A federal judge has partially revived California’s “pay for delay” law, which prohibits pharmaceutical companies from paying competitors to keep generic drugs off the market. But the law’s author said the latest ruling would still allow companies to sidestep enforcement.
The 2020 law, the first of its kind in the nation, was aimed at a common practice by brand-name drug manufacturers to prevent competition from lower-priced generics: The manufacturer sues the generic drug company for violating its patent, then settles the suit by paying the company not to sell its product for a specific period. The Federal Trade Commission has estimated that the practice costs U.S. consumers $3.5 billion a year.
The settling companies can try to show that their agreement prevents duplication of a unique brand-name product. If they fail, violations of the law are punishable by a fine of at least $20 million.
In December, U.S. District Judge Troy Nunley halted enforcement of the law, saying California may be interfering with interstate commerce by regulating settlements and sales outside the state’s borders. On Tuesday, he limited his ruling by allowing the state to ban settlements negotiated in California.
Prohibiting those agreements does not affect interstate commerce, Nunley said, because “they regulate conduct wholly within California’s borders.” A pharmaceutical organization argued that the law interferes with companies’ exclusive rights to their patented products, but Nunley said patent-holders have no legal authority to discourage potential rivals from competing.
He rejected the state’s request, however, to allow enforcement of the law against any pay-for-delay settlement that was “connected” to sales in California and adversely affected the pharmaceutical sales market in the state. Nunley agreed with opponents that because of the size of California’s market, such enforcement would apply to all settlements, no matter where they took place, and thus could interfere with interstate commerce.
The suit challenging the law was filed by the Association for Accessible Medicines, a group of 25 leading generic-drug companies that faced losses of their settlement payments. Jeff Francer, a lawyer for the organization, described the ruling overall as a victory.
“Patent litigation settlements generally accelerate patient access to more affordable generic and biosimilar medicines,” Francer said. “Once again the court has correctly recognized that California does not have authority under the Constitution to regulate settlements that are reached outside of its borders.”
Wood, the law’s author, said he was disappointed that Nunley had not allowed complete enforcement.
“Although I am pleased that the ruling has partially reinstated California’s ability to enforce the law for any agreement negotiated, executed or entered in California, we know this has just created another loophole for them to use,” he said in a statement. “And it will be at the detriment of California consumers who are continually forced to shoulder higher prices for life-saving medication while pharmaceutical companies strike illegal, secretive deals to grow their excessive profits.”