Court: District Court, D. Maryland; September 23, 2015; Federal District Court
The case involves a dispute over the ownership and use of intellectual property concerning the probiotic VSL# 3. Claudio De Simone, who patented the formulation, collaborated with VSL Pharmaceuticals, Inc. (which sold the product) and Sigma-Tau Pharmaceuticals, Inc. (which marketed it). After resigning as CEO of VSL in 2014, De Simone alleged that his former partners sought to misappropriate trade secrets pertaining to VSL# 3, which he then attempted to take to ExeGi Pharma, LLC to develop a competing product. Conversely, VSL and Sigma-Tau claim that these trade secrets belong to them and accuse De Simone of misappropriation.
In 2015, De Simone directed the sole U.S. manufacturer of VSL# 3 to halt supply to VSL and filed a lawsuit seeking a declaratory judgment of ownership over the trade secrets. VSL and Sigma-Tau responded with counterclaims and sought preliminary injunctions to protect their interests. The Court held a hearing on September 1, 2015, and granted some aspects of the injunctions while denying others.
The background establishes that De Simone, alongside two researchers, patented a combination of lactic acid bacteria in 1998 (the "615 Patent"), which expired in February 2015. The patent served as the foundation for VSL# 3, aided by De Simone's development of proprietary trade secrets, termed "Know-How," encompassing specific technical and non-technical information essential for the product's creation and use.
In 1999, De Simone entered into a "1999 Option Agreement" with Sigma-Tau, which stated that he co-owned the patent and exclusively owned the Know-How. This agreement granted Sigma-Tau an exclusive option for licensing the patent rights for commercialization in the U.S., and De Simone agreed not to grant any other licensing rights for the duration of the agreement, set to expire on December 31, 2001.
In July 2000, De Simone and the Cavazzas formed a business arrangement to market products from De Simone's patents as nutritional supplements, leading to the incorporation of VSL in Delaware. Ownership of VSL was divided equally among De Simone, Claudio Cavazza, and Paolo Cavazza, each holding one-third of the company through various holding companies. They created CD International, which owned 99.7% of VSL, with De Simone as CEO and a board member alongside two Cavazza-appointed directors.
Under VSL's by-laws, De Simone agreed to transfer any intellectual property rights related to inventions made since VSL's incorporation, specifically concerning pharmaceutical nutritional compositions. On the same day, a Collaboration Agreement was executed, wherein De Simone committed to transferring his patent rights, as detailed in Annexes B and C, and Mendes SRL's rights, as listed in Annex A. Notably, the 615 Patent was excluded from these annexes. Annex A included the trademarks "VSL# 3" with pending and filed statuses.
Subsequently, on September 18, 2000, three additional agreements were signed to implement the Collaboration Agreement's commitments: the De Simone—VSL Assignment, the Mendes—VSL Assignment, and the De Simone—VSL Option Agreement. These agreements established that De Simone and Mendes retained exclusive rights to the transferred intellectual property, which encompassed patents, trademarks, and proprietary information, as defined in the documents. "Intellectual Property" included various rights related to the subject matter of Schedule I, while "Proprietary Information" and "Proprietary Products" were defined to cover trade secrets, confidential information, and materials associated with the Intellectual Property.
The Assignor irrevocably assigned all rights, title, and interest in the Intellectual Property, including trademarks and proprietary information, but excluded the 615 Patent from the assignments as per the 2000 Collaboration Agreement. Schedule I of the Mendes Assignment included the trademark "VSL# 3," for which De Simone had filed a U.S. trademark application on June 19, 2000, granted on November 26, 2002. VSL contends this assignment transferred all related intellectual property and Know-How associated with the 615 Patent to VSL, whereas De Simone argues it only transferred the trademark itself, as the 615 Patent was explicitly excluded in the agreements.
In January 2001, De Simone and VSL entered a Patent License Agreement regarding the 615 Patent, allowing VSL an exclusive license for products marketed as dietary supplements or functional foods containing the bacteria described in the patent, effective until the patent's expiration. De Simone agreed to provide VSL an option to acquire full ownership rights if he obtained them.
VSL partnered with Rhodia, Inc. (later Danisco) in August 2001 to manufacture a product based on the 615 Patent and subsequently with Questcor Pharmaceuticals, Inc. to market it in the U.S. The product, branded as VSL# 3, was first sold in mid-2002. In 2003, VSL shifted marketing responsibilities back to the Cavazza family, replacing Questcor with Sigma-Tau, formalized through a 2003 License Agreement that recognized VSL's proprietary rights and sublicensed those rights to Sigma-Tau until December 2010, explicitly referencing the 615 Patent and the VSL# 3 trademark.
