Naked Price and Pharmaceutical Trade Secret Overreach.

Author:Feldman, Robin
 
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Table of Contents Introduction I. The Problem: PBM Pricing and Trade Secrecy Assertions II. Expanding Assertions of Trade Secrecy and the Public Interest III. Trade Secrecy and Pricing Information: Civil Litigation, Regulatory Disclosure, and Prospects for Reform A. Pricing Information and Trade Secret Law: Case Law in Civil Litigation B. Case Law in Government Disclosure Cases under FOIA and the Trade Secrets Act C. Is Naked Price Really a Trade Secret? 1. Existing Arguments Against Pricing as Trade Secrets 2. Fine-Tuning the Critique IV. Naked Price and Stepping Back from the Brink V. Thin Trade Secret VI. A Theory of "Thin" Trade Secret Protection VII. Employing the Tools of Trade Secret Doctrine A. Rejecting Overly Conclusory Industry Submissions B. Requiring Particularized Identification of Asserted Trade Secrets C. Parsing Combination/Compilation Trade Secret Claims Conclusion Introduction

The rising cost of prescription drugs in the United States presents a critical challenge in modern public policy. As prices rise sharply across all medications--from new, life-saving treatments for Hepatitis C (1) and HIV (2) to ordinary medications for more common ailments such as heart disease and diabetes (3)--personal and public budgets are straining to absorb the impact. New cancer treatments coming online at the million-dollar-per-patient mark (4) only worsen the stress on the health care system. On the whole, these pricing trajectories threaten to roll back decades of improvement in access to health care for those at all income levels. (5)

The problem is receiving growing attention from lawmakers, regulators, and the media. (6) Absent from this flurry of attention, as well as from the bulk of the broader literature, is the role that certain intellectual property regimes are playing. (7)

Specifically, to shield pricing arrangements in the pharmaceutical supply chain from scrutiny by regulators alone as well as from public scrutiny resulting from some forms of regulatory transparency, companies have turned to bold claims that prices, in and of themselves, are trade secrets and thus immune from regulatory disclosure. This Article challenges that notion to promote pricing transparency for the ultimate benefit of consumers. To critique these industry claims on intellectual property grounds, we discuss the underdeveloped state of theory in trade secret law. Ultimately, we offer grounds for rejecting claims that "naked prices" in the pharmaceutical supply chain are trade secrets based on contemporary conceptions of trade secret--and we borrow from copyright law to advance a new concept of "thin" trade secret protection amenable to appropriate regulatory challenges.

That companies have turned to trade secret claims as a weapon against state regulators comes as no surprise. Trade secret law encompasses the rules governing business information that, to receive protection, must be nonpublic, of competitive value, guarded with reasonably security measures, and not readily ascertainable. By all accounts, trade secret law is an increasingly important area of intellectual property law. This is so not only in civil litigation and in espionage-related trade secret indictments, but also in a surprising number of areas outside the traditional litigation context including public infrastructure, medical device data, and access to technologies used by the prosecution in ordinary criminal cases. (8) As scholars have noted, trade secret has drifted from a quiet backwater doctrine to "the most pervasive form of intellectual property in the modern economy." (9) The rise of trade secret in modern jurisprudence has been driven by a multitude of factors. In 2016, President Obama signed the Defend Trade Secrets Act (the "Federal Act" or DTSA), a comprehensive law that, for the first time, provided a federal civil cause of action for trade secret misappropriation. (10) Even before passage of the Federal Act, companies increasingly looked for shelter under the wings of state trade secret laws as Supreme Court decisions limited the protections available under patent law. (11) More broadly, the rise in trade secret is fueled by the explosive growth in the technology sector--and in the everyday use and reliance in the workplace on scientific and technical information that is not public, but also may not be patented or copyrightable. (12)

At the same time, uncertainty about the nature of trade secret law makes it an inviting area to exploit. Trade secret law exists as both state law and federal law, and it also crops up in administrative disputes. In part because of this sprawl, legal theory in the trade secret arena does not always unfold in a coherent and consistent manner. (13)

But as corporate claims of trade secret rights grow, there is a gathering chorus of criticism regarding the effect of such claims on the public interest. (14) Just as trade secret law itself is not always uniform across jurisdictions and individual rulings, however, scholars and commentators do not always speak in the same voice when focusing on seemingly unrelated areas of trade secret disputes. To help bridge these gaps, we offer theories of trade secret law to critique secrecy assertions in the pharmaceutical pricing context, but that have wider and general application.

