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Bexis knows to throw us the cases that are a bit off center.  We gleefully gobble up the criminal cases, forfeiture cases, and other weird ones that are not exactly in the heartland of product liability litigation.  We like those cases because they prompt us to think differently, to look at legal disputes with eyes afresh.  There are lessons to be learned in the nooks and crannies. 

We teach a litigation strategy class at Penn Law. One of the big takeaways from the course (we hope) is the importance of assembling compelling stories. Those stories work when they appeal to narratives that people already believe or want to believe.  Think of: a deal’s a deal, David beats Goliath, dollars over lives, taking responsibility for one’s choices, etc.  We also explore ways to conjure up telling, memorable images – concrete details that adhere to the brain pan. It’s hard to beat the example of the criminal indictment that laid out a scheme to dupe regulators by printing out phony financial documents immediately in advance of an inspection. After the printing was done, the defendants formed a circle and threw the documents around to make them look used, then put the documents in the refrigerator to get rid of the printer heat.  That is a story of fraud more persuasive than the most eloquent legal verbiage.  

Todays case, Gilead Sciences, Inc. v. Safe Chain Solutions, LLC, 2023 WL 4991609(E.D.N.Y. July 31, 2023), contains some arresting allegations.  In abstract terms, what we have is a case in which a drug company accuses the defendants of counterfeiting its drugs. That sounds pretty bad, right?  The complaint included claims for violations of the Lanham Act, New York General Business Law, and common law, and it sought monetary and equitable remedies, including an accounting and disgorgement of ill-gotten profits from the manufacture, sale, and distribution of the counterfeit medication. 

Did we mention that the drugs allegedly counterfeited were HIV medications? Or that the counterfeiting ring was said to consist of “kingpins, collectors, suppliers, distributors, and pharmacies”?  The collectors “purchased both empty and full bottles of HIV medication from homeless or drug-addicted patients willing to sell their empty or full bottles of medication for cash.”  That sounds so awful in so many ways. It gets worse. The collectors then “cleaned” the bottles to remove patient labeling, “which often left sticky residue on the repurposed bottles.”  As the kids say, big if true. The plaintiff also alleged that the defendants sold bottles with false pedigrees – records documenting the chain of all the bottle’s sales or transfers going back to the manufacturer. 

At this point, those allegations are just allegations. But the conduct alleged is so brazen and rotten that it is not hard to conceive how they might affect a decision maker’s consideration of the facts or law.  That fact (and we think it is a fact) is a lesson in itself on the power of storytelling. 

The legal issue in the Gilead Sciences decision was whether asset freeze orders against the defendants should remain in place. The plaintiff alleged that the defendants had made off with multi-millions in profits by hawking counterfeit drugs, and convinced the court to impose asset freeze orders against some defendants.  Those asset freeze orders were in the form of temporary restraining orders. The defendants later sought to lift the TROs, while the plaintiff sought to keep the asset freeze orders in place. Keeping the asset freeze orders in place would mean converting the TRO into a preliminary injunction.  The plaintiff bore the burden of making the requisite showing for entry of a preliminary injunction. The court held that the plaintiff met that burden. 

The test for a preliminary injunction is well established. The movant must show (1) a likelihood of success on the merits, (2) absent a preliminary injunction, it will suffer an injury that “is neither remote nor speculative, but actual and imminent, and one that cannot be remedied if a court waits until the end of trial to resolve the harm,” and (3) the balance of equities tips in its favor and an injunction is in the public interest. 

It is interesting, at least for Drug and Device Law nerds, that a defendant argued against likelihood of success based on the theory that the Drug Supply Chain Security Act preempted the plaintiff’s Lanham Act claim. It is equally interesting that the court rejected this argument by drawing a distinction between Buckman preemption (based on the Food Drug and Cosmetic Act “leaving no doubt that it is the Federal Government rather than private litigants who are authorized to file suit for noncompliance with the medical device provisions”) and the Drug Supply Chain Act, which contains nothing similar to 21 U.S.C. section 337(a). Resolution of the plaintiff’s Lanham Act claim did “not require this Court to decide how parties may comply with DSCA’s regulatory scheme of pedigrees.”  Rather, the plaintiff’s allegations that the drug pedigrees “contained made-up chains of sale intended to confuse consumers, conceal material differences that would likely be relevant to a consumer’s decision to purchase the drugs, and flout the trademark holder’s quality control standards” are “classic Lanham Act claims.”  So much for preemption. The defendants nit-picked at other aspects of the plaintiff’s claims, but the Gilead Sciences court appraised the plaintiff’s likelihood of success as being sufficiently high. 

The Gilead Sciences court held that a defendant’s long running fraudulent conduct constituted prima facie evidence of irreparable harm. The defendant appeared likely to “dissipate any funds, which would frustrate the enforcement of an equitable award.” The plaintiff had established that the defendant had engaged in a pattern of “fraudulent or evasive conduct so as to justify a preliminary injunction freezing assets to satisfy a potential equitable award.” 

The assessment of the public interest was easy enough. There is no public interest in enabling defendants to escape judgment creditors. Further, while an asset freeze is undoubtedly a hardship, the asset freeze in question was limited. It affected one savings account. The defendant did not demonstrate that a freeze of that one account would drive it out of business. 

There were asset freezes against other defendants and other properties, too.  The court held that the defendants had not established that the particular frozen assets were not proceeds of counterfeiting activities. 

For example, the defendants could not demonstrate that certain frozen assets had not been commingled with ill-gotten gains. Do you see how the effective storytelling (you might even call the allegations inflammatory) managed to shift the burden to the other party? 

There was also some squabbling as to the proper amount of assets that should be subject to the freeze. While the court cut back on some of the assets that would be frozen, for the most part the court held that the plaintiff had met its burden of showing a “reasonable approximation” of counterfeiting proceeds. 

The Gilead Sciences court ended up converting pretty much all the TRO asset freezes into a preliminary injunction asset freeze. The court’s order was without prejudice to a renewed motion by the defendants “if they can show, through documentary proof, that particular assets are not proceeds of counterfeiting activities so as to warrant exemption” of those assets. 

Maybe the defendants can make that case.  But the plaintiff’s excellent storytelling has, at a minimum, put the defendants on the back foot.