De Simone claims ownership and control over the proprietary knowledge related to VSL# 3, which became a leading probiotic product. Tensions arose with the Cavazzas, who sought to improve profit margins by using cheaper ingredients, prompting De Simone to reject their proposal. Subsequently, the Cavazzas, through the Sigma Tau Group, attempted to assert rights over the trade secrets essential for manufacturing VSL# 3, aiming to exclude De Simone from the business.
In May 2006, to affirm his intellectual property rights, De Simone entered into a Confidential Disclosure Agreement with Danisco, CD International, and its subsidiaries, which recognized De Simone as the owner of the VSL# 3 formulation. This agreement allowed De Simone to terminate any company's license to manufacture VSL# 3. Key signatories included Danisco’s Business Director of Probiotics, Maurizio Terenzi, and De Simone on behalf of himself and other parties.
VSL contends that De Simone was the one attempting to unfairly benefit from VSL# 3's success by sidelining his partners. They allege that De Simone hired an associate to facilitate his control over the company. Following board changes in late 2006, De Simone was reelected as CEO, and his allies were placed in key positions, which VSL argues allowed him to commence self-serving actions.
In subsequent years, De Simone signed agreements to reinforce his control over the intellectual property. A 2007 Know-How License Agreement permitted VSL to distribute VSL# 3 in Canada while acknowledging De Simone's ownership of the relevant manufacturing know-how. In 2008, De Simone signed a supply agreement with Danisco, affirming his ownership of the technical information necessary for VSL# 3 production, which included confidential trade secrets and specific ingredient formulations.
The agreement referenced extends the authority previously granted to De Simone in a 2006 Confidential Disclosure Agreement, allowing him to dictate Danisco's supply of VSL# 3 to specific companies. De Simone provided this agreement to the Cavazzas soon after its signing. In 2009, he initiated discussions about a Know-How agreement for VSL's distribution of VSL# 3 in the U.S., especially considering the impending expiration of the 2001 Patent License Agreement in February 2015, which would terminate VSL's rights to manufacture and distribute the product in the U.S. To address this, the Board of Directors, including De Simone, Park, and Terenzi, unanimously approved a resolution to pursue a Know-How agreement that would extend distribution rights until January 31, 2016. The 2010 Know-How Agreement, executed on January 28, 2010, granted VSL exclusive rights to De Simone’s relevant knowledge for VSL# 3's manufacture and sale in the U.S., effective upon the expiration of the prior patent agreement. It included a provision allowing De Simone to terminate the license in case of a change of control at VSL.
In mid-2013, the Cavazzas sought to enhance VSL# 3's profitability, with Sigma-Tau Group proposing a marketing contract that De Simone deemed economically unfeasible. Following his rejection of this proposal, Enrico Cavazza began pressuring De Simone to replace Danisco as the manufacturer with a Sigma-Tau Group company that promised to use cheaper bacterial strains. De Simone declined, concerned about public safety, leading to intensified efforts by Sigma-Tau to obtain confidential Know-How, including outreach to a regulatory attorney for access to sensitive information about VSL# 3.
By mid-2014, the relationship between De Simone and the Cavazzas deteriorated significantly. De Simone accused the Cavazzas of harassment aimed at persuading him to agree to plans that would dilute VSL# 3. In contrast, VSL alleged that De Simone was engaged in self-dealing to reclaim intellectual property he had assigned to VSL in 2000. Efforts to reinforce their respective positions ensued. In May 2014, CD Investments, VSL's majority shareholder, requested corporate records from De Simone, who refused to comply. In June 2014, CD Investments attempted to access VSL records via their computers, discovering that they had been wiped clean. Forensic analysis revealed that data had been transferred to cloud storage linked to De Simone.
In October 2014, CD Investments filed a lawsuit against De Simone in Delaware seeking these records. Meanwhile, De Simone and Park, representing VSL, signed a supply agreement in June 2014, retroactively effective from January 1, 2014, which positioned De Simone to assume control of VSL's supply after the expiration of the 2001 Patent License Agreement. Additionally, De Simone filed U.S. trademark applications for "VSL3 BY DE SIMONE" and "VSL3TO-TAL" in June and September 2014, respectively.
