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SERONO LABORATORIES, INC. v. SHALALA

January 21, 1999

SERONO LABORATORIES, INC., PLAINTIFF,
v.
DONNA E. SHALALA, ET AL., DEFENDANTS AND FERRING PHARMACEUTICALS INC., INTERVENOR-DEFENDANT.



The opinion of the court was delivered by: Facciola, United States Magistrate Judge

MEMORANDUM TO ACCOMPANY ISSUANCE OF PROTECTIVE ORDER

The background of this case is set out at length in the Court of Appeals's decision, vacating the issuance of a preliminary injunction. Serono Laboratories, Inc. v. Shalala, 158 F.3d 1313 (D.C.Cir. 1998). Suffice to say here that Serono Laboratories ("Serono") filed a petition urging the Federal Drug Administration ("FDA") to withhold the approval of an application by Ferring Pharmaceuticals ("Ferring") for the approval of a generic version of a drug which Serono markets. When the FDA denied Serono's petition, Serono sued it in this Court and Ferring intervened as a defendant. This Court issued a preliminary injunction against FDA approving Ferring's application but, as just noted, the Court of Appeals reversed concluding (inter alia) that Serono had not met its burden of a likelihood of success on the merits. Despite that conclusion, the Court of Appeals specifically left open the possibility that Serono could make outs its case that FDA approval of Ferring's application was arbitrary, capricious and unreasonable:

  For the foregoing reasons, we vacate the preliminary
  injunction entered by the district court and remand
  the case for further proceedings consistent with this
  opinion. Our opinion does not foreclose the
  possibility that at a trial on the merits, and upon a
  fuller record, Serono may be able to establish that
  there are grounds for overturning the grant of
  Repronex's ANDA [i.e. the drug for which Ferring
  sought ADA approval.] We hold only that upon the
  current record, Serono has failed to establish

  that it meets the criteria for the grant of a
  preliminary injunction.

Id. at 1327.

Since the matter was remanded for a trial, the first item on the agenda is to assemble the administrative record. FDA secured from Serono, Ferring and other companies documents which each of these companies claims are trade secrets. FDA does not deny that it has a statutory obligation to protect these trade secrets and expresses a willingness to comply with any protective order the court issues. For their part, Serono and Ferring differ as to the contents of such an order based on radically different interpretations of the decision of the Court of Appeals in MD Pharmaceutical, Inc. v. Drug Enforcement Admin., 133 F.3d 8, 13-15 (D.C.Cir. 1998) (hereafter "MD"). In that case the Court of Appeals upheld a federal agency's producing an administrative record, to be used in the judicial review of that agency's decision, which did not contain all of the documents which the agency had in fact collected in making its decision because the agency had purged materials containing trade secrets. Ferring finds in that decision a judicially enforceable statutory right to insist that the FDA purge from the administrative record its trade secrets before any one can see the record. Serono does not see that case as an impediment to its outside counsel*fn1 reviewing the entire administrative record, including Ferring's trade secrets, provided his access and subsequent use and reference to what he has seen is carefully restricted by a protective order.

The argument between Ferring and Serono is animated by two competing concerns or interests. In a field as competitive and technical as the pharmaceutical industry, success or failure will turn in large measure on innovation and the members of the industry justifiably hoard their trade secrets as jealously as a miser hoards his gold. Before, however, that innovation yields a profit, a government agency has the responsibility to insure that the drug is safe. In a world of stunning multiple births, cloning, and genetic engineering, the necessity for the performance of that responsibility being predicated on all available information is self evident.*fn2 Thus, concerned companies may have to disgorge their trade secrets so that the agency can fulfill its responsibilities. They would resist doing so with all their power if doing so permitted their competitors instantaneous access to what they had so carefully guarded from them. The obvious public interest in inducing the drug companies' utmost cooperation with the government's investigation of the new drug would suffer. It is therefore understandable that Congress has required the FDA to guard the trade secrets to which it has been given access and to require it to return them to the company which generated them. 21 U.S.C. § 331(j) (Supp. 1998); 5 U.S.C. § 552(b)(4) (1996) (trade secrets exempt from Freedom of Information Act); 18 U.S.C. § 1905 (1984) (crime for federal employee to disclose trade secrets).

A competing consideration is that judicial review of agency action must be premised on the administrative record and, in the ordinary course, a complete agency record is sine qua non; without it the party seeking review can claim that its right to attack the agency's action is compromised since it cannot say with certainty what the agency reviewed in making its decision. 5 U.S.C. § 706 (1996) (when conducting judicial review court is to review the whole record).

Ferring counters this case can only be read to create a judicially enforceable right of a party who has provided an agency with trade secrets to insist upon their removal before the administrative record is produced for inspection by any one, particularly one of its competitors.

