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Genentech Dispute Highlights Growing Importance of Trade Secrets for Life Sciences Companies

Intellectual Asset Management

Roche subsidiary Genentech last week settled its trade secrets misappropriation lawsuit against Taiwan’s JHL biotech, which it had accused of receiving a range of confidential information relating to its best-selling biologics Rituxan, Herceptin, Avastin and Pulmozyme. Though US criminal proceedings against four individuals continue, JHL has fended off the civil lawsuit - but only by agreeing to cease work on its biosimilars and destroy all relevant cell lines and cell banks.

The issues at stake in the case illustrate the growing importance of trade secrets protection to life sciences companies and the IP professionals who serve them. This is because of the rise of biologics which are produced by extremely complex processes and difficult to imitate by biosimilar producers.

“I would be surprised if we didn’t see trade secrets issues continue to grow in importance in this industry as greater numbers of biologics are developed and go off-patent,” says Laurie Mims of Keker, Van Nest & Peters, who represented Genentech. “With biologics, the process is the product. And the processes used to produce biologics are largely protected by trade secrets as opposed to patents.”

In its lawsuit filed at the District Court for the Northern District of California in late 2018, Genentech alleged that JHL had conspired with current and former employees to misappropriate trade secrets in order to help it develop biosimilar versions of Rituxan, Herceptin, Avastin and Pulmozyme. It also launched criminal proceedings against the individuals involved.

Genentech claimed that in 2013 the US biotech’s long-serving chief scientist Xanthe Lam began surreptitiously working for JHL, which had hired her husband Allen Lam as a consultant. She was said to have collected and transferred secrets about the drugs and the management of related raw materials; and allowed ex-employee James Quach to download manufacturing protocols from the company’s online network. JHL staffer John Chan is also accused of wrongdoing.

This misappropriation, Genentech claimed, allowed JHL to get permission to launch clinical trials in Europe for its Rituxan biosimilar within four years and get to the brink of launching Phase III trials in China and Europe by 2018. The Taiwanese company was able to raise funds at an “astonishing pace”, it added, emphasising the unfair advantages JHL accrued.

The four accused individuals were charged by a federal court in San Francisco in October last year. In March 2019, the same court granted Genentech’s motion for a preliminary injunction and enjoined JHL from selling, marketing or commercialising the four pipeline biosimilars and from disclosing relevant documents.

This injunction was no doubt key in persuading JHL to accept an apparently unfavourable settlement with Genentech. Though JHL will not pay damages, the agreement to axe its work on the four biosimilars – including the late-stage Rituxan imitation – is a major concession. It has also submitted to full cooperation with Genentech’s ongoing investigation, including unannounced audits, and will pay the plaintiff’s legal costs.

The fact that a Genentech employee was involved in the case helped the rights holder to get enough evidence to secure a strong injunction against JHL, Mims comments. However, such a situation does not always apply, she notes: “Oftentimes the perpetrators have left the company and have the evidence of theft with them and destroy it. This highlights the importance of making sure employees do proper exit interviews. Companies need to ensure that when employees leave, they are made aware of their obligations with regard to confidential proprietary information.”

Mims’ colleague Cody Harris, who also worked on the case, observes that the growth of biologics and biosimilars has increased the commercial temptations for imitators to misappropriate trade secrets: “Being first to the market carries a great advantage for biosimilar producers. If they can get an edge – even an illicit edge – by leveraging a competitor’s trade secrets regarding the process of manufacture, test results or data used to gain regulatory approval, this is a huge advantage for them. But this is information generated through hard work and investment by the innovator.”

The need for life sciences companies to pay close attention to trade secrets is further increased by the growing tendency of industry players to collaborate in licensing agreements and joint ventures on the development of new drugs, which create opportunities for disputes about misappropriation. In 2006, Eli Lilly paid $18 million to former partner Emisphere to settle a lawsuit which accused it of misappropriating secrets presented to it by an Eli Lilly scientist who had worked alongside Emisphere researchers.

It is likely that rights owners will make more use of the improved enforcement mechanisms established by the US Defend Trade Secrets Acts of 2016, which allowed trade secrets lawsuits to be filed in federal courts, and introduced ex parte seizure as well as punitive and exemplary damages. A 2018 Lex Machina report revealed that the number of trade secret litigation filings across industry sectors increased by 30% in 2017 following the law’s implementation. Enforcement mechanisms have also been strengthened elsewhere by the EU Trade Secret Directive, whose provisions had to be implemented by all member states by June 2018.