UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
January 26, 2007
ALLIANCE SECURITY PRODUCTS, INC., ET AL., PLAINTIFFS,
FLEMING COMPANY, DEFENDANT.
The opinion of the court was delivered by: Lewis A. Kaplan, District Judge
Plaintiffs Alliance Security Products, Inc. ("ASP") and Alliance Security International, LLC ("ASI") allege that defendant Fleming and Company, Pharmaceuticals ("Fleming"), misappropriated their idea to manufacture and market a potassium iodide liquid solution to prevent thyroid cancer in children exposed to radiation. Plaintiffs seek to enjoin Fleming from selling a product called ThyroShield, which they claim is their product marketed according to their unique business plan. Fleming moves for summary judgment dismissing the complaint. Plaintiffs move for a preliminary injunction.
I. Rule 56.1 Statements
A preliminary matter must be addressed before getting to the pertinent facts.
On a motion for summary judgment, the moving party bears the burden of demonstrating that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. In considering such a motion, all facts and inferences reasonably drawn therefrom are construed in favor of the nonmoving party.*fn1
In addition, Local Civil Rule 56.1 of this Court provides that a party moving for summary judgment must file a concise statement of material facts it claims are undisputed, with each statement of fact followed by a citation to admissible evidence. Each statement then is deemed undisputed for purposes of the summary judgment motion unless the nonmovant specifically denies it, citing to competent evidence.*fn2
Plaintiffs have failed properly to put many of defendant's statements of fact into dispute. First, they respond to several of defendant's statements without references to admissible evidence.*fn3 Statements responded to in this way are deemed undisputed for purposes of this motion.*fn4
Second, plaintiffs respond to a number of defendant's statements by stating that they "lack knowledge or information sufficient to form a belief as to whether" the statements are true.*fn5 Such responses are insufficient to put a statement of fact into dispute. Statements responded to in this way are deemed undisputed as well.*fn6
Finally, plaintiffs respond to many of defendant's statements by making legal arguments. For example, in paragraph 14, plaintiffs concede that it has been common knowledge for decades that ingesting potassium iodide is a safe way of aiding the prevention of thyroid cancer, but go on to "dispute any implication that this fact renders Alliance's confidential information and novel idea 'common knowledge.'"*fn7 Such legal arguments, which are plentiful in plaintiff's counter-statement, belong in briefs, not Rule 56.1 statements, and so are disregarded in determining whether there are genuine issues of material fact.*fn8
II. Undisputed Facts
In light of the foregoing, the following facts are undisputed for purposes of this motion unless otherwise noted.
A. Potassium Iodide
It has been well known, at least since the late 1970s, that ingesting potassium idodide ("KI") is a safe and effective way to block the uptake of radioactive iodine by the thryroid gland. It therefore aids in preventing the development of thyroid cancer in those exposed to radiation.*fn9
1. PIMA Defendant develops, manufactures, and sells ethical pharmaceutical and over-the-counter products.*fn10 Beginning in 1968, it manufactured a raspberry flavored syrup called PIMA,*fn11 which originally was marketed as a cough expectorant,*fn12 but was known to have additional valuable properties because it contained KI.*fn13
In 1986, Fleming supplied PIMA to the victims of the Chernobyl disaster to be used as a thyroid protectant.*fn14 In 1998, Fleming contacted the Nuclear Regulatory Commission ("NRC"), which had recommended creating national stockpiles of KI to improve government preparedness for nuclear disasters,*fn15 and asked to be considered as a provider of KI for these stockpiles.*fn16 At least as early as 1999, Fleming included in its PIMA product insert a paragraph indicating that the syrup could be used as a radiation protectant for the thyroid gland.*fn17
2. Public Awareness
Federal agencies have been advocating the stockpiling of KI products near nuclear power plants since the 1980s.*fn18 Public awareness of the potential need for KI grew after the September 11, 2001 terrorist attack. Numerous politicians and news commentators began discussing the possibility of terrorist attacks on U.S. nuclear facilities and the need to be prepared for the medical emergencies that could follow. Several commentators mentioned specifically the need to stockpile KI.*fn19
In late 2001, presumably in response to this heightened awareness, the FDA published a guidance document in which it outlined procedures for administering KI to children in the event of a radiation emergency. The document listed safe dose sizes for children of various ages and recommended dissolving solid tablets in liquid to ease ingestion, especially when administering KI to babies.*fn20
3. Fleming Contacts the NRC
In early 2002, Fleming offered again to provide the NRC with PIMA for government stockpiles of KI.*fn21 It was told, however, that the NRC had awarded a two-year contract for KI pills to a company called Anbex, in part because the NRC's "bid specs required that the manufacturer have FDA approval for their drug product,"*fn22 which Fleming lacked for PIMA. At that time, PIMA was available only by prescription and was not FDA-approved for use as a radiation protectant. Nor had it been sold with pediatric droppers or child-safe caps.*fn23
