acella raises issues with regard to Merck’s
surveys, they have offered no surveys of
their own or any other evidence to
demonstrate the absence of consumer
confusion. See also Pfizer, Inc. v. Y2K
Shipping & Trading, Inc., 2004 WL 896952,
at *5-6 (E.D.N.Y. Mar. 26, 2004) (finding
actual bad faith where the defendant “set out
to intentionally deceive purchasers” by
advertising the similarity of its product to
plaintiff’s, and failed to rebut the
presumption of consumer confusion by
producing surveys or evidence of its own).

These acts, in addition to the consumer
confusion established by the surveys, entitle
Merck to the presumption that consumers
were deceived. See The Am. Auto Ass’n v.
AAA Auto. Club of Queens, Inc., 1999 WL
97918, at *7 (E.D.N.Y. Feb. 8, 1999)
(holding that plaintiff satisfied the
“egregious” misconduct standard by
demonstrating that defendant acted with the
intent to capitalize on plaintiff’s market
goodwill and provided some evidence of
actual confusion). This finding is only
compounded by the substantial resources
Acella expended in executing its scheme.
From contracting with Jinkang and Arizona
Nutritional, to promoting its Xolafin-based
products as chemically pure, Defendants
went to great lengths to capture Merck’s
market, bolstering Merck’s claim to a
presumption of consumer deception. See
Resource Developers, Inc., 926 F.2d 134,
140 (2d Cir. 1991) (“It seems fair
. . . that [t]he expenditure by a competitor of
substantial funds in an effort to deceive
consumers and influence their purchasing
decisions justifies the existence of a

Accordingly, the Court finds that the
labels and package inserts associated with
Acella’s folate products to be impliedly false
in violation of the Lanham Act.
3. Materiality
Having demonstrated falsity, Merck
must also demonstrate that Acella’s
misrepresentations involved an “inherent or
material quality of the product.” Time
Warner Cable, Inc., 497 F.3d at 153 n.3.
Drawing on precedent from other circuits,
the Second Circuit has explained that
“satisfying this materiality requirement
depends on whether the alleged inaccuracy
in the statements at issue would affect the
purchasing decisions of consumers.” Mylan
Pharm., Inc. v. Proctor & Gamble Co., 443
F. Supp. 2d 453, 462 (S.D.N.Y. 2006)
14

[indicated] that defendants themselves
believed cashmere to be an inherent and
important characteristic of the blazers.”).
(See also Tr. 1375:24-1376:6; 1427:221428:22; 1455:16-1456:15; 1481:4-10;
1723:24-1729:25; 1772:22-1773:5.)

(citing Nat’l Basketball Assoc. v. Motorola,
Inc., 105 F.3d 841, 855 (2d Cir. 1997)). The
materiality requirement “is based on the
premise that not all deceptions affect
consumer decisions.” Johnson & Johnson
Vision Care, Inc. v. 1-800 Contacts, Inc.,
299 F.3d 1242, 1250 (11th Cir. 2002). To
satisfy the materiality requirement, “[t]he
plaintiff does not need to demonstrate that
the defendant’s representations actually
affected consumer behavior, but rather only
that they were likely to have done so.”
Mylan Pharm., 443 F. Supp. 2d at 462.

Additional evidence and testimony
confirms that the L-methylfolate content of
Acella’s products mattered to the relevant
audience. First, the pharmaceutical database
First DataBank e-mailed Deas upon receipt
of information that Acella’s folate “is
actually DL-methylfolate” and inquired as to
whether Acella’s label was accurate. (PTX
34.) Though Acella avoided responding
directly to the inquiry, the inquiry itself
clearly suggests that the chemical makeup of
Acella’s products was material to databases.
Moreover, had First DataBank been given a
direct and honest response, it likely would
have considered delinking. (Tr. 1717:5-14.)
Indeed, Acella’s deliberate efforts to skirt
the issue and avoid a direct response to First
DataBank’s inquiry suggest Acella’s
awareness of the D-isomers’s materiality. A
similar e-mail exchange between Acella and
the pharmaceutical database Gold Standard
only confirms these findings. (PTX 32.)

Acella
strenuously
disputes
the
materiality of its labeling. (Tr. 1972:1-4.)
However, the evidence at trial leads
inescapably to the conclusion that the
“inaccuracy in the statements at issue
[affected] the purchasing decisions of
customers.” Mylan Pharm., 443 F. Supp. 2d
at 462. The products at issue are nutritional
supplements designed to deliver folates to
those who consume them. As discussed
above, the L- and D-isomers have distinct
effects in the human body. Indeed, health
care professionals prescribe and pharmacists
dispense folate supplements based on their
L-methylfolate content, and databases make
substitutions based on the “pharmaceutical
equivalence” of products’ L-methylfolate
content. Acella’s practice of changing its
labels to reflect those of Metafolincontaining products reveals that Acella
believed the L-methylfolate content, or at
least consumer perception of L-methylfolate
content, was a fundamental characteristic of
its products as well. Thus, the Court
concludes that the purity of a product’s
folate source “defines the product at issue,
as well as the market in which it is sold,”
and that such purity is an “inherent and
important” characteristic of a folate
supplement. See Cashmere & Camel Hair
Mfrs. Inst., 284 F.3d at 312 (“[D]efendants’
aggressive marketing strategy highlighting
the ‘cashmere’ nature of the blazers

