ITC Decision to Review Final Initial Determination in Botox Case Could Have Big Implications for Trade Secrets

Last week, the United States International Trade Commission (ITC) issued a notice in the Matter of “Certain Botulinum Toxin Products, Processes for Manufacturing or Relating to Same and Certain Products Containing Same,” Investigation No. 337-TA-1145, stating that the ITC has “determined to review in part a final initial determination (FID) of the presiding administrative law judge (ALJ) finding a violation of section 337 of the Tariff Act of 1930.”

Last year, Allergan, the U.S. manufacturer of Botox, and Medytox, the Korean manufacturer of a similar product, filed a joint complaint against Daewoong, a Korean drug maker, under Section 337 of the Tariff Act of 1930, alleging that Daewoong had stolen Medytox’s botox strain trade secret in Korea and introduced it to the U.S. market.

The FID was issued on July 6, 2020, wherein the ALJ found that certain products sold by the Korean drugmaker Daewoong and its partner Evolus, Inc. violated section 337 through their importation and sale in the United States of a botulinum neurotoxin product “by reason of the misappropriation of trade secrets.” In particular, the ALJ ruled in favor of Allergan and Medytox in the initial determination and recommended that, “if a violation is found, the Commission issue: (1) a limited exclusion order barring entry of certain botulinum toxin products that are imported, sold for importation, and/or sold after importation by respondents Daewoong and Evolus; and (2) a cease and desist order against Evolus.” The judge asserted that a market-allocation agreement between Allergan and Medytox, which provided Allergan an exclusive license in Medytox’s products in the U.S., was “sufficient to tie Allergan’s domestic industry to Medytox’s trade-secret misappropriation grievance with Daewoong in Korea.”

Petition Requesting Review

Following the FID, Daewoong and Evolus (collectively, respondents) filed a petition requesting that the ITC review the FID. In the request, the respondents asserted that the FID erroneously concluded that the ITC had subject matter jurisdiction over such a “foreign dispute about exclusively foreign alleged trade secrets.” The request also asserted that Allergan did not have independent standing because “it did not own, exclusively license, or possess the alleged trade secrets” and it had no connection to the alleged trade secrets or misappropriation. In addition, the respondents alleged that the FID’s determination that Medytox’s strain was a trade secret constituted an error of fact and law. Additionally, the petition noted that it was legal error to conclude that “Allergan’s proffered investments in MT10109L and Botox establish domestic industries” because the investments were not substantial under the proper analysis. The respondents also alleged that the FID erred in concluding that there was an established injury to Botox because the FID incorrectly focused on “whether there was harm to the Botox franchise generally, as opposed to the collective test of whether there was harm to the proffered Botox domestic investments.”

ITC Decision to Review

According to the Notice, the ITC has decided to review the FID, in part, to specifically consider the FID’s findings “with respect to subject matter jurisdiction, standing, trade secret existence and misappropriation, and domestic industry, including the existence of such domestic industry as well as any actual or threatened injury thereto.”

The ITC has requested that the parties submit briefs of their positions regarding six specific questions. For example, the ITC requested that the parties describe “the differences between the Medytox strain and other Hall A-hyper strains and explain the relevance of those differences to Complainants’ trade secrets misappropriation claim” and describe “the federal legal standard for determining what constitutes a  misappropriation of trade secrets sufficient to establish an ‘unfair method of competition’ under Section 337.”

The ITC also explained in the notice that it must consider the effects of any remedy on the public interest. The Commission will consider the effects on “(1) the public health and welfare, (2) competitive conditions in the U.S. economy, (3) U.S. production of articles that are like or directly competitive with those that are subject to investigation, and (4) U.S. consumers.”

Daewoong and Evolus issued a statement last week welcoming the decision to review the initial determination and warning that “if adopted as final by the ITC, [the initial determination] risks setting dangerous policy precedents.” Ultimately, the companies are hopeful that the review will result in a reversal or shortening of the 10-year import ban that was initially recommended by the judge.

Daewoong added:

We are pleased that the ITC agreed with us and the more than 70 top trade secrets experts, economists, free-market think tanks and doctors who urged the ITC to review this case. Reversing the judge on key findings on which he based a misguided 10-year import ban would not only be a victory for Daewoong and our U.S.-based partner Evolus, but also for American consumers, doctors, innovation and competition.

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