Ironically, counsel for Ferring, which resists disclosure of its secrets to Serono, was counsel for the losing party in MD in which he had urged that his client's interest in the production of a complete administrative record rendered the agency's exclusion of certain records a default of its clear obligation to produce that complete administrative record for judicial review. He provided me with the briefs of the parties in MD and they are illuminating. The losing party, seeking disclosure of the trade secrets, insisted that its interest in a complete administrative record trumped the agency's protecting trade secrets and chastised the agency for not considering whether disclosure could not occur pursuant to a protective order. Brief for Petitioner at 26-29, MD Pharmaceutical, Inc. v. Drug Enforcement Admin., 133 F.3d 8, 13-15 (D.C.Cir. 1998). The Court of Appeals, however, rejected those arguments in favor of the creation of an absolute agency right to delete from the administrative record trade secrets. It therefore expressly held that the statutory protection afforded trade secrets trumps the interest in a complete administrative record. Moreover, while its decision did not specifically discuss the significance of a potential proposed order, the agency's withholding trade secrets, despite the criticism that it had done so without even considering whether disclosure could take place pursuant to a protective order, was upheld as a lawful exercise of its obligation to protect trade secrets. Implicit in that determination is the concomitant holding that the statutory protection of trade secrets creates an enforceable right in the party who has provided those secrets to insist upon their exclusion from the administrative record which does not evaporate merely because there is a possibility that a protective order might regulate the access which the agency is under an obligation to prevent. There was before the Court of Appeals, after all, a suggestion that a protective order could accommodate the competing interests. The breadth of the Court of Appeals' holding in the light of that suggestion must mean that a party who had provided trade secrets cannot be forced to permit any access to them whatsoever because it is under no obligation to accept less than the absolute protection the statute creates for its trade secrets.

It is therefore of little moment that the agency in this case is willing to permit access to trade secrets pursuant to a protective order. In MD, the Court of Appeals held that the agency's refusal to produce trade secrets was the correct interpretation of the statute protecting those secrets despite the claim that its protection of those secrets was inconsistent with its obligation to produce a complete administrative record. It has to follow that an agency's refusing to remove the trade secrets from the administrative record before permitting the disclosure of that record to any one other than the party which produced the secrets is an incorrect reading of the statute which protects trade secrets. If that is so, the agency's permitting the very disclosure which the Court of Appeals indicated the trade secret statute does not permit is agency action which is arbitrary, capricious and unreasonable and contrary to law which this Court is bound, by another statute to prevent. 5 U.S.C. § 706(2)(A) (1996). Therefore, Ferring is perfectly correct in insisting that the agency in this case must purge the administrative record of Ferring's trade secrets before its files the administrative record for review by any one else and that a protective order restricting access to those secrets cannot excuse the FDA from fulfilling its statutory obligation to protect Ferring's trade secrets. Simply put, the protective order cannot relieve FDA from a statutory obligation it has to Ferring and permit it to abrogate a statutory right Ferring can assert.

A judge, anxious to see this matter come to a conclusion as soon as possible, reaches this necessary conclusion with some reluctance since it will require the FDA to create three versions of the administrative record, an unexpurgated record which contains the entire record and a version from which Ferring's trade secrets have been removed to be given to Serono, and a version from which Serono's trade secrets have been removed to be given to Ferring. While that obligation is unquestionably onerous, Serono need not wait and suffer in silence. This Court has plenary power to expedite agency action which is unreasonably delayed*fn3 and will do so if Serono can make a case that the amount of time being taken to create the purged records is out of proportion to the task involved.

Additionally, while it bears more on accuracy than speed, I expect the FDA to make a conscientious determination as to whether a document does in fact contain what can truly be described as a trade secret in light of the present state of the technology involved. To continue to describe information as a trade secret when, for example, it describes a process now in the public domain, would be arbitrary and capricious and subject to nullification upon judicial review. I intend to exercise such review upon the application of Serono which will be provided with a log which will describe the documents being sought with enough particularity to permit Serono to challenge their continuing designation as trade secrets. While that log can never be a substitute for examination of the documents themselves, Serono's position is no better or worse than any litigant who confronts a claim of privilege. Cf. Fed. R.Civ.P. 26(a)(5). I also appreciate that I may lack the technical expertise to determine whether a document contains a trade secret but I contemplate the parties calling witnesses in support of their contentions and even assisting me to secure assistance from an utterly independent source if it becomes necessary to do so.

Finally, the order contemplates that there will be documents which, while not trade secrets and therefore to be purged from the administrative record without further ado, may nevertheless contain information which should only be seen by certain persons. Serono would classify this documents as either "confidential" or "highly confidential" and then restrict access to them accordingly. I have rejected this proposal as premature and unnecessarily complicated. In the course of exercising the judicial review the order contemplates I will unquestionably entertain any argument that access, if it is permitted, be permitted only to certain persons or categories of persons. I am much more comfortable making that judgment as to a particular document when I look at the document and hear the parties' arguments. It is not a good idea to try to make lapidary judgments about documents which I have not seen or to attempt to categorize them a priori without seeing them.

A final point. Documents from two companies, Organon and Instituto Massone, are part of the administrative record. At a hearing Judge Sporkin ordered that these documents be purged from the administrative record before any portion of the remainder of that record was made available to Serono. Despite Serono's invitation, I do not see myself as having any authority to modify that order. Thus, I have ordered that the FDA purge the confidential matter of both Organon and Instituto Massone in accordance with Judge Sporkin's order but also create a list of the documents they are removing. In addition, I have created a procedure whereby Instituto Massone and Organon may object to the production of this list I have ordered the FDC to create before this list may be disseminated to anyone other than counsel for Instituto Massone and Organon. At that time, I will certainly consider any ...


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