Trade Secrets Claimed by Prolacta to Steal Founders’ Company – Again
Trade Secrets Claimed by Prolacta to Steal Founders’ Company – Again
Elana Medo has dedicated many decades of her life to making mother’s milk available to premature babies. Now a questionable trade secret lawsuit threatens to destroy her life’s work and leave preterm infants without access to life-saving milk.
The cost of a Corporation Stealing from an Individual has been the loss of human lives — the very lives the individual is trying to save.
The Medo case highlights a growing problem in America: Corporate efforts to suppress competition by claiming they are protecting their “supposed” trade secrets have reached alarming heights.
Medo has been working with newborns and human milk since the mid-1980s. In 1999, Medo founded a company called Prolacta. Prolacta was the first company to develop a 100% human milk-based fortifier.
Per physician’s recommendation, a fortifier is added to a mother’s breast milk to increase the nutrition content. When Medo founded Prolacta, hospitals were using fortifiers made from cow’s milk. But many infants are allergic to cow’s milk, leaving hospitals and parents with dangerous and even fatal consequences.
For instance, preterm babies given fortifiers made from cow’s milk have a much higher risk of developing a fatal condition called necrotizing enterocolitis.
The cruel disease attacks a baby’s intestine, eating away at this organ with devasting results.
According to Amy Gates, a neonatal dietitian and board-certified pediatric nutrition specialist, “Human breast milk is a
“critical” and “life-saving intervention for premature infants.” Prolacta was a game-changer. By 2006, Medo had raised $ 23 million in venture capital. But Medo and her corporate backers had different visions for the company’s future.
Medo wanted to save babies’ lives. Her investors only wanted to make money. As a businesswoman, Medo knew they could do both. The corporation wanted more money — faster.
In 2007, venture capitalists took control of Prolacata’s board of directors and ousted Medo as CEO. In 2008, Medo resigned from her employment and transitioned to a new role as an independent consultant to the company. In February 2009, she formally ended any relationship with Prolacta.
Since 1999, Prolacta has had a monopoly or near-monopoly in the market of human milk fortifier.
The company’s prices and profits reflect a lack of any meaningful competition. At $ 175 an ounce or more, the cost to feed a single preterm infant Prolacta fortifier can easily top $ 15,000 a day.
Many hospitals cannot afford Prolacta, while others strictly ration the supply, limiting its use only to the smallest, sickest babies. The stingy insurance-rationing then puts other preterm babies at significant risk.
In 2009, after separating from Prolacta, Medo launched Medolac, a public benefit corporation.
Medo does not mince words about her motivations. “Hundreds of babies die each year from not having the ability to receive human milk. Profit must be secondary to the social impact of a company’s decisions.”
Between 2009 and 2015, Medo developed a new model for donor milk. Prolacta’s fortifiers are frozen and have a shelf life of two years frozen and 48 hours thawed. Medolac’s milk product is shelf-stable at room temperature for three years. That distinction alone can give Medolac a competitive advantage in the market through dramatically reduced shipping and storage costs.
The development of shelf-stable mother’s milk would also allow Medolac to pass along much of those savings to consumers and help stabilize more sick babies, and ultimately saves lives.
When Prolacta learned of Medolac’s competitive threat, they filed suit against Medo and her daughter Adrianne Weir in Orange County, California. Prolacta alleged that they had built Medolac using stolen trade secrets.
The Medo-case has been in litigation for the past five years. As with all corporate suits, they use the tactic of prolonged litigation to break down the efforts of smaller companies and individuals.
Prolacta’s central allegations are that Medo stole their customer data, research and development documents, and used Prolacta’s standard operating procedures. Medo denies stealing anything and contends that the information at issue is public or commonly known within the industry. Medo, herself, built Prolacta as a company and was taken over by her own board. She had the initial product, information, and know-how. It could be alleged that Prolacta stole her information in the first place.
What do the lawyers say? It depends on which side you are on. A lawyer makes more money with a corporation than they do with an individual. But, founders need to protect themselves right in the beginning.
Jonathan Pollard, a competition lawyer with extensive experience litigating trade secret cases, says this is part of America’s current “epidemic of frivolous trade secret litigation.” According to Pollard, “The new corporate America playbook involves squashing ordinary competition at any cost.
If a rival poses a competitive threat to your market share, you sue them for theft of trade secrets — no matter how weak the case.” Pollard explains that big companies with deep pockets use litigation as a weapon. Protracted litigation can cost millions.
Beyond the financial cost, there is also the intrusive discovery process through which the parties in a case obtain information and evidence form the other side. And corporations have more money to throw at the issue.
As is the case in many suits, in the Medo case — her company has been sued for theft of trade secrets. In an ironic twist, this ended up making her the victim of trade secret theft. As is often the case, the plaintiff used the discovery process to obtain exclusive intelligence on its rival. Pollard calls this the “chilling effect” in the market.
Clients, lenders, and other market actors are hesitant to do business with
someone who is being sued for theft of trade secrets.
Many of Pollard’s concerns seem to be playing out in the Prolacta litigation. After five years, four amended complaints, more than twenty depositions, many thousands of documents, and hundreds of thousands of dollars in legal fees, Medo and her company are fighting just to survive. Corporate America stealing an edge over a founder of a small company — for gain.
Medolac has developed a 48,000 square foot processing facility that claims it can provide for 100% of the domestic market— at a fraction of Prolacta’s cost.
The dream for these desperately sick infants can only happen if Medolac can ever make it through the current litigation.
As for the merits of the case, Pollard is not impressed by Prolacta’s allegations against Medo.
“Take customer information. This is one of the most commonly asserted trade secrets. But in the year 2020, it’s also one of the most absurd. In this case, it seems obvious that any hospital in the United States serving newborn babies is a potential customer. All you have to do is call the neonataldepartment.Courts have to catch up with reality and recognize that the emergence of resources like Google has fundamentally changed the landscape of competition. Just because something was a trade secret in 1995 doesn’t mean it’s a trade secret today.”
For now, all that Elana Medo and her daughter can do is plead their case to a jury. The case goes to trial this month.
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