AAI Warns ITC Against Abetting Botox Monopoly

The American Antitrust Institute (AAI) filed public comments urging the International Trade Commission (ITC) to reject a decision by an administrative law judge (ALJ) that allows drug manufacturer Allergan to rely on foreign trade secret misappropriation claims to block a foreign competitor from challenging Allergan’s monopoly on Botox in the United States.

Ten years ago, a Korean company, Medytox, sued its Korean Rival, Daewoong, alleging that Daewoong misappropriated trade secrets belonging to Medytox in the course of launching a Korean Botulinum Toxin product.  After Allergan struck up a licensing arrangement with Medytox, the two firms petitioned the ITC for an exclusion order under Section 337 of the Tariff Act, which would block Daewoong’s product from being sold in the United States.  Section 337 punishes the importation of products that substantially injure a domestic industry in the United States by reason of misappropriation of trade secrets.

Notwithstanding that, here, the trade secret dispute involves two Korean firms arguing over Korean intellectual property in a Korean court, the ITC’s ALJ held that Allergan had met its obligation to establish jurisdiction, standing, and injury to a domestic industry by entering into a licensing arrangement with Medytox, and it awarded Allergan an exclusion order lasting 10 years, effectively perpetuating its Botox monopoly.

AAI’s comments warn that the ALJ’s formalistic application of jurisdiction, standing, and domestic industry rules risks turning the ITC into a “market maker” for dominant U.S. firms seeking to purchase the right to exclude import competition.  The ALJ’s analysis apparently would allow a dominant U.S. firm to rely on even a pretextual licensing arrangement with a foreign firm to acquire and assert foreign exclusionary IP rights for the purpose of obtaining an ITC exclusion order that prevents competitive entry into the United States.  A dominant U.S. firm often will have a strong incentive to buy such rights, and the foreign firm may have a strong incentive to sell them, without regard to the to the underlying innovation to which the rights attach.  The result would be distorted markets for the affected products and significant anticompetitive harm to U.S. consumers, without any legitimate, corresponding protections for U.S. intellectual property pursuant to Section 337’s goals.

The comments note that pharmaceutical companies, including Allergan in particular, have been accused by the Federal Trade Commission of using pretextual licensing and other arrangements to disguise “pay-for-delay” settlements of IP disputes, in which colluding firms have recognized that they can earn more money by dividing the monopoly profit created by patent rights than by competing with each other.  And the Supreme Court, in the Actavis case, has warned against an incongruous approach to balancing patent and competition policy in evaluating agreements involving the exclusionary potential of patent rights.  AAI urges the ITC to follow the Court’s lead and reject an incongruous approach to agreements involving the exclusionary potential of trade secret rights.

The comments were written by AAI Vice President of Legal Advocacy Randy Stutz.