A free market economy encourages and promotes competition in businesses for maximum benefits to reach the consumer. Competition, however, sometimes leads to bad business practices when one or more of the competitors would have to be reined in through legal ruling. A case in point is the legal tussle between Allergan Inc, the dominant market leader and Merz group, the aspiring challenger, in the field of cosmetic and therapeutic drugs.
The US District Court of the Central District of California has put an injunction against Merz group, a privately held company selling cosmetic and therapeutic products, from selling their Xeomin drug for 10 months. The ruling came after Allergan Inc., a publicly traded company and maker of Botox drug, filed a suit alleging misappropriation of their trade secrets by Merz.
Merz started selling Xeomin drug in USA in November last year (2011) and by December was able to achieve 8% of the market share of botulinum toxin. Xeomin is sold by their cosmetic unit for removal of skin wrinkle and by their therapeutic unit for treatment of “cervical dystonia ” an ailment of involuntary contraction of neck muscles. Xeomin is a competitor to the market leader and highly popular Botox of Allergan and sells at a lower price, though the unit dosages of two products are not 1:1.
Botox is the highest selling product of Allergan and the company have projected a sale of about US $ 1.75 to 1.8 billion in 2012. With their stock value also increasing this year (5% so far), this court ruling is seen to be a good victory for the company which will find it easier now to meet their sales targets and market expectations.
The company revenues have grown in the last two years on the back impressive Botox sales and their earning in the fourth quarter of last year grew about 6.3% due to increased sales of specialty pharmaceuticals even after making up higher research and development costs.
It is also reported that two recent court cases in Europe between these two companies went against Merz. The Hamburg Regional Court in Germany, ruled that Merz could not claim 1:1 proportion of dosages between their product Xeomin and Allergan’s Botox. In Spain, as per court ruling, Merz was found to be in violation of the country’s Pharmaceutical Code by referring to a conversion ratio without the important warning that the unit doses of different products (brands) “are not interchangeable”.
The court ruling, on the other hand, is seen as a set back for Merz which, after examining the full ruling in detail, will now have to plan out a road map to control the negative impact of sales stoppage, inconveniences caused to the physicians and customers and to try lifting the injunction sooner if possible. The company has stated that remediation process would start soon following a separate hearing and noted that “integrity, safety or quality” of the product remained unaffected.
Maintaining trade secrets are considered to be important and legitimate for running successful businesses and for vitality of national or state economic activities. A company can guard its trade secrets perpetually by taking special administrative, legal and technological measures to keep the information confidential and in doing so, can enjoy legal protection against unlawful actions by others to breach the secret.
The companies often subject their employees, business associates to confidentiality and non-disclosure clauses at the time of engagement, to prevent confidential information flow to the competitors. On the other hand, a competitor may have legitimate ways to try getting the confidential information by what is commonly known as “reverse engineering” or by poaching on employees not bound by confidentiality or like clauses.
In the present case, as per court filings by Allergan inc., some of their employees transferred confidential information including physician and customer related details and other sales information to their private email addresses before resigning and joining Merz. The fact that there were violations of confidentiality clauses by the employees who switched from Allergan to Merz appears to have been accepted by the court which ruled that “right of free competition does not include the right to use the confidential work product of others”.