- A Conversation With California Supreme Court Justice Martin J. Jenkins
- Big Stakes Antitrust Trial: In re National Collegiate Athletic Association Athletic Grant-in-aid Cap Antitrust Litigation
- Big Stakes Merger: Federal Trade Commission, Et Al. V. Thomas Jefferson University, Et Al.
- Combatting Covid Through . . . Consumer Protection? a Multi-jurisdictional Approach To Protecting Public Health Through Enforcement of Consumer Fraud Laws
- Executive Committee
- Message From the Chair
- Message From the Editor
- No-poach Agreements: Increasingly Risky
- Recent Developments In Antitrust and Unfair Competition Law
- Table of Contents
- Views From the Top: Managing Antitrust Practice In Changing Times
- Aam V. Robert Bonta: An End To California Pharmaceutical Legislative Reform?
AAM V. ROBERT BONTA: AN END TO CALIFORNIA PHARMACEUTICAL LEGISLATIVE REFORM?
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
doctrine because, unlike the carbon emissions case, this law could apply to isolated transactions outside of California.
California’s recent state-level efforts at broad reform come as new federal legislation slows to a trickle. In an increasingly divided Congress, federal legislative reform appears to have become prohibitively difficult. This trend has resulted in state legislators attempting to enact laws to meet their own policy goals. AAM v. Bonta provides further guidance for legislators and policy professionals as to the constitutional limits of state regulation, and could cause state legislatures to rethink their attempts to regulate national industries.
I. A REFRESHER ON REVERSE PAYMENT AGREEMENTS
In February 2019, Assemblymember Jim Wood (D-Santa Rosa) introduced AB 824 in partnership with then-Attorney General Xavier Becerra.8 In a joint press release, with Assemblymember Wood, Attorney General Becerra stated that the bill was "a crucial step in combating predatory pricing practices, like ‘pay-for-delay’ schemes."
A. WHAT ARE REVERSE PAYMENT AGREEMENTS?
"Reverse payment" or "pay-for-delay" agreements relate to patent litigation settlement agreements between pharmaceutical manufacturers. In a typical alleged reverse payment, a company that holds a patent sues a potential competitor to prevent the launch of a generic version of its drug. These suits arise under the federal patent laws, including the Hatch-Waxman Act. After litigation and negotiation, the parties reach a settlement in which the patent owner conveys some form of value to the generic company. In exchange, the potential generic competitor receives a license to launch its generic product at some point in the future, but before the plaintiffs’ relevant patent(s) expire. Courts have held that this "payment" can take the form of a cash payment, or the transfer of other valuable goods, services, or business arrangements. These are called "reverse" payments because, under these agreements, the plaintiff (i.e., the patent owner) pays the defendant (i.e., the alleged patent infringer) to settle the litigation, rather than the other way around.
Reverse payment agreements have been considered controversial. Assemblymember Wood argues that they harm consumers by delaying the introduction of affordable generic versions of existing brand-name drugs.9 Pharmaceutical industry professionals generally argue that reverse payment agreements can benefit patients by allowing generic companies to introduce low-cost alternatives before the end of a full twenty-year patent term.
B. HOW ARE REVERSE PAYMENT AGREEMENTS CURRENTLY REVIEWED?
Courts applied varying standards of review to reverse payment agreements until the Supreme Court’s 2013 decision in FTC v. Actavis.10 In that decision, the Court rejected the FTC’s argument that reverse payment settlements are presumptively unlawful, and instead applied a "rule of reason" analysis. Under the rule of reason, plaintiffs challenging a reverse payment bear the burden of showing that the reverse payment agreement has anticompetitive effects.11 The burden then shifts to the defendant pharmaceutical companies to show procompetitive justifications for the agreement. If they satisfy that standard, the burden then shifts back to the plaintiffs to show that the restraint at issue is unnecessary or that the defendant’s objectives could be achieved by less restrictive means. The Actavis Court stressed the need to examine the individual facts of a case to determine whether a settlement harms competition. It encouraged courts to look to the size of the payment, the expected costs of the patent litigation, whether the payment could be considered compensation for unrelated services the generic firm provides the patent holder, and other relevant business justifications.
