Merck Eprova AG v. Brookstone Pharmaceuticals, LLC

Citations: 920 F. Supp. 2d 404; 2013 U.S. Dist. LEXIS 13616; 2013 WL 363382Docket: No. 09 Civ. 9684(RJS)

Court: District Court, S.D. New York; January 30, 2013; Federal District Court

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Merck Cie, formerly Merck Eprova AG, has filed a lawsuit against Acella Pharmaceuticals LLC and two of its officers, alleging false advertising regarding Acella's folate products. Merck claims Acella's labeling misled customers into believing their products were equivalent to Merck’s chemically pure folate, resulting in incorrect pharmaceutical database links that suggested substitutability. This led to claims of false advertising, contributory false advertising, and deceptive trade practices under federal and state law. In response, Acella sought a declaratory judgment of non-infringement and counterclaimed that Merck improperly marketed its folate products. After a bench trial, the Court found that Acella committed false advertising and contributory false advertising under the Lanham Act but ruled that Merck did not prove a violation of New York state law regarding deceptive trade practices. The Court awarded Merck $11,606,400.00 in damages, along with interest, injunctive relief, and attorneys’ fees, while dismissing Acella’s request for a declaratory judgment and its counterclaim.

Merck initiated legal proceedings on November 20, 2009, related to an existing case, Merck Eprova AG v. Gnosis S.p.A. Acella sought to transfer the case to the Northern District of Georgia on December 3, 2009, while Merck filed for a preliminary injunction the following day. Both motions were denied on December 15, 2009. Merck amended its complaint on January 13, 2010, and Acella responded with counterclaims on January 29, 2010. The parties filed competing motions for summary judgment on August 5, 2010, which were denied by the Court on March 17, 2011, following oral arguments on March 10. Merck's Second Amended Complaint, filed on April 15, 2011, added Acella executives as defendants and removed prior claims for unfair competition. Counterclaims were reasserted by Acella on April 29, and the defendants answered on May 12, 2011. A Third Amended Complaint was submitted by Merck on August 11, 2011, which included minor changes. The trial commenced on November 14, 2011, organized per the Court's rules for non-jury cases, with thirteen witnesses providing affidavits and twelve testifying. Closing arguments were held on December 7, 2011, followed by post-trial memoranda submissions in January 2012.

The case involves Merck, a Swiss corporation manufacturing the pure folate product Metafolin, and Acella, a Georgia-based developer of generic folate products Xolafin and Xolafin-B. Merck alleges that Acella's labeling misrepresents its products as identical and interchangeable with Merck's, violating the Lanham Act and state law. Acella counters that Merck has mislabeled its products and seeks a declaratory judgment affirming the truthfulness of its own labeling.

Stereochemistry involves the spatial arrangement of atoms in a molecule, with stereoisomers being compounds that share the same atomic composition and connectivity but differ in spatial arrangement. Diastereoisomers are a subset of stereoisomers with different configurations. These mixtures exhibit varying physical, chemical, and biological properties, which can affect their interactions in the human body. Naming conventions for stereoisomers include prefixes such as “R” and “S,” “D” and “L,” or “d” and “l,” indicating mixtures with respective symbols before the chemical name.

The products in question are types of folate, a vital B vitamin for cell creation, associated with reduced risks of certain cancers and cardiovascular diseases, as well as prenatal health benefits. Folic acid, the most recognized form, is synthesized for food fortification and supplements, while tetrahydrofolates are the predominant natural forms, easier for the body to metabolize but challenging to synthesize. Tetrahydrofolate exists in the “L” form naturally; synthetic processes yield a mixture of stereoisomers, including L-5-methyltetrahydrofolate (L-MTHF), which is bioactive, and D-5-methyltetrahydrofolate (D-MTHF), which is not active and poorly absorbed. The synthetic process produces a diastereoisomeric mixture known as D,L-5-MTHF, which has distinct physiological effects compared to its natural counterpart.

