Second Circuit Clarifies The Use Of Legal Presumptions Of Consumer Confusion And Injury In Certain Lanham Act Cases

On Tuesday, July 29, the United States Court of Appeals for the Second Circuit "clarified certain aspects of [its] false advertising jurisprudence" and held that, where literal falsity and deliberate deception have been proved in a market with only two players, it is appropriate to use legal presumptions of consumer confusion and injury for the purposes of finding liability in a false advertising case brought under the Lanham Act.1

1. Background and Procedural History

   The nutritional ingredient involved in this litigation is a dietary ingredient called folate, a B vitamin that helps the body make new cells. Folate is considered to be a critical supplement for prenatal health, and low folate intake is associated with various vascular, ocular neurological and skeletal disorders, and may pose a serious risk to individuals with diabetes.

   Since 2002, Merck & Cie ("Merck")2 manufactured and sold a folate product under the name "Metafolin" to customers who utilize it in finished products for resale, such as vitamins and supplements. Metafolin is comprised of a naturally occurring, biologically active form of Methyltetrahydrofolate ("5-MTHF"). Merck was the first company to manufacture a pure and stable stereoisomer of L-5-MTHF, a 6S Isomer Product, as a commercial source. Metafolin was the product of decades of research and the investment of tens of millions of dollars. It is one of Merck's most important products.

   In 2006, Gnosis S.p.a. and Gnosis Bioresearch S.A. (collectively, "Gnosis") started making a folate product named "Extrafolate," a tetrahydrofolate that is a mixture of the R isomer and the S isomer, or a D-5-MTHF product. D-5-MTHF does not occur in nature and does not have the same nutritional benefits to humans as Merck's L-5-MTHF product. Because it is a mixed product, Extrafolate sells at a much lower price than Metafolin.

   In the predominant naming conventions of compounds, isomers are labeled with either a "D" or an "L" based on the isomer's relation to the glyceraldehyde molecule or "R" and "S" based on the isomer's relation to the carbon atom. In the context of folates, "S" or "L" refers to the naturally occurring isomer, and "R" or "D" refers to the non-natural isomer. If manufactured synthetically, a folate is "mixed" and would be identified as having both "D" and "L," or "R" and "S," and thus be labeled as either "D,L" or "R,S."

   Between 2006 and 2009, Gnosis printed various types of marketing materials, including brochures and product specification sheets, using chemical descriptions, terms, and formulas attributed to the pure 6S isomer for the sale and marketing of its 6R,S mixture product. Gnosis sold its product to six customers, both directly and indirectly, during this time. In 2007, Merck sued Gnosis, accusing it of falsely advertising Extrafolate by using the pure Isomer Product chemical name and properties in marketing Extrafolate.

   Following a bench trial, the...