Moreover, defense witness Dr. Karl
Williams, a pharmacy professor and licensed
pharmacist, admitted that he would not
substitute a product of lesser chemical purity
for a substantially pure brand product, and
acknowledged that labeling would play a
critical role in that distinction. (Tr. 648-50.)
Further, defense witness Dr. Jacob Spanier
conceded that for certain patients,
consuming pure L-methylfolate is essential,
that the presence of D-methylfolate in a
product should be acknowledged on the
label, and, as a result, that accurate labeling
plays an important role in his decisions to
prescribe medications and supplements.
(Dep. of De. Jacob Spanier, dated May 14,
2010 (“Spanier. Dep.”), at 48:8-49:12;
15

49:13-50:5; 60:3-5.)
Finally, a Merck
witness, Dr. Brian Buell, asserted that he
“d[id] not want” his patients consuming any
amount of D-methylfolate due to its
potential biological effects, and that Acella’s
marketing misled him into believing that he
could safely substitute its products for
Merck’s. 5 (Aff. of Dr. Brian Buell, dated
Oct. 14, 2011 (“Buell Aff.”), at ¶¶ 9, 19.)
To each of these witnesses, Acella’s folate
source and labeling decisions were plainly
material.

widespread dissemination within the
relevant industry is a normal concomitant of
meeting this requirement.” Id. Although
Acella indicated that one of its affirmative
defenses was that “Defendants’ labeling is
not advertising under the Lanham Act or
New York State law,” Acella neither argued
this point in its post-trial briefing, nor did it
present evidence at trial to indicate
otherwise.
Even if Acella had pressed this
argument, however, its labels clearly
constitute advertising under the Lanham
Act. By specifically distributing its labels
and package inserts to pharmaceutical
databases, Acella engaged in an “organized
campaign” to penetrate the pharmaceutical
database market, which resulted in linkage
between Acella’s products and the
Metafolin-containing goods.
Indeed,
Acella’s entire business strategy was an
“organized campaign” to co-opt Merck’s
Metafolin market with its distinct and
cheaper products. Thus, the Court finds that
Acella engaged in an organized campaign to
disseminate its misleading labels throughout
the nutritional supplement industry.

Further, to the extent that the Acella
labels led pharmaceutical databases to “link”
Acella’s generic products to Metafolincontaining brand products, the law, in many
cases, required pharmacists to substitute
Acella products for prescribed Metafolincontaining products.
(Tr. 1876:12-21.)
Thus, Acella’s decision to mislabel its folate
source was material in every imaginable
way: to the doctors prescribing it, the
databases linking it, the pharmacists
dispensing it, the patients consuming it, and,
most importantly to Acella, to its own
bottom line. The Court therefore finds
Acella’s misrepresentations to be materially
misleading.

Accordingly, the Court finds that Acella
engaged in false advertising in violation of
Section 43(a)(1)(B) of the Lanham Act.

4. Organized Campaign
The last element of a false advertising
claim made under the Lanham Act is that the
misleading representations must have been
“part of an organized campaign to penetrate
the relevant market.” Fashion Boutique of
Short Hills, Inc. v. Fendi USA, Inc., 314
F.3d 48, 57 (2d Cir. 2002). “Proof of

B. Contributory False Advertising
A contributory false advertising claim is
“based on the theory that one who
intentionally induces another to infringe a
trademark is contributorily liable for this
infringement.” Societe des Hotels Meridien
v. LaSalle Hotel Operating P’ship, L.P., 380
F.3d 126, 132-33 (2d Cir. 2004). Thus, in
order to prove that Acella engaged in
contributory false advertising in violation of
the Lanham Act, Merck must establish false
advertising by the databases.

5

Although there was no evidence introduced to
conclusively demonstrate the negative health
consequences of consuming D-methylfolate, the fact
that certain consumers attached significance to the
presence of D-methylfolate renders it material as a
factor “affect[ing] the purchasing decision of
consumers.” Mylan Pharm., Inc., 443 F. Supp. 2d at
462.

16

The second count of Merck’s Third
Amended
Complaint
alleges
that
“Defendants
induced
the
national
pharmaceutical databases to engage in false
advertising by describing the [Acella
products] as pharmaceutically equivalent to
and substitutable for [Metafolin-containing
products],” and that “Defendants also
induced the national pharmaceutical
databases to engage in false advertising by
describing the [Acella products] as
therapeutically equivalent and substitutable
for
[Metafolin-containing
products].”
(Third Am. Compl. ¶ 101.) The evidence at
trial clearly demonstrated that Acella led the
databases to make misleading claims
regarding Xolafin and Xolafin-B’s chemical
composition.

claim for false advertising under Section 350.
A plaintiff bringing a claim of deceptive trade
practices under Section 349 “must prove three
elements: first, that the challenged act or
practice was consumer-oriented; second, that
it was misleading in a material way; and third,
that the plaintiff suffered injury as a result of
the deceptive act.” Stutman v. Chem. Bank,
95 N.Y.2d 24, 29 (2000). A claim of false
advertising under Section 350 must meet all
of the same elements as a claim under Section
349, and the plaintiff must further
demonstrate proof of actual reliance.
Rodriguez v. It’s Just Lunch, Int’l, No. 07
Civ. 9227(SHS) (KNF), 2010 WL 685009, at
*10 (S.D.N.Y. Feb. 23, 2010).
Corporate competitors have standing to
bring a Section 349 claim if “the gravamen of
the complaint [is] consumer injury or harm to
the public interest.” Azby Brokerage, Inc. v.
Allstate Ins. Co., 681 F. Supp. 1084, 1089 n.6
(S.D.N.Y. 1988). Injury or harm that satisfies
this standard includes “potential danger to the
public health or safety.” Gucci Am. v. Duty
Free Apparel, Ltd., 277 F. Supp. 2d 269, 273
(S.D.N.Y. 2003). With regard to “disputes
between competitors where the core of the
claim is harm to another business as opposed
to consumers,” courts have found that the
“public harm . . . is too insubstantial to satisfy
the pleading requirements of § 349.” Id. at
273.

As an initial matter, it has been wellestablished that Acella’s intentionally
misleading labels caused the databases to
link as chemically equivalent Acella and
Metafolin-containing products, a falsehood,
and that this linkage caused the marketplace
to treat the products as similar or, in some
states, commanded their substitution.
Further, Acella’s success in persuading at
least two of the major pharmaceutical
databases to link its products with Merck
products shows a significant penetration of
the market. (Tr. 68:18-19.) Consequently,
the Court finds that Acella intentionally
induced the databases to falsely advertise
and that Merck has prevailed on its
contributory false advertising claim.

Merck has not alleged a public harm
sufficient to state a claim under Section 349.
While Merck has provided some evidence of
consumer confusion and suggested the risk of
negative health consequences from the Disomer, neither provides an adequate injury.
First, Merck’s evidence of consumer
confusion was introduced to prove the
materiality of Acella’s misleading labels, not
to redress any public harm, and was therefore
peripheral to the “core” of Merck’s claims.
See id., 277 F. Supp. 2d at 774 (rejecting

D. State Law Claims 6
Merck also asserts a claim for deceptive
trade practices under New York General
Business Law Section 349, as well as a
6

Merck did not address its state law claims in its
post-trial brief and may also be deemed to have
waived them.
Cf. Ortho Pharm. Corp. v.
Cosprophar, Inc., 32 F.3d 690, 697 (2d Cir. 1994).

17

established if the officer is a moving,
active[,] conscious force behind [the
defendant corporation’s] infringement.”
(internal quotation marks and citations
omitted)).

Section 349 claim in trademark infringement
action where “core harm” was to corporate
competitor and not to the public, despite
consumers’ purchase of counterfeit goods).
Second, while Merck’s experts posited that
there may be negative health consequences
associated with the D-isomer, they offered
little evidence to conclusively support such
assertions. Nor did Merck establish that those
consequences are associated with the D,Lmethylfolate mixture – in fact, before it
developed Metafolin, Merck itself sold and
marketed a racemic mixture product.
Instead, Merck’s allegations focus almost
entirely on losses suffered by Merck itself,
not to the eventual – and theoretical – harm
suffered by the public at large. See Vitolo v.
Mentor H/S, Inc. 426 F. Supp. 2d 28, 34
(E.D.N.Y. 2006) (finding that plaintiff had
not
demonstrated
“consumer-oriented
conduct” when the alleged harm was suffered
by plaintiff himself and his business instead
of consumers or the public). Accordingly,
Merck’s claims under New York General
Business Law Sections 349 and 350 must fail.

Defendants argue that most claims of
individual liability under the Lanham Act
arise out of counterfeiting cases, “where the
concerns of classic fraud are most pressing”
(Def. Reply at 20), and one-person
companies, where the individual defendant
is the sole officer, shareholder, or employee
of the corporation (id.). 7 Be that as it may,
courts in this Circuit have consistently found
individual defendants personally liable for
corporate Lanham Act violations when the
record indicated that the individual was “a
moving, active[,] conscious force” behind
the corporation’s infringement. Ramada,
283 F. Supp. 2d at 788; Mattel, 2000 WL
973745, at *9; Monsanto, 13 F. Supp. 2d at
354.
The evidence in this case demonstrates
that Deas, Accella’s Chief Operating
Officer, and Bryant, Acella’s Director of
Business Development, were the “moving
forces” behind the development, marketing,
and labeling of Xolafin and Xolafin-B.
Testimony at trial indicated that Deas and
Bryant were the two individuals primarily
responsible for developing Acella’s
products. (Tr. 1377:10-1381:6; 1650:121651:9; 1655:3-13.) Deas and Bryant were
also the driving force behind the
development and labeling of Xolafin and
Xolafin-B. The evidence at trial clearly
established that Bryant initiated contact with
Acella’s Chinese supplier, seeking the

