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Mimedx Group, Inc. v. Osiris Therapeutics, Inc.

United States District Court, S.D. New York

July 21, 2017

MIMEDX GROUP, INC., Plaintiff,
v.
OSIRIS THERAPEUTICS, INC., Defendant.

          OPINION AND ORDER

          KATHERINE POLK FAILLA United States District Judge.

         This case involves a dispute among rivals in the wound care biologics market about their competing tissue-graft products. Plaintiff Mimedx Group Inc. alleges that Defendant Osiris Therapeutics Inc. issued false or misleading statements that Defendant's product is better in various ways than Plaintiff's. Specifically, Plaintiff asserts claims of false advertising in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and of deceptive trade practices and false advertising in violation of New York General Business Law §§ 349 and 350. Defendant moves to dismiss the Second Amended Complaint (the “SAC”) for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth in this Opinion, the Court finds that although not all of Plaintiff's claims are adequately pled, most of them are, and Defendant's motion to dismiss is therefore denied.

         BACKGROUND[1]

A. Factual Background

         1. The Parties and the Study

         Plaintiff is a Florida corporation based in Georgia that develops, manufactures, and markets healing products and devices for tissue regeneration, including “regenerative bioactive products and bioimplants processed from placental human amniotic membrane.” (SAC ¶ 10; see also Id. at ¶¶ 3, 11). At issue here is Plaintiff's “EpiFix” product, “a tissue graft processed from [a dehydrated] human amniotic membrane that is derived from donated placentas using [Plaintiff's] proprietary technology, including its Purion process.” (Id. at ¶ 20; see also Study 5). EpiFix is designed to help “reduce inflammation, enhance healing, and reduce scar tissue formation.” (Id. at ¶ 21).

         Plaintiff “has spent many millions of dollars researching and developing EpiFix.” (SAC ¶ 23). Specifically, Plaintiff “has conducted countless experiments and tests, grounded in scientific methods, to rigorously establish the safety and efficacy of EpiFix, and spent years and millions of dollars on research and development to discover and perfect its product.” (Id. at ¶ 25). Plaintiff has also “devote[d] significant financial resources each year to marketing its product.” (Id. at ¶ 23). In turn, Plaintiff “receives substantial revenue from EpiFix” and “has established a considerable market in the United States for EpiFix.” (Id. at ¶ 22).

         Defendant is incorporated and based in Maryland, and likewise develops, manufactures, and markets wound care products; as noted, it is a direct competitor of Plaintiff's in the wound care biologics market. (SAC ¶¶ 29-30). Defendant's competing product is Grafix, “a cryopreserved placental membrane” used to treat acute and chronic wounds. (Id. at ¶ 32).

         Plaintiff's EpiFix and Defendant's Grafix wound care products were the subject of a comparative study entitled “A Comparative Outcomes Analysis Evaluating Clinical Effectiveness in Two Different Human Placental Membrane Products for Wound Management” (the “Study”). (SAC ¶ 33). The Study was led by Dr. Eric Johnson and others, and it relied on a patient population at the Bozeman Health Deaconess Hospital, Wound and Hyperbaric Center in Bozeman, Montana. (Study 5; Press Release 3). The Study was eventually published in the peer-reviewed journal Wound Repair and Regeneration. (Id.).[2]

         2. Defendant's Press Release

         On or about May 2, 2016, Defendant published a press release (the “Press Release”) on its website touting the results of the Study. (SAC ¶ 34). In fact, Plaintiff alleges, the Press Release distorts the Study's findings and makes false claims regarding the superior efficacy of Grafix over EpiFix. (Id.). Plaintiff points specifically to two alleged misrepresentations in the Press Release.

         First, Plaintiff targets the Press Release statement that “unclosed EpiFix-treated wounds demonstrated a deterioration in clinical condition.” (SAC ¶ 34; Press Release 2). Plaintiff alleges that this statement is unsupported by the Study because “[t]he Study does not state that the unclosed wounds treated with EpiFix demonstrated clinical deterioration. Rather, the Study states that ‘there was no clinical improvement' in the unclosed EpiFix-treated wounds within the defined timeframe.” (SAC ¶ 35). “The Press Release's statement therefore falsely implies that treatment with EpiFix caused the wounds to deteriorate, which is not supported by the underlying Study.” (Id.).

