This Article is written by Ahaana Chowdhry, a Third-year law student of Indian Institute of Management, Rohtak

Understanding Trade Secrets in Pharma

Intellectual property in the form of a trade secret encompasses any exclusive company knowledge that gives the proprietor an advantage in the marketplace. The safekeeping of trade secrets is non-negotiable to ensure that the owner or developer of that secret has a competitive advantage over other market participants. Keeping a trade secret private, unlike patents or trademarks, which are made public is essential to ensure that investments in research and development and the years of labour are not withered away. Trade secrets are also very different from patents or trademarks as they may be business practices or generic principles on which the owner may not be able to secure a patent or trademark to maintain the first mover advantage for too long[1]. As long as they remain confidential and have monetary worth, trade secrets can include anything from procedures and techniques to layouts and processes duress including the names of customers, and pricing agreements.

When it comes to protecting valuable knowledge that neither can nor should be patented, trade secrets are indispensable. They are growing in importance as a means of preserving private information, especially in this age where invention happens at a faster rate than the patent procedure, which is a significant change from the previous method of shielding pharmaceutical advances through patents[2]. Proprietary information including but not limited to manufacturing procedures, chemical compositions, data from experiments, and advertising tactics. Companies can preserve significant information indefinitely through trade secrets, unlike patents, as long as they take the necessary steps to keep it secret confidential and beyond the reach of a select few[3].

Pharmaceutical sector trade secrets affect healthcare systems around the world. Organisations can significantly gain from the time and money spent on research and development, a process that can be both extensive and expensive. Breakthrough medications and treatments that enhance medical results are born out of this cycle of research[4]. The healthcare business continues to face significant difficulty in finding a balance between the safeguarding of trade secrets and the requirement for disclosure.

This study delves into the significance of trade secrets in the healthcare industry, looking at how they encourage innovation, the difficulties of safeguarding them, and the judicial processes that can be used to enforce them.

Why Trade Secrets Matter More Than Patents

When it comes to protecting discoveries and keeping a competitive edge, intellectual property rights are paramount in the pharmaceutical sector. Obtaining a patent has long been the standard practice for safeguarding pharmaceutical innovations, as it grants the owner a window of exclusivity for a certain amount of time. The value of trade secrets, especially in the pharmaceutical industry, has been more acknowledged in the last few years.

Patent, for twenty years, grants the owner the right to use their creation exclusively. In return, the inventor is required to make the invention's features public so that others can study it and improve upon it immediately after the patent has expired. Although this system does have some positive aspects, such as fostering flexibility and new ideas, it also has some major negative aspects, notably easy to reverse engineer an invention, deep understanding of genome sequencing and DNA sequencing speeds up the process of alternative drug discovery and lastly the simulation capabilities of advanced software’s and quantum computing make it extremely easy to advance the drug capabilities without infringing the patents of the proprietor[5]. Thus in the cutthroat pharmaceutical business, reliance on trade secrets is increasing and patents are decreasing to safeguard the profitability of the pharmaceutical companies..

Trade secrets are becoming more valuable than patents in the medical field for several reasons:

1. Unlike patents, which only protect for a limited time, trade secrets can continue to be protected eternally. This means that valuable pharmaceutical knowledge, including the formulas for popular medications or the methods used to make complicated biological substances, can be protected for considerably longer beyond the standard 20-year patent period[6]. This perpetual protection is especially useful when the idea is not simply reverse-engineerable, which makes it hard for opponents to copy.

2. Keeping Information Under Wraps: To get a patent, you have to reveal every little aspect of your innovation. Once you do, everyone knows about it. This has both positive and negative aspects; the former becomes worse when rivals can use the revealed information to create rival remedies or get involved with "patent-busting" practices. Because they are inherently private, trade secrets shield vital details from prying eyes. In the healthcare industry, where premature disclosure of confidential information may reduce an organization's competitive edge before a drug's commercialisation, this is of paramount importance.