B. The Parties Meet
Plaintiffs sell safety and antiterrorism equipment. According to plaintiffs, while public awareness of the potential need for KI was growing, Steven Baker, co-owner and chief executive officer of both ASP and ASI, recognized that there was a market for a child-friendly KI solution that could be used in the event of a nuclear emergency. His research into existing manufacturers of KI products led him to Fleming.*fn24
1. The Nondisclosure Agreement
Baker approached Fleming in April 2003, and the parties met to discuss the possibility of marketing PIMA, or some similar solution, as a child-friendly KI liquid product to be used in the event of a radiological disaster.*fn25
The parties met to discuss this possibility in more depth in May 2003, at which time ASI and Fleming entered into a written nondisclosure agreement that prohibited the disclosure to third parties of any confidential information the parties would share.*fn26 The agreement expressly excluded protection for information that was (1) available to the public at the date of the disclosure, or thereafter became generally and conveniently available to the public through no breach of the agreement, (2) both known to the receiver prior to the time of disclosure, as evidenced by contemporaneous dated written records, and not acquired from the discloser, or (3) received by independent sources that had the right to disclose the information, without such information having been solicited or obtained by using confidential information protected by the agreement.*fn27
2. The Slide Show
The parties met again on July 18, 2003. Baker made a slide presentation revealing plaintiffs' product idea and business plan.*fn28 According to the complaint, the "new" product concept was a liquid KI solution in a palatable base sold with graduated pediatric droppers and child-safe caps. The product would be approved by the FDA for over-the-counter sales and used in emergency response to nuclear disasters.*fn29
The business plan consisted of information about the risks of terrorist attacks on nuclear power plants in the United States, the superiority of the "new" product concept over existing KI products, and strategies for obtaining FDA approval, marketing and distributing the product, and raising public awareness about the need for KI.*fn30
3. The Negotiations
The parties began negotiating an arrangement whereby Fleming would manufacture a KI product for plaintiffs, who would purchase and market the product.*fn31 Negotiations soured, however, and Baker began discussions with another pharmaceutical company, Taro Pharmaceutical Industries, Ltd. ("Taro").*fn32
C. Development of ThyroShield
1. Orphan Drug Status
The Orphan Drug Act ("ODA"),*fn33 provides incentives to develop and market drugs for rare diseases, or "orphan drugs." A "rare disease" is one that either affects fewer than 200,000 people in the United States, or "for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for such disease or condition will be recovered from sales in the United States of such drug."*fn34 Once the FDA approves a drug designated as an orphan drug, it may not approve another drug for treatment of the same disease for a period of seven years.*fn35
On June 8, 2004, after the NRC-Anbex contract expired, Fleming applied to the Office of Orphan Products Development for orphan drug designation of its KI product for use as a pediatric thyroid protectant in the event of a radiation emergency. The application was granted on November 17, 2004.*fn36
When they learned about Fleming's application for orphan drug status, plaintiffs and Taro stopped negotiations. According to plaintiffs, this was because orphan drug status would prevent manufacturers other than Fleming from entering the U.S. market for oral KI solutions.*fn37
2. FDA Approval
Fleming filed on July 23, 2004 for FDA approval of a liquid KI solution, which it originally named Famli-GUARD, for use as a thyroid blocking agent in nuclear emergencies.*fn38
Fleming then changed the name of its product to ThyroShield in order to make it more consistent with previously approved KI product names.*fn39 On January 12, 2005, the FDA approved Fleming's product,*fn40 which was the PIMA formula, packaged in the same bottle size that Fleming had been using for many years, without a child-safe cap.*fn41
3. Government Contract
On March 18, 2005, the Department of Health and Human Services ("HHS") awarded a $5.7 million contract to Fleming for the manufacture and delivery of 1.7 million bottles of ThyroShield. The contract did not require the bottles to have child-safe caps and permitted the government to place additional orders at later dates.*fn42
In late 2005, HHS asked Fleming to retrofit the 1.7 million bottles with child-safe caps and to include this feature in future orders as well. Fleming agreed to incorporate the caps and the government ordered an additional 3.1 million bottles.*fn43
III. This Action
The thrust of the complaint is that Baker revealed confidential business strategies that Fleming misappropriated to create and market ThyroShield. The complaint sounds in misappropriation of ideas, unfair competition, accounting, conversion, unjust enrichment, and misappropriation of trade secrets. It alleges also breach of the written nondisclosure agreement.
Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.*fn44 Where the burden of proof at trial would fall on the nonmoving party, it ordinarily is sufficient for the movant to point to a lack of evidence to go to the trier of fact on an essential element of the nonmovant's claim.*fn45 In that event, the nonmoving party must come forward with admissible evidence sufficient to raise a genuine issue of fact for trial in order to avoid summary judgment.*fn46
Under New York law, "lack of novelty in an idea is fatal to any cause of action for its unauthorized use."*fn47 Moreover, the nondisclosure agreement in this case expressly excluded protection for information already publicly available or known to the recipient. The issue of novelty therefore is central to this case.
To establish novelty, a plaintiff's idea need not reflect a flash of genius, but must show genuine invention and not merely a clever or useful adaptation of existing knowledge.*fn48 An idea that combines several known ideas may be novel, but it is not novel if it "consists of nothing more than a variation on a basic theme."*fn49 That is, there is a distinction between "novelty of an idea," which is protectible, and "novelty of its execution," which is not.*fn50 The latter is "only the judicious use of existing means, or the mixture of known ingredients in somewhat different [proportions]."*fn51 It is not protected because it "partake[s] more of the nature of elaboration and renovation than innovation."*fn52
Fleming argues that plaintiffs' claims fail because each element of their proposed product and marketing ideas was not novel.
II. Product Concept
The alleged "new" product concept was (1) a liquid KI solution (2) in a palatable base (3) with a graduated pediatric dropper and child-safe cap, (4) to be approved by the FDA for over-the-counter sale and use in emergency response to nuclear disasters.
A. Liquid Solution with Palatable Base
The idea of a palatable KI liquid product had been well known to Fleming for decades. It had manufactured and sold PIMA, a KI liquid product with a raspberry flavor, since 1968.
B. Child-safe Caps and Graduated Droppers
The idea to use child-safe caps and graduated droppers was not novel either. It is common practice in the pharmaceutical industry to sell products with these features.*fn53 Moreover, the proper dose of KI for children was public knowledge at least as early as 2001 when the FDA published its guidance document, which discussed the advantages of using KI in nuclear emergencies and recommended dosages.
C. FDA Approval and Emergency Use
Finally, Fleming knew that PIMA was effective for combating thyroid cancer. It supplied PIMA to victims of the Chernobyl disaster and included information about radiation treatment in its product inserts as early as 1999. Moreover, Fleming knew, as demonstrated by its correspondence with the NRC, that its product easily was administrable to children, that KI might be stockpiled around nuclear power plants, and that FDA approval was required at least to get a contract with the NRC to supply KI for government stockpiles.
III. Business Plan
Plaintiffs' allegedly novel business plan consisted of (1) information about the potential risk of a terrorist attack on a nuclear power plant in the United States, (2) the need to stockpile liquid KI for counteracting the effects of radiation, (3) the increased market due to the possibility of a terrorist attack, (4) the ease of administering liquid KI solutions, as opposed to solid pills, to children, (5) the need to obtain FDA approval for an over-the-counter liquid KI solution, (6) a strategy for obtaining such approval, (7) a strategy for marketing the liquid KI solution to governments, schools, drug stores, and child care centers, (8) a strategy for distributing the liquid KI product, and (9) a strategy for educating the public about the need for liquid KI.*fn54
A. Need for Liquid KI Products
Plaintiffs have failed to establish that the information Baker disclosed with respect to the first five elements was novel.
