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In a case that is not quite good news for workers’ compensation claims administrators hoping to see lower generic drug prices, a federal judge on Thursday suspended California’s first-in-the-nation ban on pharmaceutical industry pay-for-delay deals, ruling the law intended to increase the flow of affordable generic drugs likely violates out-of-state commerce protections.

AB 824, was signed into law by California Governor Gavin Newsom on October 7, 2019. It creates a presumption that “reverse payment” settlement agreements regarding patent infringement claims between brand-name and generic pharmaceutical companies are anti- competitive and unlawful. A violation of the law is punishable by a civil penalty.

According to the State, AB 824 closes this loophole in the federal Hatch-Waxman Act and ensures a brand-name company cannot continue to enforce an otherwise weak patent against generic companies through these reverse payment settlement agreements.

The plaintiff in the case is a nonprofit, voluntary association comprised of the leading manufacturers and distributors of generic and biosimilar medicines, manufacturers and distributors of bulk active pharmaceutical ingredients, and suppliers of other goods and services to the generic and biosimilar pharmaceutical industry that filed suit in an attempt to invalidate AB 824.

Plaintiff argues AB 824: violates the dormant Commerce Clause by directly regulating out-of-state-conduct; is preempted by federal patent law, the delicate balance between the competing interests of patent protections and antitrust law struck by the U.S. Supreme Court in prior decisions.

The State contends that “AB 824 seeks to prevent or reduce anticompetitive pharmaceutical sales in California, and, thus, applies to agreements to engage in that conduct,” not “conduct occurring wholly outside California.”

U.S. District Judge Troy Nunley in his Opinion, agreed the law enables California to issue multimillion-dollar civil penalties against companies that have no connection to the state, and said it must be temporarily enjoined due to clear constitutional shortcomings.

“As it is written, the civil penalties provision could hypothetically reach a corporate officer of a Delaware company entering into a settlement agreement with another Delaware company regarding pharmaceutical sales in only Delaware,” Nunley wrote. “The court cannot reasonably find that Assembly Bill 824 regulates only the California market.”

“The court finds the balance of equities and the public interest element tips sharply in plaintiff’s favor such that an injunction would be proper even if there were only serious questions going to the merits,” Nunley concluded.

According to Courthouse News, the bill’s author said the judge’s decision was “beyond frustrating.”

“The association’s name and mission would imply that they are somehow on the side of patients when, in fact, they are only on the side of protecting their own profits,” said Assemblyman Jim Wood, D-Eureka.

On the other side, Jeff Francer, the association’s general counsel, celebrated the decision in an email. “AAM 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.”