In This Issue
In two 2019 rulings, the Federal Circuit invoked the “written description requirement” of 35 U.S.C. § 112 to require evidentiary support for therapeutic efficacy. Now that the Supreme Court has declined to hear one of those cases, “written description” will continue to present a hurdle to patentability, in addition to the utility and enablement requirements.
Trade secret litigation is on the rise, and new case law related to enforceability has broad implications for how companies protect information that they consider to be trade secrets. Drawing on these cases, we offer practical steps for ensuring that your company’s trade secret “crown jewels” are enforceable in court—especially if your business is in a knowledge-based sector, such as technology or life sciences.
Late 2020 Stimulus Bill Includes Sweeping Changes to the Lanham Act — Ashleigh J. Armstrong
Written Description of Therapeutic Efficacy
By Hayan Yoon
Inventors are generally counseled to file a patent application as soon as they have a patentable invention to avoid potential forfeiture of important rights in today’s first inventor-to-file system. However, inventors—particularly those in drug development—should be wary of potential risks associated with racing to the U.S. Patent and Trademark Office and filing too early. As one example of additional considerations to take into account prior to filing, we look at two recent cases in which the U.S. Court of Appeals for the Federal Circuit invoked the “written description requirement” of 35 U.S.C. § 112 to require evidentiary support for efficacy—a twist the U.S. Supreme Court was asked to consider but denied.
Although demonstration of human clinical efficacy of a drug is not required for patentability, the claimed invention has to have a specific, substantial and credible use under the “utility requirement” of 35 U.S.C. § 101 and the specification must teach those in the art how to use the invention without undue experimentation under the “enablement requirement” of 35 U.S.C. § 112. Given that human clinical efficacy is unpredictable, as evidenced by the percentage of failures in Phase 3 clinical trials, heightened standards have been applied and evidentiary support for therapeutic efficacy has been required, often based on experimental data, to support utility and enablement.
Recently, the Federal Circuit invoked the written description requirement of 35 U.S.C. § 112, separate from the enablement requirement, to require evidentiary support for efficacy in Idenix Pharmaceuticals v. Gilead Sciences and Nuvo Pharmaceuticals v. Dr. Reddy’s Laboratories. In both opinions, the court held claims invalid for failing to meet the written description requirement, failing to demonstrate that the inventor was in possession of the claimed invention at the time of filing the patent application.
This article reviews these Federal Circuit decisions and a recent petition for writ of certiorari.
Idenix v. Gilead
Idenix v. Gilead involved a patent related to a method of treating the hepatitis C virus (HCV) by administering nucleoside compounds. The relevant claim recited:
- A method for the treatment of a hepatitis C virus infection, comprising administering an effective amount of a purine or pyrimidine β-D-2’-methyl-ribofuranosyl nucleoside or a phosphate thereof, or a pharmaceutically acceptable salt or ester thereof.
The “method for the treatment” preamble, in combination with the requirement to administer an “effective amount,” led the U.S. District Court for the District of Delaware to construe the claim to require “use of some set of compounds that are effective for treatment of HCV.”
The Federal Circuit first assessed whether the claim meets enablement requirement, asking “whether a person of ordinary skill in the art would know, without undue experimentation, which 2’-methyl-up nucleosides would be effective for treating HCV.” The Federal Circuit found that “the claims … encompass at least many, many thousands of 2’-methyl-up nucleosides which need to be screened for HCV efficacy, the quantity of experimentation needed is large.” Although the specification contained some data showing working examples, it found that the “working examples are exceedingly narrow relative to the claim scope.” In addition, the Federal Circuit determined that “[d]ue to the unpredictability of the art … each of these compounds would need to be screened” and “the immense breadth of screening required” to determine the effectiveness is undue experimentation. Therefore, the Federal Circuit found the patent invalid for lack of enablement.
Separately, the Federal Circuit addressed the issue of written description. It asked whether the inventor was in possession of 2’-methyl-up nucleosides that fall within the scope of the claim but that are not encompassed by the explicit formulas or examples in the specification. In other words, whether the patent demonstrated that such 2’-methyl-up nucleosides are effective against HCV.
