Merck Eprova AG v. Gnosis S.p.A., et al.  

Clarifying applicable presumptions in Lanham Act false advertising cases, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s use of presumptions of consumer confusion and injury in a two-party market where deliberate deception and literal falsehood had been proven, even though the injured party was not actually named in the ads.  Merck Eprova AG v. Gnosis S.p.A., et al., Case No. 12-4218 (2d. Cir., July 29, 2014) (Pooler, J.).

Merck developed, manufactured and marketed the dietary ingredient folate, a B vitamin that helps the body make new cells.  Merck’s product, METAFOLIN, was a pure version of the folate, characterized in scientific literature as a “6S Isomer Product,” indicating a naturally-occurring product.

Gnosis marketed a competing folate product called Extrafolate, identified in scientific literature as a “6R, S Mixture Product,” indicating the product is a synthetically manufactured mixture.  The synthetic Extrafolate is significantly less expensive than naturally occurring folate, but does not have the same nutritional benefits.  However, Gnosis advertised Extrafolate with product specifications and materials describing the pure 6S Isomer Product, rather than the 6R, S Mixture Product.  Gnosis did not name Merck’s Metafolin product in any of its advertisements.

In an ensuing lawsuit, the district court found Gnosis liable for false advertising under Section 43(a) of the Lanham Act and awarded Merck damages, prejudgment interest and attorneys’ fees; it also ordered corrective advertising.  The district court found that Merck had demonstrated the literal falsity of Gnosis’s advertisements and proved that using the description of the pure 6S Isomer product in its marketing materials constituted false advertising.  Further, the court found the implication that Gnosis was selling a pure folate was intended to mislead customers.  Gnosis appealed, arguing that the district court improperly used a presumption of customer confusion to find liability and a presumption of injury to Merck to award damages.

The 2d Circuit affirmed the district court’s judgment.  Consistent with prior case law, where, as here, literal falsity was proven, no further evidence of actual consumer confusion was required to establish liability.  Further, Gnosis’s use of chemical descriptions of the pure folate in advertising for its folate mixture established implied falsity.  Where such implied falsity occurs with proof of an intention to mislead, imposition of a presumption of deceit is appropriate.  Although the burden shifted to Gnosis to rebut that presumption, the court found Gnosis’ arguments unconvincing.

The district court further held that because Merck and Gnosis were competitors in the folate market, Merck was entitled to a presumption of injury.  Gnosis argued that such a presumption is only appropriate for comparative advertising that identified a specific competing product.  When no specific product is identified, the harm accrues to all competitors equally, so some indication of actual injury is required to impose damages.  The court disagreed, clarifying that in a two-player market, where deliberate deception has been proven, it is appropriate to utilize a presumption of injury.  After all, should Gnosis improperly capitalize on a consumer’s desire to purchase the pure folate product, Merck, the only competitor for such a pure folate product, would have been damaged.

Practice Note:  Even in cases without comparative advertising, presumptions may afford clients another way of proving liability.  Further, in cases where parties are direct competitors, presumptions of injury may be available in lieu of proof of injury in fact.