The U.S. International Trade Commission has released a public version version of the Commission Opinion in Botulinum Toxin Products (Inv. 1145) explaining the agency’s reasoning behind its controversial decision to block imports based on foreign misappropriation of a foreign trade secret that is not owned or practiced by any U.S. company.  There are a number of specific issues worth discussing in the opinion that I’ll cover in subsequent posts, but for now I’d like to highlight how the ITC’s overly broad conception of its own powers can lead to absurd cases of overreach by an executive agency.

The case involves a trade secret dispute between two foreign pharmaceutical companies, (Medytox and Daewoong) who manufacture and sell cosmetic injections in Korea.  Daewoong recently got FDA approval to market an injection in the United States that competes with Botox.  In order to prevent this competition, Botox-maker Allergan (a U.S. pharmaceutical company based in Ireland for tax reasons) joined with Medytox to file a complaint at the ITC to block imports of the new product.  The case presented a unique situation for the agency where one of the complaints was the alleged victim of an unfair act and the other was a domestic industry allegedly injured by the imports.

The only relationship between Medytox and Allergan is an anticompetitive market allocation agreement.  About ten years ago, Medytox developed a new type of cosmetic injection that could get FDA approval in the United States and therefore compete with Botox-brand injections.  In order to protect their dominant share of the U.S. market, Allergan paid Medytox $300 million in exchange for an exclusive license to market Medytox’s new product outside Korea and Japan.

Now the introduction of Daewoong’s product (called Jeuveau) has disrupted the gains Allergan got from its agreement with Medytox and poses the same threat to Botox’s market dominance that Medytox’s did years earlier.

The agency had plenty of opportunities to find no violation of Section 337 under these facts.  For example, they could have determined that theft of a foreign trade secret is simply not an “unfair method of competition” under Section 337.  They also could have determined that a party cannot count as a domestic industry if it does not own or practice the trade secret.  At the very least, they could have determined that an exclusion order in furtherance of an anticompetitive scheme was contrary to the public interest.

Instead, the ITC chose to interpret its powers under the law as broadly as possible and to apply those powers to their fullest.  The opinion states that “there is no requirement in Section 337(a)(1)(A) that trade secrets be developed, created, or practiced in the United States,” that “standing before administrative agencies is distinct from constitutional standing before Article III courts,” and that injury can be shown by “lost market share, lost profits, and underselling” for any product that “‘directly competes’ with the accused products.”

The consequences of this holding for future cases is quite troubling.

In effect, the ITC has invited any industry in the United States to seek an exclusion order against any competing imports involved in a trade secret dispute anywhere in the world.

But allowing such cases serves no public interest at all. Enforcing purely foreign trade secrets does not protect U.S. intellectual property or promote American innovation. It does, however, limit consumers’ access to competitively priced products. Because botox injections also have therapeutic uses, the ITC is directly promoting a pharmaceutical company’s effort to prevent generic competition for an unpatented drug.