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ZOTOS INTL., INC. v. KENNEDY

April 27, 1978

ZOTOS INTERNATIONAL, INC., Plaintiff,
v.
Donald KENNEDY, Commissioner, Food & Drug Administration, et al., Defendants



The opinion of the court was delivered by: GREEN

The parties in this case have filed cross motions for summary judgment with regard to Count II of the complaint. The Court grants summary judgment to plaintiff for the reasons stated below.

 I.

 The material facts relating to Count II are not disputed. Plaintiff Zotos International, Inc. engages in the manufacture and sale of certain cosmetic products regulated by the Food and Drug Administration (FDA), which, together with two of its officials, is a defendant in this case.

 
(3) require that each label on each package of a consumer commodity . . . bear (A) the common or usual name of such consumer commodity, if any, and (B) in case such consumer commodity consists of two or more ingredients, the common or usual name of each such ingredient listed in order of decreasing predominance, but Nothing in this paragraph shall be deemed to require that any trade secret be divulged. (Emphasis added.)

 The Secretary has delegated to the FDA the authority to administer the Act with regard to food, drugs and cosmetics. After a lengthy rulemaking process which began in 1973 and culminated in 1975, the agency issued regulations requiring that the ingredients of consumer cosmetics be listed on the label accompanying the products. The regulations, now codified at 21 C.F.R. § 701.3, provide in part:

 
Where one or more ingredients is accepted by the Food and Drug Administration as exempt from public disclosure pursuant to the procedure established in § 720.8 of this chapter, in lieu of label declaration of identity, the phrase "and other ingredients" may be used at the end of the ingredient declaration.

 On May 17, 1976, Zotos filed a letter with the FDA claiming trade secret status for a product formed by the reaction of two chemicals and used in certain cosmetics marketed by the company. "To the best of our knowledge," a Zotos official stated, the product "cannot be purchased on the open market nor is it listed in rare chemical catalogs."

 On June 2, the FDA informed Zotos that the petition had provided "only qualitative information" on the ingredient's chemical composition, and that "(a) semi-quantitative formulation is needed for the FDA to evaluate your request against what may be found in a literature search." Zotos provided the formula in a letter dated June 15.

 The next communication between the parties occurred on December 23, 1976, when the agency notified Zotos that "the identities of the two ingredients cannot be accepted as confidential information . . . ."

 The FDA stated that the first ingredient of the two employed to form the disputed substance was a "much-referenced" agent "widely used" in hair products. The agency cited five publications in support of its statement, and added that the first ingredient's "use in hair products is recommended in the trade literature of many raw material suppliers."

 As for the second ingredient, the FDA named three publications and a patent in which it was said to be described.

 The agency then stated that the concept of using the two ingredients in combination "is not new," citing three patents alleged to substantiate this conclusion. The FDA also identified a publication in German as additional support.

 The FDA concluded by stating that its determination constituted "final agency action," and, consequently, that disclosure of the ingredient would be required unless the decision were challenged in court within ten days, in which case the FDA would continue to keep the information in its possession confidential until the court ruled.

 The FDA's December 23 letter was received by Zotos on December 29, and on that date the ten-day period began to run. On January 4, 1977, Zotos hand-delivered a letter to the agency stating that it intended to move for "formal reconsideration" of the agency's determination. Preparation of the motion, Zotos wrote, would require not only an additional description of evidence tending to substantiate Zotos' claim but also a "detailed review" of the countervailing materials cited in the agency's December 23 letter. Zotos requested, therefore, that the FDA stay the January 9 deadline for filing suit pending its review of the motion, so that the company would not have to embark immediately on a court challenge in order to take advantage of its right to judicial review.

 On the same date January 4 Zotos requested by telephone that the agency supply copies of the documents cited in its December 23 letter. On January 5 the FDA made available two American patents and the article written in German, all of which had been cited by the agency as bases for its conclusion that the use in combination of the two basic ingredients did not merit trade secret protection. The FDA wrote that it did not have a copy of the fourth authority on which this conclusion had been based a French patent but instead had learned of the nature of the patent from secondary sources, the citations for which were provided.

 On January 7, the agency responded to the January 4 letter which had requested the stay pending submission of a formal petition for reconsideration. The FDA stated in part:

 
We intend to allow you an additional 30 days from today, i. e., until February 7, 1977, during which the Agency will not take regulatory action with respect to the cosmetic ingredient labeling requirements for this particular ingredient. This extension will allow you time to evaluate the references cited in the Agency's determination. We understand you do not have ready access to the materials cited and that this has made it more difficult for you to decide your course of action.
 
At the end of this 30 day time-period, if you have commenced a lawsuit . . ., the Agency will not take regulatory action . . . . The Agency's December 29, 1977 letter (sic) constitutes a final Agency determination.

 Zotos submitted its formal petition for reconsideration, and a motion for a further stay of regulatory action, on January 31. The petition discussed in scientific detail the references relied upon by the FDA. It claimed that the patents and publications involved described the combinative use of chemicals whose compositions were similar, but not identical, to those of the chemicals employed by Zotos, and that the substances produced did not have the beneficial effects which the company's trade secret had. Attached to the petition was an affidavit of a Senior Vice President of Zotos which presented a history of the firm's efforts to develop the substance and a further discussion of its composition and traits. The affidavit stated in part:

 
FDA's letter states that knowledge of the two starting chemicals were known and that the concept of reacting (the first type of ingredient) with (the second type of ingredient) for achieving improved hair conditioning action was known.
 
Even assuming that this concept was established when we started our experimentation (which it was not), we submit that it would require literally thousands of experimentations to try each (of the ingredients of the first type) with a single (ingredient of the second type) and vice-versa and then do the required testing to determine its suitability in a cosmetic product.

 On February 3, counsel for Zotos was informed by telephone that the January 31 motion for a further stay was denied. Consequently, on February 7, Zotos filed this action in order to meet the February 8 deadline for instituting suit and preserving the confidentiality of its substance pending the outcome of litigation.

 On March 22, the FDA wrote Zotos a letter which read in part:

 
This letter is in response to the petition for reconsideration . . . you forwarded . . ...

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