         Second, Plaintiff points to the Press Release statement that “clinical outcomes for patients seen and treated … at [Study investigator Dr. Eric Johnson's] clinic in Bozeman [Montana] have shown that Grafix has demonstrated superior outcomes to EpiFix.” (SAC ¶ 36; Press Release 3). Plaintiff alleges that this statement is unsupported by the Study because “[t]he Study does not show that Grafix demonstrated superior outcomes to EpiFix. Rather, the Study shows that EpiFix closed the same number of, if not more, diabetic foot ulcer, arterial ulcer and pressure ulcer wounds by the end of treatment as the Grafix product.” (SAC ¶ 37). “Additionally, ” Plaintiff continues, “the Study shows that, on average, patients receiving treatment with Grafix received at least 1.5x to 2x the number of graft applications than those patients receiving treatment with EpiFix and that EpiFix worked more quickly than Grafix (an average treatment duration of 28.5 days for EpiFix compared to 50 days for Grafix) for closed wounds.” (Id. at ¶ 38).

         3. Defendant's Brochure

         Since at least early October 2015, Defendant has been distributing to prospective U.S. and overseas customers a brochure entitled “When Treating Chronic Wounds: Know the Facts, Preserving Placental Membrane in Its Native State Matters” (the “Brochure”). (SAC ¶ 54). Plaintiff alleges that the Brochure “make[s] false or misleading statements regarding the superior processing of Grafix as compared to EpiFix.” (Id. at ¶ 53). Plaintiff points specifically to three allegedly false or misleading statements in the Brochure.

         First, Plaintiff objects to the Brochure's representation that “‘[a] Chronic Wound Needs … Viable Cells, ' and that viable cells are contained in Osiris' Grafix allograft but are lacking in EpiFix.” (SAC ¶ 61 (quoting Brochure 1)). This creates the impression “that Grafix - which contains live cells - is more effective at healing chronic wounds than EpiFix as a result of these viable cells.” (Id.). Plaintiff contends that this statement is misleading because “[w]hile viable cells can be beneficial for wound healing, viable cells in a placental derived tissue graft like Grafix are not necessary for effective wound healing.” (Id. at ¶ 62). In fact, Plaintiff claims upon information and belief, “viable cells added to a chronic wound through an allograft die quickly upon introduction to the wound or migrate away from the wound site” and thus have a “minimal contribution on the effectiveness of the allograft.” (Id. at ¶ 63).

         Second, Plaintiff alleges that the Brochure's statements that EpiFix “contains high levels of Matrix Metaloproteases (‘MMPs') as a result of Purion processing” and that “this high level of MMPs ‘is not a desirable component for wound repair'” (Brochure 3), are misleading because they “impl[y] to the consumer that these high levels of MMPs in the EpiFix product inhibit wound closure, which is false” (SAC ¶ 64). Plaintiff complains that Defendant omits information related to the activity of MMPs in EpiFix, “which is the most relevant parameter in assessing impact on wound closure … because if MMPs are not active they cannot inhibit wound closure.” (Id. at ¶ 65). Defendant also “fails to indicate that EpiFix contains a high level of Tissue Inhibitors of Matrix Metaloproteases (‘TIMPs'), which are known to inhibit the activity of MMP[s].” (Id. at ¶ 66).

         Finally, Plaintiff alleges that the Brochure's statement that EpiFix's Purion process “‘causes significant alterations' to the extracellular structural matrix (‘ECM') of the amniotic cells, such that the ECM is no longer ‘intact'” (Brochure 2-3), is literally false because “the dehydration of the Purion process leaves the ECM of the amniotic cells intact” (SAC ¶ 68).

         B. Procedural Background

         Plaintiff filed the Complaint on May 16, 2016 (Dkt. #1) and the First Amended Complaint (the “FAC”) on May 24, 2016 (Dkt. #14). At the time of the FAC's filing, the Study had not yet been accepted; nor was it made available in draft form to Plaintiff and, so, was not attached to Plaintiff's pleading as an exhibit. (See id.). On June 23, 2016, the Court held a joint initial pretrial and pre-motion conference, at which Defendant informed the Court, inter alia, that publication of the Study was forthcoming. (Tr. of June 23, 2017 Conf., Dkt. #37, at 19:5-12). After significant delays (see Dkt. #34, 40, 53, 59), the Study was accepted and an “Accepted Article” version of the Study, i.e., a non-formatted, non-proofed, but otherwise approved version of the manuscript, was produced to Plaintiff on or about December 13, 2016. (See Dkt. #62, 65). Thereafter on January 4, 2017, Plaintiff filed the Second Amended Complaint - the operative complaint in this action - attaching a copy of the Study as an exhibit. (Dkt. #69).