Synthetic tetrahydrofolate, known as D,L-5-MTHF, has been available in the U.S. as a dietary supplement since the early 2000s. Merck was the first to introduce a substantially pure L-5-MTHF product after investing tens of millions in research. In September 2000, Merck submitted a new dietary ingredient notification to the FDA for its product, Metafolin, which contained at least 99% L-5-MTHF, establishing a standard for purity that was later adopted internationally by organizations such as the FDA, JECFA, and EFSA, limiting D-5-MTHF impurities to 1%. Merck's Metafolin gained significant market traction compared to competitors that offered lower-purity mixtures. Merck's customers, including Pamlab and Sciele Pharma, incorporated Metafolin into their products, enhancing their market appeal. After Merck declined a licensing agreement, Acella sought to develop its own folate source to compete and, in 2009, pursued a racemic form of 5-MTHF from a Chinese supplier, which was significantly cheaper than pure L-5-MTHF.

Acella entered into a supply agreement with the Chinese producer Jinkang to purchase the 5-MTHF compound, specifically developing "racemic 5-methyltetrahydrofolate, calcium salt." The certificate of analysis from Jinkang referred to the compound as “5-methyltetrahydrofolate calcium (racemate),” while internal communications labeled it as “racemic methylfolate.” Following its acquisition of the racemic folate, Acella launched a product named Xolafin, comprising approximately 50% L-5-MTHF and 50% D-5-MTHF, in 2009, positioning itself as a competitor against Metafolin products. Notably, Acella labeled its product as “L-methylfolate,” omitting mention of the D-5-MTHF content, contrasting with GNC's labeling of its equivalent product as “D,L-methylfolate.” In 2010, Acella introduced Xolafin-B, containing 90-95% L-5-MTHF and 5-10% D-5-MTHF, in several dietary supplements. Both Xolafin and Xolafin-B competed with Sciele's Metafolin-containing products, including PNV Select against Prenate Elite, PNV-DHA against Prenate DHA, and PNV Omega against Prenate Essential. The folate content for both Acella and Sciele products was clearly labeled, with Acella’s PNV Select mirroring Sciele’s Prenate Elite in its folate composition claims. Following Acella's market entry, sales of Merck-licensed products notably declined, with Prenate Elite and Prenate DHA experiencing their first sales drop since their launches upon Acella's competition in November 2009.

Pharmaceutical substitution involves pharmacists dispensing a less expensive generic product instead of the prescribed brand-name product. This process starts with pharmaceutical databases, like MediSpan and First DataBank, which collect product information from manufacturers. These databases link products with the same active ingredients to indicate that a generic is a suitable substitute. Acella, a manufacturer of generic substitutes, seeks to have its products linked with branded products to expand sales channels. To achieve this, Acella provided its product labels to databases, including those for its Xolafin-containing products in late 2009 and early 2010. Acella's strategy focused on ensuring its products were linked to higher-priced Metafolin-containing products by maintaining identical active ingredients. The company closely monitored label changes of competing Metafolin-containing products to prevent delinking from databases, making corresponding updates to its own labels whenever necessary.

In the legal context, Merck has brought forth several claims against Acella, including false advertising under the Lanham Act and deceptive trade practices under New York law. Merck carries the burden of proof to substantiate its allegations by a preponderance of the evidence, which means demonstrating that the existence of a fact is more likely than not. The court, as the trier of fact, will assess the credibility of witnesses and testimony presented during the proceedings.

Jurisdiction is established under 28 U.S.C. §§ 1331 and 1338, with supplemental jurisdiction for state law claims under 28 U.S.C. § 1367, and venue is appropriate in the Southern District of New York under 28 U.S.C. § 1391. To demonstrate standing under the Lanham Act, a plaintiff must show a legitimate interest in protection against alleged false advertising and a reasonable belief that such advertising could harm that interest. Merck has standing despite not being direct competitors with Acella, as both produce competing folate sources for dietary supplements, indicating Merck's interest in the market is valid. 

Merck claims that Acella’s labeling of its products, specifically the use of “L-methylfolate” and “6(S)-5-MTHF,” constitutes false advertising in violation of the Lanham Act. Under Section 43(a)(1)(B), false or misleading representations in commercial advertising are prohibited, and to prove a false advertising claim, the plaintiff must establish five elements: (1) a false or misleading statement by the defendant; (2) the statement deceives or has the potential to deceive a substantial audience; (3) the deception is material and likely affects purchasing decisions; (4) the statement was placed in interstate commerce; and (5) the plaintiff suffered injury from the misrepresentation. The determination of whether representations qualify as ‘commercial advertising’ under the Lanham Act hinges on evidence of an organized marketing campaign aimed at the relevant market, supported by widespread dissemination within the industry.