Two years after Actavis, the Supreme Court of California also adopted a rule-of-reason test for alleged reverse payment settlements in In re Cipro.12 The court acknowledged the U.S. Supreme Court’s call for other courts to develop the framework by which to analyze reverse payments and crafted a "structured" test designed to be "in harmony with Actavis."13
II. HOW WOULD AB 824 CHANGE THE CURRENT STATE OF THE LAW?
AB 824 would make it easier for third parties to challenge reverse payment agreements under the antitrust laws by establishing a rebuttable presumption that the agreements "are anticompetitive and that they delay entry of the generic drug into the marketplace." Specifically, under AB 824:14
[A]n agreement resolving or settling, on a final or interim basis, a patent infringement claim, in connection with the sale of a pharmaceutical product, shall be presumed to have anticompetitive effects and shall be a violation of this section if both of the following apply:
(A) A [generic company] receives anything of value from another company asserting patent infringement, including, but not limited to, an exclusive license or a promise that the brand company will not launch an authorized generic version of its brand drug.
(B) The [generic company] agrees to limit or forego research, development, manufacturing, marketing, or sales of the [generic company]’s product for any period of time.
The bill departs from the burden-shifting rule-of-reason approach set forth by both the U.S. and California Supreme Courts, and instead places the burden of persuasion on the defendant pharmaceutical manufacturers from the outset. The parties to the alleged reverse payment agreement may rebut the presumption by demonstrating by a preponderance of evidence that:15
(A) The value received by the [generic company] . . . (1) is a fair and reasonable compensation solely for other goods or services that the nonreference drug filer has promised to provide.
(B) The agreement has directly generated procompetitive benefits and the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement.
AB 824 also authorizes the California Attorney General to bring a civil suit and recover penalties against "any party to an agreement that violates this section."16 In addition, the bill states that "[e]ach person that violates or assists in the violation of this section" is subject to civil penalties of "up to three times the value" either received by or given to the party "that is reasonably attributable to the violation of this section, or twenty million dollars ($20,000,000), whichever is greater."17
AB 824, titled "Preserving Access to Affordable Drugs," may have been inspired by the similarly named "Preserve Access to Affordable Generics and Biosimilars Act" bills, which have been introduced in the U.S. Senate and House of Representatives in recent years. Like AB 824, those bills have proposed adopting a presumption that reverse payment agreements are anticompetitive. Despite recent signs of movement in the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights under Senators Amy Klobuchar and Chuck Grassley,18 these bills have failed to progress further.
III. AAM’S MOTION(S) FOR PRELIMINARY INJUNCTION
Governor Gavin Newsom signed AB 824 into law on October 7, 2019. The following month, AAM brought its first challenge to the bill in a lawsuit accompanied by a motion for a preliminary injunction to prevent the bill from going into effect on January 1, 2020. That motion launched over two years of litigation, with no clear end in sight.
A. PRE-ENFORCEMENT CHALLENGE-AAM V. BECERRA (2019)
AAM filed its motion for a preliminary injunction on November 12, 2019. Just over one month later, on December 31, the Eastern District of California denied AAM’s motion as premature.19
In its opinion, the court briefly questioned AAM’s standing sua sponte. As AAM is a nonprofit, voluntary association representing generic and biosimilar manufacturers, it asserted representational standing on behalf of its members. The court found that AAM sufficiently alleged the elements of representational standing because AAM stated that its members are either currently defending against patent infringement claims or are developing generics and contemplating filing ANDAs.
1. AAM WAS NOT LIKELY TO SUCCEED ON THE MERITS
AAM alleged that AB 824 violated the Dormant Commerce Clause, was preempted by multiple federal laws, violated the Excessive Fines Clause of the Eighth Amendment, and violated the Due Process Clause. The court held that AAM failed to establish a likelihood of success in showing that AB 824 was unconstitutional under any of these theories.