In September 2014, CD International appointed James Brady to the VSL Board, while Park resigned from her positions on October 14 and November 19, 2014. On October 15, Brady asserted VSL's ownership of all intellectual property related to VSL# 3, referencing the Mendes Assignment and VSL ByLaws. De Simone resigned as CEO and from the Board on November 14, 2014, and subsequently terminated the 2010 Know-How Agreement, citing a change of control provision. He claimed that VSL lacked the expertise to manufacture VSL# 3 and expressed concerns about Sigma-Tau Group's attempts to access confidential information to create a substandard version of the product.
De Simone proposed a licensing agreement for the VSL# 3 trademark to VSL, which was rejected. Following this, he informed Sigma-Tau that VSL would lose rights to purchase the active ingredient after the expiration of the 615 Patent on February 9, 2015. Upon expiration, De Simone claimed VSL was no longer authorized to distribute VSL# 3 in the U.S., nor could Sigma-Tau market it. Despite this, VSL continued to sell the product, and Sigma-Tau kept marketing it, with Danisco fulfilling orders without instruction to stop. VSL reportedly ceased paying royalties to De Simone. On May 18, 2015, De Simone clarified to Danisco that VSL and Sigma-Tau were unauthorized purchasers, but allowed them to fulfill pre-existing orders under specific conditions.
In October 2014, ExeGi was formed, led by former Sigma-Tau executive Mark Tewey, who collaborated with De Simone to launch a competing product, Visbiome, shortly after the 615 Patent expired. ExeGi's promotional materials claimed Visbiome contained the same formulation as VSL# 3 but did not acknowledge that VSL# 3 is a registered trademark. On May 11, 2015, De Simone sued VSL and Sigma-Tau for various claims, including ownership of the Know-How for VSL# 3, breach of contract, unjust enrichment, misappropriation of trade secrets, and civil conspiracy. VSL responded with an answer and a counterclaim, involving additional parties, including Mendes, ExeGi, and Danisco.
VSL's Counterclaim and Third-Party Complaint includes over 20 allegations, such as breach of fiduciary duty against De Simone and trademark infringement against ExeGi, alongside requests for a declaratory judgment asserting VSL's ownership of the Know-How. On June 9, 2015, Sigma-Tau responded to De Simone’s Complaint with its own Counterclaim and Third-Party Complaint, seeking declaratory relief and alleging various business torts. On June 24, 2015, VSL filed a Motion for a Preliminary Injunction to prevent De Simone from disrupting VSL's supply of VSL# 3, sharing the Know-How, and to compel him to return corporate documents. VSL also sought to enjoin ExeGi from using the Know-How and infringing on the VSL# 3 trademark. On the same day, Sigma-Tau filed a similar Motion for a Preliminary Injunction and amended its Counterclaim. De Simone extended Danisco’s supply deadline for VSL to September 15, 2015, contingent on order limits. Responses to the motions were filed by De Simone and ExeGi on July 24, 2015, followed by replies from VSL and Sigma-Tau on August 7, 2015. The Court heard oral arguments on September 1, 2015, noting that Danisco would cease supplying VSL on September 23, 2015, without preliminary relief. To obtain a preliminary injunction, parties must demonstrate a likelihood of success on the merits, potential for irreparable harm, a favorable balance of equities, and public interest considerations. The Court outlines that nine forms of relief are requested, linked to four main theories of liability: misappropriation of Know-How, breach of fiduciary duty, conversion of VSL records, and trademark infringement by ExeGi, guiding the analysis of the Winter factors.
To obtain a preliminary injunction, parties must demonstrate a likelihood of success on the merits rather than merely raising serious questions about the case. VSL and Sigma-Tau must establish their claims against De Simone and ExeGi, which include misappropriation of trade secrets, breach of fiduciary duty, conversion of corporate records, and trademark infringement.
In regards to misappropriation of a trade secret under the Maryland Uniform Trade Secrets Act (MUTSA), VSL claims that De Simone misappropriated its Know-How for VSL# 3 and that ExeGi is also misappropriating this trade secret by using the Know-How to produce Visbiome. VSL seeks to prevent De Simone and ExeGi from using or disclosing the Know-How and to compel them to return it.
