Assoc. for Accessible Medicine v. Brian Frosh
887 F.3d 664
4th Cir.2018Background
- Maryland enacted HB 631 (effective Oct. 1, 2017) prohibiting "price gouging" by manufacturers or wholesale distributors for certain "essential off-patent or generic drugs made available for sale in Maryland."
- "Price gouging" is defined as an "unconscionable increase"—excessive, not justified by costs, and leaving consumers with no meaningful choice due to drug importance and limited competition.
- AAM (trade association of drug manufacturers/distributors) sued Maryland, alleging the statute violates the dormant Commerce Clause (extraterritorial regulation) and is unconstitutionally vague; district court dismissed the Commerce Clause claim and denied an injunction on vagueness.
- The Fourth Circuit majority reversed the dismissal, holding the statute unlawfully regulates prices of transactions that occur wholly outside Maryland (targets upstream manufacturer/wholesaler pricing), and remanded with judgment for AAM; it did not decide vagueness.
- The majority reasoned the statute (1) is not limited to in‑state sales, (2) measures lawfulness by manufacturers’ initial sale prices (often out-of-state), and (3) would create burdens/conflicts if other states adopted similar laws.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Maryland's statute violates the dormant Commerce Clause by regulating out-of-state transactions | AAM: The Act directly regulates prices of upstream manufacturer/wholesale transactions that occur outside Maryland and thus has an impermissible extraterritorial effect | Maryland: The Act only targets drugs "made available for sale" in Maryland and addresses downstream consumer protection; any out-of-state impact is incidental or an upstream pricing effect | Held: Statute invalid under dormant Commerce Clause — it effectively controls prices of out-of-state transactions and would burden interstate commerce if replicated |
Key Cases Cited
- Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511 (1935) (state law that regulates prices paid in other states to protect in-state producers violates Commerce Clause)
- Edgar v. MITE Corp., 457 U.S. 624 (1982) (state statute that directly regulates transactions occurring across state lines is unconstitutional)
- Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573 (1986) (price-affirmation law that effectively controls out-of-state pricing violates the Commerce Clause)
- Healy v. Beer Inst., 491 U.S. 324 (1989) (analysis articulating extraterritoriality principle and focusing on a statute's practical effect and potential for conflicting state regimes)
- Pharm. Research & Mfrs. of Am. v. Walsh, 538 U.S. 644 (2003) (distinguishing rebate/negotiation programs from price-control statutes for extraterritoriality analysis)
- Star Sci., Inc. v. Beales, 278 F.3d 339 (4th Cir. 2002) (upholding limitation of state law to in-state sales; used for comparison)
- Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070 (9th Cir. 2013) (states may not mandate compliance with preferred policies in wholly out-of-state transactions)