First, the court held that AAM’s Dormant Commerce Clause challenge was not ripe for review. AAM argued that AB 824 violates the Dormant Commerce Clause per se because it would directly regulate out-of-state commerce, as it is not limited to agreements entered into in California or between California entities. The State replied that it could conceivably apply the law only to agreements "contained within" California. The court ruled against AAM because, although the State would likely violate the Dormant Commerce Clause if it were to apply AB 824 to agreements that were not negotiated, completed, or entered into in California, it had not yet done so as the law had not yet taken effect. As a result, AAM’s "as-applied" challenge to the law was not ripe. Further, the court reasoned that AAM had failed to show that AB 824 was likely to be enforced in an unconstitutional manner, that AAM’s members had a plan to violate the law, or that AAM’s members received any threats that the law would be enforced against them. Although AAM proffered declarations from its members to support its claims that they feared enforcement of the bill, none of the declarations presented a specific circumstance in which AB 824 would be applied to a member. Instead, the declarations made generalized statements about how AB 824 could hypothetically impact members’ businesses.
Second, the court rejected AAM’s preemption arguments. AAM argued that AB 824 conflicts with the objectives of the Hatch-Waxman Act, and that the federal patent and antitrust laws directly preempt it. The court found that this argument was not persuasive because AB 824 would not require determination of the validity of a patent or create patent-like protections. The court also held that it could not determine whether AB 824 would impact the goals of the Hatch-Waxman Act because AB 824 had not yet taken effect and because no other state had enacted any similar laws. As a result, the court found that it was impossible to know what the impact of the law would be. Citing Cipro, the court similarly explained that Actavis did not preempt state antitrust laws and did not prevent California law from imposing a presumption against reverse payments under its own antitrust statutes.
Third, the court addressed AAM’s argument that AB 824 would levy unconstitutionally excessive fines. Specifically, AAM argued that AB 824 could
be applied to impose a fine against any individual who assists in what is deemed to be a violation of the statute of up to three times the value received by that individual. AAM argued that that upper threshold is excessive in relation to any anticompetitive harms and that a minimum fine of $20 million is excessive as applied to individuals. Under Ninth Circuit case law, the court explained that it must determine whether a penalty is unconstitutional as "grossly disproportionate to the offense" by examining the nature and extent of the violation, whether the violation was related to other illegal activities, whether there are other penalties that may be imposed for the violation, and the extent of the harm caused. The court held that it could not determine whether the law met the standard of "gross disproportionality" at the pre-enforcement stage because the State had not yet imposed any penalties under AB 824. The court then explained that AAM’s challenge to the $20 million minimum fine was an as-applied challenge because it argued that the penalty was disproportionate only as to individuals, not as to companies. The court held that this argument was also unripe because AAM did not proffer evidence of any individuals intending to violate AB 824 or of any threats from the State to enforce the law against lower-level employees, including, for example, "a junior associate or legal secretary working at the law firm representing one of the settling parties."
Finally, AAM argued that AB 824 violated due process because it unfairly shifted the burden of persuasion to the defendant to prove procompetitive effects and because the defendants’ opportunity to rebut the presumption of anticompetitive effects was meaningless. They argued that, as a practical matter, defendants will be unable to prove that agreements have had procompetitive effects when challenged under the antitrust laws because those effects bear out over time. The court held that this argument was not likely to succeed because AAM did not cite to any authority holding that the burden of persuasion may never be shifted to the defendant. The court also stated that defendants have a meaningful opportunity to disprove liability without showing the procompetitive effects of the agreement by, for example, justifying the size of any payment. Furthermore, while AB 824’s presumption that the relevant market is limited to the branded drug and generic substitutes may be difficult to overcome, it is not insurmountable such that it deprives defendants of due process rights.
2. IRREPARABLE INJURY
AAM argued that its members would suffer irreparable injury because (1) violations of constitutional rights are per se irreparable; (2) members will be forced to either violate AB 824 or bear the financial burden of litigating every patent dispute to judgment; and (3) members will lose goodwill and suffer damage to reputation because they will have to cease entering the market to avoid the expenses presented by the bill. The court rejected AAM’s argument for per se injury from a constitutional violation because it failed to show a likelihood of success on the merits. The court rejected the additional arguments because it found that AAM overstated the impact of AB 824, reasoning that the bill does not prohibit patent settlements outright and the alleged resulting expense of patent litigation was based on speculation of how companies will choose to react to AB 824’s implementation.