To succeed in a misappropriation claim under MUTSA, VSL must prove: (1) possession of a valid trade secret, (2) acquisition of that trade secret by the defendant, and (3) that the acquisition was by improper means. The parties agree that the Know-How is a valid trade secret and that VSL possessed it, but they dispute whether De Simone acquired it improperly. VSL argues that De Simone assigned ownership of the Know-How to them, while De Simone claims he only granted a license for its use.
VSL’s assertion of ownership relies on the Mendes Assignment, which purportedly transferred all intellectual property related to the VSL# 3 trademark. The determination of whether the Mendes Assignment transferred ownership involves contract interpretation, governed by New York law, which emphasizes the intent of the parties as reflected in the contract language. Contracts are enforced based on their clear and unambiguous terms, but if ambiguity exists, extrinsic evidence may be considered to ascertain the parties’ intent.
VSL contends that the Mendes Assignment clearly indicates that De Simone transferred ownership of the Know-How to VSL through Mendes. VSL supports this claim by referencing three key elements of the Mendes Assignment: (1) Schedule I includes the trademark "VSL# 3," listing the intellectual property being transferred; (2) Section 2.01 states that De Simone "irrevocably assigns" all rights to the Intellectual Property and Proprietary Information being transferred, including future rights derived from the Transferred Property; (3) the definitions of "Intellectual Property" and "Proprietary Information," with the former encompassing rights owned or licensed by the Assignor related to Schedule I, and the latter including trade secrets and know-how related to the Intellectual Property.
VSL interprets the Know-How as either a type of Intellectual Property linked to the "VSL# 3" trademark or as Proprietary Information related to it. VSL’s misappropriation claim hinges on the assertion that the transfer of the "VSL# 3" trademark also included the Know-How for producing the product associated with that trademark. However, the Court finds the language of the Mendes Assignment ambiguous, as it allows for multiple interpretations regarding the relationship between the Know-How and the trademark. Specifically, while "know-how" is recognized as Proprietary Information, the agreement does not clarify what it means for Proprietary Information to relate to the trademark, especially since the rights to the 615 Patent, which is crucial for the probiotic formulation, were not included in the Assignment.
The ambiguity raises questions about whether the Know-How, developed in 2000, could be considered related to a trademark that was not yet approved or associated with any product. Therefore, extrinsic evidence regarding the parties’ intent should be evaluated. VSL's attempt to leverage the "VSL# 3" trademark to claim ownership of the necessary Know-How faces challenges, as the trademark was not defined in a way that linked it to any specific product at the time of the Mendes Assignment.
The June 2000 U.S. trademark application for VSL# 3 broadly described the mark as applicable to various pharmaceutical, veterinary, and dietetic products, including those for digestive, gynecological, and skin diseases, as well as medical hygiene preparations and food supplements. Similarly, the 1999 European trademark application, transferred through the Mendes Assignment, included a wide range of goods such as nutraceuticals and baby food. By 2000, the VSL# 3 trademark was seen as a placeholder for an undefined product, with the actual probiotic not released until 2002. Although a 2000 scientific article discussed clinical trials under the name VSL# 3, De Simone argues that it did not pertain to the specific formulation later marketed as such, as the term had a different scientific meaning at that time. Even if clinical studies occurred prior to the Mendes Assignment, the trademark's broad description—including potential references to baby food—does not link it directly to any specific product under investigation. Consequently, it is concluded that the Know-How was not related to the VSL# 3 trademark at the time of the Mendes Assignment, indicating that the parties did not intend for the trademark transfer to include the Know-How. VSL's argument that the trademark transfer necessarily included the Know-How due to the association with goodwill does not alter this conclusion, as goodwill refers to the consumer recognition and buying habits tied to the trademark, as defined by legal standards.
Goodwill is defined in legal terms as the expectancy of continued patronage and the qualities that attract customers to a business, as established in precedent cases. The argument presented by VSL that goodwill encompasses scientific formulations and methodologies, such as Know-How, lacks support, as they have not provided any authority to substantiate this claim. At the time of the Mendes Assignment, the trademark VSL# 3 had not been utilized in commerce and was not linked to any specific product, indicating that no goodwill existed that could transfer with the trademark. Without goodwill, there could be no associated scientific know-how.
