On December 9, 2021 Judge Troy L. Nunley of the U.S. District Court for the Eastern District of California temporarily blocked implementation of California’s California Assembly Bill 824, legislation that imposes restrictions on “pay for delay” settlements in pharmaceutical litigation, including the greater of $20 million or three times the affected commerce.

Bill 824, passed in 2019, provides for penalties for settlements reached that delay generic entry in exchange for settlement of pharmaceutical patent litigation. Judge Nunley ruled that because Bill 824 would apply to wholly out of state settlements, such as patent litigation in federal court in Delaware, it violate the Dormant Commerce Clause of the U.S. Constitution.

Judge Nunley rejected California’s argument that drug companies could comply with Bill 824 by excluding California sales from any settlement that would otherwise violate California law. In doing so, the court ruled that the law on its face improperly regulated interstate commerce and therefore usurped the power of the U.S. Congress to regulate such commerce: “A.B. 824 could be used to levy substantially significant civil penalties on parties that do not have any connection with California. 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.”

California will continue to litigate the case on its merits, and may attempt to show that Bill 824 regulates only California sales.

Association for Accessible Medicines v. Becerra, Case No. 2:20-cv-01708 (E.D. Cal.)