To establish a Lanham Act claim, a plaintiff must demonstrate either that an advertisement is literally false or likely to mislead customers. Literal falsity requires the advertisement to be unambiguous and false on its face, which presumes consumer deception. Courts can enjoin the use of such claims without needing to assess their impact. If an advertisement has multiple reasonable interpretations, it cannot be considered literally false, shifting the focus to whether it is likely to mislead. In cases of implied falsehood, extrinsic evidence of consumer deception is typically necessary, except when a defendant's egregious conduct implies intent to deceive, which then shifts the burden to the defendant to prove consumers were not misled.

In the dispute between Merck and Acella, Merck contends that Acella's labeling of "L-methylfolate" is literally false as the ingredient is not pure. Acella acknowledges that their products are diastereoisomeric mixtures and claims their labels correctly identify the active L-isomer's presence and amount, albeit omitting the inactive D-isomer. The court finds that Acella’s labels, being open to multiple interpretations, do not meet the standard for literal falsity, and therefore Merck has not met the burden of proof.

Implied falsity can support a Lanham Act false advertising claim even if literal falsity is not established. To prove implied falsity, a plaintiff must show evidence of consumer deception or confusion, often through extrinsic evidence like customer surveys. The effectiveness of an implied falsity claim hinges on the strength of consumer surveys indicating that a significant portion of consumers misinterprets the message conveyed by the advertising. When a substantial number of consumers are misled, the court assesses the message's truthfulness and potential to mislead, considering factors such as the commercial context and the audience's sophistication. 

If a plaintiff demonstrates that a defendant intentionally deceived the public with egregious conduct, the court may presume consumer deception, relieving the plaintiff from needing to provide surveys, shifting the burden to the defendant to disprove confusion.

In this case, Merck conducted two surveys targeting pharmacists and physicians to evaluate confusion regarding the term “L-methylfolate” on Acella’s labels, which were aimed at encouraging product substitution. The first survey, by Hal Poret, assessed whether the term conveyed that Xolafin consists of a “substantially pure isomer.” The second survey, by Dr. Brian Reisetter, focused on product substitution perceptions. 

Participants in both surveys were divided into Test and Control Groups. The Test Group saw an Acella label indicating “L-methylfolate,” while the Control Group saw a modified label with “D,L-methylfolate.” Questions posed to participants included whether they believed the folate ingredient was a substantially pure isomer. The results showed that 45% of pharmacists in the Test Group believed it was, compared to only 24% in the Control Group, resulting in a net 21% indicating that the “L” designation led them to believe Xolafin was a substantially pure isomer.

In a physician survey, 37% of the Test Group indicated that Xolafin designated as L-methylfolate is a substantially pure isomer, while 4% disagreed. In comparison, 26% of the Control Group believed that Xolafin designated as D,L-methylfolate is a substantially pure isomer, leading to 11% overall believing the L designation indicated substantial purity. Poret concluded that pharmacists and physicians would likely respond similarly to labels for Acella products containing Xolafin-B, which share the same information as Xolafin labels.

Dr. Reisetter conducted a survey of retail pharmacists to assess the impact of Acella’s labeling on their substitution decisions for products. His study aimed to determine whether pharmacists viewed Acella products as pharmaceutical equivalents to Merck products, potentially leading to substitutions. In comparing Acella products with Pamlab products, 45.3% of surveyed pharmacists deemed Acella products suitable for substitution, primarily based on the ingredient claims on Acella’s labels. Conversely, only 10% believed a mixture product could substitute for a pure Pamlab product without consulting the prescribing physician. 

In a separate study on Sciele products, 75.3% of pharmacists considered Acella products appropriate substitutes based on package inserts, but only 33.3% would substitute a racemic mixture product without first contacting the physician. Dr. Reisetter concluded that most pharmacists would refrain from substituting Acella products for branded Metafolin products if they were fully informed that these products did not meet the purity standards for L-methylfolate due to the inclusion of D,L-methylfolate. He asserted that Acella’s labels led to a market perception of these products as pharmaceutically equivalent and suitable as generic substitutes.

