California Law on Reverse Payment Settlements Goes into Effect


  • Name
    DJ Healey
    Person title
    Senior Principal
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January 1, 2020, was the effective date of California's new "Preserving Access to Affordable Drugs" Act, A.B. 824, now Sections 13,400-13402 California Health and Safety Code. The California Legislative Counsel's digest summarizes the law's main provision as follows:

This bill would provide that an agreement resolving or settling, on a final or interim basis, a patent infringement claim, in connection with the sale of a pharmaceutical product, is to be presumed to have anticompetitive effects if a nonreference drug filer receives anything of value, as defined, from another company asserting patent infringement and if the nonreference drug filer agrees to limit or forego research, development, manufacturing, marketing, or sales of the nonreference drug filer's product for any period of time, as specified.

The bill only applies to California's antitrust law, the Cartwright Act, and its Unfair Competition statute, California Business and Professions Code Section 17,200 et seq. The law has no effect on federal law or other states' laws. Further, the bill only impacts the initial burden of going forward on whether a contract is a reasonable restraint on trade. The bill does not change the law on standing, antitrust injury or antitrust damages or equitable relief, nor does it likewise extend to all elements needed to prove liability under Section 17,200. So while the law shifts the burden of going forward in a "reverse payment" settlement from the plaintiff to the contracting parties (presumably the defendants) on the issue of whether the contract is a reasonable restraint on trade, it does not shift the plaintiff's burden of going forward on the other elements of its claim. Moreover, since the bill only impacts only part of the proof of liability, it does not appear to shift the ultimate burden of proof away from the plaintiff (albeit how court's deal with the statute in litigation is as yet unknown).

A non-profit industry group, the Association for Accessible Medicines, filed suit against the state to declare the law unconstitutional and to enjoin it from going into effect. The Plaintiff argued, among other things, that the law violated the federal government's right to regulate interstate commerce and the scope of U.S. patents. On December 31, 2019, the United States District Court for the Eastern District of California refused to enter a preliminary injunction against the law going into effect, holding the Plaintiff had not met its burden of proof for a preliminary injunction. Association for Accessible Medicines v. Becerra, 2019 WL 7370421 (E.D.Cal. 12/31/2019). Moreover, since the injunction was sought prior to when the law went into effect, there was uncertainty as to whether it would violate federal law "as applied", which further complicated the injunction litigation.

How the Ninth Circuit will handle the issue, and whether courts will limit the law's application to try to avoid conflict with federal law, remains to be seen. In the interim, given the size and reach of the California economy, settlements and licenses should be vetted by antitrust counsel in light of the AB 824.

Author: DJ Healey