VANDA Pharmaceuticals States A Fifth Amendment Claim Against The Government For Taking A Trade Secret

The legal battle between VANDA Pharmaceuticals, Inc. and the United States government provides guidance on the minimum requirements that the government must meet to protect trade secrets provided during the regulatory approval process for pharmaceuticals. The case, which involves alleged unlawful disclosure of trade secrets by government officials to generic drug competitors, presents several issues of first impression.

VANDA did not assert a trade secret misappropriation claim, but rather asserted a Fifth Amendment takings claim. (VANDA's breach of implied-in-fact contract claim was dismissed). At the core of the case are two of Vanda's brand-name drugs, Fanapt and Hetlioz. VANDA claimed that Food and Drug Administration (FDA) officials improperly shared the company's trade secret and confidential manufacturing information with generic competitors by disclosure through the review process for generic drug manufacturers' proposed competing products. VANDA alleges that the disclosure not only breached the FDA's duty of confidentiality with VANDA, but also resulted in considerable economic harm to the company and violated the statute preventing the unauthorized disclosure of trade secrets by federal government officials who "obtain that information in the course of their official duties." 18 USC § 1905.

On January 18, 2024, the court denied the government's motion to dismiss regarding the Fifth Amendment takings claim. The court stated that the FDA's review and approval of NDAs falls squarely within the scope of the federal agency's statutorily authorized duties. Furthermore, unlawful acts are not per se unauthorized for purposes of engaging in a Fifth Amendment takings analysis, and can still be imputed to the government. In other words, even if the government employees' acts eventually were found to be unlawful, the actions could still constitute unauthorized taking by the agency. The court declined to determine if this was a per se or regulatory taking at this stage.

The Court also left open the question of whether VANDA even had any trade secret or proprietary rights in the disclosed information. As the legal proceedings unfold, VANDA's confrontation with the U.S. government will impact how trade secrets are handled within the pharmaceutical industry's regulatory framework, and what remedies are available to future plaintiffs.

Originally published onFebruary 22, 2024

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