The Court finds the surveys presented by Merck to be reliable despite Acella's criticisms, as they effectively used control groups to isolate the impact of advertising from participants' prior knowledge. The surveys indicated that a significant percentage of surveyed pharmacists (21%) and physicians (11%) mistakenly believed Xolafin contained the pure L-isomer, supporting Merck's claim that consumers were misled by Acella's advertising. Additionally, confusion levels were low and comparable to the control group. 

The Court then assessed whether Acella's advertising was misleading or false, concluding that the labels for Xolafin and Xolafin-B were misleading. Acella's omission of the D-isomer in its labeling deviated from industry standards, suggesting intentional deception, especially since the target audience of pharmacists and physicians were often misled into thinking the products contained the pure L-isomer. 

Furthermore, the Court established a presumption of consumer deception based on evidence of Acella's deliberate intent to mislead. Merck demonstrated that Acella intended to create confusion by marketing its products in a way that aligned them with Merck’s Metafolin, despite knowing the chemical distinctions between D,L-methylfolate and L-methylfolate. This intentional misconduct was underscored by Acella's prior advice against using pure L-methylfolate to evade patent infringement, indicating awareness of the implications of their marketing strategy.

Acella demonstrated clear awareness of the differences between its products and Merck’s Metafolin, as evidenced by Bryant's inquiries about producing a racemic mixture, indicating knowledge of the product distinctions. Although Bryant contests the implications of his inquiries, he acknowledged Acella's intention to create a custom blend of D,L-methylfolate to avoid purchasing the pure L-isomer. Throughout their communications, Bryant consistently referred to a racemic mixture rather than L-methylfolate, illustrating Acella's understanding that its products were distinct from Merck’s pure variant. Acella intentionally labeled its products with the pure chemical name to ensure they were linked in pharmaceutical databases to Metafolin-containing products, as shown by ongoing labeling changes aimed at maintaining this connection. When questioned about the chemical composition of its products, Deas deliberately evaded providing a truthful response to avoid delinking. Acella's defense, claiming the labels reflected only the L-isomer as the active ingredient, fails to address the fact that the D-isomer was blended intentionally, which was part of a strategy to compete with Metafolin. The Court finds Bryant's explanations for labeling decisions unconvincing, especially given internal references to the products as mixtures and the acknowledgment of FDA standards that limit D-isomer presence. Acella's contract manufacturer referred to its products as D,L-methylfolate, and Bryant admitted Acella was aware of relevant labeling standards, further undermining their claims. It would have been illogical for Acella to develop Xolafin-B with a purer composition if the D-isomer's presence was deemed irrelevant.

Acella’s explanations for its product labeling are determined to be post-hoc rationalizations aimed at mimicking Sciele’s and Pamlabs’s products. Acella sold a D,L-methylfolate product that differed from the pure L-methylfolate, with knowledge from both its supplier and contract manufacturer. Acella intentionally created a cheaper product to compete with Merck’s Metafolin while falsely claiming through its labels that its products, Xolafin and Xolafin-B, were identical to Metafolin. This misleading labeling obscured the actual composition of Acella’s products, allowing it to gain market share that would have otherwise been unavailable. The consumer confusion supported by surveys provides Merck with a presumption of deception. The court cites case law establishing that substantial expenditures by a competitor to deceive consumers support this presumption. Once Merck demonstrates deceptive conduct, the burden shifts to Acella to prove the absence of confusion, which it failed to do by not providing its own surveys. The court concludes that Acella’s labels are implicitly false under the Lanham Act. Furthermore, Merck must show that Acella's misrepresentations pertained to a material quality of the product that would influence consumer purchasing decisions, referencing precedents that establish this materiality requirement.

The materiality requirement in deceptive marketing claims asserts that not all deceptions influence consumer choices; rather, a plaintiff must show that misrepresentations are likely to affect consumer behavior. Acella contests the materiality of its labeling for nutritional supplements, specifically regarding the L- and D-isomers of folates, which have distinct physiological effects. The trial evidence indicates that inaccuracies in Acella's statements did impact customer purchasing decisions. The products aim to deliver folates, and healthcare professionals base their prescriptions on L-methylfolate content, highlighting its significance. Acella's labeling practices suggest it recognized the importance of L-methylfolate in consumer perception. The court concludes that the purity of a folate source is a crucial characteristic that defines the product and its market. Evidence from inquiries by pharmaceutical databases and admissions by defense witnesses reinforce that the chemical composition of Acella's products is material. Specifically, doctors acknowledged the necessity of accurate labeling for proper prescribing and patient care, emphasizing that consumers and healthcare providers value chemical purity in folate supplements.

