Generics win anti-pay-for-delay bill challenge
The Association for Accessible Medicines (AAM), which represents manufacturers of generics and biosimilars, has succeeded in challenging a California bill that characterises “reverse payment” or “pay-for-delay” patent settlements as anticompetitive and unlawful.
An order from the US District Court for the Eastern District of California granted the AAM’s motion for a preliminary injunction, halting the state’s bill targeting “pay-for-delay” deals.
The order, handed down on Thursday, December 9, holds that the bill, which aims to increase the number of affordable generic drugs, likely violates existing commerce protections.
The California Assembly Bill 824 (AB 824) was first signed into law by California Governor Gavin Newsom in October 2019—the first of its kind targeting the “anticompetitive” dealing between brand name drug companies and generic manufacturers.
The bill can conceivably impose a $20 million fine if violated, on any “person”, even if that person “has not received anything of value”, AAM’s counsel Kirkland & Ellis claimed.
AAM first filed a lawsuit challenging the bill in 2019, arguing that the bill “creates an assumption” that reverse payment agreements over patent infringement claims are by their nature anticompetitive and unlawful.
This related lawsuit saw AAM file a motion for a preliminary injunction, which the California Court initially denied, arguing that AAM had failed to establish a likelihood of success on the merits of the case. AAM then appealed to the US Court of Appeals for the Ninth Circuit.
On appeal, the Ninth Circuit heard oral arguments and vacated and remanded the court’s order, asking the California court to dismiss without prejudice, finding that AAM failed to demonstrate its members lacked “associational standing” to bring clams on its’ members behalf. The California court, in turn, dismissed the suit.
AAM then filed a follow-up complaint in August 2020 alleging “near-identical” causes of action in an attempt to invalidate AB 824.
Following a review of the relevant statutes, The California court was convinced by AAM’s argument that parties looking to settle outside of California could also be targeted under AB 824 despite none of the parties, the agreement, nor the sales “having any connection with California”.
AAM argued: “If 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.”
The state contended that: “if manufacturers want to avoid application of AB 824 to agreements they enter into, they can do so simply by omitting California sales from those covered by the agreement.”
However, the California court was unpersuaded by this argument, as AB 824 “on its face does not include such a limitation”.
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