E. Individual Liability of Deas and Bryant
Employees who direct, control, ratify,
participate in, or are the moving force
behind a Lanham Act violation can be held
personally liable for those violations.
Mattel, Inc. v. Internet Dimensions Inc., No.
99 Civ. 10066 (HB), 2000 WL 973745, at
*9 (S.D.N.Y. July 13, 2000); see also
Ramada Franchise Sys., Inc. v. Boychuk,
283 F. Supp. 2d 777, 788 n.14 (N.D.N.Y.
2003) (“It is well established that a
corporate officer directly participating in a
Lanham Act violation will be held liable for
damages.”); Monsanto Co. v. Haskel
Trading, Inc., 13 F. Supp. 2d 349, 354
(E.D.N.Y. 1998) (“[W]hile a corporate
officer is not necessarily individually liable
for torts committed on behalf of the
corporation, personal liability for trademark
infringement and unfair competition is

7

Interestingly, the Court agrees that “[t]he
circumstances that allow recovery directly against
individual corporate officers and agents [in Lanham
Act cases] is . . . litigated with far less frequency than
one might expect.” Century 21 Real Estate, LLC v.
Destiny Real Estate Prop., No. 4:11-CV-38 JD, 2011
WL 6736060, at *6 (N.D. Ill. Dec. 19, 2011).

18

“racemic” mixture (PTX 19 at BK-GA00812), and that Deas and Bryant travelled
to China to meet with Jinkang (Tr. 1658:819). Bryant then coordinated with Acella’s
contract manufacturers after procuring the
raw folate material. (Trial Tr. 1301:181302:3.) In developing Acella’s labels, both
Bryant and Deas testified that one of their
considerations in using the term “Lmethylfolate” as opposed to “D,Lmethylfolate” was their desire to ensure that
Xolafin and Xolafin-B would be substituted
for Metafolin-containing products. (Trial
Tr. 1375:24-1376:6; 1455:16-1456:15;
1772:22-1773:5.) Ultimately, both Deas and
Bryant approved the resulting labels and
package inserts.
(Trial Tr. 1387:6-22;
8
1655:3-5.)

and Vogt testifying that he did not even
know what Xolafin or Xolafin-B were (Vogt
Dep. Tr. 46:2-47:4). Because the Court
finds that the testimony of Deas and Bryant
regarding other “team members” lacks
credibility, it will instead credit the
testimony of those supposed “team
members” who deny involvement in the
development of the Acella products.
Accordingly, the Court finds Deas and
Bryant individually liable for Acella’s
violations of the Lanham Act.
IV. DAMAGES
Merck seeks lost royalties, Acella’s
profits, Merck’s litigation costs, and
injunctive relief. 9 (Pl. Post-Tr. Mem. at 26.)
Furthermore, Merck argues that it is entitled
to have its damages award trebled because
Acella’s false advertising was intentional.
(Id.)

Although Defendants argue that Deas
and Bryant instead “participated in a team
effort to introduce competitive products on
the market” (Def. Reply at 21), the record
belies that claim. The “team members” that
Deas and Bryant identified as having
assisted them in the development of the
Xolafin products – Chief Executive Officer
Mark Pugh and President Phillip Vogt –
each credibly testifed that they did not play
significant roles in developing the Acella
products, with Pugh testifying that he had
little involvement in the development of the
Xolafin products (Pugh Dep. Tr. 8:10-18),

When a plaintiff establishes a violation
of the Lanham Act, the plaintiff is entitled,
subject to the principles of equity, to
recover (1) defendant’s profits, (2)
any damages sustained by the
plaintiff, and (3) the costs of the
action. The court shall assess such
profits and damages or cause the
same to be assessed under its
direction. In assessing profits the
plaintiff shall be required to prove
defendant’s sales only; defendant
must prove all elements of cost or
deduction claimed. In assessing
damages the court may enter
judgment,
according
to
the
circumstances of the case, for any

8

Contrary to Defendants’ assertion that “Merck must
prove that [Deas and Bryant] intended to engage in
false advertising by creating confusion” (Def. Reply
at 21), courts in this district have held that to impose
liability on individual defendants under the Lanham
Act, plaintiffs need not show that an individual
defendant “consciously sought to commit a
trademark violation.” Calvin Klein Jeanswear Co. v.
Tunnel Trading, 2001 WL 1456577, at *6 (S.D.N.Y.
Nov. 16, 2001). Even if this were a requirement,
however, the evidence adduced at trial suggests that
both Deas and Bryant intended their products –
which were purposely different from the Metafolincontaining products – to be seen as identical to the
Merck-licensed products.

9

Merck’s monetary damages request is limited to the
Acella products that were substituted for Sciele
products, as the parties entered into a separate
settlement with regard to Acella products that were
substituted for Pamlab products.

19

A. Merck’s Damages

sum above the amount found as
actual damages, not exceeding three
times such amount. If the court shall
find that the amount of the recovery
based on profits is either inadequate
or excessive the court may in its
discretion enter judgment for such
sum as the court shall find to be just,
according to the circumstances of the
case.

Recoverable damages include harm to
market reputation and lost profits, which can
be calculated by estimating the plaintiff’s
revenues lost as a result of the unlawful
conduct and subtracting any expenses
associated with the lost revenues. FTFM, Inc.
v. Solid Clothing, Inc., 215 F. Supp. 2d 273,
305 (S.D.N.Y. 2002). A plaintiff need only
show that its damages calculation is a “fair
and reasonable approximation” of its lost
profits. Id. Here, the Court finds that (1)
Merck is entitled to damages based on its
royalty payments lost as a result of Acella
products being sold in place of Metafolincontaining products, and (2) Merck’s
damages estimates are a “fair and reasonable
approximation” of the appropriate size of the
award.

