How a premature ejaculation drug sparked a $150 million legal battle over trade secrets - Southern Business Review

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Saturday, March 23, 2019

How a premature ejaculation drug sparked a $150 million legal battle over trade secrets


Jeff Abraham tried to sell his sexual wellness start-up to household goods conglomerate Reckitt Benckiser for two years. But his dream ended one night in the fall of 2016 after a Pet Shop Boys concert in Las Vegas.


Abraham's company Absorption Pharmaceuticals had what he considered a lucrative product called Promescent, which treated premature ejaculation, or PE. As he left the concert and walked out onto the Las Vegas Strip, his date noticed an advertisement on a massive electronic billboard across the street. "She goes, 'Hey, look, I think that's your product,'" he recalls. "I turned around and looked."


The ad was not for Promescent. It was instead for a new PE treatment just like it called Duration. Duration was made by K-Y, a division of Reckitt Benckiser.

"I almost threw up," he says.


Abraham, 61, is now suing RB for $150 million, alleging fraud and theft of trade secrets. The lawsuit, filed in 2017, alleges that RB "intentionally misrepresented or concealed material facts from Absorption to induce Absorption to divulge its proprietary information."



The case illustrates the challenges faced by a scrappy startup in the world of consumer goods. Such lawsuits over trade secrets, which are broadly defined as confidential business information that may give companies an edge over competitors, have grown in popularity since Congress passed the Defend Trade Secrets Act of 2016. The law made it easier to sue in federal court by creating federal protections for trade secrets, and Abraham has filed suit both in federal court and under state law in Nevada, where Absorption is now based.


In 2017, the year after Congress passed the law, the number of trade secrets lawsuits jumped 30 percent to 1,134, according to legal data analytics firm Lex Machina.


RB markets brands such as Lysol, Air Wick and Durex and had previously expressed interest in Absorption because of Promescent. The product is an over-the-counter lidocaine spray treatment that is able to partially numb a man during sex, allowing him to last longer.


Abraham opened his books to RB during confidential negotiations, revealing sales information and market data and even gave the company 15 kilograms of Promescent — the equivalent of thousands of bottles — for "condom testing," the complaint says. Still, negotiations fizzled, and a deal never materialized.


Abraham claims RB told Absorption at one point that it planned to offer $20 million in cash and a 6 percent royalty on product sales to buy the company.


The complaint also claims UK-based RB, which has a market cap of roughly $60 billion and $16 billion in annual sales, used its large presence in the marketplace to illegally push Duration sales at the expense of Promescent.


RB declined to comment for this story, citing pending litigation, but in an early motion to dismiss, its lawyers argued "future promises cannot constitute fraudulent conduct." Abraham's charges of misappropriation of trade secrets and abusing its position in the marketplace "are insufficient to support a fraud claim," the motion says.


For Abraham, the attack on Promescent was a double whammy.


The creator of the product had been his good friend, urologist Dr. Ron Gilbert. Gilbert had been murdered in cold blood three years earlier.



On Jan. 28, 2013, Gilbert opened the door to the exam room for a new patient at his office in Newport Beach. Employees heard gunfire and called police. Officers arrived and found 75-year-old Stanwood Elkus, who handed over his weapon and was taken into custody without incident. Gilbert had been shot 10 times.



It was a case of mistaken identity. Elkus blamed Gilbert for a botched prostate surgery decades earlier that had actually been performed by another doctor. He's now serving life in prison without the possibility of parole.


Gilbert left behind a wife, Elizabeth, and two sons. Elizabeth Gilbert was in New York City the day of the murder. She was walking down Madison Avenue that afternoon. "All of a sudden — I can't explain — but all of a sudden I felt like my soul was leaving my body," she recalls. "I couldn't even walk. Literally, I had to make such effort to just take a step."


She soon learned her husband had been murdered at that moment, 3,000 miles away. They were married for 24 years.


She says her husband worked on Promescent for years because a number of his patients complained of PE and did not like current treatments.


In a video, Gilbert explained that what made his "delay spray" new and different was a formula that allowed lidocaine to be absorbed under a man's skin without desensitizing his partner. (The Promescent website boasts the product can close the "orgasm gap" by extending a man's performance "up to 64 percent longer.")