It noted that for genus claims, the written description inquiry is whether there are “‘blaze marks which single out particular trees’ in a forest, rather than simply ‘pointing to trees.’” (Here, it cited a 1996 Federal Circuit ruling, Fujikawa v. Wattanasin.) In such a Ruschig inquiry, “a genus can be sufficiently disclosed by ‘either a representative number of species falling within the scope of the genus or structural features common to the members of the genus.’”
The Federal Circuit then held that the claims were invalid for lack of written description, as the specification “fails to provide sufficient blaze marks to direct a person of ordinary skill in the art (POSA) to the specific subset of 2’-methyl-up nucleosides that are effective in treating HCV.” It explained that “the specification provides no indication that any nucleosides outside of those disclosed in its formulas could be effective to treat HCV” and “no method of distinguishing effective from ineffective compounds for the compounds reaching beyond the formulas disclosed in the ‘597 patent.”
The patentee argued that the application provided “‘abundant traditional blaze marks for the claims—working examples, formulas, data, synthesis routes, and the target.’” The Federal Circuit disagreed, explaining that “[t]hey provide lists or examples of supposedly effective nucleosides, but do not explain what makes them effective, or why. As a result, a POSA is deprived of any meaningful guidance into what compounds beyond the examples and formulas, if any, would provide the same result.”
Nuvo v. Dr. Reddy
Nuvo v. Dr. Reddy involved a patent related to a new drug dosage form that coordinates the release of an acid secretion inhibitor (PPI) and a nonsteroidal anti-inflammatory drug (NSAID). The dosage form contains a core of NSAID, a coating that prevents release of the NSAID until the PPI reduces the acid level (raises the pH) in the stomach, and PPI outside of the coating, which can act immediately to increase pH to the desired level.
The representative claim reads:
- A pharmaceutical composition …, comprising:
- (a) an acid inhibitor present in an amount effective to raise the gastric pH of said patient to at least 3.5 …;
- (b) a non-steroidal anti-inflammatory drug (NSAID) …;
and wherein said unit dosage form provides for coordinated release such that:
- i) said NSAID is surrounded by a coating that, …, prevents the release of essentially any NSAID … unless the pH of the surrounding medium is 3.5 or higher;
- ii) at least a portion of said acid inhibitor is not surrounded by an enteric coating and, …, is released regardless of whether the pH of the surrounding medium is below 3.5 or above 3.5.
Based on the limitations underlined above, the claim was construed to require “a therapeutically effective amount of uncoated PPI that can raise the gastric pH to at least 3.5.”
The U.S. District Court for the District of New Jersey found the claims to be valid, with the specification meeting both the enablement and written description requirements. The defendant generic companies appealed the written description decision to the Federal Circuit, but not the enablement decision. Specifically, the defendants argued the claims lacked written description support for the claimed effectiveness of uncoated PPI.
It was undisputed that there was no experimental data in the specification demonstrating the therapeutic effectiveness of any amount of uncoated PPI. The patentee argued, however, that the specification’s statements, such as “an acid inhibitor present in an amount effective to raise the gastric pH of a patient to at least 3.5,” and that an acid inhibitor “will typically be present at about 5 milligrams to 600 milligrams per dose,” provide written description support for amounts of uncoated PPI effective to raise the gastric pH to at least 3.5.
The Federal Circuit rejected the arguments, stating that “simply calling generally for effective amounts of uncoated PPI … is not enough.” It explained that “a [POSA] would not have known or understood that uncoated PPI is effective. … There must be some description, such as a constructive reduction to practice, establishing that the inventor ‘was in possession of the … claimed invention, including all of the elements and limitations.’”
With the District of New Jersey’s holding of enablement unchallenged on appeal, the patentee further argued that the enabling disclosure in the specification sufficed to meet the written description requirement.
The Federal Circuit disagreed. It distinguished the written description requirement from the enablement requirement, stating that “the fact that an invention may be enabled does not mean it is adequately described. … The focus of the written description requirement is instead on whether the specification notifies the public about the boundaries and scope of the claimed invention and shows that the inventor possessed all the aspects of the claimed invention.”
