510 F.Supp.3d 891
E.D. Cal.2021Background
- SB 17 §4 requires manufacturers to give certain California purchasers 60 days' advance notice before increasing a drug's federally defined WAC by 16% or more over the prior two calendar years for a course of therapy with WAC > $40, and to state whether a change or improvement necessitated the increase and describe it.
- PhRMA sued, seeking a facial declaration that §4 violates the dormant Commerce Clause (extraterritorial regulation/price-freeze), the First Amendment (compelled speech), and the Fourteenth Amendment; it moved for summary judgment on the constitutional claims.
- The court emphasized that WAC is a federally defined list price (not the negotiated transaction price) and that SB 17 is a notice/compelled-disclosure statute rather than an express price-control measure.
- On the Commerce Clause claim, the court found PhRMA failed to show SB 17 directly and extraterritorially regulates out-of-state transactions; there are genuine disputes of material fact about practical effects on Medicaid/Medicare reimbursements and private contracting.
- On the First Amendment claim, the court treated the requirement as compelled commercial disclosure (Zauderer), concluded the State has a substantial interest in pricing transparency, and found PhRMA did not demonstrate the compelled statement was unconstitutional as a matter of law.
- Result: PhRMA’s motion for summary judgment was denied as to both the dormant Commerce Clause and First Amendment facial challenges because material factual disputes and legal standards precluded facial invalidation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Dormant Commerce Clause | SB 17 directly/regulates interstate commerce by effectively freezing a national WAC and thus imposes extraterritorial regulation | SB 17 is a notice law; WAC is a list price (not transaction price); statute does not set out-of-state transaction prices | Denied — PhRMA failed to show facial violation; genuine disputes exist about extraterritorial effects and practical impact |
| First Amendment (compelled speech) | §127677(c)(2) unlawfully compels manufacturers to justify price increases and thus violates free speech | Disclosure is factual, related to a substantial state interest in transparency and negotiation; Zauderer governs compelled commercial disclosures | Denied — court found the State has a sufficient interest and PhRMA did not show the compelled disclosure fails constitutional standards |
Key Cases Cited
- United States v. Salerno, 481 U.S. 739 (facial-challenge burden — challenger must show no set of circumstances in which statute is valid)
- Wash. State Grange v. Wash. State Republican Party, 552 U.S. 442 (cautions against speculative facial invalidation)
- Healy v. Beer Inst., 491 U.S. 324 (practical-effect test for extraterritoriality)
- Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573 (state regulation found to have extraterritorial effect on prices)
- Pike v. Bruce Church, 397 U.S. 137 (balancing test for nondiscriminatory state laws affecting interstate commerce)
- Sorrell v. IMS Health Inc., 564 U.S. 552 (commercial-speech scrutiny and purpose-to-suppress analysis)
- Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (standard for compelled commercial disclosures: factual, uncontroversial, reasonably related to substantial interest)
- CTIA—The Wireless Ass'n v. City of Berkeley, 928 F.3d 832 (9th Cir.: applies Zauderer to compelled commercial speech)
- Valley Bank of Nev. v. Plus Sys., Inc., 914 F.2d 1186 (9th Cir.: direct regulation defined as affecting transactions across state lines)
- Ass'n for Accessible Medicines v. Frosh, 887 F.3d 664 (4th Cir.: Maryland price-gouging statute held effectively to control out-of-state prices)