Abraham was Gilbert's patient, but they became friends after ending up sitting next to each other at a Lakers game with their sons. When Abraham went in for a checkup in 2011, Gilbert told him about Promescent. "I was like, 'Whoa!' I didn't realize [PE] was that big of an issue." The urologist wanted his advice on building a business around the product. Abraham asked for a sample.


That night, an especially successful date led him to become a believer. "It really does work," he said.


Abraham invested $100,000 into the company and came aboard as CEO. "Our goal was to get the company to have the sales range of probably $3 [million] to $5 million, so we could prove it wasn't just a theory," he said. He believed the market could be worth billions and extend beyond just men suffering from PE, as many men might just want to last longer.


The afternoon of his friend's murder, Abraham says the two of them exchanged text messages about Promescent's potential. Gilbert wrote, "Things are going well, and the future is really bright." Abraham replied, "'Fasten your seatbelts, the ride is just getting started.'"


Forty-three minutes later, Gilbert was dead.


Abraham relocated to Las Vegas, and he almost gave up on Absorption. But he decided to continue, hoping that enough good would come from Gilbert's invention to offset all the headlines about his murder.



"I thought, he's no longer a husband, he's no longer a friend, he's no longer a doctor, he's just some doctor shot by a crazy guy, that's his legacy," he said.


Abraham figured if he made the company a success, he could sell Absorption to a larger firm that could scale the product. The proceeds would help provide financially for Gilbert's family, who retains a "significant" stake in the company Gilbert co-founded, according to Abraham.



A year after Promescent started to gain attention from media coverage, RB entered the scene. "They reached out to us through an intermediary and said they were very interested in a possible acquisition," Abraham says.


RB had hired a consultant named Stephen De Pretre to look for potential products to add to its Durex brand. De Pretre—who now distributes Promescent outside the U.S. — found the product and figured he had a winner. "It was the only product in the 'delay spray' market in America that had a patent and that was doing research," he says. "Plus, the product actually worked."


De Pretre introduced Abraham to RB, and in June 2014, Abraham flew to New York to meet Volker Sydow, the head of RB's sexual wellness products division.


"It was one of those meetings that if you have a company for sale, you dream about," recalls Abraham. "At the end of that meeting, the first day, he literally shook my hand and pulled me close to him and said, 'We're going to get this done in 30 days.'" He claims Sydow decided to call the potential deal "Project Speedy."


RB had two concerns: Did the product work, and was there a market for it?


Abraham gave the company samples of Promescent. According to the complaint, four days later, Sydow sent an email in all caps, "THEY THINK IT IS FANTASTIC. IT REALLY WORKS."


To determine if there was a significant market, RB wanted Abraham to "open the kimono" of his company. He revealed sales figures, profit margins, and repeat buying patterns (a good sign that a product works is if the same people repeatedly buy it).


But "Project Speedy" didn't turn out to be so speedy. No deal was consummated in 30 days, as RB allegedly promised. Or even 90 days. "You're like, 'Wait a minute, something's not right,'" Abraham recalls thinking.


Abraham grew worried and started pressing RB's representatives about whether they were preparing to make a knockoff of Promescent. "I was assured that they weren't innovators," he says. "They bought products and blew them up." He says the company "informed him that an offer was sitting on [CEO Rakesh] Kapoor's desk and waiting for a signature."


An RB spokeswoman said that Sydow no longer works at the company and that his departure had nothing to do with the lawsuit. Sydow, whose LinkedIn profile says he left RB in late 2018, didn't respond to a request for comment from CNBC.



In September 2016, two years after RB and Abraham first made contact with each other, RB's Duration was launched. Soon Abraham would see the large ad on the electronic billboard for Duration in Las Vegas, which read, "Last Longer than a Las Vegas Marriage."


Strange things started happening.


Promescent was profiled on the daytime TV show "The Doctors" the same week Duration's launch was announced.


While a story promoting the segment on the show's website mentions Promescent, Abraham's product is never named during the episode. When cameras cut to a closeup of a Promescent bottle in the host's hand, the label is covered up, and as the host starts to name the product, the audio is cut.


"I mean, it was the craziest thing I've ever seen," says Abraham. "It made no sense."


CBS, which distributes the show, didn't respond to CNBC's request for comment.


More troubling problems arose.


"The day prior to [Duration] coming on the market, we got taken down on Amazon," Abraham says. "We were the No. 1 best-selling product in sexual wellness on Amazon, and we vanished."


