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MERCKLE GMBH v. JOHNSON & JOHNSON

April 15, 1997

MERCKLE GmbH, Plaintiff,
v.
JOHNSON & JOHNSON, et al., Defendants.



The opinion of the court was delivered by: WOLIN

 WOLIN, District Judge

 Before the Court today is the motion brought by defendants Johnson & Johnson, Inc. ("J&J"), a New Jersey corporation, Johnson & Johnson International, a New Jersey corporation, Ortho Pharmaceutical Corp. ("Ortho"), a Delaware corporation, and R.W. Johnson Pharmaceutical Research Institute ("PRI"), an unincorporated division of Ortho (collectively, "defendants" or "Ortho") for summary judgment against plaintiff Merckle GmbH ("Merckle"), a German corporation. Merckle alleges that defendants misappropriated Merckle's trade secrets. Pursuant to Federal Rule of Civil Procedure 78, the Court decides this motion based on the written submissions of the parties. For the reasons expressed below, the Court finds that this case involves genuine issues of material fact that must be resolved at trial; the Court, therefore, will deny defendants' motion for summary judgment.

 I. BACKGROUND

 A. The Product, Parties and Patents

 This case centers on the respective information used by Ortho and Merckle to manufacture a laboratory version of erythropoietin ("EPO"), a protein that is naturally produced by the healthy human body. EPO functions as a hormone that stimulates the formation of red blood cells. As with all proteins, EPO is constructed of amino acids that are strung together in a defined sequence based upon coding instructions found in the body's deoxyribonucleic acid ("DNA"). This string of amino acids forms the backbone of the protein to which carbohydrates and sialic acid attach through a process sometimes referred to as glycosylation. The pattern of substances that attach to the amino acids is important in determining how effective the EPO is in causing the body to make red blood cells. See Defs.' Statement of Undisputed Facts ("DSUF") PP A.3-A.5.

 While human EPO is produced naturally in healthy humans, it also can be manufactured by splicing the DNA's EPO code sequence into a host cell's DNA. This genetically engineered EPO is known as recombinant human EPO, or "rHuEPO." Medicinal products containing rHuEPO may be used to treat anemia related to chronic renal failure, infections, immune deficiencies, and other ailments.

 The commercial manufacturing of rHuEPO occurs from the use of Chinese hamster ovary ("CHO") host cells, which J&J and its licensor Amgen, Inc. ("Amgen") use, or baby hamster kidney ("BHK") host cells, which Merckle's licensor Elanex Pharmaceuticals, Inc. ("Elanex") uses. See id. PP A.6-A.7.

 Once the genetic engineering process is completed (i.e., the string of amino acids is established and the glycosylation process occurs), the rHuEPO produced by the host cell is purified and formulated for human use. To formulate a medicinal product from the purified bulk rHuEPO, it generally must be mixed with other items, "excipients," which perform various functions to make the product usable in humans. See id. P A.11. The rHuEPO and the particular formulation through which it is prepared for human administration determine the biological activity of the medicinal product (e.g., its potency (number of red blood cells created per unit of the product), the speed with which it acts and is cleared from the body, and its side effects).

 The full processes by which Merckle's rHuEPO is made cannot be discerned from the final product. See id. P A.12. Those processes can only be ascertained and measured by extended in vivo and clinical studies. See id. Ortho avers that "any comparison between Merckle's and Ortho's rHuEPO would require a head-to-head clinical trial, which has never been completed." Defs.' Br. in Support of Motion for Summary Judgment ("Defs.' Br.") at 5; DSUF P F.3.

 Both Ortho and Merckle claim the right to manufacture and sell rHuEPO pursuant to licenses granted to them by Amgen and Elanex, respectively. Amgen and a related venture, Kirin-Amgen (collectively, "Amgen"), hold international rights to a series of EPO patents issued to Fu-Kuen Lin (the "Lin Patents"). *fn1" See DSUF P B.1. The principal Lin Patent identifies the amino acid sequence of human EPO. *fn2" See id. In the United States, both Amgen and Ortho sell rHuEPO manufactured by Amgen. Outside the United States, Ortho separately manufactures and sells rHuEPO. See id. PP C.1-C.4. Through its affiliates, Ortho sells rHuEPO in Germany under the principal brand name Eprex. *fn3" See id. P C.2.