Dr. Brian Buell, a witness for Merck, expressed concerns about D-methylfolate, stating he did not want his patients to consume any amount due to its potential effects. He claimed Acella’s marketing misled him into thinking its products could safely replace Merck's. The court deemed Acella's labeling decisions material, affecting doctors, pharmacists, patients, and Acella's financial interests. Specifically, Acella's mislabeling led to connections in pharmaceutical databases that required pharmacists to substitute Acella's products for those containing Metafolin. This misrepresentation was found to be materially misleading.

Regarding false advertising under the Lanham Act, the requirement of an organized campaign was satisfied. Acella did not contest that its labeling constituted advertising, and it engaged in a widespread effort to penetrate the pharmaceutical market, intentionally linking its products to those of Merck. The court concluded that Acella’s actions amounted to false advertising in violation of Section 43(a)(1)(B) of the Lanham Act.

Additionally, for Acella to be liable for contributory false advertising, Merck must demonstrate that the national pharmaceutical databases engaged in false advertising by misrepresenting Acella's products as equivalent to Metafolin-containing products. Merck's complaint alleges that Acella induced these databases to falsely advertise its products as substitutable and therapeutically equivalent to those containing Metafolin.

Acella was found to have misled pharmaceutical databases about the chemical equivalence of its products, Xolafin and Xolafin-B, with those containing Metafolin, leading to market confusion and potential substitution of products. The court determined that Acella intentionally induced false advertising and that Merck successfully proved its contributory false advertising claim. Merck also raised claims under New York General Business Law Sections 349 and 350 for deceptive trade practices and false advertising, respectively. To succeed under Section 349, a plaintiff must demonstrate that the act was consumer-oriented, materially misleading, and resulted in injury. A false advertising claim under Section 350 requires the same proof, plus evidence of actual reliance. While corporate competitors can bring Section 349 claims if focused on consumer harm or public interest, Merck failed to establish sufficient public harm. Evidence of consumer confusion was aimed at supporting claims of materiality rather than demonstrating public injury, and assertions of potential health risks from the D-isomer lacked robust support and relevance to public health. Ultimately, Merck's claims centered on its own business losses rather than broader public harm.

Plaintiff Merck's claims under New York General Business Law Sections 349 and 350 fail because the alleged harm was not consumer-oriented but rather affected the plaintiff and his business. Individual liability for employees Deas and Bryant arises from their direct involvement in violations of the Lanham Act, as they are deemed to be the "moving forces" behind the infringement. Established case law indicates that corporate officers can be held personally liable if they actively participate in the infringement, even if liability typically involves counterfeiting cases or one-person companies. Evidence presented at trial showed that Deas, the Chief Operating Officer, and Bryant, the Director of Business Development at Acella, were primarily responsible for the development, marketing, and labeling of the products Xolafin and Xolafin-B. They initiated contacts with suppliers, traveled to China for product development, and made key decisions regarding product labeling to ensure substitution for competing products. Despite claims of a team effort, the record supports the view that Deas and Bryant were significantly involved and ultimately approved the labels and inserts for the products.

CEO Mark Pugh and President Phillip Vogt testified they had minimal involvement in the development of Acella products, with Pugh stating he was largely uninvolved with the Xolafin products and Vogt claiming ignorance of both Xolafin and Xolafin-B. The Court found the testimonies of Deas and Bryant regarding other team members untrustworthy and credited the testimonies of those who denied involvement in product development. Consequently, the Court held Deas and Bryant individually liable for violations of the Lanham Act.

Merck seeks damages including lost royalties, Acella’s profits, litigation costs, and injunctive relief, arguing for treble damages due to the intentional nature of Acella's false advertising. Under the Lanham Act, a plaintiff can recover the defendant’s profits, any damages sustained, and litigation costs, with the burden on the defendant to prove allowable deductions. The court has discretion in determining the amount of damages, which may exceed actual damages, and can engage in speculation regarding damages if causation is established.