3. BALANCE OF HARDSHIPS AND PUBLIC INTEREST
Finally, the court held that AAM failed to establish that the balance of hardships tipped in its favor for the same reasons addressed in the irreparable injury analysis. The court reasoned that AAM’s arguments in support of the burden imposed on it were purely based on speculation as to how its members might react to the new law. The court also held that the public interest factor was neutral as to both parties because both parties argued that AB 824 would have the opposite effect on the cost of prescription drugs, and each side’s arguments were purely speculative.
B. THE NINTH CIRCUIT VACATES AND REMANDS
AAM filed its notice of interlocutory appeal on January 2, 2020—only two days after the Eastern District of California denied its motion for a preliminary injunction. The Ninth Circuit accepted review and issued an opinion on July 24, 2020, vacating and remanding the lower court’s order, holding that AAM lacked standing to bring its case.20
In a two-page opinion, the Ninth Circuit explained that AAM lacked standing to challenge the law because it did not present evidence that there was a "substantial risk" that AB 824 would cause any of its members to suffer "concrete, particularized, and imminent" injury. The court held that AAM had not established a threat of prosecution because none of the AAM member declarations expressed an intent to enter into a reverse payment settlement that would violate AB 824. AAM also did not establish that its members had incurred economic injury because its member declarations merely alleged possible future injury in the form of an expectation of being "forced" to maintain lawsuits without the option of settlement, and a possibility of staying off the market for certain products until the relevant patents expire.
C. POST-ENFORCEMENT CHALLENGE-AAM V. BONTA (2021)
Eight months later, on August 25, 2020, AAM filed a new complaint asserting nearly identical theories. As with its initial complaint, AAM alleged that AB 824 violates the Dormant Commerce Clause, is preempted by federal patent law, imposes excessive fines in violation of the Eighth Amendment, and violates due process by improperly shifting the burden to defendants in reverse payment settlement agreements. Unlike its previous complaint, however, AAM came to the case armed with new supporting declarations outlining its members’ experiences after AB 824 came into effect.
AAM filed another motion for a preliminary injunction in September 2020, but the court did not rule on that motion until December 2021. Though one might have interpreted the delay as indicating that the court would deny the motion, the Eastern District of California ultimately issued a decision in AAM’s favor, finding that it was likely to succeed on the merits of its Dormant Commerce Clause claim without reaching AAM’s additional theories.21
First, addressing the standing issues raised in the previous cases, the court held that AAM had cured the deficiencies identified by the Ninth Circuit and properly asserted associational standing on behalf of its members. In a declaration, an AAM member stated that it pulled out of a tentative settlement agreement because it feared prosecution under AB 824. The AAM member was forced to continue to litigate a patent infringement lawsuit "at considerable cost in terms of legal fees that it would not be incurring had the settlement proposal . . . been finalized." The court held that this sufficiently established injury-in-fact. Other AAM members claimed to have suffered similar harms, including receiving less favorable settlement agreement terms and increased patent infringement defense legal fees as a result of continued litigation.
1. AAM WAS LIKELY TO SUCCEED ON THE MERITS
Turning to the merits of AAM’s Dormant Commerce Clause theory, the court held that AAM was likely to succeed because the practical effect of AB 824 was to control conduct beyond California’s borders. The court rejected the State’s assertion that drug manufacturers could avoid liability under AB 824 by simply omitting California sales from the scope of conduct addressed by the settlement agreement, reasoning that the statute does not limit its scope to only California sales and therefore, as written, could reach a settlement agreement in which none of the parties, the agreement, nor the pharmaceutical sales have any connection to California. The court also endorsed AAM’s hypothetical that "[i]f two parties settle a patent suit in Delaware on terms that AB 824
deems unlawful, the settling parties (and every person who merely assists) would be liable for severe penalties under California law." Further, the court rejected as disingenuous California’s characterization of AB 824’s civil penalties provision as "simply altering the . . . penalties to conduct that was already illegal under California law," noting that AB 824 could be used to levy significant civil penalties on parties that do not have any connection to California.
