Genentech, Inc. v. JHL Biotech, Inc.

GENENTECH, INC., Plaintiff, v. JHL BIOTECH, INC., et al., Defendants.

No. C 18-06582 WHA

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

March 1, 2019

OMNIBUS ORDER ON MOTIONS TO DISMISS, MOTION FOR PROVISIONAL RELIEF, AND MOTIONS TO STAY

INTRODUCTION

In this action for trade secret misappropriation, computer fraud, and various state law claims, defendants move to dismiss and for a stay and plaintiff moves for provisional relief. For the reasons stated below, all motions are GRANTED IN PART and DENIED IN PART.

STATEMENT

This action centers on medicines called "biologics" — typically large-molecule, protein-based drugs produced by living cells and recombinant DNA technology. For the past several decades, California-based plaintiff Genentech, Inc. has sold (and continues to sell) various biologics used to treat diseases such as cancer and cystic fibrosis. Four of these — which include one of the top-selling drugs in the United States — lie at the heart of this action: Rituxan, Herceptin, Avastin, and Pulmozyme (Compl. ¶¶ 81-82, 84).¹

With many blockbuster biologics (including the four at issue here) facing a patent cliff and encouragement from regulators in the form of abbreviated approval pathways and other initiatives, competitors today increasingly seek to enter the market with "generic" versions of biologics called "biosimilars." Biological drug development, however, is a challenging pursuit in terms of time and resources. That is because biologics demand a complex manufacturing process based on biological processes — including genetically engineering a cell to produce a target protein, testing for quality, harvesting, purifying, and stabilizing the protein (id. ¶¶ 85-86; Eberhart Decl., Exh. 1 at 2).²

Unlike generic versions of small-molecule chemical drugs, which are relatively simple and well-defined, a biosimilar can never be an exact copy of the brand biologic ("reference product") because of the complexity of the manufacturing process and the drug itself. So to gain regulatory approval, biosimilar manufacturers must demonstrate that their product is "highly similar" to the reference product in terms of quality, safety, and efficacy through a series of tests. This can be a headache for competitors who must laboriously reverse engineer the innovator's manufacturing process. Due to the sensitive nature of the manufacturing process, even a minute change in the process can carry a downstream effect on the end product's characteristics. Biological drug manufacturers must also pass on-site inspections by regulatory authorities who monitor the manufacturers' facilities and equipment according to the standards set forth by "Good Manufacturing Practices" ("GMP"), which are designed to ensure that the drugs are consistently produced with the requisite quality, safety, and effectiveness (Compl. ¶¶ 17, 19-20, 88, 90).

Defendant JHL Biotech, Inc. is one such competitor seeking to enter the biosimilar market. A Taiwanese biotechnology startup founded in December 2012 by defendants (and former Genentech employees) Rose Lin and Racho Jordanov, JHL has set its sights on Genentech's Rituxan, Herceptin, Avastin, and Pulmozyme biologics. JHL is currently targeting the Chinese and European market and has already made great strides in its biosimilardevelopment. For example, it is currently the only manufacturer to hold clinical trials for a Pulmozyme biosimilar — thus positioning JHL to potentially be the first to launch a biosimilar of Pulmozyme. JHL's other three biosimilars are also marching through important regulatory milestones. The company went public in Taiwan. And, JHL has partnered with French pharmaceutical company Sanofi S.A. to produce and market the Rituxan biosimilar in a deal worth up to $236 million (id. ¶¶ 32-33, 44, 46, 187, 191).

In October 2016, Genentech received an anonymous tip that defendant Xanthe Lam — then a principal scientist at Genentech and employee for thirty years — was consulting for another competitor in violation of the Roche U.S. Pharma Code of Conduct governing employees.³ Genentech's subsequent internal investigation (and a parallel FBI investigation) unearthed Xanthe's secret involvement with JHL's biosimilar development efforts. In October 2017, Genentech terminated Xanthe for gross misconduct in connection with the allegations in the instant action. The investigations revealed the following facts, many of which have already been confirmed by certain defendants during voluntary interviews with Genentech's outside counsel (id. ¶¶ 36, 39, 48, 51, 95, 101).