         The SAC asserts claims under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and New York General Business Law §§ 349 and 350, for Defendant's false or misleading statements that Grafix has demonstrated superior outcomes as compared to EpiFix (SAC ¶¶ 76-99) and for Defendant's false or misleading statements that Grafix has undergone superior processing as compared to EpiFix (id. at ¶¶ 100-122).

         Defendant filed its motion to dismiss the SAC and supporting materials on February 13, 2017 (Dkt. #70-72); Plaintiff its opposition brief on March 15, 2017 (Dkt. #73); and Defendant its reply brief on March 29, 2017 (Dkt. #74).[3]

         DISCUSSION

         A. Motions to Dismiss Under Rule 12(b)(6)

         When considering a motion to dismiss under Rule 12(b)(6), a court should “draw all reasonable inferences in [the plaintiff's] favor, assume all well-pleaded factual allegations to be true, and determine whether they plausibly give rise to an entitlement to relief.” Faber v. Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (internal quotation marks omitted) (quoting Selevan v. N.Y. Thruway Auth., 584 F.3d 82, 88 (2d Cir. 2009)). Thus, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

         “While Twombly does not require heightened fact pleading of specifics, it does require enough facts to ‘nudge [a plaintiff's] claims across the line from conceivable to plausible.'” In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007) (per curiam) (quoting Twombly, 550 U.S. at 570). “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557). Moreover, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.

         “In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the complaint, documents attached to the complaint as exhibits, and documents incorporated by reference in the complaint.” DiFolco v. MSNBC Cable LLC, 622 F.3d 104, 111 (2d Cir. 2010). “Even where a document is not incorporated by reference, the court may nevertheless consider it where the complaint ‘relies heavily upon its terms and effect, ' which renders the document ‘integral' to the complaint.” Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002) (quoting Int'l Audiotext Network, Inc. v. Am. Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (per curiam)).

         Here, the Study, the Press Release, and the Brochure are all attached to the SAC (see SAC, Ex. A-C), and accordingly are considered in connection with the instant motion. See Goel v. Bunge, Ltd., 820 F.3d 554, 558-59 (2d Cir. 2016) (including exhibits attached to the complaint as among the documents that may properly be considered in resolving a motion to dismiss).

         B. Defendant's Motion to Dismiss Plaintiff's Lanham Act Claims Is Denied

         1. Section 43(a) of the Lanham Act

         Plaintiff asserts two claims of false advertising pursuant to § 43(a) of the Lanham Act, which provides:

Any person who … uses in commerce any … false or misleading description of fact, or false or misleading representation of fact, which … in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities … shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

15 U.S.C. § 1125(a)(1).

         To be actionable under the Lanham Act, statements must constitute “commercial advertising or promotion.” Gmurzynska v. Hutton, 355 F.3d 206, 210 (2d Cir. 2004). A § 43(a) false advertising claim must also establish that the challenged message is (i) “either literally or impliedly false”; (ii) “material, ” that is, a “misrepresentat[ion] [of] an inherent quality or characteristic of the product”; (iii) “placed in interstate commerce”; and (iv) “the cause of actual or likely injury to the plaintiff.” Church & Dwight Co. v. SPD Swiss Precision Diagnostics, GmBH, 843 F.3d 48, 65, 70 (2d Cir. 2016) (citing Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 255-56 (2d Cir. 2014)).

         Defendant moves to dismiss Plaintiff's Lanham Act claim on the grounds that (i) the challenged statements in the Press Release and the Brochure are not “commercial advertising or promotion” and (ii) the Press Release and the Brochure do not contain statements that are “literally or impliedly false.”[4]

         2. The Press Release and the Brochure Qualify as Commercial Advertising and Promotion

         The threshold § 43(a) question implicated here is whether the allegedly false or misleading statements in the Press Release and the Brochure constitute “advertising and promotion.” In the Second Circuit, that inquiry is governed by the three-part test outlined in Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 314 F.3d 48, 58 (2d Cir. 2002): The contested representation must be (i) “commercial speech, ” (ii) “made for the purpose of influencing consumers to buy [the defendant's] goods or services, ” and (iii) “disseminated sufficiently to the relevant purchasing public.” Id. at 56 (quoting and partially ...


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