15 U.S.C. § 1117(a).
Ultimately, “the Second Circuit has noted
that ‘the [Lanham Act’s] invocation of
equitable principles as guideposts in the
assessment of monetary relief vests the
district court with some degree of discretion
in shaping that relief.’” Spotless Enter., Inc.
v. Carlisle Plastics, Inc., 56 F. Supp. 2d 274,
287-88 (E.D.N.Y. 1999) (quoting George
Basch Co. v. Blue Coral, Inc., 968 F.2d 1532,
1537, 1539 (2d Cir. 1992)). Thus, while
“causation [of damages] must first be
established,” “a court may engage in some
degree of speculation in computing the
amount of such damages.” Burndy Corp. v.
Teledyne Indus., Inc., 748 F.2d 767, 771 (2d
Cir. 1984) (emphasis in original).

To avert this finding, Acella asserts that
Merck’s injury is purely speculative as
“Merck has not proved that any lost sales of
Metafolin-containing products are attributable
to Acella.” (Def. Post-Tr. Mem. at 19.) This
argument is contradicted by Acella’s entire
business strategy, which sought to link its
products to the more expensive Metafolincontaining products, in hopes that pharmacists
would dispense the Acella product instead of
the Merck-licensed good. (Tr. 1375:241376:2.) Furthermore, the evidence shows
that identical labels were necessary for that
linkage.
(Tr. 1375:24-1376:6; 1427:221428:22;
1455:16-1456:15;
1481:4-10;
1723:24-1729:25; 1772:22-1773:5; PTX 32;
34.) Moreover, the undisputed record reflects
that sales of Metafolin-containing products
declined for the first time, and markedly,
when Xolafin entered the market. (Tr.
1048:6-12; Hofmann Aff. ¶ 25, Figures 1 &
2.)
Given Acella’s admitted business
strategy, the fact that Metafolin-containing
products are “obviously in competition with”
Acella products, and the timing of the
decrease in Merck’s sales, the Court finds that

Accordingly, for the reasons set forth
below, the Court finds that Merck is entitled
to damages for its lost licensing fees and
injunctive relief with regard to the labels and
package inserts of Acella’s products.
Because the proven damages do not fully
compensate Merck for its injury, and because
Acella’s violations were willful, Merck is
entitled to trebled damages. However, the
Court finds that granting Merck’s request for
Acella’s profits and the full injunctive relief it
seeks would be excessive. Finally, because of
Acella’s willfully deceptive conduct both in
its labeling and its conduct at trial, the Court
finds that Merck is entitled to attorney’s fees.

20

expert, Ivan Hofmann, concerning market
expansion. According to
Hofmann, the
cause of any market expansion was the launch
of Sciele’s Prenate Essential product and the
associated marketing and promotional activity
that accompanied that launch. (Tr. 1062:51063:13.)

Merck has adequately demonstrated causation
and is entitled to damages. See Ortho Pharm.
Corp. v. Cosprophar, Inc., 32 F.3d 690, 694
(2d Cir. 1994) (noting that while a Lanham
Act plaintiff must demonstrate causation,
“[t]he type and quantity of proof required to
show injury and causation” may be lesser
where the plaintiff’s and defendant’s products
are “obviously in competition”).

Acella also argues that Merck did not
account for the entry into the market of
Sciele’s competitor Trigen, whose products
were also linked to Sciele’s in pharmaceutical
databases. (Tr. 1031:21-1032:3.) In essence,
Acella argues that all – or a substantial
portion – of its sales would have gone to
Trigen rather than Sciele because Trigen’s
products were also cheaper than the
Metafolin-containing products. But, while it
is true that Trigen may have shifted market
share away from Metafolin-containing
products, its entry into the market does not
alter the damages calculation. First, Merck
based its assessment of lost profits on actual
sales made by Acella, and not those lost by
Sciele. Merck has established that, unlike a
typical market with multiple suppliers,
Acella’s very presence in the folate market
depended upon the direct substitution of
Xolafin and Xolafin-B for Metafolincontaining products. Thus, while a portion of
these sales may have diverted to Trigen in
Acella’s absence, the close nexus between
Acella’s sales and Merck’s losses, as well as
the admonition that “[a]ny doubts regarding
the amount of damages must be resolved
against the infringer,” suggest that sales of
Xolafin and Xolafin-B are an appropriate
marker for Merck’s actual damages. See
Victoria Cruises, Inc. v. Changjiang Cruise
Overseas Travel Co., 630 F. Supp. 2d 255,
262 (E.D.N.Y. 2008) (quoting Lam, Inc. v.
Johns–Manville Corp., 718 F.2d 1056, 1065
(Fed.Cir.1983)).

