Triangle Business Journal: Serenex claims secrets pilfered

This article previously appeared in The Triangle Business Journal, July 20, 2007. It is reprinted with permission.

By Leo John: Triangle Business Journal

Biotech company Serenex Inc. has taken a former contract chemist to court, claiming he stole trade secrets and then funneled the information to an operative of the Chinese Communist Party.

Serenex, which is developing several promising cancer drugs, in June filed a lawsuit in Wake County Superior Court naming the former worker, Yunsheng Huang; a Chinese businessman, Tongxiang Zhang; and two Chinese companies as defendants in what it calls a case of “international industrial espionage.”

On June 14, the day after the court filing, a Serenex representative, armed with a court order and two deputy sheriffs in tow, showed up at Huang’s Apex home and copied the contents of his computer hard drive.

Serenex’s attorney, Jonathan Sasser of Ellis & Winters, says Huang was present at the time, but Sasser declined to say what was found on the hard drive.

Huang’s attorney, Walter Schmidlin of Anderson, Jones & Gengo, confirms the visit but says his client “didn’t steal anything” and denies wrongdoing. Serenex is asking that the court require return of trade secrets and award unspecified damages.

In its filing, Serenex claims Huang, a naturalized U.S. citizen, was engaged by the company in April 2005 and signed a confidentiality agreement at the time. He was hired to work for six months, but because of issues with Serenex’s fundraising, Huang and other contract chemists were terminated May 15 of that year.

Huang was re-engaged in April 2006, Serenex says in its filing, and was expected to work until Feb. 28 but was terminated on Feb. 13 after discovery of what Serenex calls Huang’s “misappropriation.”

Serenex, which in June garnered $31 million in financing, says Huang had “opportunities in the normal course of his work to discover some of Serenex’s trade secrets and other commercially sensitive, confidential, and/or proprietary non-public information.”

In February 2007, Serenex says, it became aware of a Chinese language international patent application filed with the World Intellectual Property Organization in Geneva, Switzerland, that listed several applicants, including Zhang.

That application mirrored a Chinese patent application by Zhang who Serenex describes as “a decorated member of the Chinese Communist Party” and others filed in June 2005, a month after Huang left Serenex following his first stint.

The international patent application “suggests that the chemical compounds claimed are useful in inhibiting the growth of cancerous tumor cells the same use for which Serenex” is at work.

Serenex says 83 of 97 compounds listed in Zhang’s patent applications include components of Serenex’s proprietary compounds.

“The odds that two firms would independently and contemporaneously develop even one such matching or related chemical compound much less eighty-three of them for the same purpose and depict that compound in the same orientation are inconceivably low,” Serenex’s lawsuit asserts.

Serenex links Huang’s work at the company to the international patent applications citing a page from Huang’s laboratory notebook that “appeared, essentially verbatim” in Zhang’s patent applications.

Huang’s lawyer, Schmidlin, says Serenex’s claims are “internally inconsistent.” He points to diagrams of chemical compounds that he claims show Zhang’s patent filings depict different compounds. “Similar is not identical,” he says.

Schmidlin says Serenex is exaggerating Huang’s friendship with Zhang, saying, “He’s met him once or twice. They don’t have any business relationship. They are not members of the same company.”

The two Chinese businesses named in the lawsuit, Beijing Gylongli Sci. & Tech. Co. Ltd. and GYLL Biomedtech Inc., are listed as having offices at the same address as Huang’s residence in Apex, according to the suit.

Todd Sullivan, a trade secrets attorney with Womble Carlyle Sandridge & Rice in Raleigh, says it’s unusual in cases such as this for an entity to seek patent protection based on allegedly stolen information.

“That is a very aggressive move and somewhat unique,” says Sullivan.

He says Serenex will have to prove its trade secrets were protected on a daily basis and that the information amounted to competitive knowledge whose loss could harm its interests.