The Federal Circuit decided that the claim was invalid for lack of written description sufficient to support the “efficacy” limitation in the challenged claims.
Idenix and Nuvo: Key Takeaways
The Idenix and Nuvo courts clarified that even if an invention is enabled, that finding does not mean that the claims are adequately described; the patent has to show that the inventor possessed all limitations of the claimed invention. For claims requiring therapeutic efficacy, the courts required experimental data proving efficacy, or sufficient data and a detailed theory of why the claimed subject would be effective. For genus claims, the Idenix court required that the patent provide guidance into what species would provide the same therapeutic effects beyond specific examples in the specification.
The Supreme Court Decided Not to Weigh in
The patentee in Idenix filed a petition for certiorari on September 21, 2020, challenging the application of the separate written description requirement, specifically:
Whether, as the Federal Circuit has held, § 112(a) contains a separate ‘possession’ requirement—or whether, as the statute provides, § 112(a) sets forth a single substantive requirement of ‘a written description of the invention’ sufficient ‘to enable any person skilled in the art … to make and use the same.’
Idenix argues that § 112(a) demands a single inquiry, which turns on enablement. This assertion was previously rejected by the Federal Circuit in its en banc decision in Ariad Pharmaceuticals v. Eli Lilly.
Although this is an important question that would affect the scope of patent protection available to drug developers, the Supreme Court denied the petition on January 19, 2021. As a result, the written description requirement will continue to present a third hurdle, in addition to the utility and enablement requirements, for claims that recite therapeutic efficacy. Accordingly, extra precaution is required when drafting claims requiring therapeutic effects, e.g., claims reciting “effective amount.”
Although written description is a matter of fact and written description analyses are therefore fact specific, such claims would likely require experimental evidence of efficacy or at least description of a theory of effectiveness of the claimed invention in its entire scope to meet the written description requirement. It is also recommended to consider how to use or define the term “effectiveness” in the specification and how to relate evidentiary support in the specification to the “effectiveness” so that it can provide written description support.
Litigation-Proofing Your Trade Secrets: Practical Steps to Ensure They’re Enforceable in Court
Trade secret litigation is on the rise, and new case law related to enforceability has broad implications for how companies protect information that they consider to be trade secrets.
The Lex Machina 2020 Trade Secret Litigation Report (request the report here) traced the rising litigation trend to 2016, when the Defend Trade Secrets Act (DTSA) was passed. The law has allowed claimants to file trade secret cases directly in federal court when there is a connection between a trade secret and interstate or foreign commerce. Since then, filings have risen 30%, and growth is expected to continue.
The annual report has garnered wide-spread media coverage, but an interesting finding that should trigger an alarm among companies—especially those in knowledge-based sectors such as life sciences and technology—is that of the cases dismissed over the same period: 156 ended for failure to identify a trade secret and 116 were terminated for failure to maintain secrecy.
If you are charged with protecting your life sciences or technology company’s trade secrets, how can you make certain that what you consider your company’s “crown jewels” can withstand court scrutiny? Based on recent case law developments, here are a few practical steps you can implement to help ensure your company’s trade secrets are enforceable in court.
Unlike other types of intellectual property, such as a patent that must expressly state its claimed subject matter, trade secrets can be amorphous. Theoretically, trade secrets can cover any type of information—data, software code or an idea written down in a lab notebook. Arguably, it could be almost anything, so long as that information is subject to “reasonable measures” to keep it a secret and the information derives independent economic value from being a secret.
The following are recent examples of what courts consider reasonable measures for companies to take in order to pass the trade secret test:
Cutting off access. There are steps you need to take to ensure that you are keeping your company’s trade secrets secret. One example is cutting off system access to anything that contains confidential information when employees leave a company. It is surprising how often there is a lag between the time someone leaves a company and when their access to systems containing confidential information stops.
Most would assume that someone who logged into a former employer’s systems and grabbed information they should not have would be a trade secrets case loser—especially if caught red-handed. But when you go to court in a trade secrets litigation, the court will also ask whether your company was partially to blame: “Why did you leave the door open?” and “Why were they still able to access your systems?”
Ask for information back. When employees leave a company, employers should conduct exit interviews and remind departing employees of their contractual obligations, including demanding deletion or return of any confidential information if the employment agreement allows.
