Antitrust and Unfair Competition Law

Competition: Spring 2022, Vol 32, No. 1

AAM V. ROBERT BONTA: AN END TO CALIFORNIA PHARMACEUTICAL LEGISLATIVE REFORM?

Written by Seth Silber1 and Alexander Poonai2

In December 2021, California’s latest ambitious legislative effort to reform the healthcare industry ran into another hurdle. California Assembly Bill No. 824, "Preserving Access to Affordable Drugs" ("AB 824"),3 was introduced back in February 2019 to reduce drug costs to consumers by increasing scrutiny of so-called "reverse payment" or "pay-for-delay" agreements. These agreements are used to settle certain complex patent infringement lawsuits in federal district courts throughout the country. The bill’s supporters argue that reverse payment agreements harm consumers by protecting "weak" patents on expensive drugs. Opponents of the bill argue that AB 824 would unconstitutionally regulate business outside of California’s borders, that it is preempted by the federal patent and antitrust laws, and that it would have the opposite of its intended effect on drug prices.

Soon after the bill’s enactment, the Association for Accessible Medicines ("AAM") brought suit to block its enforcement.4 AAM is a trade association representing manufacturers and distributors of generic prescription drugs and others in the U.S. generic drug industry.5 After initially facing adverse decisions at both the district court and the Ninth Circuit, on remand, the Eastern District of California ruled in late 2021 that AB 824 was likely unconstitutional in Association for Accessible Medicines v. Bonta.6 After over two years of litigation since the bill’s passage in 2019, U.S. District Judge Troy Nunley granted AAM’s motion for a preliminary injunction preventing enforcement of the law, holding that the law likely violated the Dormant Commerce Clause of the U.S. Constitution.

AAM v. Bonta is the latest in a long line of decisions challenging the constitutionality of far-reaching California laws. In 2019, California successfully defended against a suit from out-of-state industry groups arguing that California’s Low Carbon Fuel Standard unconstitutionally regulated activity outside of California’s borders.7 The Ninth Circuit held that that regulation was not unconstitutional because it did not aim to control fuel-related transactions outside of California and was narrowly focused and expressly written to address carbon emissions within the State. In 2015, the Ninth Circuit held that a California law requiring a royalty payment following the sale of fine art was unconstitutional under the extraterritoriality

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