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Rx Firms Use Trade Secrets to Defend Intellectual Property

July 16, 2018, 4:48 PM

Trade-secret claims are becoming a popular way to protect intellectual property, and life science companies are on the bandwagon, IP lawyers told Bloomberg Law.

“Intellectual property holders are increasingly aware they have this tool in their arsenal,” Michael W. De Vries, with Kirkland & Ellis LLP in Los Angeles, told Bloomberg Law. De Vries has substantial experience representing clients in complex intellectual property disputes including patent litigation and litigation involving misappropriation of trade secrets.

DUSA Pharmaceuticals, Inc., a subsidiary of Sun Pharmaceutical Industries Ltd.; Par Pharmaceutical, a subsidiary of Endo Pharmaceuticals Inc.; and closely held genetic-sequencing company ArcherDX are just some of the life sciences firms that have asserted trade secrets claims this year.

That’s because the enactment of a new federal law now allows trade-secret claims to be brought in federal courts, misappropriation of information is made easier with electronic information-sharing, and recent court rulings have increased uncertainty surrounding patent litigation.

Trade secrets—proprietary information that would be valuable to a competitor—can range from allegedly stolen manufacturing specifications for sterile drug products to allegedly purloined customer relationships and account history (including purchase volume and frequency), and allegedly misappropriated details of next-generation product development and customer lists related to a gene-sequencing tool.

In these situations, information is often stolen by people inside the company rather than by outsiders. To bring a viable trade-secrets claim, companies must show they took reasonable steps to keep the information secret.

Job Mobility, Digital Sharing

In this digital age, more information is being created that is subject to trade-secret protection, but that information is more easily shared than when information was primarily paper-based.

Portable flash drives and cloud storage make it easy and quick for employees and contractors to download or forward valuable company information without being detected. Add increased job mobility to that opportunity for misconduct, and the stage is set for increased data theft.

“With a good economy, workers have more mobility and people are taking things with them,” he said. “Companies are being more aggressive about protecting their trade secrets,” C. Bryan Wilson of Williams & Connolly LLP, said.

2016 Law

One of the main factors behind the growth in trade-secret litigation stems from the enactment in 2016 of the federal “Defend Trade Secrets Act.” The DTSA created a private right of action in federal court for those who allege their trade secrets were misappropriated. Before the DTSA, such claims had to be brought in state court.

“As a consequence, we’ve seen more cases that involve both trade secrets and patent protection,” De Vries said. “I view them as potentially complementary enforcement mechanisms.”

Trade secrets can be complementary to patent claims, Wilson—a commercial litigator in Washington with extensive trade secret litigation experience—agreed. “They’re a soft IP type of claim,” he said.

“Because of the DTSA, trade-secret litigation has increased and become more prominent because you can get into federal court more easily,” he said. Since the DTSA’s enactment, approximately seven percent of the cases filed have been life science company-related or have had a health-care related nexus.

Further, the DTSA comes with some powerful remedies, including the power of ex parte seizure, where one party can ask the court for an order to seize allegedly stolen trade secrets without the court having to hear from the other side. In addition, juries in DTSA cases may award punitive damages to the injured party, and those damage awards can multiplied or enhanced.

Patent Uncertainties

Uncertainties about patent eligibility and where patent holders can sue for infringement may also be raising the profile of trade-secret claims vis-à-vis traditional patent litigation.

Recent Supreme Court cases have narrowed the scope of patentable subject matter, the mechanism often used to protect assets in the past, Steven Grimes and Shannon Murphy of Winston & Strawn LLP said in a Bloomberg Law Insights article. Thus, having a robust approach to trade secrets as part of a company’s legal arsenal is increasingly valuable—and, with the growing mobility of the workforce and the ease at which data can be taken, increasingly necessary,” they said.

Grimes is a former federal prosecutor, former chief compliance officer, and senior litigation counsel for a global publicly-traded Fortune 500 company. Murphy focuses her practice on internal investigations, data protection counseling, and complex litigation.

In addition, the Supreme Court in TC Heartland LLC v. Kraft Foods Group Brands LLC narrowed the available venues where patent holders could sue accused infringers, adding to the uncertainties connected with patent litigation.

To contact the reporter on this story: Dana A. Elfin in Washington at delfin@bloomberglaw.com

To contact the editor responsible for this story: Randy Kubetin at rkubetin@bloomberglaw.com