The Court concluded that Merck is entitled to damages for lost licensing fees and injunctive relief concerning Acella’s product labels. Given the inadequate compensation for Merck's injuries and Acella's willful violations, the Court granted treble damages but deemed the request for Acella’s profits and full injunctive relief excessive. Additionally, due to Acella's deceptive actions, Merck is entitled to attorney's fees. Recoverable damages include harm to market reputation and lost profits, calculated by estimating lost revenues and subtracting related expenses.

In GTFM, Inc. v. Solid Clothing, Inc., the court established that a plaintiff can demonstrate damages through a "fair and reasonable approximation" of lost profits. Merck is awarded damages for lost royalty payments due to Acella's sales of competing products. Acella contends that Merck's claim of lost sales is speculative, arguing there is no proof that lost sales are attributable to Acella. However, this claim is countered by Acella’s strategy to position its products as alternatives to Merck's Metafolin-containing products, including the use of identical labels to facilitate this connection. Evidence indicates that sales of Metafolin products declined notably with the introduction of Acella’s products, establishing a causal link between Acella's actions and Merck's losses.

Merck calculated its damages by multiplying units of Acella’s products sold by the net sales price of corresponding Merck products, resulting in an estimated loss of $80.6 million. This amount was adjusted by the royalty rate and Merck's variable expenses, yielding a net profit loss of $3,869,460 due to Acella's false advertising. Acella's expert suggested reducing Merck’s calculation based on cross-price elasticity, claiming that Acella's lower-priced products increased overall sales rather than directly supplanting Merck's sales. However, the court found this argument unconvincing, noting that Acella's marketing relied solely on database linkage. The court sided with Merck's expert, Ivan Hofmann, attributing any market expansion to the launch and promotion of Merck’s Prenate Essential product.

Acella contends that Merck failed to consider the market entry of competitor Trigen, whose products were less expensive and linked to Sciele’s in pharmaceutical databases. Acella claims that a significant portion of its sales would have shifted to Trigen instead of Sciele. However, Merck's damages calculation is based on Acella's actual sales, not those lost by Sciele. Acella's participation in the folate market relied on substituting its products for Metafolin-containing products, indicating a direct correlation between Acella's sales and Merck's losses. Moreover, Merck's royalty-based calculation reflects the profit it would have earned had Acella licensed the folate, independent of Trigen’s market presence. Acella had initially sought to license Metafolin from Merck, but upon rejection, proceeded to infringe on Merck's product. Thus, rewarding Acella would unjustly benefit its infringing actions. The Court concludes that Merck’s damages methodology is a reasonable estimate of losses due to Acella's false advertising, determining Merck suffered $3,869,460.00 in profits as a result of Acella's violations of the Lanham Act. 

The Lanham Act allows for damages to be trebled, intended as compensation rather than a penalty. Enhanced damages can serve both compensatory and deterrent purposes, especially in cases of willful violations. The Court finds it appropriate to triple Merck's damages, as awarding only the lost royalties would effectively force Merck to license its product to Acella, which it chose not to do.

Acella’s substantial infringing sales, totaling $50.2 million in profit, indicate that similar sales of Sciele’s higher-priced products could have generated even greater royalties for Merck. Additionally, Acella's competition in the pure folate market and Merck's consequent loss of potential market growth and customers were not included in Merck’s lost profits calculation. Acella’s infringement allowed it to establish a position in the profitable nutritional supplement market, which funded the development of a competing folate supplement. The Court recognizes that the intangible benefits Acella gained from its Lanham Act violations are not fully reflected in the damages calculation, leading to a decision to treble the lost profits damages award to deter future violations. Merck’s total damages are set at $11,608,380. Alongside lost royalties, Merck seeks Acella’s profits under the Lanham Act, which allows for recovery of such profits if the defendant acted in bad faith. The rationale for this includes deterring wrongdoing, preventing unjust enrichment, and compensating the plaintiff. Factors influencing the award include certainty of the defendant’s benefits from unlawful conduct, availability of other remedies, the defendant's role in the wrongdoing, and the plaintiff's conduct. While a full accounting of Acella’s profits would deter future misconduct and eliminate its gains, the Court ultimately finds that awarding these profits to Merck would constitute an impermissible windfall, as Merck does not profit from the sale of finished consumer products.