Screen grabs show that Promescent was put behind an "adult curtain" on Amazon, while other similar products were not, including Duration.



This has happened repeatedly over the last two years, Abraham says, adding that each time Promescent is hidden behind an adult curtain, sales plummet. Abraham says it requires calls and emails to remove Promescent from behind the curtain so that it can compete on a level playing field.


Absorption claims in the lawsuit that RB used its influence with Amazon to interfere with Promescent's distribution. Absorption's lawyers note in a court filing in May 2018 that the head of vendor relations for Promescent's category is Rahul Battula. He came to Amazon in 2016 after working for three years in brand management for RB.


RB says in court filings that Battula was not involved in its negotiations with Absorption while he worked for the company and that in his LinkedIn profile "he does not identify himself as being responsible for the sexual wellness category at Amazon."


Amazon declined to comment for the story, citing ongoing litigation. A source close to Battula says the placement of third-party product listings on the site like Promescent has never been within his purview and that before Absorption's dispute with RB arose, he had never heard of Promescent.


Then there's Target. Abraham claims he had a commitment from the retailer to place four different sizes or versions of Promescent in 1,600 Target stores by October 2016. But before the launch of Duration, he suddenly got word that Target no longer wanted Promescent. Target eventually agreed to carry one trial size.


A Target spokeswoman declined to comment on allegations, saying that the retailer's relationships with vendors were confidential.


Target and Amazon are not named as defendants in Absorption's lawsuit. Only RB is. While RB won't comment on the litigation, its attorneys claim in court filings that Abraham has failed to establish that RB took any intentional acts to harm him with Target or Amazon. What's more, "plaintiff has failed to plead the existence of valid and existing contracts of which RB was aware" between Abraham and the retailers.



The heart of Abraham's case is the claim RB stole Absorption's marketing and sales data, its trade secrets.


Attorney Peter Toren, an expert in the field, says suing over trade secrets can be less expensive than obtaining a patent. (Even though Promescent has a patent, Abraham is not alleging it was violated).


Toren says one of the key challenges is proving the owner of the secret took "reasonable measures" to keep the information secret. Sometimes the information is inadvertently made public.


"Salespeople get excited," Toren says, explaining that often a "secret" might be revealed at a trade show, "or it was disclosed to other vendors or third parties without an NDA (non-disclosure agreement)."


If RB could prove Promescent revealed its proprietary information in such a way, it would be more difficult to prove it was a secret, he says.


Jef Pearlman, director of the intellectual property law clinic at University of Southern California Gould School of Law, finds the trade secrets argument the strongest part of Absorption's complaint. However, the accusations against RB of fraud and illegally using its position in the marketplace may be harder to prove. "There's a fine line between engaging in competition and engaging in anti-competitive behavior," he says.



There may not be a trial until next year. Absorption got permission from the court to depose Kapoor, RB's CEO, in London. RB's original motion to dismiss was denied, but another is expected as the case gets closer to trial.


Abraham vows to be in the fight for the long haul, even though he says it's taken a toll on his health.


He's done it before, and a jury believed him. In 1996, a headhunting firm Abraham had created landed an exclusive contract to find candidates for a new Hyundai Semiconductor America plant in Oregon.


Abraham began forwarding candidates for consideration. After a couple of months, he says he heard back from Hyundai to stop sending African-American and female candidates. Abraham says he went up the chain of command at Hyundai to explain that such discrimination was wrong and against the law.


"Next day they called up and fired us," he said.


He sued and won $14.7 million at trial. The award was later reduced in an out-of-court settlement and remains confidential. "This isn't my first rodeo," he said.


Abraham says Promescent finished 2018 with $3 million in sales. He remains optimistic he can grow revenues this year, despite Duration's presence in the market. He's shifted more business to wholesale, allowing the creation of private label sprays.


Abraham says Elizabeth Gilbert and the company's 20 investors have yet to share in Promescent's success, as he has spent millions on patents, building a company, manufacturing, and now fighting a lawsuit.


"During the time since Ron's murder, I twice had to loan the company $200,000, which I did interest-free, until we were back on stable ground," he says.


Still, Elizabeth Gilbert is fully supportive of the lawsuit. "For the big guys to beat up on the little guys, it's not right, and not just for our little company, but for any other company in the world."


As for her trust in Abraham, she says, "There are very few people left in this world that are like him. There's a reason why my husband attached himself to him. I think he keeps his word."