California Law Tackling Pay-For-Late Agreements Blocked By Federal Judge

  • Sacramento Federal Judge Blocks California AB 824
  • HHS Secretary Xavier Becerra as state attorney general defended the law

The names of companies and law firms shown above are generated automatically based on the text of the article. We are improving this functionality as we continue to test and develop in beta. We appreciate comments, which you can provide using the comments tab on the right of the page.

(Reuters) – A federal judge on Thursday barred California from enforcing a groundbreaking law banning “late payment” agreements between manufacturers of branded and generic pharmaceuticals, saying it unconstitutionally regulates trade outside of the state.

U.S. District Judge Troy Nunley in Sacramento, at the behest of a generic drug industry trade group, tentatively ordered the first law of its kind to tackle patent regulations that the state says could reduce competition.

“We are very pleased with the result,” said Jay Lefkowitz, an attorney for Kirkland & Ellis who represents the Association for Accessible Medicines. “We believe the court did the right thing in invoking the Dormant Trade Clause and striking down this excessive law.”

Register now for FREE and unlimited access to


California Attorney General Rob Bonta’s office called the move disappointing, but said they were confident the state would win in the end.

Late settlements, or reverse settlements, occur when brand name drug makers settle patent infringement claims against generic manufacturers by paying them to delay the release of cheaper generic versions.

The United States Supreme Court in a 2013 case, Federal Trade Commission v. Actavis Inc, said reverse payments by manufacturers of brand-name drugs may violate antitrust laws. But the court did not rule that they are still anti-competitive.

California law has gone further. AB 824, a bill enacted in 2019 by Governor Gavin Newsom, a Democrat, bans late payment agreements between brand name drug makers and generic drug makers by making them presumed anti-competitive.

Violators could face fines of $ 20 million or three times the value a business received from a settlement, whichever is greater. Former Attorney General Xavier Becerra, now President Joe Biden’s Health and Human Services Secretary, defended the law.

AAM sued in 2019, arguing that the law violated the dormant trade clause of the U.S. Constitution by allowing California to regulate patent regulations that are negotiated and signed outside state borders.

Nunley and later the 9th United States Court of Appeals concluded that the AAM lacked standing due to a lack of evidence that its member companies had suffered prejudice, but allowed it to sue to court again in 2020.

In Thursday’s ruling, Nunley said the AAM has this time established its status, citing a member company that withdrew from an interim settlement due to the law.

Nunley rejected the state’s claims that the law only covered driving in California, saying it exposed companies to penalties if they, for example, settled a lawsuit in Delaware.

“As it is written, AB 824 can enter into the type of settlement agreements proposed by the plaintiff – an agreement in which neither party, the agreement or the sales of pharmaceuticals have any connection with California.” Nunley wrote.

The case is Association for Accessible Medicines v. Becerra, US District Court for Eastern District of California, # 2: 20-cv-01708.

For AAM: Jay Lefkowitz and Matthew Rowen of Kirkland & Ellis

For California: Jacqueline Palma Malafa from the California Department of Justice

(Editor’s note: This story has been updated with comment from the California Attorney General’s Office.)

Read more:

9th Circuit dismisses generic drugmakers’ challenge to California late payment law

Register now for FREE and unlimited access to


Our Standards: Thomson Reuters Trust Principles.

Nate raymond

Nate Raymond reports to the federal judiciary and litigation. He can be reached at [email protected]

Previous North Dakota Minimizes Natural Gas Flaring Even As Production Bounces Back, EIA Says
Next Commentary: Digital dollars are coming, but the Fed isn't ready | Commentary