Merck calculated its damages by
multiplying the units of Acella’s PNV
products sold through the end of 2011 by the
net sales price of the corresponding Sciele
products, which Merck based on historic
trends in pricing for the Merck-licensed
products. (Hofmann Aff. ¶¶ 24-27; Tr.
1051:1-10.) The result of that calculation is
approximately $80.6 million. (Aff. of Ivan
Hoffman, dated Nov. 9, 2011 (“Hoffman
Aff.”), at Tables 1-3.) That figure was then
multiplied by .048, the net royalty rate from
Merck’s licensing agreements, with Merck’s
variable expenses then subtracted to arrive at
$3,869,460.00, the net profits that Merck
would have received from Sciele sales were it
not for Acella’s false advertising.
(Tr.
259:22-262:18; Hofmann Aff. ¶¶ 29-36.)
According to Acella’s damages expert,
Merck’s calculation must be reduced because
of “cross-price elasticity,” which is to say that
the presence of less expensive Acella
products in the marketplace increased total
sales overall, such that not every sale of an
Acella PNV product could be assumed to
have supplanted a potential Sciele sale. (Tr.
1085-86.) However, given that Acella did not
demonstrate that it marketed its products in
any other way than database linkage, and
because Acella’s product would thus
presumably only be sold when a pharmacist
dispensed it instead of a prescribed Metafolincontaining product, the Court finds that this
“elasticity” theory is irrelevant to the
calculation of damages. Rather, the Court
credits the explanation of Merck’s damages

Second, and more importantly, Merck’s
royalty-based calculation reflects the profit
Merck would have earned had it chosen to
21

(S.D.N.Y. 1994) (citing Getty Petroleum
Corp. v. Bartco Petroleum Corp., 858 F.2d
103, 113 (2d Cir. 1988)).

license its folate to Acella, regardless of
Trigen’s presence in the market. As noted
above, Acella initially approached Merck to
license Metafolin for use in its products, a
right for which Acella would have paid
Merck a royalty on each sale. It was not until
Merck rebuffed this offer – as it was entitled
to do – that Acella commenced its scheme to
infringe on Merck’s product. In light of these
facts, it would be inappropriate for Acella to
be rewarded with a windfall for its infringing
activity. Thus, at a minimum, Merck is
entitled to the amount it would have received
had Acella legitimately licensed its product
and not falsely claimed its likeness.

Considering the equities in this case, the
Court concludes that Merck is entitled to have
its award of damages trebled. If Merck were
awarded only its lost royalties, it would be no
different from effectively forcing Merck to
license its Metafolin product to Acella, which
Merck affirmatively declined to do. (Tr.
1674:10-20; 1676:11-1677:15.) Moreover,
Acella’s staggering volume of infringing sales
– resulting in $50.2 million of profit –
suggests that a similar volume of sales of
Sciele’s higher-priced priced products would
have resulted in even greater royalties for
Merck than are captured in the damages
calculation.
Furthermore, Acella’s very
presence as a competitor in the pure folate
market, as well as Merck’s concomitant loss
of likely market growth and customers, are
not accounted for in Merck’s lost profits
calculation. (Tr. 983:6-984:7.) That is,
Acella’s infringement enabled the company to
gain a foothold in the lucrative nutritional
supplement market, an opportunity whose
profits funded Acella’s development of a
cost-effective folate supplement that, if
properly labeled, may compete with
Metafolin-containing goods. Thus, Acella’s
rise as a legitimate competitor today was
premised on the production and false
advertising of a willfully infringing product
prior to this action.

Accordingly, the Court concludes that
Merck’s methodology for calculating its
damages is a “reasonable approximation” of
its losses stemming from Acella’s false
advertising. GTFM, Inc., 215 F. Supp. 2d at
305. The Court therefore finds that Merck
lost $3,869,460.00 in profits due to Acella’s
Lanham Act violations.
B. Trebling
By its plain language, the Lanham Act
permits a district court to enter judgment for
“any sum above the amount found as actual
damages, not exceeding three times such
amount.” 15 U.S.C. § 1117(a). However,
enhanced
damages
“shall
constitute
compensation and not a penalty.” Id. Thus,
“enhanced damages awarded solely for
purposes of deterrence are an impermissible
penalty.” Braun, Inc. v. Optiva Corp., 2000
WL 1234590, at *3 (S.D.N.Y. Aug. 31, 2000)
(emphasis added). But enhanced damages
may serve both “a compensatory purpose
when the damages related to the defendant’s
falsehoods are difficult to quantify,” id.
(quoting Mobius Mgmt. Sys., Inc. v. Fourth
Dimension Software, Inc., 880 F. Supp. 1005,
1025 (S.D.N.Y. 1994), as well as a deterrent
purpose where the violation was willful.
Mobius Mgmt. Sys., Inc., 880 F. Supp. at 1025

Because the “intangible benefits” that
accrued to Acella as a result of its Lanham
Act violations are thus not fully reflected in a
calculation of Merck’s damages, the Court
will treble the lost profits damages award.
See N.Y. Racing Ass’n, Inc. v. Stroup News
Agency Corp., 920 F. Supp. 295, 301
(N.D.N.Y. 1996) (trebling the profits award in
Lanham Act case because “[t]he Court cannot
compute the value of the intangible benefits
[defendant] received as a result of its
22

1540 (2d Cir. 1992). The district court has
discretion to “assess[] the relative importance
of these factors and determin[e] whether, on
the whole, the equities weigh in favor of an
accounting.” Id.

deliberate, flagrant, and mulish violation of
[plaintiff’s] mark”); cf. Mobius Mgmt. Sys.,
Inc., 880 F. Supp. at 1025 (enhancing
monetary award to compensate plaintiff for
the “difficult to quantify” loss of customer
goodwill). This finding is only confirmed by
the need to deter Acella from engaging in
such willful violations in the future. Id. at
1025-26 (“In the instant case, I find it
appropriate to enhance the monetary award,
both to compensate the plaintiff . . ., and to
provide some deterrence for future violations
by [the defendant].”). Accordingly, Merck’s
total damages amount to $11,608,380.00.

