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Ninth Circuit Rejects Challenge to Pay-for-Delay Law on Standing Grounds

July 30, 2020

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The terms of AB 824 are not limited to settlements that were negotiated, completed or entered into in California or by California companies.

On July 24, 2020, the Ninth Circuit rejected a challenge to a California law aimed at curtailing pay-for-delay settlements between branded and generic pharmaceutical companies. The law, referred to as Preserving Access to Affordable Drugs, AB 824, establishes a presumption of illegality for reverse-payment settlements.

Specifically, AB 824 provides that any transfer of value from a branded to a generic pharmaceutical company settling patent infringement litigation, combined with a delay of the generic drug’s entry into the market, presumptively has an anti-competitive effect. To rebut the presumption, the settling parties must show either (1) that the payment by the branded company is fair and reasonable compensation solely for other goods or services that the generic company has agreed to provide, or (2) that the agreement has generated pro-competitive benefits that outweigh its anti-competitive effects. This shift in burden presents a higher obstacle for settling parties than what the Supreme Court has held to be applicable to such settlement agreements. See FTC v. Actavis, 570 U.S. 136 (2013) (applying the rule-of-reason framework to reverse-payment settlement).

The terms of AB 824 are not limited to settlements that were negotiated, completed or entered into in California or by California companies, so it has the potential to impact all pharmaceutical companies for which personal jurisdiction could be established in California. AB 824 was passed and signed into law in October 2019.

The Association for Accessible Medicines (AAM), a lobbying group for the generic drug industry, had unsuccessfully sought to preliminarily enjoin AB 824’s effective date of January 1, 2020. The district court held there was no imminent threat of harm and denied the preliminary injunction motion. AAM filed an interlocutory appeal of the adverse decision to the Ninth Circuit. On appeal, AAM argued that AB 824 violated the “dormant” commerce clause, was preempted by federal law and that the presumption burden-shifting violated the due process clause.

In a nonprecedential opinion issued July 24, the Ninth Circuit panel held that AAM lacked Article III standing to bring the case, given that neither it nor its constituents had suffered injury. According to the panel, AAM had failed to prove that it or any of its members were at substantial risk of suffering any harm that was “concrete, particularized, and imminent” due to AB 824 and therefore lacked standing. The Ninth Circuit remanded with instructions to dismiss the case without prejudice.

For More Information

If you have any questions about this Alert, please contact Sean P. McConnell, Sarah O'Laughlin Kulik, any of the attorneys in our Antitrust and Competition Group, any of the attorneys in our Life Sciences and Medical Technologies Industry Group or the attorney in the firm with whom you are in regular contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.