California law punishing pharmaceutical companies for pay to delay settlements is blocked for being unconstitutional

U.S. District Judge Troy L. Nunley granted a preliminary injunction Thursday blocking a California law that outlaws pharmaceutical companies from paying generic competitors to keep competing drugs off the market.

The Sacramento based judge ruled the statute is unconstitutional. The plaintiffs successfully argued the law regulates out of state commerce, which California does not have the power to do.

Attorney for the plaintiffs Jay P. Lefkowitz of Kirkland & Ellis LLP in New York said in a phone interview Thursday, "California passed a law that was attempting to hold that almost all patent settlements are presumptively unlawful."

"California said because the drugs that are the subject of that settlement are eventually going to be purchased in California, we have the ability to regulate that," he added.

In a statement, the Attorney General's office asserted, "Pay for delay agreements ... harm millions of patients in California by driving up drug costs and preventing access to life saving medications. Assembly Bill 824 sought to make it easier to challenge and void these anti-competitive agreements.

"However, this case is still in its early stages, and we remain confident the state will eventually prevail," the statement said. "The attorney general will continue to fight both in this matter and elsewhere for Californians' health care rights."

The Association for Accessible Medicines, a nonprofit organization that represents generic drug manufacturers, fought Assembly Bill 824 a second time, after failing to successfully challenge it last year.

In July 2020, a federal appeals court refused to block the law, which penalizes drug companies for participating in reverse payment settlement agreements.

According to Nunley's order, California was using AB 824 to close a supposed loophole in antitrust law that allows brand name pharmaceutical companies to essentially pay to enforce a weak patent and keep competition off the market.

The Association for Accessible Medicines' previous challenge failed because in the court's eyes it lacked standing, due to the inability to establish irreparable harm was likely and imminent.

The difference in this case is that the nonprofit organization now has proof that its members have suffered "concrete economic harm," Nunley found. Additionally, the organization challenged the constitutionality of the law via arguments that it violated the commerce clause of the Constitution, levied excessive fines and was preempted by federal law.

The state responded by saying the plaintiffs' claim "rests solely on an extraterritoriality theory and 'the Supreme Court has rarely held that statutes violate the extraterritoriality doctrine.'" It also denied AB 824 was regulating conduct outside of California.

Nunley found the plaintiffs' commerce clause argument to be the most likely to succeed. Association for Accessible Medicines v. Bonta, 2:20-cv-01708-TLN-DB, (E.D. Cal., Filed 12/09/2021).

The Association for Accessible Medicines said in a statement Thursday, it is "encouraged that the federal court today recognized the harm caused by California in restricting litigation settlements that typically bring more affordable medicines to patients and taxpayers more quickly."