IP Law Daily, TRADE SECRETS—D. Or.: Oregon drug pricing transparency law held unconstitutional in part, (Mar 22, 2024)

By George Basharis, J.D.

Pharmaceutical manufacturers’ association contended that an Oregon law requiring the disclosure of detailed prescription drug pricing violated its member’s constitutional rights and protections.

The United States District Court for the District of Oregon has ruled in favor of the Pharmaceutical Research and Manufacturers of America (PhRMA) in a case that challenged Oregon’s drug-pricing transparency law. The court granted summary judgment to PhRMA on its claims under the Takings Clause and the First Amendment, while neither party was granted summary judgment on the Commerce Clause claim. Oregon was granted summary judgment on PhRMA’s Supremacy Clause claim, with the court determining that state law was not preempted by the federal Defend Trade Secrets Act (DTSA) (Pharmaceutical Research v. Stolfi, March 19, 2024, Mosman, M.).

The case centered on Oregon House Bill 4005, which required pharmaceutical manufacturers to report detailed pricing information to the Oregon Department of Consumer and Business Services (DCBS). The DCBS was then required to publish the manufacturers’ reported information on its website. However, information containing trade secrets would not be posted unless its disclosure was deemed to be in the public interest. PhRMA argued that the law’s public-interest exception, which could compel the disclosure of trade secrets, constituted an unconstitutional taking without just compensation. Furthermore, PhRMA contended that the public-interest exception violated the manufacturers’ First Amendment rights, as well as the Commerce and Supremacy Clauses.

Standing. As a preliminary issue, the court addressed PhRMA’s standing to bring its constitutional claims. PhRMA conceded that it did not have standing to bring the claims on its own behalf but argued that it had associational standing to sue in a representational capacity on behalf of its members. The court concurred, finding that although the public interest exception had never been invoked, if the DCBS determined that a manufacturer’s trade secrets would benefit the public, disclosure was mandatory. The court also found that a declaratory judgment in PhRMA’s favor would rectify the threatened injuries to PhRMA members.

Unconstitutional taking. Upon concluding that PhRMA had standing, the court determined that the public-interest exception in H.B. 4005, which could compel the disclosure of trade secrets, constituted a regulatory taking without just compensation, thereby violating the Fifth Amendment. The court dismissed DCBS’ argument that PhRMA was required to demonstrate that H.B. 4005 would result in the taking of trade secrets in all its applications. The court clarified that the question was solely whether the public-interest exception would amount to an unconstitutional taking each time it was invoked. The court noted that PhRMA was not challenging the constitutionality of H.B. 4005 in its entirety.

Concentrating solely on the public-interest exception, the court applied the factors identified by the Supreme Court for evaluating a regulatory taking claim. These factors include the character of the government’s action, its economic impact, and its interference with reasonable investment-backed expectations. Each of these factors supported PhRMA’s claim of taking. On its face, H.B. 4005 did not clarify how DCBS would determine when the public interest necessitated the publication of a trade secret, thereby imposing a minimal burden on Oregon and causing irrevocable economic losses for PhRMA members. Furthermore, members had a reasonable investment-backed expectation that the state would preserve the confidentiality of information that qualified for trade secret protection.

DTSA preemption. However, Oregon was granted summary judgment on the Supremacy Clause claim, with the court finding no preemption by the DTSA. PhRMA argued that H.B. 4005’s public-interest exception was preempted by the DTSA. PhRMA maintained that the disclosure mandated by the state law constituted misappropriation under the DTSA, making compliance with both state and federal laws impossible. The association also contended that the public-interest exception hindered the full accomplishment of the DTSA’s purposes and objectives because it nullified the trade secrets that federal law protected. However, the court found it unclear whether disclosure under H.B. 4005 would constitute misappropriation under the DTSA, thereby suggesting that compliance with both state and federal laws could be possible. Moreover, the court noted that the DTSA was intended to work in tandem with state trade secret laws and did not appear to prevent states from imposing reporting requirements on regulated entities.

Commerce Clause. The court refrained from granting summary judgment to either party on PhRMA’s Commerce Clause claim, indicating unresolved disputes concerning whether H.B. 4005 violated the Clause. PhRMA contended that H.B. 4005 exerted control over commerce in all 50 states by imposing regulatory consequences on nationwide price adjustments. However, the court noted that it lacked sufficient information at the summary judgment stage to ascertain the practical impact of the state law on interstate commerce.

First Amendment. Finally, the court determined that the reporting requirements imposed by H.B. 4005 infringed upon the First Amendment rights of the manufacturers. The court identified the speech regulated by H.B. 4005 as commercial. The disclosure requirements were triggered by price changes and product introductions to the market, with the content of the disclosures relating to costs and pricing. At its core, H.B. 4005 dealt with the economics of prescription pricing, and the pharmaceutical companies acted out of an economic motivation as they were compelled to provide pricing information to participate in the market. Consequently, the court applied intermediate scrutiny to evaluate the constitutionality of H.B. 4005.

Oregon argued that H.B. 4005 aimed to provide accountability for prescription drug prices and offered prescription drug buyers better information about the price of prescriptions. However, the court found that Oregon failed to demonstrate how H.B. 4005 would directly advance the state’s interest in regulating the cost of prescription drugs. Oregon also failed to show that H.B. 4005 was narrowly tailored to advance the state’s goals.

The Case is No. 6:19-cv-01996-MO.

Attorneys: Jonathan M. Hoffman (MB Law Group, LLP) for Pharmaceutical Research and Manufacturers of America. Carla Scott, Oregon Department of Justice, for Andrew Stolfi.

Companies: Pharmaceutical Research and Manufacturers of America

Cases: TradeSecrets OregonNews GCNNews