In a case Fenwick handled, Loxo Oncology v. Array Biopharma, one of the disputed pieces of evidence was whether the former employer had actually demanded the return of confidential information and whether they had conducted appropriate exit interviews. It turned out that some ex-employees had not had exit interviews and the employer had not consistently requested the return of information. Accordingly, even though some employees still possessed alleged trade secret information when the suit was filed, this fact did not necessarily show misappropriation because they had obtained the information in the first place through their usual duties and had just forgotten to delete it upon departing. That type of detail may become critical to a case alleging trade secret misappropriation, as failing to properly demand the return of confidential information or to explain ongoing obligations to ex-employees may be used to show that an employer did not take “reasonable measures.”
As a result, if an employee leaves and they still possess company information, courts may not necessarily view it as a trade secret violation. However, if a contract states they must return it, failing to do so may be a breach of that obligation—but only if the company does what is required to get it back under the contract. That may mean needing to ask for it.
Document suspicious activities. Implementing a security system that logs, records and audits employee access to information can assist with demonstrating misappropriation. Being able to indisputably demonstrate when, what and how a former employee logged into and accessed the company’s database of “crown jewels” can be important in court. Allegations that a former employee, who gets a job at a key competitor, downloaded critical information before they left can be supported more effectively if you have the systems in place to record those activities.
Put the new employer on notice. Another important step you can take in ensuring that future trade secret theft allegations stand in court is putting the new employer on notice. This is often called the “Shot Across the Bow” letter. You do not actually know that anything has happened, but you have reason to be concerned given the sensitive nature of the information possessed by the employee. The letter should state that you know the employee had access to key information and you and your company are concerned about it in a potentially competitive area. The notice should contain a reminder that the new employer and employee have these obligations and you want assurance that the company is not going to violate them or encourage the employee to violate them.
Do not delay. If you do find evidence that there is reason to be concerned, time is of the essence. Any delay can undermine a claim of irreparable harm, which is key to obtaining a court injunction that can stop an employee from using or disclosing information, or preventing a new employer from using it.
Be Ready to Identify Trade Secrets with “Reasonable Particularity”
If you bring a trade secret claim in court, you have to be ready to identify your trade secrets with particularity, typically with “reasonable particularity.” In an effort to avoid burdensome and costly fishing expeditions, some, although not all, states require a party to identify their trade secrets with reasonable particularity before they can obtain discovery from the other side. Courts will put protective orders in place to minimize the risk of public disclosure of that information.
Some companies make the mistake of marking everything as “confidential” and/or they have agreements or company policies that say their trade secrets include anything relating to compensation, job skills, technology, processes, marketing and the company’s plans or operation. While doing so may feel like the cautious approach, the danger of treating everything as a “crown jewel” is that you run the risk of facing court skepticism because it is unclear what a trade secret actually is to you.
In Swarmify v. Cloudflare, for example, the U.S. District Court for the Northern District of California, in denying a preliminary injunction, noted that Swarmify’s disclosure was wholly inadequate and attempted to “lay wholesale claim to such nebulous, sweeping categories as ‘research and information,’ ‘methods for implementing,’ and ‘vendors.’” In AlterG v. Boost Treadmills, the Northern District of California dismissed a trade secret claim for “the concept of retrofitting an existing commercial treadmill with an air based unweighting system.” And, in Virtual Radiologic Corporation v. Rabern, the U.S. District Court for the District of Minnesota denied an injunction motion based on the defendant’s evidence that “virtually every item of information” being categorized by the plaintiff as a trade secret is “either freely available on the Internet or available for purchase.”
Companies cannot assume that they can get an injunction just because information that they consider valuable was taken. They have to be ready to articulate and show with evidence that they face “irreparable harm” due to the misappropriation. In most jurisdictions, this means that the harm must be “non-speculative” and “imminent,” if not ongoing.
For example, in Loxo, the court denied a preliminary injunction because Array “presented no evidence that Loxo has developed a drug based on Array’s trade secrets that is ripe for clinical trials, that such drug will soon be submitted for FDA approval, or that such drug is soon to hit the market. Similarly, Array has not provided any estimates as to when it may suffer irreparable harm.”