The court next addressed the State’s ripeness arguments, holding that AAM’s suit was now timely. The State had argued that AAM’s claim was not ripe because the trade organization had not demonstrated that any of its members planned to violate the law or had entered into an agreement that violates AB 824, that statements made by attorneys for the California Attorney General’s office during oral arguments before the Ninth Circuit did not constitute a threat of prosecution, and that AAM did not show past prosecution or enforcement of the law. The court rejected this argument, finding it did not need to rely on the ripeness test because "the gravamen of the suit is economic injury rather than threatened prosecution," and the test for Article III standing was applicable for determining constitutional ripeness. Having already determined that AAM had properly asserted associational standing on the basis of its members’ economic injuries, the court found that AAM had Article III standing to pursue its claim. The Attorney General similarly challenged the renewed claim’s prudential ripeness, arguing that it was not yet factually developed and required the court to speculate about hypothetical cases in which AB 824 might be enforced. The court disagreed, finding that there was sufficient factual development for judicial resolution, citing evidence that one of AAM’s member companies decided to pull out of a settlement negotiation and continued litigating a patent infringement claim due to concerns about enforcement of AB 824, at significant cost to the manufacturer.
2. IRREPARABLE HARM
The court held that AAM would suffer irreparable harm because of the economic harm its members face. Although economic harm alone is not itself irreparable, it can become irreparable where parties are unable to recover monetary damages even if successful on the merits. Here, AAM cannot recover damages because California is protected by Eleventh Amendment sovereign immunity.
3. BALANCE OF EQUITIES AND PUBLIC INTEREST
Finally, the court held that the balance of equities tipped in AAM’s favor because AB 824 slows the flow of generic and biosimilar drugs into the market. By contrast, any harm to California will be de minimis because, according to the court, California can still bring enforcement actions under federal law and can amend AB 824 to ensure it is compliant with the U.S. Constitution.
D. MODIFYING THE PRELIMINARY INJUNCTION
Undeterred by this setback, the State moved to modify the preliminary injunction within a few days of the court’s decision. In its motion, the State petitioned the court to allow enforcement of AB 824 against agreements with a "connection" to California. Specifically, the State argued that AB 824 could be constitutionally applied to settlements with "in-state sales" and to settlements "negotiated, completed, or entered into in California."22 The State also asked the court to clarify whether the injunction applies only to AAM and its institutional members, or whether it was generally applicable. AAM opposed this motion, arguing that the proposed modifications would render the injunction "a practical nullity" because all FDA-approved generics are sold in California and because limiting AB 824’s application to "in-state settlements" would not cure the fact that the law still directly regulates out-of-state commerce.23
On February 15, 2022, the Eastern District of California modified the injunction.24 The court issued an opinion granting the State’s motion
in part, allowing enforcement of AB 824 as to so-called "in-state settlements" but not as to settlements whose only connection to California is "in-state sales."
The court modified the injunction as to the "in-state settlements" because, it held, California had the authority to regulate conduct occurring "wholly within" its own borders. Further, the court noted that in its filings, AAM did not appear to even contest whether California could enforce AB 824 as to in-state settlements, and implied that AAM may have waived that argument.
The court then considered the additional constitutional arguments that AAM raised in its earlier briefing on the preliminary injunction, but which the court did not reach in its earlier decision. The court rejected each in turn. The court held that AAM was not likely to succeed in showing that AB 824 was preempted by federal patent law because AB 824 does not require a state court to determine the validity of a patent or create patent-like protections. Similarly, the court found no likelihood of success in showing preemption under the Biologics Price Competition and Innovation Act (the "BPCIA") because AB 824 does not create state-law remedies for failure to comply with any provisions of the BPCIA. The court also rejected AAM’s excessive fines argument because, as the State had not yet levied a fine against any entity under AB 824, the court reasoned that "it is impossible to know" whether AB 824’s fines would be excessive. Finally, the court rejected AAM’s due process argument, relying on its opinion from the pre-enforcement case.
