On August 6, 2020, the U.S. International Trade Commission (“ITC”) released a public version of the Final Initial Determination (“ID”) in the Matter of Botulinum Toxin Products (Inv. No. 337-TA-1145), that, if upheld by the ITC Commission, might signal an expansive view of the ITC’s territorial jurisdiction and the scope of trade secret protection. The ITC’s jurisdiction in trade secret investigations is limited to matters that destroy or substantially injure a “domestic industry in the United States.” An interesting aspect of the ID is that it recommends banning importation of a Botox-competitor product (Jeuveau®) that was found to incorporate misappropriated trade secrets of a foreign Complainant whose domestic licensee and Co-Complainant have yet to make any sales of that product in the United States. The ID also found “domestic injury” based on the licensee’s industry, not the licensed trade secret’s industry. The Commission will issue a final decision in November.

The Complainants are Medytox Inc., a Korea-based pharmaceutical company, Allergan plc of Dublin, Ireland and Allergan, Inc. of Irvine, California. Medytox developes Innotox, a drug similar to Botox based on the living neurotoxic bacteria botulinum, and licenses to Allergan the right to distribute the drug worldwide except in Korea. Of particular note, Allergan also is responsible for domestic manufacturing and commercialization of Botox. In its ITC complaint, Medytox alleged that Respondent Daewoong Pharmaceutical Co. misappropriated its trade secrets in Korea by stealing a potent strain of the botulinum bacteria to develop, manufacture, and import Jeuveau, sold in the United States by Respondent Evolus.

Medytox and Allergan brought this matter under Section 337 of the Tariff Act (19 U.S.C. § 1337), which authorizes the ITC to halt importation of goods into the United States if it finds their production is the result of unfair trade practices, including misappropriation of trade secrets, and the importation would destroy or substantially injure a domestic industry.

The ALJ recommended a 10-year ban of Daewoong’s importation of Jeuveau, or 21 months ban if the misappropriation is limited to the manufacturing process independently, and a cease and desist order against Respondent Evolus for domestic inventory of Jeuveau. In making the recommendation, the ALJ found sufficient evidence of injury to a domestic industry by virtue of Medytox’s licensee, Allergan. Allergan, however, has yet to sell Innotox in the United States and had no plans to until 2021-22. The ID rejected the argument that this case was a wholly foreign dispute between foreign companies with no relevant domestic injury. Instead, the ALJ found that Allergan has a license to sell imported products from Medytox and Allergan was likely to lower its pricing for its Botox products to compete with Daewoong’s allegedly misappropriating products. In other words, the ALJ found that potential harm to Medytox’s licensee’s market share in Botox, not Innotox, was sufficient connection to a domestic industry to ban Daewoong’s product.

The ID relied on the Federal Circuit’s decision in TianRui, which we have previously discussed here, to find subject matter jurisdiction, quoting:

[T]he foreign ‘unfair’ activity at issue in this case is relevant only to the extent that it results in the importation of goods into this country causing domestic injury. In light of the statute’s [i.e., Section 337] focus on the act of importation and the resulting domestic injury, the Commission’s order does not purport to regulate purely foreign conduct. Because foreign conduct is used only to establish an element of a claim alleging a domestic injury and seeking a wholly domestic remedy, the presumption against extraterritorial application does not apply.

TianRui Group Co. v. U.S. International Trade Commission, 661 F.3d 1322, 1329 (Fed. Cir. 2011).

Dozens of public interest statements were recently filed at the request of the ITC Commission, suggesting that if left undisturbed, the ALJ’s finding could lead to a risk of anticompetitive practices making use of the ITC’s exclusionary powers. For example, like Allergan, companies could strategically enter into license agreements for competing products that would afford sufficient standing and leverage the ITC’s power to ban importation of those same competing products. The public interest statements noted that in 2018, Allergan settled an antitrust class action challenging its partnership with Medytox and alleging that Allergan purchased the rights to keep Innotox off the market and maintain its dominance in U.S. markets.

In addition, several of the public interest statements expressed concern regarding the underlying issue of whether a living organism could be a protectable trade secret. As mentioned, Medytox is asserting trade secret protection over a bacteria strain. In one public interest statement, Roger M. Milgrim, of the Milgrim on Trade Secrets treatise, argues that the particular bacteria strain’s DNA is based on a bacterium that was first discovered in the 1940’s and subject to widespread public research for decades. In other words, the public interest statements took the position that the material at issue had lost its “secret” status. Whether the Commission issues a Final Determination recognizing the bacteria as a trade secret or not, this issue will almost certainly be litigated at the Federal Circuit and possibly the Supreme Court of the United States.

The ITC’s mission is to protect U.S. companies and their Intellectual Property from unfair competition. Whether this decision signals that ITC complainants may assert more indirect theories of domestic industry in matters involving foreign trade secrets, to exclude foreign competitors from the U.S., is yet to be seen.