In Swarmify, that company’s only evidence of irreparable harm were two conclusory paragraphs in its principles’ declaration and an email from a potential investor commenting on the general competitive nature of the streaming video industry, which was not enough to obtain a preliminary injunction.
In both Loxo and Swarmify, courts required that harm be non-speculative and imminent. Unless you can point to something that is going to happen right away that causes your business harm, you are unlikely to get a preliminary injunction.
Don’t Rely Solely on “Inevitable Disclosure”
Companies should not base their misappropriation case solely on the idea that somebody has information in their head and they will inevitably use that information if they go somewhere else. This so-called “inevitable disclosure” doctrine has been rejected completely by many courts, particularly in California.
Under the DTSA, courts may grant injunctions provided the order does not “prevent a person from entering into an employment relationship, and that the conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information that the person knows.” Different courts have taken different approaches to this requirement. In California, federal courts have held that the DTSA rejects inevitable disclosure. See UCAR Technology (USA) v. Yan Li. Meanwhile, courts in Illinois and Pennsylvania have permitted inevitable disclosure claims to proceed under the Act. See Packaging Corporation of America v. Croner and Jazz Pharmaceuticals v. Synchrony Group.
Finally, the number one—and the most practical—thing your company can do to ensure that it does not lose its trade secrets rights in court is to preserve evidence. If you have knowledge that there is trade secret theft happening or have suspicions it is occurring, make sure to preserve everything. Preserving pertinent data, whether it supports your case or not, should be embedded in your company policies, processes and procedures.
Justice Barrett to Bring Clarity to Patent Eligibility Law?
By Saad Hassan
Each time the U.S. Supreme Court has addressed patent eligibility, the law surrounding what can and cannot be patented has become murkier. Most recently, the wake of the Supreme Court’s Alice ruling has led to irreconcilable U.S. Federal Circuit Court of Appeals decisions. Furthermore, the U.S. Patent and Trademark Office has released a myriad of eligibility guidelines and updates that seek to establish uniformity and predictability, but, in reality, result in ambiguity and inconsistent application from patent examiners. This leaves patent attorneys in a difficult place when advising clients in the software space, as we can speak in likelihoods as to whether inventions are patent-eligible, but can rarely be certain.
Help might be on the way. During her confirmation hearings in October, Justice Amy Coney Barrett was asked whether “the Court should go back and clarify at least the method that they use to reach their opinion [on patent eligibility].” Justice Barrett responded that she could not “think of what particular cases you might be thinking of on patent eligibility,” likely meaning that she is not familiar with patentability issues. She followed up by remarking as follows: “Without commenting on those cases, in any event, I think I would say that clarity in decision-making is always something that courts should strive for. And I know on the Seventh Circuit, we try—and I’m trying to be attuned to, in writing opinions—whether it gives good guidance to lower courts, and then to also those who are trying to order their conduct in compliance with the law. So, I think clarity is certainly a virtue in this context.”
It is unclear if and when the Supreme Court will again take up patent eligibility. However, if they do so, given Justice Barrett’s commitment to clarity, we can expect brighter lines to be drawn than we’ve seen in the past from Alice, Mayo, Myriad and Bilski. In the long term, practitioners and inventors in clouded technology spaces can likely look forward to clearer rules to guide their patent strategies.
In the short term, where a patent application is “stuck” with no recourse facing § 101 rejections, applicants might find value in delaying prosecution and refraining from abandoning their applications in hopes that we obtain future guidance from the Supreme Court. That is, whenever a new justice is seated on the Supreme Court (and we now have three added since the last look by the Court at § 101), there is a possibility that they will have a new take on murky issues such as eligibility.
Who Owns a Photograph in the Social Media Age?
Although a generally well-settled question of law, a string of recent cases has renewed interest in a common question: Who owns a photograph? Of course, this question is not novel, but the rise of social media and the greater influence of often-photographed celebrities are drawing more lawsuits and potential new distinctions to this question.