3. Effectiveness: Seeking security in numerous jurisdictions can make the process of acquiring and keeping patents highly costly and tedious. Trade secrets, on the other hand, are exempt from the expenses and formalities of registration. Companies still need to put money into strong security systems to guard their trade secrets, but those expenditures can be less daunting and cheaper than safeguarding patents.

4. Security Against Duplication: Trade secrets serve as a powerful barrier against replication when a pharmaceutical breakthrough incorporates complicated methods or formulas that are hard to reverse engineer. Manufacturers can keep opponents from making copies of their items even after their patent immunity ends if they keep these data secret. The pharmaceutical sector finds this very useful because the production process of some pharmaceuticals is just as crucial as the active chemicals themselves[7].

5. Trade secrets are more adaptable and flexible than patents, which only cover the claims made in the petition. Pharmaceutical companies can avoid filing fresh patents if they create an updated version of an existing trade secret and want to keep it private. Companies may stay ahead of the competition by constantly inventing and improving techniques because of this versatility.

6. Trade secrets are not subjected to geo-political risks, country risks and physical damage, In today’s highly tech-driven environment, trade secrets can be safely guarded over the cloud with complex lock and key combinations using blockchain and biometric technologies[8]. Patents are subject to leaks from the authorities especially during pendency due to corruption or the country’s ruling government’s deep involvement.

7. It is a known fact around the world that there exists a deep nexus between the healthcare industry and medical practitioners. Whenever a new formulation is commercially launched huge events, business promotion parties and direct interaction with medical professionals are part of the marketing and branding campaigns to spread the reach of a new formulation. This is with the idea of faster distribution and adoption in the marketplace. Medical sales representatives (MRs) visit doctors, clinics, nursing homes and procurement departments of large hospitals to promote drugs of their employee pharma companies. In a desire to push sales and drug visibility as well as usage, there exists a quid pro quo between the MRs and the medical practitioners[9]. This is considered highly unethical as the doctors are not promoting the compounds but promoting drugs from a specific pharma company. This is one of the most high-risk corrupt practices.

Challenges and Controversies: The Dark Side of Trade Secret

There are many benefits to keeping trade secrets, but there are also many problems and disputes around them, and these issues have broad societal and economic consequences.

1. The innate secrecy of trade secrets constitutes one of the main obstacles connected with them in the pharmaceutical sector. A trade secret does not need to be disclosed in any way, contrary to a patent, which demands the public release of knowledge in return for complete confidentiality. This can cause pharmaceutical companies to be secretive about their processes. A prime instance of the difficulty of disclosing trade secrets is the now-infamous Coca-Cola issue. Speculation over the effects on customers and rivals stems from the fact that the precise mixture has remained highly classified for generations. Businesses like Merck in the medical industry have come under fire for withholding clinical trial information about their medicine Vioxx, which was subsequently determined to pose significant dangers to cardiovascular health. Vital security information may be hidden from the general public due to the confidentiality concerning trade secrets.

2. The health of patients may be compromised to safeguard commercial secrets. Patients may be put in danger if pharmaceutical companies conceal details regarding a drug's possible adverse effects to safeguard their trade secrets[10]. As an illustration of the negative effect that trade secrets can have on public health, we may consider the EpiPen price controversy. Since its composition and shipping system were private and safeguarded as trade secrets, Mylan Pharmaceuticals had the opportunity to significantly raise the price of EpiPens[11]. Moral concerns regarding patients' access to potentially life-saving therapy were heightened by the price rise which was exacerbated by the lack of competing products caused by the product's creation being shrouded in confidentiality.

3. The use of trade secrets by established businesses to safeguard their breakthroughs can stifle creativity and new entrants, especially smaller businesses and startups who lack the capital to produce their unique technology. Patients have limited access to innovative medicines, costs may rise, and rivalry may decrease leading to monopolistic practices and exploitation. Another instance of how safeguarding trade secrets can cause monopolistic behaviour and a decrease in creativity and rivalry is the case of Turing Pharmaceuticals, in which the corporation purchased ownership rights to medicine and subsequently raised its retail value by 5,000%[12].

