In July, the administrative law judge in Botulinum Toxin Products, Processes for Manufacturing or Relating to Same and Certain Products Containing Same (Inv. 1145) issued a Final Initial Determination finding a violation of Section 337 based on the foreign misappropriation of foreign trade secrets.  That case is now under review by the Commission, which has “determined to review 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.”

As noted in previous posts on this blog, the Botulinum Toxin case involves a unique argument where one of two complainants is the victim of alleged trade secret misappropriation while the other complainant is an unaffiliated company that claims to be injured by the accused imports.  You don’t have to look beyond the facts of this one case to see why that should not be allowed, as explained in R Street’s public interest submission to the agency:

Central to the ALJ’s findings on standing and domestic industry was the existence of a “license agreement” between Medytox and Allergan. According to the Final ID, Allergan has standing as a complainant “based on its license to sell imported products, which are produced using the allegedly misappropriated trade secrets.” And “a domestic industry may be established through the domestic operations of Allergan, even though it is not the IP owner,” because “Allergan is both a co-complainant and an exclusive licensee of Medytox.”

According to publicly available information, the agreement in question grants Allergan the sole right to distribute Medytox’s products outside Korea and Japan, a right for which Allergan paid at least $300 million. However, the purpose of that agreement was not to help Medytox market its products in the United States but to enable Allergan to prevent those products from entering the U.S. market as competition for Botox. We know this because the agreement was negotiated after Medytox developed a product in Korea they planned to introduce in the United States and because Allergan’s Botox was already dominant in the U.S. market. Allergan’s only reasonable motivation for this agreement was to limit competition for Botox.

. . .

If the Commission accepts the ALJ’s determination that a market allocation agreement between Allergan and Medytox counts as a “license” sufficient to tie Allergan’s domestic industry to Medytox’s foreign grievance, then we urge the Commission to recognize the harm the recommended remedy will cause for competitive conditions in the United States and on American consumers.

Blocking imports of the accused product will cement Botox’s ill-gotten market dominance, will leave American consumers with less choice and higher prices, and will fail to further in any way the enforcement of U.S. intellectual property or to protect the legitimate interest of an aggrieved domestic industry.

Although the ITC is required by statute to consider the effect of a remedy on the public interest, they almost never withhold an exclusion order on public interest grounds.  So a better and more likely outcome in this case is for the Commission to reverse the ALJ’s finding of violation and clarify that Allergan’s U.S. investments related to Botox are not a domestic industry for purposes of Medytox’s trade secret claim.

If the ITC does not overturn the ALJ’s determination, the agency runs the risk of becoming a global trade secret cop forcing U.S. consumers and businesses to suffer the consequences of trade remedies that provide no benefit to the U.S. economy and don’t promote American innovation.

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