Amgen Inc. v. Health Care Services
Filed 4/9/20, CERTIFIED FOR PUBLICATION (2020)
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Rule of Law:
Information required to be disclosed to numerous entities under a transparency statute, without any statutory or contractual confidentiality obligations on the recipients, loses its trade secret status and is therefore not exempt from public disclosure under the California Public Records Act.
Facts:
- In 2017, the California Legislature enacted Senate Bill No. 17 to increase transparency in pharmaceutical pricing, which included a requirement for manufacturers to provide 60-days' notice of wholesale acquisition cost increases for certain drugs.
- Health and Safety Code section 127677, part of Senate Bill No. 17, mandates that pharmaceutical manufacturers provide this advance notice to specified recipients, including state entities (like California Correctional Health Care Services or CCHCS), licensed health care service plans, health insurers, and pharmacy benefit managers.
- Neither Health and Safety Code section 127677 nor any other provision enacted under Senate Bill No. 17 requires the recipients of price increase notices to keep the information confidential or restricts their use of it.
- Pharmacy benefit managers who receive these notices are statutorily required to further notify their 'large contracting public and private purchasers' (defined as those providing coverage to more than 500 covered lives) of the price increases.
- Amgen Inc., a pharmaceutical manufacturer, provided a price increase notice by e-mail to approximately 170 registered purchasers, including CCHCS, marking the e-mail 'Confidential' in the subject line and message text.
- Reuters News made a request under the California Public Records Act (CPRA) to CCHCS, seeking all price increase notices CCHCS had received within a specified period.
- CCHCS informed Amgen of the CPRA request and stated its intent to disclose the records, indicating it did not identify a legal basis for nondisclosure and would proceed unless a court order was received.
Procedural Posture:
- Amgen Inc. filed a complaint and petition for writ of mandate in the Los Angeles County Superior Court (trial court), seeking declaratory and injunctive relief to prevent California Correctional Health Care Services (CCHCS) from disclosing its price increase notice.
- The trial court granted Amgen's unopposed ex parte application for a temporary restraining order.
- Amgen then moved for a preliminary injunction, which CCHCS opposed.
- The trial court issued a written ruling in Amgen's favor, finding Amgen had demonstrated a reasonable probability of prevailing on the merits and that the balance of harms tipped in its favor.
- The trial court signed an order granting the preliminary injunction, prohibiting CCHCS from disclosing Amgen's notice.
- CCHCS, as the defendant, timely appealed the order granting the preliminary injunction to the California Court of Appeal, Second Appellate District.
- While the appeal was pending, the trial court sustained CCHCS’s demurrer to the mandamus cause of action with leave to amend.
- Amgen chose to dismiss its action instead of amending, thereby abandoning its underlying attempt to prevent CCHCS from disclosing the price increase notification.
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Issue:
Does a pharmaceutical manufacturer's disclosure of prescription drug price increase notices to numerous registered purchasers and their customers, as required by Health and Safety Code section 127677, negate the information's trade secret status, thereby making it subject to disclosure under the California Public Records Act?
Opinions:
Majority - Bendix, J.
No, a pharmaceutical manufacturer's disclosure of prescription drug price increase notices to numerous registered purchasers and their customers, as required by Health and Safety Code section 127677, negates the information's trade secret status, making it subject to disclosure under the California Public Records Act. The court found that Amgen failed to demonstrate that its price increase information retained trade secret status after disclosure under Senate Bill No. 17. A trade secret requires information to derive economic value from not being generally known and to be subject to reasonable efforts to maintain its secrecy (Civil Code section 3426.1, subdivision (d)). Here, Amgen disclosed the notice to over 170 registered purchasers and an unknown number of their customers, none of whom were under statutory or contractual obligations to maintain confidentiality. Public disclosure, or disclosure to others who are under no obligation to protect confidentiality, is fatal to the existence of a trade secret (In re Providian Credit Card Cases (2002) 96 Cal.App.4th 292, 304). The court emphasized that the recipients, including those who directly or indirectly sit opposite Amgen at the bargaining table, could obtain economic value from this information, which aligns with the legislative intent of Senate Bill No. 17 to allow purchasers to prepare for price increases by finding cheaper alternatives. The trial court abused its discretion by misapplying the burden of proof, assuming continued confidentiality without Amgen presenting any evidence on this issue. The court also concluded that the balance of harms did not favor Amgen, as the information had already been disseminated to entities capable of leveraging it to Amgen's detriment, and delaying public disclosure for 60 days offered little demonstrated benefit, especially since Amgen's rivals are subject to similar disclosure requirements. The court distinguished the case from scenarios where confidentiality was statutorily mandated or contractually agreed upon.
Analysis:
This case significantly clarifies the limits of trade secret protection when information is disclosed under mandatory transparency laws. It reinforces that the absence of explicit statutory or contractual confidentiality obligations on recipients, especially those who can derive economic value from the information, will likely destroy trade secret status, even if the initial disclosure was 'compelled.' The ruling indicates that legislative intent for transparency can override a manufacturer's desire for secrecy, potentially impacting other industries where similar disclosure requirements exist. Future cases involving government-mandated disclosures will need to carefully consider whether the disclosure regime includes explicit confidentiality protections to preserve trade secret claims, as merely marking information 'confidential' is insufficient without a corresponding duty to maintain secrecy.