As for "in-state sales," the court rejected the State’s argument that the court must presume that the statute only applies in-state under the canons of statutory interpretation and under Chinatown Neighborhood Association v. Harris.25 In that case, the Ninth Circuit rejected a Dormant Commerce Clause challenge to a California law banning the sale of shark fins by presuming the law would only apply to sales or possession in California. The court distinguished Chinatown, reasoning that the decision did not address the question of whether the "Shark Fin Law" applied to the possession or sale of shark fins in California. By contrast, the court stated that the text of AB 824 directly regulates out-of-state commerce. The court pointed to AAM’s hypothetical, which posited that if two parties settle a patent suit in Delaware, they would be liable for penalties under California law because every pharmaceutical patent settlement is made in connection with the sale of pharmaceutical products in California, by virtue of California being the largest market for generic products in the country.
Finally, the court clarified that the preliminary injunction applies only to AAM and its members. AAM sought the preliminary injunction to prevent enforcement against itself and "its member companies, or their agents and licensees." The court characterized AAM’s suit as an "as-applied" challenge, and reasoned that, as a result, AAM could not obtain injunctive relief for third parties.
Although AB 824’s future is uncertain, California appears determined to continue to defend its constitutionality. After the district court issued its ruling in the post-enforcement case, the California Attorney General’s Office released a statement saying that, while it was "disappointed in the court’s decision to enter a preliminary injunction at the outset of this case," the suit "is still in its early stages."26 The statement also emphasized that "[t]he attorney general will continue to fight both in this matter and elsewhere for Californians’ health care rights." The Eastern District of California’s decision to significantly narrow its own injunction within months of issuance rewarded the State’s persistence, and is likely to encourage the State to continue with its defense.
AAM v. Bonta is a clear signal that state laws with broad reach that seek to regulate the pharmaceutical industry face an uphill battle. Pharmaceutical manufacturers are likely to remain deeply concerned about such laws
because they implicate patent rights issued by the federal government and because they add an additional layer of scrutiny to an already byzantine regulatory regime imposed by both the federal antitrust laws and the federal Food, Drug, and Cosmetics Act. Furthermore, in the context of California lawmaking, even narrowly tailored laws will likely have extraterritorial effects on the industry because, as California is the largest geographic market for pharmaceutical products in the country, pharmaceutical manufacturers can’t afford to opt out of serving California residents. Thus, manufacturers are compelled to comply with California laws, regardless of where they themselves are based, in order to continue to serve patients within the State.
Even assuming such a law’s effects could be contained within the geographical boundaries of a state, it is unclear that such regulation would achieve its desired goal. In this context, as a practical matter, if California were to enforce AB 824 only as to reverse payment agreements with a meaningful connection to California, the result would likely be to saddle Californian businesses with additional regulations while their out-of-state competitors conduct business as usual, leaving the status quo largely intact. If AB 824 were to only apply to companies that are either incorporated or headquartered in California, the law would likely just encourage local companies to move their businesses outside of the State in order to compete with their peers on an even playing field. While this approach might technically succeed in ending reverse payment settlements within California’s borders, it would do nothing to reduce the number of such settlements as non-Californian companies would continue to enter into the agreements. The end result could be no meaningful increase or decrease in drug prices at the expense of the California economy and Californians’ jobs. As a further example, if AB 824 were expressly limited to settlements entered within California’s borders as described in the modified injunction, the result would likely be the same. Pharmaceutical companies are sophisticated litigants and could simply elect to bring their cases and prepare their settlements in other jurisdictions, such as Delaware and New Jersey, which are already the most common venues for pharmaceutical patent litigation.
The AAM v. Bonta case also demonstrates that industries are highly motivated to vigorously challenge the constitutionality of new regulations from the states. AAM brought its challenge to AB 824 within a few short weeks of its passage. It pursued its claims through to the Ninth Circuit and then undertook the filing of a new complaint supported by additional declarations, despite receiving two adverse judgments. By contrast, the offices of state attorneys general have comparatively fewer resources to maintain challenging and lengthy suits regarding complex constitutional issues. Although Attorney General Bonta appears motivated to pick up where former Attorney General Becerra left off for now, there is also a question of whether AGs’ offices will retain the political will to continue to defend laws enacted by their predecessors as individuals cycle out of key roles and as priorities change from administration to administration.