Photographs are protected by copyright at the moment of creation, and the owner of the work is generally the photographer (unless an employer can claim ownership). In most cases, the subject of the photograph has no intellectual property right in the photograph, much to the disappointment of many high-profile celebrities looking to use photographs of themselves in their social media posts.
The list of celebrities facing the wrath of litigious photographers is long, and growing: Justin Bieber, Halle Berry, Khloe Kardashian, LeBron James, Emily Ratajkowski, Gigi Hadid, Deshaun Watson and many more have faced lawsuits recently. As with any high-profile litigation (especially suits involving celebrities), these cases over the ownership of photographs tend to settle quickly and leave little legal precedent in their wake. However, in a few such cases, celebrity defendants have recently pushed established doctrine, with celebrity defendants attempting to carve out a portion of this important intellectual property right.
In one example, Gigi Hadid recently claimed that simply by stopping to allow the photograph to be taken, she “contributed” to it and its protectable nature.
In another instance, Emily Ratajkowski filed a motion for summary judgment in the U.S. District Court for the Southern District of New York to have a case filed against her thrown out. Ratajkowski is accused of using a photographer’s image on her Instagram without a license. Importantly for her defense, the photographer was a paparazzo and the image showed that Ratajkowski had tried to hide behind a bouquet of flowers. In her motion, Ratajkowski claims “transformative use,” as she added the words “mood forever” at the bottom of the image—an attempt to highlight the “predatory nature” of the photographer’s actions when taking the photograph. Ratajkowski’s argument is practical, tying her use to an established copyright exception. It also incorporates an important emotional argument having to do with the behavior of paparazzi that runs deep in the world of modeling with which she is so familiar.
In a third case, NBA superstar LeBron James found himself in federal court over the alleged misuse of a photographer’s shot of him in a game against the Miami Heat. The photo of James scoring over a defender was posted to James’s Facebook page. Although the case recently entered a confidential settlement, James provided clues as to how his lawyers planned to defend his actions: he countersued the photographer under a California state law claim—right of publicity and misappropriation of likeness (California Civil Code § 3344). Likely because of the additional state law claim, the case was moved from the Southern District of New York to the U.S. District Court for the Central District of California. Had the case continued, James’s position would likely have been met by a number of defenses from the photographer, including preemption by the Copyright Act and the newsworthiness exception to the California statute—courts have found similar public events to meet this exception.
Late 2020 Stimulus Bill Includes Sweeping Changes to the Lanham Act
By Ashleigh J. Armstrong
A heavily anticipated and equally heavily debated stimulus bill, the Consolidated Appropriations Act, 2021, was signed into law on December 27, 2020. In addition to $900 billion in COVID-19 relief, this lengthy bill also included the Trademark Modernization Act of 2020. The TM Act of 2020 brings about sweeping changes to trademark law, giving the director of the U.S. Patent and Trademark Office the ability to make changes to deadlines, codifying a rebuttable presumption of irreparable harm, adding a new grounds for cancellation of an existing registration, and creating opportunities for third parties to submit evidence and request expungement or reexamination of registrations.
Currently, an Office action has a six-month response period, but the TM Act of 2020 empowers the Director to change this deadline to any time between 60 days and six months. If the new deadline is shorter than six months, extensions with the payment of fees will be allowed, up to six months. The Act also establishes a rebuttable presumption of irreparable harm in a request for permanent or preliminary injunctive relief in a trademark infringement action, and adds a new ground to Lanham Act § 14, which will allow a petition to cancel a registration at any time after three years from the registration date if the mark has never been used in commerce on or in connection with some or all of the goods and services.
Notably, the TM Act of 2020 establishes three new opportunities for third parties to challenge an application or registration:
- During an examination, any third party may submit evidence identifying what they believe to be grounds for refusal of a pending application. Within two months, the USPTO will decide whether the evidence should be included in the record.
- At any time, up to five years after registration, third parties may file an ex parte reexamination petition providing evidence and asserting that, after a “reasonable investigation,” some or all of the goods and services were not in use as of either the filing date of a use-based application or the filing date of the Statement of Use for an intent-to-use application.
- Similarly, at any time between three and 10 years after registration, third parties may file an ex parte expungement petition providing evidence and asserting that, after a “reasonable investigation,” some or all of the goods and services have never been used in commerce.
