Assoc. for Accessible Medicine v. Brian Frosh
887 F.3d 664 (2018)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A state statute that has the practical effect of controlling prices in commercial transactions that occur wholly outside the state's borders is per se invalid under the dormant commerce clause.
Facts:
- The Association for Accessible Medicines (AAM) is a trade organization representing prescription drug manufacturers and wholesale distributors.
- The vast majority of AAM's member-manufacturers and all of its member-distributors are located outside of Maryland.
- Consequently, most initial sales of drugs from manufacturers to wholesale distributors occur outside of Maryland's borders.
- Maryland enacted a statute prohibiting manufacturers and distributors from engaging in 'price gouging' in the sale of any essential off-patent or generic drug.
- The statute's prohibitions are triggered if a drug is 'made available for sale' in Maryland, regardless of where the initial manufacturer-to-distributor sale takes place.
- The law applies to upstream pricing by manufacturers and wholesalers, not to the final retail prices charged to consumers by pharmacies.
- The statute explicitly prevents a defendant from asserting as a defense that they did not deal directly with a consumer in Maryland.
Procedural Posture:
- The Association for Accessible Medicines (AAM) filed an action against Maryland state officials in the United States District Court for the District of Maryland.
- AAM sought to enjoin enforcement of a Maryland statute on the grounds that it violates the dormant commerce clause and is unconstitutionally vague.
- Maryland filed a motion to dismiss.
- The district court granted Maryland's motion to dismiss the dormant commerce clause claim but denied it as to the vagueness claim.
- The district court also denied AAM's motion for a preliminary injunction.
- AAM, as appellant, appealed the dismissal of its dormant commerce clause claim to the United States Court of Appeals for the Fourth Circuit, with Maryland officials as appellees.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a Maryland statute prohibiting manufacturers and wholesale distributors from engaging in 'price gouging' in the sale of certain prescription drugs violate the dormant commerce clause by regulating transactions that occur wholly outside of Maryland?
Opinions:
Majority - Thacker, Circuit Judge
Yes. The Maryland statute violates the dormant commerce clause because it directly regulates the price of transactions that occur outside Maryland. The 'extraterritoriality principle' of the dormant commerce clause prohibits a state from enacting legislation that controls commerce occurring wholly outside of its borders. The Maryland Act's 'made available for sale' language does not limit its application to sales within Maryland; instead, it targets the price of upstream wholesale transactions which occur almost exclusively outside the state. By prohibiting an 'unconscionable increase' in the price of these initial out-of-state sales, the Act operates as a direct price control on out-of-state conduct, which is precisely what the Supreme Court invalidated in cases like Healy v. Beer Inst. and Brown-Forman. Furthermore, if other states enacted similar legislation with varying definitions of 'unconscionable,' it would create conflicting regulatory regimes, impermissibly burdening interstate commerce.
Dissenting - Wynn, Circuit Judge
No. The Maryland statute is a valid exercise of the state's police power to protect its citizens from abusive pricing and does not violate the dormant commerce clause. The statute's extraterritorial reach is limited, as it is only triggered when a drug is ultimately 'made available for sale' in Maryland, meaning it regulates only streams of commerce that end within the state. The majority's interpretation expands the extraterritoriality doctrine beyond its narrow application in Supreme Court precedent, which has primarily invalidated price affirmation statutes that tie in-state prices to out-of-state prices or discriminate against interstate commerce. This statute does neither. The law addresses a clear market failure where vulnerable consumers have no meaningful choice, and the dormant commerce clause should not be used to grant manufacturers a constitutional right to engage in price gouging.
Analysis:
This decision reinforces a strict application of the dormant commerce clause's extraterritoriality principle, limiting states' ability to regulate national markets, even for consumer protection purposes. By invalidating Maryland's attempt to control upstream drug prices, the court signals that states cannot directly regulate the price of initial, out-of-state transactions, even if the product eventually harms consumers within their borders. The ruling forces states seeking to lower prescription drug costs to explore alternative methods, such as rebate programs or direct negotiations, rather than imposing price controls on a national supply chain. This holding contributes to a circuit split on the breadth of the extraterritoriality doctrine, making the issue ripe for potential Supreme Court review.
