Strategies for Protecting Trade Secrets in the Pharmaceutical and Life Sciences Industries

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In the pharmaceutical and life sciences industries, trade secrets are a cornerstone of innovation and competition and are essential to the long-term survival and value of your company. In order for trade secrets to maintain their value, however, they must be diligently protected. In today's technology dependent business environment in particular, there is a heightened risk for misappropriation of electronic information, which is easy to transfer and difficult to track.

Trade Secret Foundations

Your legal rights regarding trade secrets depend on (a) the type of information at issue and (b) what you as a company do to protect them. Confidential information can include almost any information related to your business that is not generally known outside the company. Confidential information, however, is only protected by contract or common law obligations.

Trade secrets are a subset of confidential information that satisfy heightened requirements of economic value and secrecy and have statutory protections. Examples in the life sciences industry include formulas, research data, internal processes, manufacturing techniques and specifications, batch records, contract pricing, customer identities and purchasing habits and frequency, sales volumes, R&D, and strategic plans. Notably, a “compilation” of non-trade secret information which has value in the aggregate can likewise be a trade secret.

To constitute a trade secret, the information must derive “independent economic value” arising from its secrecy and be subject to a company's “reasonable measures” to maintain its secrecy. Whether such measures are reasonable becomes hotly contested in any trade secret litigation, making your IT staff, HR managers, and front-line hiring managers critical to the defense.

As the pharmaceutical and life sciences industries continue to become more collaborative with a focus on increasing interconnectedness and promoting joint ventures, it is essential that business leaders not only understand how to protect their trade secrets but also familiarize themselves with how to defend against claims of trade secret theft. While serious external threats to IP always exist, internal threats remain one of the highest risks companies face, especially in the life sciences industry, where rapid development is crucial.

Statutory Protections

At the federal level, the Defend Trade Secrets Act (DTSA) was signed into law in 2016, creating a civil cause of action for misappropriation. The DTSA serves as a complementary enforcement tool to patent protection rights. Included in the legislation is a “broad definition of trade secret” and “prophylactic provisions” to provide companies with a federal sword for the purpose of preventing unauthorized disclosure of proprietary information.

The DTSA is a uniform statute giving companies a powerful option of filing suit in federal court while not preempting other state trade-secret laws. The DTSA provides a variety of remedies, including actual economic loss, reasonable royalties, and unjust enrichment damages, as well as civil seizures, injunctions, punitive damages, and recovery of attorney's fees under certain circumstances.

The DTSA significantly strengthened the legal framework for protecting trade secrets by offering federal remedies for companies to safeguard their proprietary information. While litigation is certainly to be avoided if at all possible, the litigation itself can serve as an additional tool to deter insider theft, as well as deter competitors from capitalizing on information brought to them.

On the state level, 48 states have adopted the Uniform Trade Secrets Act (UTSA) created by the Uniform Law Commission in an effort to standardize trade secret laws across jurisdictions. Although this legislation attempts to provide a uniform framework, some states still have incorporated regional-specific amendments, and thus, it is imperative to familiarize yourself with the local laws in your jurisdiction.

Recent Legal Landscape

It is likewise important to familiarize yourself with the current legal landscape, ensuring your company is properly prepared to safeguard these assets. While a trade secret itself loses its trade secret status once patented, the U.S. Patent and Trademark Office estimates the value of U.S. intellectual property at $5 trillion, and the loss is estimated at $250 billion each year. However, both courts and juries favor robust enforcement by granting larger damage awards to claimants in trade secret theft cases—highlighting the widely and firmly recognized value of such confidential assets. However, the protection is only available if companies first satisfy the burden of demonstrating the “reasonable measures” they take to protect them. As the value of the information increases, the greater the level of scrutiny courts will impose as to what is “reasonable” under the circumstances.

A wave of recent court decisions, both civil and criminal, swept the nation, highlighting not only a desire to protect trade secrets but also the reality of threats facing pharmaceutical companies. The Department of Justice has likewise in recent past expressed a commitment to protecting “sensitive American technology.” In 2023, the DOJ issued a press release announcing criminal charges in five cases against multiple defendants in violation of trade secret theft, among other things.

Offensive and Defensive Strategies through “Reasonable Measures”

The best time to protect your company's trade secrets is now. To bring a viable claim, should it ever become necessary, you must demonstrate the reasonable efforts you took to maintain your company's trade secrets’ secrecy. Takeaways from focus groups and mock juries show that the specific language of your policies matter, and they are hyper-focused on the extent of the reasonable measures taken, as well as the language in emails by managers and the alleged misappropriators.

For current employees, examples of reasonable measures include, without limitation, confidentiality and non-disclosure agreements (NDAs), confidentiality policies, acceptable use policies developed by IT, and post-separation confidentiality reminders. Additional specific measures should be put in place for both (a) new hires and (b) departing employees.

The company's electronic systems should likewise have robust measures put in place, as well as physical security measures within the company and NDAs with third-party business partners and vendors. Defensively, when onboarding, ensure that you have clearly communicated to new hires and prospects that you DO NOT want information from a prior employer, whether they think it is helpful or not. Be sure to communicate this in writing.

Should you receive a cease and desist from a competitor alleging a former employee has joined your company with potential proprietary information, do not ignore it. How you respond in the initial days thereafter is critical. Having an experienced legal team, with immediate access to a forensic partner and expert consulting witnesses with experience in this field, is likewise vital to protecting your proprietary information, as cases of this nature often turn on technical evidence in the days following (a) a breach within your company or (b) your receipt of a cease and desist that you must now investigate. To be clear, your company's legal remedies may be lost or diminished if you do not act quickly enough and/or fail to adequately secure and document the evidence you have of any misappropriation.