Furthermore, VSL's assertion regarding the transfer of the trademark in the Mendes Assignment contradicts two prior agreements: the 1999 Option Agreement and the 2001 Patent License Agreement. The 1999 Option Agreement clarifies that De Simone co-owned the Patent and retained full ownership of the Know-How, and granted Sigma-Tau an exclusive option for licensing related to the 615 Patent. This indicates that the Mendes Assignment did not transfer Know-How ownership, as it was owned by De Simone and not conveyed to Mendes prior to the assignment. The explicit terms used in the 1999 Option Agreement demonstrate that De Simone was aware of how to effectively transfer rights to the Patent and Know-How, undermining VSL's broad interpretation of the Mendes Assignment. The 2001 Patent License Agreement, which granted a license to the 615 Patent and related proprietary rights, further reinforces that the Mendes Assignment did not include the transfer of Know-How to VSL.
VSL’s interpretation of the Mendes Assignment suggests that the 615 Patent should be classified as “intellectual property” related to the VSL# 8 trademark and thus transferred to VSL. However, if this interpretation were accurate, the 2001 Patent License Agreement would be unnecessary, as VSL would have already secured De Simone’s ownership interest in the 615 Patent by 2000. The existence of the 2001 license agreement indicates that De Simone did not transfer the Know-How via the Mendes Assignment. VSL’s supporting evidence, including a 2002 Confidential Disclosure Agreement with a Canadian company, does not definitively prove ownership of the Know-How. Although the agreement claims that certain know-how belongs exclusively to VSL, it also states that VSL claims ownership or control over certain patent rights and proprietary know-how, suggesting VSL's rights may be limited to a license rather than full ownership. Most of VSL's supporting agreements involve third parties, making them less relevant compared to agreements directly between De Simone and VSL or Sigma Tau. Consequently, VSL fails to demonstrate a likelihood of success in claiming ownership of the Know-How, undermining its assertion that De Simone is misappropriating VSL’s trade secret. As a result, claims against ExeGi for misappropriation also lack merit. VSL’s motions for a preliminary injunction on this basis are denied. Additionally, VSL alleges that De Simone breached his fiduciary duty by executing self-serving agreements that allowed him to exploit VSL’s intellectual property while still acting as CEO.
VSL claims that De Simone's self-dealing may jeopardize its access to the supply of VSL# 3, its only profitable product, and seeks a court injunction to prevent De Simone from terminating this supply from Danisco. The applicable law for VSL's breach of fiduciary duty claim is determined by Maryland's choice-of-law principles, which dictate that Delaware law governs due to VSL's incorporation there. Under Delaware law, corporate officers and directors owe fiduciary duties that include a duty of loyalty, demanding undivided loyalty to the corporation, and prohibiting self-dealing. De Simone allegedly breached this duty by amending VSL's Supply Agreement with Danisco in June 2014 to benefit personally from any termination of the 2010 Know-How Agreement, effectively positioning himself to gain from VSL's potential loss of its production license. The self-dealing was exacerbated by De Simone's influence over the termination conditions of the Know-How Agreement, particularly through the change of control provision tied to his and Dr. Park's resignations from the Board. Additionally, De Simone's actions in filing trademark applications further illustrate his self-dealing. VSL has shown a likelihood of success on its breach of fiduciary duty claim against De Simone.
De Simone filed a trademark application for “VSL3 BY DE SIMONE” shortly after executing the 2014 Supply Agreement, suggesting an attempt to appropriate the VSL# 3 brand for personal gain. Three months later, he applied for “VSL3TOTAL,” further indicating intentions to capture VSL’s market share. The timing of these actions, alongside his execution of the Supply Agreement, implies that De Simone was positioning himself to usurp VSL’s role in the probiotic market to his advantage and to VSL’s detriment. His control over the Supply Agreement allowed him to dictate the timing of a potential takeover, while his trademark applications aimed to exploit VSL’s brand recognition.
De Simone's actions likely breached his fiduciary duty as CEO and Director of VSL, as they could cause harm to the corporation and constitute self-dealing. He justifies his conduct by alleging concerns about the Cavazzas potentially misusing proprietary knowledge to create a competing product. However, his intentions do not absolve him of his responsibility to VSL, which necessitated his undivided loyalty.
Additionally, VSL claims that De Simone improperly took corporate records upon leaving, hindering VSL’s operational capabilities. VSL alleges that computers at CD Investments lack essential files, with some linked to a Dropbox account controlled by De Simone. This retention of corporate records is characterized as conversion, as it involves an unauthorized assertion of control over VSL's property. Evidence supporting this claim includes an affidavit from VSL Director James Brady, stating that De Simone has failed to return the records despite multiple requests.
