On September 1, 2017, Pharmaceutical Research and Manufacturers of America and Biotechnology Innovation Organization (collectively “Plaintiffs”) filed a complaint (the “Lawsuit”) in the United States District Court for the District of Nevada, against Brian Sandoval, in his official capacity as the Governor of the State of Nevada, and Richard Whitley in his official capacity as Director of the Nevada Department of Health and Human Services (collectively, the “Defendants”), regarding Defendants execution and implementation of Nevada’s SB 539 (the “Act”). A full discussion regarding the Act is available here.

The basis of Plaintiffs’ claim is that the Act interferes with federal patent and trade secret laws which thereby deprives its members of their property interest trade secrets and improperly overrides the regulatory choices of other states. Specifically, Plaintiffs allege that by extinguishing trade secret protection for its members’ confidential, proprietary information, burdening the lawful exercise of longstanding federal patent rights, and interfering with the national market for diabetes medicines, the Act violates the U.S. Constitution in at least the following four (4) ways:

(i) the Supremacy Clause, based on the Act’s conflict with federal patent law, such as the Hatch-Waxman Act, which permits patent holders to exclude others from making, using, or selling new inventions;

(ii) it conflicts with, and is arguably preempted by, federal trade secret law under the Defend Trade Secrets Act of 2016, which sets certain standards for trade secret protection;

(iii) the Takings Clause of the Fifth Amendment as it deprives its members affected by the Act of trade secret protection by forcing disclosure to Nevada, without any compensation, of certain proprietary information which is then published on-line by the Defendants; and

(iv) the dormant Commerce Clause by: (a) affecting drug prices throughout the country by way of alterations to competition and disclosure of pricing algorithms; and (b) by failing to show that the local benefit to purchasers of diabetes medications in Nevada outweighs the potential effect the Act may have on the laws of numerous other states.

Subsequent to filing the Complaint, on September 13, 2017, Plaintiffs filed a Motion for Temporary Restraining Order and Preliminary Injunction (the “Motion”), requesting that the Court, “…temporarily restrain Defendants from implementing or enforcing the challenged provisions of [the Act]…[and] enjoin such implementation or enforcement pending resolution of [the Lawsuit]. The Court denied Plaintiffs’ Motion regarding the temporary restraining order, and set a briefing schedule regarding the preliminary injunction. Oral argument is set to be heard in mid-October. Defendants have filed a response to the Motion, arguing that the matter is not ripe for judicial review.

We will continue to monitor the progress of the Lawsuit and provide updates regarding significant developments.

*UPDATE*: The lawsuit challenging provisions of SB 539 on constitutional grounds was voluntarily dismissed by the parties in June 2018 following regulatory changes that include procedures to safeguard manufacturers’ sensitive business information.

Posted by Cooley