 Elanex, Merckle's licensor, acquired the rights to a European patent issued in the name of J. Powell and assigned to the University of Washington (the "Powell Patent"). See Pl.'s Br. in Opposition to Motion for Summary Judgment ("Pl.'s Br.") at 5. The license obtained by Elanex from the University of Washington relates to BHK host cells. See id. Merckle obtained a license from Elanex to use its bulk EPO and to develop and distribute a BHK cells-based rHuEPO in Germany, Switzerland and Austria. See id. at 6. The license agreement required Merckle to obtain bulk EPO from Opregen GmbH ("Opregen"), a German company designated by Elanex. See id. Merckle did not obtain any rights to Elanex's cell line -- the amino acid "backbone" technology underlying the bulk EPO -- nor does Merckle have specific knowledge of the technology used to prepare Elanex's BHK host cells. See DSUF PP C.10-C.18 (citing various written submissions of Merckle in Amgen, Inc. v. Elanex Pharmaceuticals, Inc., 160 F.R.D. 134, No. C93-1483 (W.D. Wa. 1993) ("Amgen v. Elanex "), a prior patent infringement litigation between Amgen and Elanex in which Merckle was sued for contributory infringement, but from which Merckle won dismissal). *fn4" Merckle, however, was involved in Germany in the work of Opregen and contends that it had its own plans regarding the development of pharmaceutical EPO, presumably with respect to the glycosylation process and the formulation of the rHuEPO, which did not require knowledge of the underlying host cells. See PSUF PP C.13-C.14. Merckle asserts it expended great resources in its attempts to develop the bulk EPO obtained from Opregen so as to obtain registration of a BHK cells-based rHuEPO. See Pl.'s Br. at 6-7. At about the same time as Merckle was finally ready to begin clinical studies, the European Lin Patent was published. See id. at 7.

 B. The History of Litigation

 In 1990, Ortho learned that Merckle may have been conducting clinical trials involving rHuEPO. See DSUF P E.2; PSUF P E.2. In the United States, preclinical work and even clinical studies conducted in furtherance of registration are not acts of patent infringement. See 35 U.S.C. § 271(e)(1). German law, however, currently provides otherwise.

 On October 2, 1990, Robert Minier of the J&J patent law department wrote a memo to Peter Tattle, a J&J executive directly involved in rHuEPO patent litigation. See DSUF P E.3; Pl.'s Ex. 37 (copy of memo). *fn5" Minier's memo advised that "we are proceeding with preparing a 'cease and desist' letter to send to Merckle" and asked Tattle to develop evidence in the event Merckle failed to cease its activity. Pl.'s Ex. 37. Specifically, Minier requested: (1) documentation that Merckle was a licensee of Elanex; (2) further evidence of Merckle's activities and where in Germany they were taking place; (3) continuing surveillance to catch any filing by Merckle for registration to market rHuEPO, which "would be clear evidence of infringement;" and (4) a sample of Merckle's product so as to have the product independently analyzed. See id. (emphasis added).

 Minier's requests were passed along to J&J's German affiliates, and samples of Merckle's product were shipped to defendants in late October 1990. See DSUF PP E.6-E.13. That shipment was lost in transit and, as defendants assert, was never recovered. See id. P E.13. *fn6" On March 11, 1991, a sample of Merckle rHuEPO arrived at Ortho's PRI lab, a lab which analyzes pharmaceutical products believed to infringe Ortho patents. See id. P E.15-E.16; PSUF P E.16. The record does not disclose the source of the Merckle rHuEPO. After initial tests were performed on the Merckle sample, Ortho filed suit for patent infringement against Merckle on May 16, 1991, in Germany. See DSUF PP E.18-E.19; PSUF P E.18.

 In February 1992, PRI issued a report describing the Merckle rHuEPO as "indistinguishable" from and "equivalent to" the rHuEPO in HEMAX, the commercially available Elanex rHuEPO that PRI had previously analyzed. See Pl.'s Ex. 11 at 1; Pl.'s Ex. 83. On February 17, 1992, an Ortho executive distributed the PRI report to various foreign affiliates with a cover memo, which emphasized the equivalence of Merckle's rHuEPO and HEMAX and identified certain disadvantages of the Merckle/HEMAX rHuEPO when compared to Eprex, Ortho's rHuEPO. See Pl.'s Ex. 13. The cover memo, however, indicated that the formulations of the Merckle product and HEMAX differed. See id.; see also PSUF P E.22 (stating that the only similarity between HEMAX and Merckle EPO was that both derived from a BHK cell). The memo also advised: "Copies of this report are not to be shown or distributed to others outside the company, without written permission from PRI, though the findings are certainly available for you to use." See Pl.'s Ex. 13.

 Merckle contends that this memo evidences defendants' distribution of the PRI report for competitive purposes. See PSUF P E.20. Ortho, however, avers that there is no evidence that the PRI report was used for any commercial purpose: "Given the serious questions raised by the PRI report and [the cover memo] as to the quality of Merckle's product, there is no plausible basis for even surmising that J&J would have wanted to use the information to 'improve' its own successful product." Defs.' Br. at 17. Indeed, the defendants insist that they did not learn anything from the PRI report on the Merckle product that they did not already know from the prior analysis of HEMAX. See id. ; DSUF P E.28.