VSL submitted a forensic report indicating the absence of files on computers at the CD Investments office. In his 32-page affidavit opposing a preliminary injunction, De Simone characterized VSL's request for corporate records as a litigation-driven "fishing expedition." He claimed that the Cavazzas had access to VSL’s financial information throughout the company's history but did not deny allegations of removing corporate records. While VSL's evidence is not absolute, De Simone’s lack of denial regarding his possession of VSL records suggests VSL is likely to succeed on its conversion claim. Additionally, De Simone's removal of records may constitute a breach of fiduciary duty, as it harms the company.
Regarding trademark infringement, VSL alleges that ExeGi's original marketing materials for Visbiome violated the VSL# 3 trademark under the Lanham Act. Although ExeGi modified its materials in response to VSL's concerns, it did not admit to infringement. VSL contends that the changes have not eliminated the infringement. The court will still assess whether the original materials violated VSL's trademark, as changes made by ExeGi do not render the case moot. To succeed in its claim, VSL must demonstrate that ExeGi used its trademark in commerce without consent and that this use likely caused confusion. The uncontested facts show that ExeGi's original materials referred to Visbiome as the "Original Formula VSL# 3 Probiotic Blend" without indicating that "VSL# 3" is a registered trademark of VSL.
ExeGi has created a website promoting Visbiome, inviting customers to sign up for alerts on its availability, despite not having sold any units. This advertising, including the use of the VSL# 3 trademark, satisfies the "use in commerce" requirement under the Lanham Act, which does not necessitate actual sales for a trademark infringement claim. ExeGi plans to launch Visbiome shortly, using packaging that allegedly continues to infringe on VSL's trademark, making VSL's request for a preliminary injunction timely. The law allows for preventive relief if injury is imminent.
To assess the likelihood of confusion caused by the alleged trademark infringement, the Fourth Circuit outlines nine relevant factors. The primary focus in this case is on the similarity of the marks, the similarity of the goods, and the defendant's intent, with VSL appearing likely to succeed in proving confusion. The Visbiome materials incorporate the VSL# 3 trademark in a way that does not adequately distinguish between the two brands and presents the products as substantially similar. Although some uses of the trademark might be considered "fair use," specific phrases in the marketing materials blur the lines between the two products, indicating an intention to confuse consumers and leverage VSL# 3's reputation for profit.
De Simone's account reveals that his intention in launching Visbiome was to ensure that the original VSL# 3 product remained available to consumers despite concerns about dilution and adulteration by the Cavazzas. The similarity between VSL# 3 and Visbiome is significant, raising challenges in distinguishing the two brands. VSL argues that this similarity supports its trademark infringement claim, evidencing an intent to confuse consumers, which is a critical factor in such cases. Regarding the altered packaging of Visbiome, the Court has not yet made a decision due to insufficient information and the need for supplemental briefing on whether these changes constitute fair use.
In assessing the likelihood of irreparable harm, the Court found VSL likely to succeed on claims of breach of fiduciary duty, conversion, and trademark infringement. To prove irreparable harm, plaintiffs must demonstrate that harm is actual and imminent rather than speculative. VSL has shown that De Simone likely breached his fiduciary duty by attempting to cut off VSL’s supply of VSL# 3, which is central to its business. VSL warned that De Simone's actions, including a plan to halt supplies by September 23, 2015, could lead to a three-month gap in product availability, coinciding with the anticipated launch of Visbiome, thus significantly impacting VSL's profitability.
De Simone and ExeGi are set to introduce a competing product just as VSL# 3 is being removed from the market, which may compel consumers to switch to Visbiome permanently. VSL faces a significant risk of losing customer goodwill, especially among those reliant on VSL# 3 for chronic health conditions. This scenario supports VSL's claim of likely irreparable harm due to De Simone's actions, as established in relevant case law highlighting the risks of permanent customer loss and goodwill degradation.
Additionally, VSL asserts it will suffer irreparable harm if De Simone is not compelled to return corporate records, as the company has lost its entire management team and significant records—hampering its operational capacity. The remaining director lacks sufficient institutional knowledge, exacerbating the operational challenges during a critical period marked by supply disruption and competitor emergence. The court recognizes the likelihood of irreparable harm but finds the request for an injunction to return all corporate records overly broad, as not all records are essential for current operations, particularly those of a historical nature.
