How the Defend Trade Secrets Act Could Better Protect Manufacturers Who Outsource to CMOs

May 31, 2016

A technology transfer can be considered a trade secret at a company, which may make some manufacturers resistant to entering into a partnership with an outside partner like a contract manufacturing organization. This data and platform secrecy is vital to keep competitors as bay. Citing an article from P. Lee, Jacob Sherkow wrote that manufacturers with a proprietary technology platform and their “tacit knowledge about scaling up such technology for industrial operation may serve as significant barriers to competitors” (1). These barriers are put up so competitors only find out the “broadest contours” of an innovator’s process, wrote Sherkow. If there are differences between manufacturing a product at the clinical trial level vs. at commercial scale, biologic manufacturers typically keep that information a secret, Sherkow noted.

BioPharm International spoke to an expert in the field of intellectual property (IP) in the life-sciences industry, Maia Harris, partner in Pepper Hamilton’s IP Litigation Practice Group, to learn about how trade secrets protect the manufacture of biologic drugs and specifically how President Obama’s signing of the Defend Trade Secrets Act (DTSA) into law might affect the protection of trade secrets at biomanufacturing firms.

BioPharm: What methods are commonly considered trade secrets in the biomanufacturing industry? How are they typically protected?

Harris: Many aspects of commercial biotechnology products (including biologic drugs) could potentially be protected as a trade secret. Manufacturing methods and information are certainly one important aspect; others could include product composition information and analytical, preclinical, or clinical data. Whether any particular aspect of any particular biotech product or method will or can be protected as a trade secret ultimately depends not only on the technology or substance of the information, but also on what steps the owner of a trade secret takes to maintain its secrecy.

Protection of trade secrets begins with internal procedures. At the most basic level, these could include a careful assessment and ongoing management of who can and cannot access trade secrets; adequate employee nondisclosure, intellectual property assignment, and, where possible, noncompetition agreements for anyone developing or accessing potential trade secret information, and employee training related to the nature of trade secrets and the legal obligations for maintaining them as such; policies for maintaining and storing lab notebooks related to research and development; and a formal review process for publications or other presentations being made by researchers and others. Further steps could include IT security measures and policies for segregating trade secret material from potential centralized and/or unauthorized access; employment of security personnel; and restricted employee access measures. At the end of the day, if the owner of a trade secret ever finds it necessary to bring an allegation of misappropriation as part of litigation, each step it takes to maintain secrecy will be scrutinized. It pays to be careful up front.

BioPharm: What will the new legislation (Defend Trade Secrets Act) mean for the biomanufacturing industry, specifically?

Harris: For many years now, companies involved with biotechnology development have been looking more and more to trade secrets as a way to protect their innovations. This is partly because of recent changes to the patent landscape in the US, ranging from court decisions making it more difficult to obtain injunctive relief and calling into question the patentability of ‘naturally occurring’ products and methods, to the creation of a new (and now widely used) venue in which the validity of patents may be challenged outside of district court litigation. Reliance on trade secrets was not without its own potential risks, however, including the fact that no single federal law governing the civil enforcement of trade secrets existed prior to the passing of the DTSA.

In the short term, there are some practical effects of the passing of the DTSA, as some updates to existing employment, nondisclosure, and assignment agreements to ensure compliance with the DTSA will likely be appropriate before a trade secret owner will be able to enforce its trade secrets under the DTSA.

In the longer term, the DTSA provides trade secret owners with access to federal courts in the event that they need to bring an action alleging misappropriation. And while it may take some time, the hope of many in the legal field is that these cases will ultimately result in a single, more unified, and more predictable legal structure that can be used as the basis of IP portfolio strategy more generally.

BioPharm: How are trade secrets currently handled with companies that outsource either products or services?

Harris: This is a big issue. Many biopharmaceutical companies outsource at least some part of their manufacturing. Beyond that, however, the potential sharing of trade secrets as a result of such activities as research collaborations, joint ventures, or acquisitions (whether consummated or not, whether successful or not) are all day-to-day risks that need to be managed carefully. There is no one-size-fits-all solution, and each activity that potentially involves sharing a trade secret should be analyzed for purposes of determining the appropriate steps needed to maintain secrecy and minimize risk of misappropriation.  However, many of the same steps described above are equally applicable and necessary for each event that may involve sharing a trade secret, for example, the selection of a limited number of individuals who can access the information, and careful drafting and consistent execution of nondisclosure and other relevant agreements governing all aspects (including the conclusion) of the relationship.

BioPharm: Does bringing trade secret lawsuits compromise the very trade secrets that are under investigation?

Harris: Any activity that involves potential disclosure of trade secrets poses a potential risk to those very trade secrets. We already touched on employees (many of whom will come and go over time) and outsourcing or other transactions that might involve such information sharing. Biopharmaceutical companies seeking FDA approval for their products must manage that process and the disclosures required as part of it with extreme care. And litigation—in the event it ever becomes necessary—poses another such risk, since a case for misappropriation of trade secrets will, inevitably, involve identifying the allegedly misappropriated trade secret. The good news is that, in those cases brought in federal district court under the DTSA, federal statute requires district court judges to preserve the confidentiality of trade secrets being litigated (18 USC 1835).  Of course, taking active steps to avoid the necessity of litigation where possible is always a good strategy, too.

1. J.S. Sherkow, "Protecting Products Versus Platforms," Nat. Biotech. Bioentrepreneur (Apr. 14, 2016), doi:10.1038/bioe.2016.4.

lorem ipsum