 On May 26, 1992, the German District Court ruled that Merckle's rHuEPO infringed the Lin Patent. *fn7" See DSUF P E.29.

 In September 1992, an injunction issued forbidding Merckle from making, using or selling rHuEPO in violation of the Lin Patent. See id. P E.30; Defs' Ex. 41 at 3. The injunction was later modified to allow Merckle to continue clinical trials that had begun before the injunction issued. See Pl.'s Ex. 74 at 2.

 On September 10, 1992, an Ortho executive distributed a memo to Ortho's German affiliates informing them of the injunction and requesting any evidence of continued manufacturing or selling of rHuEPO by Merckle. See Pl.'s Ex. 40. The memo advised that any evidence should be sent to Richard Grochala, Minier's successor at the J&J patent law department. See id.

 Around the same time as the injunction issued, Merckle appealed the German court's initial ruling of infringement. Ortho contends that, on appeal, Merckle argued that its rHuEPO, based on the Powell Patent, consisted of a different amino acid sequence (i.e., a different "backbone") than that of Ortho's rHuEPO, based on the Lin Patent. See DSUF P E.41 (citing Merckle's appeal briefs to the German appellate court). Merckle disputes this fact. See PSUF P E.41. Ortho contends that it believed Merckle was deceiving the appellate court.

 For this reason, Ortho sought to obtain additional samples of Merckle's rHuEPO to determine the validity of Merckle's claim. See Defs.' Br. at 19. In November 1992, Ortho's German patent counsel, Ulrich Stolberg, forwarded to Grochala a Merckle appeal brief with the following advice: "The non-infringement argument of Merckle will have to be studied rather carefully since it will of course be the subject of the further appeal proceedings. . . . If at all possible sufficient amounts of the Merckle EPO should be secured and sequenced in order to find out whether they are really using a different sequence." Defs.' Ex. 78 (emphasis added). *fn8" On at least one occasion thereafter, Grochala confirmed to an Ortho affiliate the need to acquire samples of Merckle's product. See Pl.'s Ex. 64 (letter from Grochala to Swiss affiliate).

 In response, Grochala received two shipments of rHuEPO totaling approximately 85 vials. See DSUF P E.46. As with the prior sample sent to PRI and protocol EPO-05, the source of the 85 vials is not disclosed in the record. Grochala sent all 85 vials to SRI International ("SRI"), an independent testing lab in California, for analysis. See id. P E.47. SRI issued a report on July 22, 1993, and Ortho submitted the SRI report to the German appellate court on August 11, 1993. See DSUF P E.49; Pl.'s Ex. 49 (copy of the SRI report). The SRI report concluded that "the amino acid sequence of Merckle EPO is identical to that of EPREX." Pl.'s Ex. 8 at ii. The report, however, did not discuss the glycosylation pattern. See id. ; PSUF P E.48. Nevertheless, Merckle's expert, Dr. Sytkowski, testifies to various oddities in the SRI report and generally postulates that the SRI analysis was conducted for competitive purposes. See PSUF P E.48; Sytkowski Decl. PP 16, 20-24.

 Ortho claims that in anticipation of Merckle attacks on SRI's methodology, Ortho commissioned SRI to conduct a second analysis, using the remaining supply of the 85 vials of the Merckle rHuEPO. See id. P E.51. SRI's supplemental report, issued on February 1, 1994, generally confirmed the prior report. See Pl.'s Ex. 9; Pl.'s Ex. 50 (copy of the supplemental SRI report). Ortho submitted the supplemental report to the German appellate court.

 In the German appellate court, Merckle argued that the contents of the SRI reports and protocol EPO-05 were improperly obtained Merckle trade secrets and should be excluded from evidence. See DSUF P E.54. The German court refused to exclude the evidence, finding Merckle's arguments irrelevant. See id. P E.55; Hausdorf Decl. P 36. On April 28, 1994, the German appellate court found that Merckle's amino acid sequence was identical to that of Ortho's Eprex and upheld the infringement finding. *fn9" See DSUF P E.56.

 C. Secrecy of Merckle's Proprietary Information

 One of Ortho's arguments in support of its summary judgment motion is that no jury could find that Ortho misappropriated Merckle's alleged trade secrets because, as evidenced by the public disclosure of Merckle's purported trade secrets and Merckle's alleged failure to protect adequately the information at issue, the information does not constitute trade secrets. The following facts are relevant to a determination as to whether ...


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