Part of the problem is mundane--those working in different areas of law have yet to compare notes about these emerging issues, and to seek common ground to approach related public policy problems. But the problem is one of theory as well in this still-underdeveloped area. Philosophical confusion over the nature of trade secret law-as a property theory, based on whether a defined item of information qualifies as intellectual property, or as a relational theory, based on looser notions that someone agreed to hold broad areas of "confidential information" in trust, with less attention to whether information meets criteria for protection--creates theoretical uncertainty. Choosing one starting point or the other can lead to substantially different, if inadvertent, real-world outcomes. In this Article, we explore historical reasons for this divergence. We also suggest that harmonizing the philosophical background of these debates and adopting a strong conception that trade secret rights must be established as specific, discrete items of property will best promote the public interest within the parameters of these now-dominant statutory definitions of trade secret rights. This move is not simply one of abstract theory, but one that would also change the manner in which these courtroom disputes have been litigated, and thus have a lasting and immediate impact on regulatory outcomes.

We focus on industry assertions of trade secrecy deployed to resist consumer-friendly efforts by regulatory bodies to require transparency in drug pricing as the vehicle for this analysis. Nowhere do the theoretical tensions of trade secret law appear in such stark relief as in the modern pharmaceutical debates. In these battles, one can see the confusion in modern trade secret law, along with the potential for trampling and distorting core theoretical concepts in this arena. And as always, the risk of distortion is great when an area of law is developing and expanding rapidly. If society fails to impose some measure of logic and order, a dangerous overreach of trade secret claims may be upon us.

We will refer to negotiated drug prices in the pharmaceutical context as "naked price" and will frame the issues at the heart of these debates in the following manner. First, are naked prices intellectual property? Second, if so, do they constitute sufficient intellectual property to create an immunity to public disclosure when the public interest is strong? In other words, if naked price is an appropriate form of intellectual property, is it a "thin" right?

The issues are playing out on a broad, national platform. Middle players in the drug distribution chain called Pharmacy Benefit Managers (PBMs) insist that their pricing arrangements with pharmaceutical manufacturers constitute "trade secrets." On the other side, state regulators seek disclosure of such information to expose industry structures that drive up pricing and harm the public, arguing that such arrangements should not receive trade secret protection. We discuss recent examples in Nevada, California, and Ohio, as well as the broader history of pricing in civil trade secret and Freedom of Information Act disputes. As we will demonstrate, it is not clear that courts, regulators, or legislatures have sufficiently focused on whether such pricing actually can be claimed as a trade secret, or whether such claims have firm support in the theoretical foundations of trade secret law.

That clash--and the theoretical question of whether pricing, at least in this context, is a proper subject for trade secrecy claims at all--is the primary focus of this Article. Indeed, this essay traces the emergence of naked price as a claimed trade secret. It suggests that such claims, at least in the context of PBM pharmaceutical pricing arrangements, are not well-grounded in the theory of trade secret law. Building upon the pioneering insights of earlier commentators, we offer a theory of why this type of pricing should not receive trade secret protection--or, if it does, why such protection should be thin and undeserving of immunity from regulation in the public interest. In summary, we propose the following:

* Industry claims that naked price constitutes a protectable trade secret in the PBM pharmaceutical context pose a threat to consumers, and more broadly reflect a worrying trend towards overreach in trade secret law;

* A property-centered theory of trade secret law poses the best approach for challenging such assertions;

* A new concept of "thin" trade secret rights, inspired by analogous concepts in copyright law, can be applied to naked price. Thus, even if PBM pricing...

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