In mid-2013, JHL hired Xanthe's husband defendant Allen Lam (also a former Genentech employee) to consult on its biosimilar development efforts. Starting in May 2013, Xanthe began secretly downloading confidential Genentech documents such as R&D technical reports, stabilities studies, degradation studies, validation reports, and testing protocols concerning the four biologics at issue — documents which she later admitted contained proprietary information that she otherwise would have never shared with a competitor. She saved these documents, which were marked as "confidential," onto her Genentech-issued laptop in a folder labeled "JHL," which in turn contained subfolders labeled "Avastin_JHL," "Herceptin_JHL," "Pulmozyme_JHL," and "Rituxan_JHL." Each subfolder contained Genentech documents alongside JHL documents related to JHL's biosimilar development efforts (id. ¶¶ 127, 129, 131, 172, 254).

In June 2013, Xanthe's husband Allen traveled to Taiwan for six weeks to help JHL's development of analytical assays for the Rituxan biosimilar, with Xanthe assisting in the background. He continued to consult for JHL through the fall of 2015 and for several months in 2017. Allen was "deeply involved in" the development of JHL's biosimilars. He received 20,000 JHL stock options in 2013, is listed as a pre-IPO investor in JHL, and received an estimated $10,000 per month salary from JHL (id. ¶¶ 22, 53-55, 138-40).

In October 2013, Xanthe began directly working for JHL, unbeknownst to Genentech, who was still her employer. In December 2013, she too traveled to Taiwan for four weeks (with her Genentech-issued laptop in tow) to help JHL with its Rituxan biosimilar formulation strategy, all the while telling her Genentech coworkers that she was taking a vacation. While in Taiwan, Xanthe worked closely with Jordanov and Lin on formulation strategy and analytical development efforts for JHL's biosimilars (Compl. ¶¶ 146, 156-57).

In 2014, Xanthe helped the son of a family friend, defendant John Chan, land a job at JHL. This was his first job upon earning his Ph.D. At JHL, he became project leader for the Pulmozyme biosimilar development. Xanthe "coached" him and supervised his work by holding regular Skype meetings with Chan. In 2017, Chan left JHL for another biopharmaceutical company (id. ¶¶ 67-70, 254).

Xanthe continued to transmit confidential Genentech documents to JHL, usually through her husband Allen, while still serving as a principal scientist at Genentech. For example, in September 2014, she sent Allen a confidential technical report for Chan's use, noting to Allen that he should give Chan only a hard copy of the document and should tell Chan not to show it to others. She also continued to work on various JHL documents, using information from confidential Genentech documents to "edit and improve" JHL's protocols (id. ¶¶ 25, 31, 126).

In the summer of 2017, JHL hired defendant James Quach, another former Genentech employee, at Xanthe's recommendation. His work focused on managing JHL's manufacturing facility in China. On at least three occasions that summer shortly before leaving for his new job in China, Quach visited Xanthe's home, where she allowed Quach to use her Genentech log-in credentials to access and download onto a personal USB drive hundreds of confidentialGenentech documents related to manufacturing policies and protocols. And, once in China, Quach again requested and received additional confidential Genentech documents from Xanthe (id. ¶¶ 40, 57-58, 256).

Genentech "promptly" notified the United States Attorney's Office of the Lams' conduct alleged herein, and the FBI launched its own investigation thereafter. Supposedly at the government's request, Genentech refrained from filing the instant suit or otherwise interfering with the government's investigation and instead "closely tracked" Xanthe's activities. In September 2017, the FBI executed a search warrant of the Lams' home. Thirteen months later, on October 29, 2018, the indictment against Xanthe Lam, Allen Lam, James Quach, and John Chan was unsealed. Later that same day, Genentech filed the instant civil action against JHL, Racho Jordanov (CEO of JHL), Rose Lin (General Manager of JHL), Xanthe Lam, Allen Lam, James Quach, and John Chan, asserting claims of federal and state trade secret misappropriation, conspiracy to misappropriate trade secrets, violation of the Computer Fraud Abuse Act ("CFAA"), conspiracy to violate the CFAA, and various state law violations (id. ¶¶ 36-38, 247-48, 259-355).⁴

The claimed trade secrets generally relate to Genentech's (1) validated analytical methods to test and ensure the stability, potency, purity, identity, and quality of the four biologics; (2) information regarding the development and selection of a formulation for those four biologics and Tecentriq (another Genentech biologic); (3) the compilation of documents Xanthe collected regarding the four biologics; (4) manufacturing and operation protocols, including GMP-compliant procedures; and (5) the compilation of documents Quach downloaded regarding manufacturing and operation protocols (id. ¶ 177).⁵

Genentech alleges that defendants conspired to steal Genentech's trade secrets related to the four biologics at issue (Pulmozyme, Rituxan, Herceptin, and Avastin) in order to get an unlawful leg up in JHL's "race[] to complete clinical trials and establish...