4. Trade secret laws and standards differ from one country to the next, which can cause confusion and even disputes. Because of the potential loss of confidential information and edge over rivals, the industry is greatly concerned about the loss of trade secrets via phishing along with various methods. The difficulty of transnational trade secret enforcement was evident in instances such as the Chinese scientist's misappropriation of trade secrets from GlaxoSmithKline[13].

Case Studies: Trade Secrets That Shaped the Pharmaceutical Industry

1. Three big pharmaceutical companies: Eli Lilly, Novo Nordisk, and Sanofi are at the centre of the insulin cost debate. Companies that made insulin were penalised for charging exorbitant rates because they concealed the true cost of making the medicine. Insulin became unaffordable for many diabetics due to this secret, particularly in the United States[14]. Because other organisations were unable to create less expensive choices due to the absence of transparency, consumers were left with fewer possibilities and had to shell out high rates for a treatment that was vital in maintaining their wellness. The arrangement was viewed as morally questionable since it put profitability ahead of patients' availability of treatment that they needed.

2. Some lots of ranitidine were found to include excessive concentrations of NDMA, a compound with carcinogenic possibility, in 2019, according to the FDA. Some felt that Pfizer, maker of the antipsychotic Zantac, should have been more forthcoming about how it might have avoided this impurity in the production process[15]. The safety of the public may have been jeopardised if the corporation had chosen to keep these data under wraps since it would have prevented improved monitoring and prevention of similar problems. Concerns over public safety prompted critics to call out the dearth of disclosure as immoral, citing the need to safeguard trade secrets as the driving force.

3. There is a lot of back and forth in the world of medicine about biologics, which are complicated medications derived from living creatures. Pharmaceutical giants like Amgen and Genentech were guarding their medicine production processes with trade secrets[16], preventing biosimilars (cheaper alternatives) from entering the market. Although businesses should safeguard their ideas, it is contended that too stringent safeguards do more harm than good.

Conclusion: The Power and Responsibility of Pharma’s Trade Secrets

There is a danger to the public's wellness, accessibility, and ethics in the pharmaceutical sector because of their dependence on trade secrets. The community's confidence and safety are sacrificed in the pursuit of business goals and growth through trade secrets. A prime illustration of this threat is the COVID-19 pandemic. While it's true that vaccinations were developed and distributed quickly, the following finding of its negative consequences has cast doubt on the openness of the vaccine manufacturing procedure. The public's safety may have been protected if, through a patent system, information about the vaccine's ingredients and production methods had been revealed or made accessible to everyone for review. This would have allowed for the possibility of predicting and reducing these negative effects.

The healthcare industry, where private enterprise, public health, and scientific inquiry all come together. It is intolerable to keep vital knowledge under wraps because of the enormous influence that drugs and therapies have on people's lives. Business gain ought not to occur at the expense of the public's right to be informed about the possible hazards of the pharmaceuticals they are ingesting. Hence, when it comes to public health, the pharmaceutical sector needs to either set up a strong framework that requires a specific amount of availability for trade secrets or switch to an approach that depends only on patents, which would guarantee full publication of all pertinent information. That way, we may honour our moral obligation to prevent harm to people while simultaneously safeguarding their intellectual property.

REFERENCES:

[1] Tara Nealey, Ronald M. Daignault, and Yu Cai, ‘Trade Secrets in Life Science and Pharmaceutical Companies’ (2015) National Institute of Health https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4382727/ accessed 02 September 2024.

[2] Laurie Carr Mims, and Maya Perelman, ‘ Trade-Secret Vulnerabilities: Recent Hacking Schemes Highlight the Need to Protect Proprietary Pharmaceutical Information’ (2021) BioProcess International https://www.bioprocessintl.com/intellectual-property/trade-secret-vulnerabilities-recent-hacking-schemes-highlight-the-need-to-protect-proprietary-pharmaceutical-information accessed 02 September 2024.