A likelihood of irreparable harm has been established for VSL, specifically concerning records vital for its operational continuity. VSL has shown a strong probability of succeeding in its trademark infringement claim against ExeGi, as the marketing materials for Visbiome likely caused confusion with the VSL# 3 trademark. The presumption of irreparable injury applies here, given that confusion has been demonstrated, and ExeGi has failed to provide evidence to counter this presumption.
VSL has also met the requirements for a preliminary injunction regarding breach of fiduciary duty, corporate records, and trademark infringement. Evidence indicates that De Simone, while CEO, engaged in self-dealing that jeopardized VSL's supply of VSL# 3 through a 2014 Supply Agreement and orchestrated a change in control to terminate the 2010 Know-How Agreement early. This act allows De Simone to divert VSL's supply to his new venture, potentially harming VSL. The equities favor VSL by preventing De Simone from profiting from his misconduct, aligning with the public interest in upholding fair business practices.
For the corporate records, VSL has demonstrated that returning essential documents is crucial for its business viability, with no adverse impact on De Simone other than sustaining competition. The public interest supports VSL's continued operation, particularly in health-related markets, and would be harmed if corporate records were withheld for competitive advantage. Additionally, the equities and public interest also favor VSL concerning its trademark infringement claims against the Visbiome materials.
Materials related to the Visbiome brand inadequately differentiated it from the VSL# 3 brand, leading to potential consumer confusion and unauthorized profit for Visbiome from the VSL# 3 mark. This situation raises equity concerns and public interest issues, as trademarks aim to prevent consumer deception regarding the source of goods and services. VSL and Sigma-Tau did not demonstrate a likelihood of success on their misappropriation of trade secrets claim, so they are not entitled to an injunction against De Simone and ExeGi regarding the production of Visbiome. However, for the remaining three claims, VSL and Sigma-Tau established entitlement to preliminary injunctive relief. VSL has shown that De Simone likely breached his duty by attempting to usurp VSL’s supplies through the 2014 Supply Agreement and terminating the 2010 Know-How Agreement, justifying an injunction preventing him from cutting off supply until January 31, 2016. VSL is also entitled to an injunction for the return of essential corporate records, with procedures outlined in the accompanying Order. Moreover, VSL demonstrated that original Visbiome materials likely infringed on the VSL# 3 mark, warranting an injunction against ExeGi's use of those materials and specific phrases. ExeGi will also be temporarily enjoined from using the “VSL# 3” mark in its marketing materials pending further court consideration of trademark infringement issues. Under Federal Rule of Civil Procedure 65, VSL and Sigma-Tau must post a $250,000 bond to cover potential damages if the injunction is found to be wrongful. The court grants VSL's and Sigma-Tau's motions for a preliminary injunction in part and denies them in part, specifically denying injunctions against De Simone imparting the Know-How to others and against using the Know-How, while granting an injunction against De Simone interrupting VSL’s supply of VSL# 3 through January 31, 2016.
De Simone is ordered to return VSL corporate records essential for day-to-day operations. ExeGi is prohibited from using its original Visbiome marketing materials and the identifiers “Original Formula VSL# 3 Probiotic Blend” and “Vis-biome/VSL# 3 blend.” Additionally, ExeGi is enjoined for 21 days from using the “VSL# 3” mark on any Visbiome materials to allow the Court to review supplemental arguments regarding trademark infringement related to ExeGi's revised marketing.
In 2005, De Simone obtained full rights to the 615 Patent and, on April 15, 2005, informed VSL of his exclusive ownership under the 2001 Patent License Agreement, offering VSL a free exclusive license to the patent. The Court refers to VSL and Sigma-Tau collectively for simplicity, as Sigma-Tau adopted VSL's Motion for a Preliminary Injunction without additional arguments. De Simone posits that the transfer of the VSL# 3 mark to VSL may be void due to lack of goodwill, but the Court does not address this issue since it is not necessary for resolving the current motions, and De Simone did not seek to void the assignment.
Subsequent agreements among De Simone, VSL, and related entities reinforce De Simone's ownership of the Know-How, although they are not essential to establishing that the Mendes Assignment did not transfer ownership of the Know-How to VSL. A 2006 Confidential Disclosure Agreement acknowledged De Simone's ownership of the VSL# 3 formulation, signed by Maurizio Terenzi, a VSL Board member associated with the Cavazzas. VSL's claim that the 2002 Canadian Confidential Disclosure Agreement supports its ownership of the Know-How is countered by De Simone's evidence that this agreement did not pertain to the VSL# 3 product.