A full accounting would unquestionably
serve as a compelling deterrent and eliminate
Acella’s ill-gotten gains. However, in this
case, the Court concludes that disgorging
Acella’s profits and awarding that sum to
Merck would be an impermissible windfall to
Merck. As the supplier of raw folate, Merck
never stood to gain profit from the sale of a
finished consumer product. Merck made its
profit from the sale of the raw material to
companies such as Sciele, which then
developed and sold consumer products.
Thus, to the extent that any entity deserves an
accounting against Acella, it would be Sciele
rather than Merck. The Court, exercising its
discretion in balancing the equities, thereby
concludes that Merck is not entitled to
Acella’s profits. George Basch, 968 F.2d at
1540 (noting cases in which district courts
exercised discretion in choosing not to award
a defendant’s profits so as to avoid creating
an “undue windfall” to the plaintiff).

C. Acella’s Profits
In addition to seeking lost royalties,
Merck also requests Acella’s profits, a total of
$50.2 million. The Lanham Act permits
plaintiffs to recover defendant’s profits. 15
U.S.C. § 1117(a). Generally, a court may
award recovery of a defendant’s profits “on a
discretionary basis upon a finding that the
defendant acted in bad faith.” Viacom Int’l
Inc. v. Fanzine Int’l, Inc., No. 98 Civ. 7448
(RCC), 2001 WL 930248, at *5 (S.D.N.Y.
Aug. 16, 2001). Such an award is justified by
three rationales: (1) to deter a willful
wrongdoer from doing so again; (2) to
prevent the defendant’s unjust enrichment;
and (3) to compensate the plaintiff for harms
caused by the infringement.
Pedinol
Pharmacal, Inc. v. Rising Pharm. Inc., 570 F.
Supp. 2d 498, 504 (E.D.N.Y. 2008) (citing
George Basch Co. v. Blue Coral, Inc., 968
F.2d 1532, 1537 (2d Cir. 1992)).
In
determining the appropriateness of an award
of profits, a court must also consider other
factors, such as “(1) the degree of certainty
that the defendant benefit[t]ed from the
unlawful conduct; (2) availability and
adequacy of other remedies; (3) the role of a
particular defendant in effectuating the
[wrongdoing]; (4) plaintiff’s laches; and (5)
plaintiff’s unclean hands.” George Basch
Co., Inc. v. Blue Coral, Inc., 968 F.2d 1532,

V. INJUNCTIVE RELIEF
Merck also requests that the Court
permanently enjoin Acella from (1) labeling
its Xolafin and Xolafin-B products with the
name “L-methylfolate” or any synonyms
thereof, and (2) selling any methylfolate
product for a period of five years. (Pl. PostTr. Mem. at 39.) In addition, Merck requests
that the Court order Acella to engage in a
campaign of corrective advertising, at
Merck’s discretion, explaining the distinctions
between Metafolin and Xolafin products.
(Id.)
To obtain a permanent injunction, a
plaintiff must satisfy a four factor test,
demonstrating “(1) that it has suffered an
23

irreparable injury; (2) that remedies available
at law, such as monetary damages, are
inadequate to compensate for that injury; (3)
that, considering the balance of hardships
between the plaintiff and defendant, a remedy
in equity is warranted; and (4) that the public
interest would not be disserved by a
permanent injunction.”
eBay Inc. v.
MercExchange, L.L.C., 547 U.S. 388, 391
(2006).
“The historic purpose of an
injunction is to ensure that past wrongdoing is
not repeated, not to further punish the
wrongdoer. Accordingly, an injunction is
unnecessary if there is no reasonable
likelihood that the conduct at issue will be
repeated.” Pedinol Pharmacal, Inc, 570 F.
Supp. 2d at 507.

Nevertheless, balancing the equities and
examining the public interest, the Court
concludes that Merck is entitled to some of
the relief it seeks, but not the full extent.
Specifically, the Court will order Acella to
engage in a campaign of corrective
advertising to explain the differences between
Xolafin and Metafolin. In particular, Acella
must explain to the relevant consumer
populations that Xolafin products contain a
mixture of the D- and L-isomers. Such
corrective advertising shall be approved by
the Court, with input from Merck.
Alternatively, the parties may elect to have
Merck develop its own corrective advertising
campaign, for which Merck shall be
compensated by Acella.

To show irreparable harm, a plaintiff
“most show two things: (i) that the parties are
competitors in the relevant market, and (ii)
that there is a ‘logical causal connection
between the alleged false advertising and its
own sales position.’” Zeneca Inc. v. Eli Lilly
& Co., No. 99 Civ. 1452 (JGK), 1999 WL
509471, at *36 (S.D.N.Y. July 19, 1999).
The Court has already found that, as
producers of methylfolate ingredients, Merck
and Acella are competitors in the same
market. Furthermore, there is a logical causal
connection between Acella’s false advertising
and Merck’s sales position – Acella sells a
cheaper, competing product that it attempts to
pass off as identical to Merck’s purer product.
Therefore, Merck has met its burden of
demonstrating irreparable harm.