Regardless, it’s likely that state legislatures will continue to pass far-reaching legislative reforms. In a sharply divided national political climate, Congress is less likely to take action to drastically alter the landscape of federal law. Where AB 824’s federal analog, "Preserving Access to Affordable Generics and Biosimilars," has languished in the U.S. House and Senate, AB 824 advanced relatively quickly at the state level. Given this tension, local legislators are more likely to keep testing the boundaries of their constitutional reach.
1. Seth Silber is a partner at Wilson Sonsini Goodrich & Rosati P.C. and former adviser to former FTC Chairman Jon Leibowitz. He focuses on advising clients in the pharmaceutical and healthcare markets, including issues concerning pharmaceutical patent settlements, mergers and acquisitions, and anticompetitive conduct.
2. Alexander Poonai is an associate at Wilson Sonsini Goodrich & Rosati P.C. His work encompasses a variety of matters at the intersection of antitrust and intellectual property, particularly in the pharmaceutical and healthcare markets.
3. Codified as CAL. HEALTH & SAFETY CODE §§ 134000 et seq.
4. Ass’n for Accessible Meds. v. Becerra, No. 2:19-cv-02281-TLN-DB (E.D. Cal. Nov. 12, 2019).
5. See About Us, ASS’N FOR ACCESSIBLE MEDS., https://accessiblemeds.org/about (last visited Mar. 9, 2022).
6. Ass’n for Accessible Meds. v. Bonta, No. 2:20-cv-01708-TLN-DB (E.D. Cal. Dec. 8, 2021).
7. Rocky Mt. Farmers Union v. Corey, 913 F.3d 940 (9th Cir. 2019).
8. Press Release, State of Cal. Dep’t of Justice, Attorney General Becerra, Assemblymember Wood Announce Bill to Outlaw Collusive Agreements Between Drug Companies that Inflate Drug Prices (Feb. 20, 2019), https://oag.ca.gov/news/press-releases/attorney-general-becerra-assemblymember-wood-announce%C2%A0bill%C2%A0-outlaw-collusive.
9. See id.
10. Fed. Trade Comm’n v. Actavis, Inc., 570 U.S. 136 (2013).
11. See Nat’l Collegiate Athletic Ass’n v. Alston, 141 S. Ct. 2141, 2160 (2021).
12. In re Cipro Cases I & II, 348 P.3d 845 (Cal. 2015).
13. Id. at 871-72.
14. CAL. HEALTH & SAFETY CODE § 134002(a)(1) (emphases added).
15. Id. § 134002(a)(3).
16. Id. § 134002(e)(1)(B).
17. Id. § 134002(e)(1)(A) (emphasis added).
18. S. 124, 115th Cong. (2017).
19. Ass’n for Accessible Meds. v. Becerra, No. 2:19-cv-02281-TLN-DB (E.D. Cal. Dec. 31, 2019).
20. Ass’n for Accessible Meds. v. Becerra, 822 F. App’x 532 (9th Cir. 2020).
21. Ass’n for Accessible Meds. v. Becerra, No. 2:20-cv-01708-TLN-DB (E.D. Cal. Dec. 9, 2021).
22. Ass’n for Accessible Meds. v. Bonta, No. 2:20-cv-01708 (E.D. Cal. Jan. 6, 2022).
23. Ass’n for Accessible Meds. v. Bonta, No. 2:20-cv-01708 (E.D. Cal. Jan. 12, 2022)..
24. Ass’n for Accessible Meds. v. Bonta, No. 2:20-cv-01708 (E.D. Cal. Feb. 15, 2022).
25. Chinatown Neighborhood Ass’n v. Harris, 794 F.3d 1136, 1145-46 (9th Cir. 2015).
26. Bryan Koenig, Federal Judge Puts Calif. Pay-For-Delay Ban on Hold, LawLAW360 (Dec. 9, 2021), https://www.law360.com/articles/1447353/federal-judge-puts-calif-pay-for-delay-ban-on-hold.