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Ass'n for Accessible Meds. v. Frosh

United States Court of Appeals for the Fourth Circuit

January 24, 2018, Argued; April 13, 2018, Decided

No. 17-2166

Opinion

 [*666]  THACKER, Circuit Judge:

The Association for Accessible Medicines ("AAM") appeals the district court's dismissal of its dormant commerce clause challenge to a Maryland statute prohibiting price gouging in the sale of prescription drugs. AAM also appeals the district court's refusal to enjoin enforcement of the statute on the basis that it is unconstitutionally vague. We hold that the statute violates the dormant commerce clause because it directly regulates the price of transactions that occur outside Maryland.1 Accordingly, we reverse the district court's dismissal of that claim and remand with instructions to enter judgment in favor of AAM.

Factual Background and Procedural History

Maryland's Anti-Price Gouging Statute

In response to reports of price gouging by pharmaceutical manufacturers in the sale of certain prescription medications, Maryland's legislature passed [**3]  HB 631, "An Act concerning Public Health — Essential Off-Patent or Generic Drugs — Price Gouging — Prohibition" (the "Act"), during the 2017 legislative session. J.A. 42-48.2 Maryland's governor refused to sign the bill, citing constitutional and other concerns, and the bill became law without his signature. The Act went into effect on October 1, 2017.

] The Act prohibits "[a] manufacturer or wholesale distributor" from "engag[ing] in price gouging in the sale of an essential off-patent or generic drug." Md. Code Ann., Health—General § 2-802(a). The Act defines "price gouging" as "an unconscionable increase in the price of a prescription drug." Id. § 2-801(c). "Unconscionable increase" is further defined as an increase that "[i]s excessive and not justified by the cost of producing the drug or the cost of appropriate expansion of access to the drug to promote public health" and "[r]esults in consumers . . . having no meaningful choice about whether to purchase the drug at an excessive price" due to the drug's "importance . . . to their health" and "[i]nsufficient competition in the market." Id. § 2-801(f). The "essential" medications subject to the law are those "made available for sale in [Maryland]" that either "appear[] on the Model List of [**4]  Essential Medicines most recently adopted by the World Health Organization" or are "designated . . . as an essential medicine due to [their] efficacy in treating a life-threatening health condition or a chronic health condition that substantially impairs an individual's ability to engage in activities of daily living." Id. § 2-801(b)(1).

] A manufacturer or wholesale distributor determined to be in violation of the Act may face a number of legal consequences, including a civil penalty of $10,000 per violation or an action to enjoin the sale of the medication at the increased price. See Md. Code Ann., Health—General § 2-803(d). To assist the Maryland Attorney General in identifying violations, the Act provides that the Maryland Medical Assistance Program "may notify the Attorney  [*667]  General" in the event of a particular price increase, including when an increase "[w]ould result in an increase of 50% or more in the wholesale acquisition cost of the drug within the preceding 1-year period" or when a 30-day supply of the drug "would cost more than $80 at the drug's wholesale acquisition cost." Id. § 2-803(a).

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887 F.3d 664 *; 2018 U.S. App. LEXIS 9265 **; 2018-1 Trade Cas. (CCH) P80,356; 2018 WL 1770978

ASSOCIATION FOR ACCESSIBLE MEDICINES, Plaintiff - Appellant, v. BRIAN E. FROSH, in his official capacity as Attorney General for the State of Maryland; DENNIS R. SCHRADER, in his official capacity as Secretary of the Maryland Department of Health, Defendants - Appellees, CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA, Amicus Supporting Appellant, AARP; AARP FOUNDATION; KNOWLEDGE ECOLOGY INTERNATIONAL; MARYLAND CITIZENS' HEALTH INITIATIVE EDUCATION FUND, INCORPORATED; PUBLIC CITIZEN; PUBLIC JUSTICE CENTER; MARYLAND CITIZENS' HEALTH INITIATIVE EDUCATION FUND, INCORPORATED; DISABILITY RIGHTS MARYLAND, Amici Supporting Appellee.

Subsequent History: Rehearing, en banc, denied by Ass'n for Accessible Meds. v. Frosh, 742 Fed. Appx. 720, 2018 U.S. App. LEXIS 20683 (4th Cir., July 24, 2018)

US Supreme Court certiorari denied by Frosh v. Ass'n for Accessible Meds., 139 S. Ct. 1168, 203 L. Ed. 2d 197, 2019 U.S. LEXIS 826 (U.S., Feb. 19, 2019)

Prior History:  [**1] Appeal from the United States District Court for the District of Maryland, at Baltimore. (1:17-cv-01860-MJG). Marvin J. Garbis, Senior District Judge.

Ass'n for Accessible Meds. v. Frosh, 2017 U.S. Dist. LEXIS 161168 (D. Md., Sept. 29, 2017)

Disposition: REVERSED AND REMANDED WITH INSTRUCTIONS.

CORE TERMS

manufacturers, prices, extraterritoriality, dormant, drugs, out-of-state, commerce, regulation, generic, increased price, consumers, prescription drug, transactions, generic drug, borders, sales, majority opinion, distributors, violates, milk, wholesale, interstate commerce, in-state, stream, unconscionable, district court, strike down, affirmation, gouging, products

Healthcare Law, Healthcare Litigation, Antitrust Actions, Civil Procedure, Appeals, Standards of Review, De Novo Review, Summary Judgment Review, Standards of Review, Judgments, Summary Judgment, Evidentiary Considerations, Constitutional Law, Congressional Duties & Powers, Commerce Clause, Dormant Commerce Clause