[3] Viviane Trojan, ‘Trade secrets: a strategic element in the life sciences and biotechnology industries’ (2024) International Bar Association https://www.ibanet.org/trade-secrets-life-sciences-biotechnology accessed 02 September 2024.

[4] Troy Groetken, ‘Protecting Trade Secrets in Life Sciences and Pharma’ (2023) CCBJ https://ccbjournal.com/articles/protecting-trade-secrets-in-life-sciences-and-pharma accessed 02 September 2024.

[5] Professor Tanya Aplin, and Dr. Johnathon Liddicoat, ‘Discussion Paper On The Interplay Between Patents And Trade Secrets In Medical Technologies’ (2023) WIPO https://www.wipo.int/edocs/mdocs/scp/en/wipo_ip_covid_ge_2_22/wipo_ip_covid_ge_2_22_paper.pdf accessed 03 September 2024.

[6] Professor Tanya Aplin, and Dr. Johnathon Liddicoat, ‘Discussion Paper On The Interplay Between Patents And Trade Secrets In Medical Technologies’ (2023) WIPO https://www.wipo.int/edocs/mdocs/scp/en/wipo_ip_covid_ge_2_22/wipo_ip_covid_ge_2_22_paper.pdf accessed 03 September 2024.

[7] Pragya Jain, ‘Patent v. Trade Secret: In the Light of Indian Pharmaceutical Industry’ (2021) SPICY IP https://spicyip.com/2021/07/35711.html accessed 03 September 2024.

[8] Mike Fuller, and Kim Kennedy, ‘Trade Secrets Or Patents?’ (2020) Life Science Leader https://www.lifescienceleader.com/doc/trade-secrets-or-patents-0001 accessed 03 September 2024.

[9] Dipanjana Chakraborty, ‘Trade Secrets vs. Patents: Choosing The Right Protection Strategy For Start-Ups’ (2024) Mondaq https://www.mondaq.com/india/trade-secrets/1428562/trade-secrets-vs-patents-choosing-the-right-protection-strategy-for-start-ups accessed 03 September 2024.

[10] Allison Durkin, Patricia Anne Sta Maria, Brandon Willmore, and Amy Kapczynski, ‘Addressing the Risks That Trade Secret Protections Pose for Health and Rights’ (2021) NCBI https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8233014/ accessed 03 September 2024.

[11] Chris Cillizza, ‘The price of EpiPens has gone up 450 percent since 2004. That’s ridiculous’ (2016) WASHINGTON POST https://www.washingtonpost.com/news/the-fix/wp/2016/08/05/the-price-of-epipens-has-gone-up-450-percent-since-2004-thats-unbelievable/# accessed 04 September 2024.

[12] ‘US pharmaceutical company defends 5,000% price increase’ (2015) BBC https://www.bbc.com/news/world-us-canada-34320413 accessed 04 September 2024.

[13] ‘Swiss Scientist Convicted by Federal Jury of Conspiracy to Steal Trade Secrets Belonging to GlaxoSmithKline’ (2022) United States Department of Justice https://www.justice.gov/usao-edpa/pr/swiss-scientist-convicted-federal-jury-conspiracy-steal-trade-secrets-belonging accessed 04 September 2024.

[14] Ryan Knox, ‘Insulin insulated: barriers to competition and affordability in the United States insulin market’ (2020) National Institute of Health https://pubmed.ncbi.nlm.nih.gov/34221426/ accessed 04 September 2024.

[15] Fahad S. Aldaswari, Yahya M. Alshehry, and Thamer S. Alghamdi, ‘N-nitrosodimethylamine (NDMA) contamination of ranitidine products: A review of recent findings’ (2021) National Institute of Health https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9261846/ accessed 04 September 2024.

[16] Troy Groetken, ‘Protecting Trade Secrets in Life Sciences and Pharma’ (2023) CCBJ https://ccbjournal.com/articles/protecting-trade-secrets-in-life-sciences-and-pharma accessed 02 September 2024.