Insights

D.C. Prescription Drug Excessive Pricing Act Found Unconstitutional

On December 22, 2005, the U.S. District Court for the District of Columbia ("Court") found that D.C.'s Prescription Drug Excessive Pricing Act of 2005 ("Act") (1) violated the Supremacy Clause because of its conflict with federal patent laws, and (2) violated the Interstate Commerce Clause, as applied to sales between out-of-state manufacturers and other out-of-state entities. Pharmaceutical Research and Manufacturers of America v. District of Columbia, No. Civ. 05-2015(RJL), Civ. 05-2106(RJL), 2005 WL 3508662 (D.D.C. Dec. 22, 2005). The Court granted declaratory and injunctive relief to the plaintiffs, Pharmaceutical Research and Manufacturers of America and Biotechnology Industry Organization.

The stated purpose of the Act was to "restrain the excessive prices of prescription drugs," which D.C.'s City Council determined to be a threat to residents' "health, safety, and welfare." The Act made it "unlawful for any drug manufacturer or licensee thereof, excluding a point of sale retail seller, to sell or supply for sale or impose minimum resale requirements for a patented prescription drug that results in the prescription drug being sold in the District for an excessive price." The Court interpreted the Act as targeting manufacturers' wholesale prices and any causal relation between those prices and allegedly excessive retail prices, because the Act prohibited excessive retail sales prices and yet excluded from enforcement retail sellers. The Act did not include a definition of "excessive" pricing. However, it did provide that a plaintiff could establish a prima facie case of excessive pricing if "the wholesale price of a patented prescription drug sold in the District of Columbia is 30% higher than the comparable price in either the United Kingdom, Germany, Canada, or Australia, if the drug is protected in those countries by patents or other exclusive marketing rights." (Court's internal citations omitted).

The Court found that the Act violated the Supremacy Clause because it was "a clear obstacle to the accomplishment and execution of the purpose and objectives set by Congress in passing federal patent laws relating to prescription drugs." The Court found the Act had a "per se invalid extraterritorial reach" that violated the Interstate Commerce Clause, as applied to transactions between manufacturers and other entities who are located out-of-state, because it "effectively [sought] to regulate transactions that occur wholly out of state."

A copy of the Opinion is available at this link.

For additional information about this Antitrust Development, please contact Toby G. Singer, leader of the Health Care Antitrust Practice. 

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