Does Government Disclosure Of A Company's Trade Secrets Amount To An Unlawful Taking Under The Fifth Amendment?

In Vanda Pharmaceuticals, Inc. v. United States, No. 23-629C (Fed. Cl. 2024), 2024 WL 201890, the Court of Federal Claims (COFC) addressed whether government disclosure of a company's trade secrets and commercial information could create a viable claim for a taking under the Fifth Amendment or for breach of an implied-in-fact contract. The company, Vanda Pharmaceuticals (Vanda), claimed that the government's disclosure of its confidential trade secrets—including its trademarked drugs' dissolution rates—to competitors seeking U.S. Food and Drug Administration (FDA) approval of generic drug alternatives was an unlawful regulatory taking that diminished the value of Vanda's brand name drugs and infringed upon Vanda's right to exclude generics from the market. The government moved to dismiss Vanda's claims for lack of subject matter jurisdiction and for failure to state a claim. The COFC denied the government's motion in part, holding as a matter of first impression that Vanda adequately stated a takings claim based on the government's disclosures but failed to state a claim for breach of an implied-in-fact contract. The COFC also held that Vanda's claims involving one generic drug manufacturer were outside the Tucker Act's six-year statute of limitations and were time barred.

For those in the pharmaceuticals industry, this decision raises the interesting question of whether an innovator pharmaceutical company like Vanda can properly assert that parameters proposed by the FDA during the approval process for the innovator's New Drug Application (NDA) constitute the company's trade secrets. In confidential exchanges between the FDA and Vanda during the approval process for Vanda's NDAs for two drugs, Fanapt® and Hetlioz®, the FDA proposed that the drugs meet specific dissolution requirements and, in the case of Hetlioz®, impurity profiles and particle size requirements. To gain FDA approval for these drugs, Vanda adopted FDA's proposals. FDA subsequently required generic drug manufacturers' abbreviated new drug applications (ANDAs) to meet the same dissolution, impurity, and particle size requirements. Vanda alleged that, by imposing these requirements as a condition of approving the ANDAs, the FDA improperly disclosed Vanda's confidential trade secret information to competitors.

The COFC denied the government's motion to dismiss Vanda's claim that the government committed an unconstitutional taking by disclosing Vanda's trade secrets but also shared doubts about its merits. The COFC found that Vanda's claim satisfied the minimal threshold requirement that a takings claim must involve an action falling within the FDA's "statutorily authorized duties." However, the COFC expressed concern about whether proposals made by the FDA to Vanda could form the basis of a proprietary interest belonging to Vanda.

The COFC did dismiss Vanda's breach of contract claim, holding that any disclosure of Vanda's alleged trade secrets or confidential commercial information could not be a breach of an implied-in-fact contract because it was at best an alleged failure to abide by legal confidentiality requirements imposed by statute and regulation—an implied-in-law contract claim outside the COFC's jurisdiction.

The COFC also dismissed all of Vanda's claims related to one of the generic drug manufacturers, finding that the claims were time-barred under the Tucker Act's requirement that all claims must be brought within six years after the claim first accrues. The COFC was not persuaded by Vanda's invocation of the accrual suspension rule (triggered when a plaintiff can demonstrate that the government concealed its acts and plaintiff was unaware of its claim, or the injury was "inherently unknowable" at the time the cause of action accrued) and dismissed these claims for lack of jurisdiction.

Key Takeaways:

Although Vanda's takings claim survived the government's initial motion to dismiss, the COFC expressed skepticism that information a company gleans during government interactions (like the FDA's NDA approval process) constitutes a proprietary trade secret. However, we remind companies that there are likely instances where the government may disclose a company's confidential, proprietary information—and in these cases, the company may have a viable takings claim.

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