Antitrust Law Daily Wrap Up, ADVERTISING—S.D. Cal.: False advertising claims and counterclaims all dismissed in pharmacy dispute in the absence of any injury, (Dec 14, 2023)

By Robert B. Barnett Jr., J.D.

The fact that the parties were competitors was insufficient by itself to establish injury, in the absence of any evidence that customers were lost as a result of the allegedly false advertising.

In a dispute in which ImprimisRx, a compounding pharmacy, sued its competitors OSRX and Ocular Science for false advertising and they counterclaimed for false advertising, the San Diego federal district court has granted summary judgment to both sides, ruling that they both failed to establish that any of the three parties suffered any past or future injury sufficient to satisfy the Lanham Act. With the false advertising claims and counterclaims dismissed, the case will continue to trial on ImprimisRx’s claims for trademark infringement, copyright infringement, false designation of origin, and violations of unfair competition laws (ImprimisRx, LLC v. OSRX, Inc., December 12, 2023, Bashant, C.).

Background. ImprimisRx, OSRX, and Ocular Science are all compounding pharmacies that focus on medications used in optometry and ophthalmology. ImprimisRX is both a Section 503A and a Section 503B pharmacy, which means that it both fills prescriptions for individual patients (Section 503A) and produces compounded product in bulk (Section 503B). OSRX and Ocular Science are both 503A pharmacies only. The section references are to the federal Food, Drug, and Cosmetic Act (FDCA).

ImprimisRx sued OSRX in California federal district court for false advertising, trademark infringement, false designation of origin, common law unfair competition, copyright infringement, and violation of California’s Unfair Competition Law. The essence of ImprimisRx’s false advertising claim was that OSRX and Ocular Science falsely claimed that they operated in compliance with FDCA Section 503A by stating that their products were safe and effective when they were not, that studies showed the efficacy of their products when they did not, that their products could be used to treat certain diseases that they could not treat, and that they failed to disclose contraindications.

OSRX and Ocular Science responded with four false advertising counterclaims. They contended that ImprimisRX CEO falsely claimed that ImprimisRX was “compliant with the highest standards,” that ImprimisRx was “100% dedicated to patient safety and regulatory compliance,” that ImprimisRX uses “strict sterile manufacturing processes,” and that ImprimisRX “provides sterile compounded formulations you can trust.”

After discovery, the parties filed the following motions: (1) ImprimisRx moved for partial summary judgment on its own Section 503 Compliance Claims, (2) OSRX and Ocular Science moved for cross-summary judgment on the same claim, as well as on ImprimisRx’s Safety and Efficacy Claims, (3) OSRX and Ocular Science moved for summary judgment on their unclean hands defense, (4) ImprimisRx moved for summary judgment on the false advertising counterclaims, and (5) OSRX and Ocular Science moved to exclude 12 new witnesses for ImprimisRx that were identified after discovery closed.

ImprimisRx false advertising claims. The court began by examining ImprimisRx’s motion on its own false advertising claims by looking at the five elements of ImprimisRx’s claims: falsity, deception, materiality, dissemination in interstate commerce, and injury. The court concluded that factual questions remained in dispute on falsity, deception, and materiality, while acknowledging that ImprimisRx had established dissemination in interstate commerce.

The false advertising claim, however, tripped up on proof of any injury to ImprimisRx, which was seeking preliminary and permanent injunctions and monetary damages in the form of unjustly obtained profits, compensatory damages, and statutory damages. The court first rejected ImprimisRx’s argument that a Lanham Act injury can be presumed because the parties are competitors. Instead, the court said, ImprimisRx was required to show “some” proof of either a past injury or a risk of future injury caused by the false statements. In some cases, the courts have allowed a plaintiff to show injury when the entire market’s reputation was damaged. Entire market damage, however, did not exist here because these three companies were not the only companies in the market. Thus, whatever happened in this case affected the three companies but not the market as a whole.

The only evidence of injury that ImprimisRx was able to produce was evidence that prescribers could care about Section 503A compliance, which went to materiality rather than injury. While evidence was produced that OSRX and Ocular Science poached customers, no evidence was produced that the customers changed because of the allegedly false statements. Although the Lanham Act does not require a precise calculation of damages, the court acknowledged, “a showing of some injury is required.” The court then concluded that “Plaintiff has not met is burden because it has not provided any evidence of actual injury.”

As for injunctive relief, the court said that ImprimisRx was required to establish, among other things, irreparable injury, which it failed to do for the same reasons it failed to prove actual injury for money damages. The court, therefore, granted summary judgment to OSRX and Ocular Science on monetary damages, unjust enrichment, and injunctive relief.

The court next addressed the summary judgment motion by OSRX and Ocular Science on ImprimisRx’s false advertising claim. Given the ruling it just made on injury on ImprimisRx’s motion, this motion was now moot.

Unclean hands defense. OSRX and Ocular Science also moved for partial summary judgment on their equitable defense of unclean hands. Once again, because of the court’s prior ruling on injury, this motion was also now moot.

OSRX false advertising. The court began its analysis of ImprimisRx’s motion for summary judgment on the false advertising counterclaims by OSRX and Ocular Science by examining whether the counterclaims were barred by the statute of limitations. The court ruled that they were not barred because, although a strong argument could be made that OSRX and Ocular Science unreasonably delayed their filing, ImprimisRX was not prejudiced by the delay.

Turning to the merits, once again the court found legitimate disputes of fact on falsity and materiality. And once again, the false advertising claim died in the absence of any evidence of injury. OSRX and Ocular Science sought injunctive relief and monetary damages in their counterclaims. As with ImprimisRx’s claim, OSRX and Ocular Science’s counterclaims seemed to rely for proof of damages only on the fact that the parties were competitors. No evidence was produced that they lost customers due to ImprimisRx’s allegedly false statements. Without more, the courts said, ImprimisRX was entitled to summary judgment for monetary damages.

As for injunctive relief, no evidence was submitted showing that OSRX and Ocular Science were actually harmed by the allegedly false statements. Thus, the court ruled, they failed to establish irreparable harm, and ImprimisRx was entitled to summary judgment on injunctive relief.

Motion to exclude. The final matter was a motion by OSRX and Ocular Science to exclude 12 newly identified witnesses, as well as their testimony. The court ruled that ImprimisRX did not violate Fed. R. of Civ. P. 26 because it was previously unaware of the existence of the witnesses and promptly amended its disclosure upon their discovery. Ten of the 12 witnesses were employees at OSRX. Rather than grant the motion, the court agreed to reopen discovery for the sole purpose of allowing OSRX and Ocular Science to depose the 12 individuals.

The court, therefore, entered the following rulings: (1) it granted OSRX and Ocular Science’s motion for summary judgment on ImprimisRX’s false advertising claim, (2) it denied ImprimisRx’s motion for summary judgment on its own false advertising claim, (3) it granted ImprimisRx’s motion for summary judgment on OSRX and Ocular Science’s false advertising counterclaims, and (4) it denied the motion to exclude the witnesses, while agreeing to reopen discovery for that limited purpose. The case will continue on ImprimisRx’s claims for trademark infringement in violation of the Lanham Act, false designation of origin in violation of the Lanham Act, common law unfair competition, copyright infringement, and violation of California’s unfair competition law.

The Case is No. 21-cv-01305-BAS-DDL.

Attorneys: Keith J. Wesley (Ellis George Cipollone O'Brien LLP) for ImprimisRx, LLC. Carolynn Kyungwon Beck (Eisner LLP) for OSRX, Inc. and Ocular Science, Inc.

Companies: ImprimisRx, LLC; OSRX, Inc.; Ocular Science, Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews