ITC Judge Lets Domestic Industry Borrow Foreign Trade Secret to Limit Competition
The ITC has released a public version of the Initial Determination in Botulinum Toxin Products (Inv. 1145) finding a violation of Section 337 for trade secret misappropriation and recommending a 10-year exclusion order against a cosmetic injection similar to Botox. The most remarkable thing about this case is that one of the two complainants (Medytox) claimed to be the victim of trade secret theft and the other complainant (Allergan) claimed to be the domestic industry injured by that unfair act.
The accused product is Jeuveau, a cosmetic injection made by Korea-based company Daewoong and distributed in the U.S. by Evolus. The complaint accused Daewoong of stealing a physical sample of a potent strain of botulinum toxin from its competitor Medytox in order to develop the accused product. Those actions occurred entirely in Korea between two Korean companies with no U.S. operations. But a violation of Section 337 based on a claim of trade secret misappropriation also requires there to be injury to a domestic injury caused by the unfair act. In this case, that injury was allegedly suffered by Allergan, whose Botox injections stand to lose market share from the introduction of a new competitor.
The only link between Allergan and the alleged trade secret theft is that Medytox recently licensed Allergan to market a new Medytox injection product in the United States. Respondents argued that this was not a sufficient connection to grant Allergan standing or to allow Allergan’s Botox business to count as a domestic industry.
The ITC’s administrative law judge, however, found in complainants’ favor on all major issues. Specifically, the ALJ found that “Allergan has standing based on its license to sell imported products, which are produced using the allegedly misappropriated trade secrets, and its claimed injury from the imported accused products to its domestic industry.” And because “Allergan is both a co-complainant and an exclusive licensee of Medytox . . . a domestic industry may be established through the domestic operations of Allergan.”
That domestic operation is injured, according to the ALJ, because “Allergan’s market shared declin[ed] by 6.1 percentage points from 75% to 68.9%” resulting in lost profits for Allergan, and because “there is a strong likelihood that Allergan will need to lower its pricing for its Botox products to compete.”
The problem with this approach is that allowing a domestic industry to team up with an unrelated foreign party aggrieved by foreign actions to establish a trade violation (where none would exist for each company separately) can easily lead to abuse of Section 337 for anticompetitive purposes. And the Botox case itself shows just how that could work: the reason Jeuveau’s introduction to the U.S. market is carving directly into Botox’s market share is due in large part to the fact that Allergan and Medytox have a long-standing arrangement not to compete in the U.S. and Korean markets.
Normally, a trade secret dispute between two foreign companies would only have the potential of adding one more competitor for the domestic industry, which would suffer little or no injury. In this case, however, the addition of a new competitor disrupted the complainants’ anticompetitive scheme that had previously inflated Botox’s market share and pricing power. An exclusion order against Daewoong will effectively reestablish the cartel arrangement set up by Allergan and Medytox.
The Initial Determination may still be overturned on review by the Commission. But even if the Commission affirms the Initial Determination on domestic industry and injury, they could still refuse to issue an exclusion order on public interest grounds. Such refusals are incredibly rare, but Congress created the ITC’s public interest test out of particular concern that an exclusion order might be used for anticompetitive purposes. It’s hard to see how the American public benefits from an import ban enforcing foreign trade secrets on behalf of two companies actively scheming to avoid competition in the U.S. market.