After either of the petitions cited in examples two and three is filed, the USPTO will decide if a prima facie case was established, and, if so, the Examiner will decide if there was use for each good or service in a procedure similar to the initial examination. The USPTO may also initiate either proceeding upon discovery of information that would support the same finding. What constitutes “reasonable investigation,” and what evidence will establish a prima facie case, is up to the Director to decide.
In both ex parte proceedings and the admission of evidence, the initial decision is final, nonreviewable and without prejudice, meaning it will not prevent either party from using the evidence or raising the same issues in other proceedings. The Examiner’s final decision to cancel or allow each good or service is appealable.
While there is still much uncertainty surrounding how drastic the response period changes will be, or what constitutes a prima facie case after a “reasonable investigation,” it’s clear that the TM Act of 2020 has the potential to change your application and enforcement strategy.
USITC Issues 21-Month Ban in BOTOX® Trade Secret Misappropriation Case
On January 13, 2021, The U.S. International Trade Commission issued its public opinion in the so-called “BOTOX® Case,” or Certain Botulinum Toxin Products, Processes for Manufacturing or Relating to Same and Certain Products Containing Same, issuing a 21-month exclusion order against the importation of an anti-wrinkle beauty treatment manufactured in South Korea that is a follow-on biologic to BOTOX®. The ruling serves as a reminder that trade secret holders should be cognizant of the distribution history of alleged trade secrets to ensure protectability. Trade secret holders and potential users alike should be aware of all possible participants in a protectable domestic industry.
In March 2019, the commission launched an investigation based on a complaint filed by Medytox, Inc., maker of botulinum toxin (BTX) product MT10109L, as well as Allergan plc and Allergan, Inc., the non-exclusive licensees of MT10109L and makers of BOTOX®. The complainants alleged that Daewoong Pharmaceuticals Co., Ltd. and Evolus, Inc. misappropriated Medytox’s bacterial strain (the “Medytox strain”) and manufacturing processes for BTX products in violation of Section 337 of the Tariff Act of 1930.
In January, the commission found that the respondents, Daewoong and Evolus, violated Section 337, holding that the Medytox strain is not a protectable trade secret; the Medytox manufacturing process is a trade secret misappropriated by the respondents; Allergan’s BOTOX® products constitute a domestic industry; and the respondents’ products have actually injured and threaten injury to that industry.
The commission found the Medytox strain is not a protectable trade secret because complainants failed to show it is distinct from its parent Hall A-hyper strain, which was previously circulated without restriction. The commission found the Medytox and Hall A-hyper strains indistinguishable because the strains differ by only six out of 3.6 million nucleotides.
Dr. Kyu Hwan Yang, a South Korean scientist, gave Medytox the Hall A-hyper strain with no restrictions regarding use or confidentiality after acquiring the strain from the University of Wisconsin in 1979, free of any restrictions. The commission determined that the previous unrestricted distribution of the Hall A-hyper strain renders the Medytox strain unprotectable as a trade secret. However, it found that Medytox’s manufacturing process is a protectable trade secret that the respondents misappropriated, in violation of Section 337, based on the similarity of the respondents’ process to Medytox’s, the lack of evidence of the respondents’ independent development and the “implausibly fast timeline” by which the respondents achieved BTX production at commercial scales.
Despite the fact that Allergan does not use the manufacturing process deemed a trade secret in this matter, the commission found that Allergan’s manufacture, research, development and sale of BOTOX® constitutes a domestic industry because BOTOX® products directly compete with the accused products. Citing TianRui Group Co. v. USITC as precedent from the U.S. Court of Appeals for the Federal Circuit, the commission held that direct competition between domestically-produced products and accused products is sufficiently related to constitute an injury to an industry under Section 337.
The commission further held that Medytox could rely on the investments of non-exclusive licensees, namely Allergan, to satisfy the domestic industry requirement. It found that complainants are under threat of injury and have suffered actual injury due to the loss of sales and profits from respondents taking 2.61% of the market share, as well as respondents’ manufacturing capacity, their ability to undersell BOTOX® and potential long-term price erosion.