Merck profited from selling raw materials to companies like Sciele, which developed consumer products, indicating that any accounting against Acella should be directed toward Sciele rather than Merck. The Court, in exercising its discretion, determined that Merck is not entitled to Acella's profits to avoid giving Merck an undue windfall. 

Merck seeks a permanent injunction against Acella, prohibiting it from labeling its Xolafin and Xolafin-B products with “L-methylfolate” and from selling any methylfolate product for five years. Additionally, Merck requests a corrective advertising campaign to clarify the differences between its Metafolin products and Acella's offerings.

To grant a permanent injunction, a plaintiff must demonstrate: (1) irreparable injury, (2) inadequacy of legal remedies, (3) that the balance of hardships favors the plaintiff, and (4) that the public interest is not harmed. The purpose of an injunction is to prevent future wrongdoing rather than to punish. A plaintiff must show that the parties are competitors and establish a causal connection between false advertising and its sales position to prove irreparable harm. 

The Court found that Merck and Acella are indeed competitors and that Acella's false advertising has impacted Merck's market position. Although damages have partially compensated Merck, they do not address the loss of its market position. Therefore, equitable relief is warranted. The Court will require Acella to run a corrective advertising campaign to distinguish its products from Merck's, specifically informing consumers about the mixture of isomers in Xolafin. This campaign must be approved by the Court, with Merck having input. Alternatively, Merck may create its own campaign, with Acella covering the costs. However, the Court will not impose a permanent ban on Acella’s use of the term “L-methylfolate” or its synonyms.

The Court has ordered Acella to label its methylfolate products to indicate the presence and proportions of both D- and L-isomers. While Acella can use the term "L-methylfolate" and its synonyms, this must accurately reflect the products. The Court denied Merck's request to impose a five-year market ban on Acella's non-infringing methylfolate products, noting that there is no precedent for such a ban, and it would be overly burdensome and contrary to public interest by reducing consumer choice and increasing prices. The Court has already enjoined Acella from misleading advertising and awarded Merck trebled damages.

Regarding attorneys' fees under the Lanham Act, the Court highlighted that such fees are only awarded in exceptional cases marked by fraud or bad faith, as per the Second Circuit's standards. The Court found Acella's false advertising to be willful and in bad faith, illustrated by its deliberate deception and inconsistent labeling practices that conflicted with FDA guidance. Acella's defense was viewed as a post hoc justification that showed contempt for the Court. Testimony revealed that while Acella generally complied with FDA guidance for ingredient labeling, it failed to do so for D,L-methylfolate, and had internally used the nomenclature suggested by Merck.

Defendants identified their folate ingredient as L-methylfolate only on product labels, which influenced the pharmaceutical database linkage decision. The Court found significant discrepancies between the private communications of Deas and Bryant and their public testimonies, leading to a conclusion that Acella's labeling and litigation strategies were intentionally misleading. Consequently, the Court deemed the case "exceptional" and awarded attorneys’ fees. Merck prevailed on its false advertising claim under the Lanham Act, receiving damages of $11,608,380, while Acella's request for declaratory judgment was dismissed. The Court ordered Acella to label its methylfolate products accurately regarding the D- and L-isomers and to conduct corrective advertising approved by the Court or developed by Merck. Merck is to submit a fee application by March 15, 2013, with Acella allowed to oppose the requested amount by March 31, 2013. The judgment will reflect that findings of fact that imply legal conclusions are treated as such. The trial included discussions on the stereo-chemical naming conventions relevant to the products, with Merck challenging Acella’s labeling terms. The Court noted that while no evidence showed negative health impacts from D-methylfolate, its materiality in consumer purchasing decisions was acknowledged. Merck did not address its state law claims post-trial and may have waived them. The Court highlighted that individual corporate officers can be held liable under the Lanham Act without needing to prove intent to deceive, and evidence suggested that Deas and Bryant intended their products to appear identical to Merck's. Merck's damages claim was restricted to Acella products that replaced Sciele products, as a separate settlement was reached regarding those substituted for Pamlab products.