However, the Court will not permanently
enjoin Acella from labeling its Xolafin and
Xolafin-B products with the name Lmethylfolate or any synonyms thereof.
Instead, the Court orders Acella to label its
methylfolate products in the future in a way
that alerts consumers to the presence and
relative amounts of both the D- and L-isomers
in the products. See Reckitt Benckiser, Inc. v.
Motomco Ltd., 760 F. Supp. 2d 446, 456-57
(S.D.N.Y. 2011) (holding that, despite prior
Lanham Act violations, defendant would not
be prohibited from disseminating truthful,
accurate information). The Court sees no
reason why Acella should be prevented from
using the term L-methylfolate and its
synonyms, so long as they accurately reflect
the product they advertise.

While
damages
have
partially
compensated Merck for its injuries, damages
cannot compensate Merck for the enviable
market position – and the corresponding
decline in its own market position – that
Acella has acquired thanks to its false
advertising. Accordingly, the Court finds that
equitable relief is appropriate.

Nor will the Court ban Acella from selling
any methylfolate product for five years, as
Merck requests. First, Merck cites no case
where a court banned a non-infringing
product for five years, nor is the Court aware
of one. Second, the Court has already
enjoined Acella from repeating the
misleading advertising at issue, and fully
compensated Merck with trebled damages.
Accordingly, a market ban for a period of five
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folate product as “L-methylfolate” directly
conflicted with FDA guidance, Acella’s own
practice with respect to all ingredients other
than D,L-methylfolate, and Acella’s internal
communications.
For instance, Bryant
admitted that FDA guidance directs that all
compounds used to manufacture dietary
supplements be identified as ingredients. (Tr.
1349:9-11,
1351:21-24;
PTX
326.)
Although the FDA guidance did not carry
the force of law, it must be noted that Acella
did identify all compounds in its
supplements, except for D,L-methylfolate,
in conformity with that guidance. (See PTX
11, 31 (PNV Select label identifying Vitamin
E content as the racemic mixture dl-alpha
tocopheryl acetate, but identifying folate
content as the pure L-methylfolate).)
Further, Acella used the very nomenclature
urged by Merck (D,L-methylfolate) in its
internal
communications
and
in
correspondence with its supplier and
manufacturer. (See, e.g., PTX 18, 19, 22,
92, 119, 136, 327, 330.) It was only on the
company’s labels – which would be the key
determinant in the pharmaceutical database
linkage decision – that Defendants insisted
on identifying their folate ingredient as Lmethylfolate. The glaring conflicts between
Deas’s and Bryant’s private exchanges and
their public testimony convinces the Court
that Acella’s labeling practices and litigation
strategy were nothing short of deliberately
misleading. In light of this conduct, the
Court finds that this case is an “exceptional”
one justifying the award of attorneys’ fees.

years is not narrowly tailored to fit the
specific legal violations and imposes a burden
on lawful activity. See Waldman Pub. Corp.
v. Landoll, Inc., 43 F.3d 775, 785 (2d Cir.
1994) (denying injunctive relief that would
have prohibited defendant from publishing
“adapted classics” instead of “books with a
false representation as to their source” for
those reasons).
Finally, banning noninfringing Acella products from the market
would likely “disserve[]” the public interest
by artificially inflating prices and decreasing
consumer choice. Therefore, the Court will
not ban Acella from selling methylfolate
products in the United States, provided that it
complies with the Court’s prior directives.
VI. ATTORNEYS’ FEES
The Lanham Act permits “[t]he court in
exceptional cases [to] award reasonable
attorney fees to the prevailing party.” 15
U.S.C. § 1117(a).
The Second Circuit
permits recovery of fees only “on evidence of
fraud or bad faith.”
Conopco, Inc. v.
Campbell Soup Co., 95 F.3d 187, 194 (2d Cir.
1996) (quoting Twin Peaks Prods., Inc. v.
Publ’ns Int’l, Ltd., 996 F.2d 1366, 1383 (2d
Cir. 1993)). Though “even the intent to
communicate a false message does not
support a finding of ‘bad faith’ necessary to
make a case ‘exceptional,’” Braun, 2000 WL
1234590, at *4, “[e]xceptional circumstances”
do include cases of “willful infringement.”
Bambu Sales, Inc. v. Ozak Trading Inc., 58
F.3d 849, 854 (2d Cir. 1995).
As noted above, the Court finds that
Acella’s false advertising was willful and
done in bad faith, as demonstrated by Acella’s
deliberate deception of the public as well as
the pharmaceutical databases. Moreover,
Acella’s defense – premised as it was on a
post hoc rationalization of its willfully
infringing conduct – smacked of disdain for
this Court. Deas’s and Bryant’s testimony
concerning their decision to label Acella’s

VII. CONCLUSION
For the reasons stated above, the Court
finds in favor of Merck on its false
advertising claim under the Lanham Act, and
awards damages in the amount of
$11,608,380.00. For the same reasons, the
Court dismisses Acella’s request for
declaratory judgment and counterclaim.

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