The information about nuclear power plants that plaintiffs disclosed at the slide show consisted of three publicly available maps showing the locations of power plants in the United States.*fn55
Second, the need to stockpile KI products near nuclear power plant sites already was known to Fleming, as demonstrated by its offers to the NRC in 1998 and 2002 to be considered as a supplier of KI for government stockpiles.
Third, the increased market due to rising concerns about terrorist attacks was public knowledge. After September 11, 2001, numerous politicians and news commentators called on the U.S. government to improve preparedness for nuclear disasters and stockpile KI.
Fourth, the FDA had announced publicly the superiority of liquid-form KI in its guidance document outlining procedures for administering KI to children. In that document the FDA specifically recommended dissolving KI pills in liquid.
And fifth, the need to obtain FDA approval, at least to get a contract with the NRC, already was known to Fleming from its 2002 correspondence with the NRC, in which it was told Anbex's KI product had been selected for government stockpiles because it had FDA approval.
B. Marketing Strategies
Plaintiffs have failed to produce evidence showing that the remaining elements of their business plan, their marketing and regulatory strategies, were more intricate or original than the basic, common sense steps any seller would take to market a drug, or steps that already had been recommended publicly for the distribution of KI products.
The idea of providing governments, schools, drug stores, and child care centers with KI products was touted publicly after the events of September 11, 2001. It was not novel.
The evidence shows that plaintiffs' strategy for obtaining FDA approval involved only calling the FDA and asking it for guidance about how to proceed,*fn56 that their distribution strategy consisted of gaining exclusive rights to a product and then distributing it to major drug stores like CVS,*fn57 and that their strategy for alerting the public was to "create awareness" and "contact key players."*fn58 These strategies are too obvious to be called novel.*fn59
Plaintiffs deny that their regulatory and marketing strategies were this simple, and assert that Baker revealed much more detailed plans during the slide show presentation.*fn60 They fail, however, to point to admissible evidence to support these assertions.*fn61
C. Additional Information
Plaintiffs contend that the slides alone do not reveal all of the information Baker disclosed. To support this, they offer Baker's preparatory notes for the July 18, 2003 slide show and his notes memorializing his meeting the night before with Ted Feller, a Fleming representative.*fn62
To the extent the notes are decipherable, nothing in them aids plaintiffs' case. The notes, along with Baker's deposition testimony, show only that Baker conducted extensive market research, interviewed customers, and confirmed that there was public desire for a child-friendly liquid KI product. While he revealed certain pieces of information to Fleming that may have been confidential, such as names of high-profile customers Baker interviewed, research methods, names of the members of Baker's research team, and one brand name Baker considered for his product,*fn63 the evidence does not show that Fleming relied in any way on this information in deciding to sell its existing KI product to the government, which it had been trying to do at least since 2002.
IV. Combination of Non-novel Ideas
Plaintiffs argue that even if the constituent elements of its product concept and business plan were not novel, the entire package, taken as whole, was original. This is demonstrated, they claim, by the fact no product like ThyroShield existed when the parties first met.
This argument is unconvincing. The need for KI liquid solution was well known in 2003. Fleming had been making just such a product for over thirty years and had labeled it as a radiation protectant at least since 1999. ThyroShield simply was PIMA in a new bottle and marketed with a different purpose. It was a not a novel product, but rather a useful adaptation of an existing one. In other words, it partook "more of the nature of elaboration and renovation than innovation."*fn64
This is not to say that Fleming necessarily received no benefit from meeting with plaintiffs. Perhaps it gained from learning that Baker's research confirmed the existence of a liquid KI market. And it likely benefitted from learning that other companies were moving to tap that market. This, however, does not create any issue for trial. Fleming was prohibited from misappropriating novel ideas, not from being spurred to develop a product it long had contemplated making.
Defendant's motion for summary judgment dismissing the complaint is granted. Plaintiffs' motion for a preliminary injunction is denied.