Drug company can sue FDA for posting trade secrets online

The U.S. Court of Appeals for the D.C. Circuit has reversed the district court’s dismissal of a drug company’s tort claims against the Food and Drug Administration (“FDA”), holding that the drug company could proceed against the FDA for violations of the company’s trade secrets which the FDA had posted on its website.

Jerome Stevens Pharmaceuticals (“JSP”) is a drug company that sought FDA approval of one of its drugs used to treat thyroid diseases. As required by the regulations governing new drug approval, JSP provided the FDA with various information about the drug, including trade secrets and confidential information relating to the manufacturing of the drug. The FDA accidentally posted these trade secrets on its website.

JSP was one of only two companies that met the FDA’s initial deadline for submitting New Drug Applications for drugs of this type. Before the deadline expired, however, the FDA extended the deadline by a year, allowing other drug companies to enter into the market.

JSP filed suit alleging, among other things, damages of approximately $1.3 billion as a result of the FDA’s posting of JSP’s trade secrets and for arbitrarily and capriciously extending the deadline for New Drug Applications. The FDA moved to dismiss, claiming that the Federal Tort Claims Act (“FTCA”) 28 U.S.C. §§ 2671-2680 barred the claims. The district court granted the motion, and JSP appealed. The appellate court reversed.

In general, the federal government is immune from tort lawsuits brought by individual citizens. Congress enacted the FTCA to waive that immunity to a certain extent. The FTCA “grants federal district courts jurisdiction over claims arising from certain torts committed by federal employees in the scope of their employment, and waives the government’s sovereign immunity from such claims.” This waiver of immunity, however, is subject to exceptions. For example, an individual cannot maintain an action against the government if the claim is based upon a government employee’s exercise of discretion.

The FDA had argued that JSP’s claims for damages were based on the extension of the deadline for other companies to submit new drug applications. In support of its motion to dismiss, the FDA had attached a damage calculation prepared by one of JSP’s experts in a prior administrative proceeding, which tied the alleged amount of damages to the entry into the market of other drug companies, not the disclosure of trade secrets. The FDA argued that because the extension of the deadline (the conduct alleged to have caused the damages) was an exercise of the FDA’s discretion, the FTCA barred JSP’s lawsuit.

The appellate court held, however, that the district court erred in determining that JSP’s claims were based only on the extension of the deadline. The issue before the district court was not whether JSP had established sufficient proof of damages caused by the disclosure, but whether it had sufficiently pled claims for such damages. The court held that JSP had indeed sufficiently pled such claims.

Jerome Stevens Pharmaceuticals v. FDA, —F.3d—, 2005 WL 783074 (D.C.Cir., April 8, 2005).