Governor Newson Signs AB 824 Limiting Drug Companies’ “Pay for Delay” Agreements to Fight Soaring Prescription Drug Costs

On October 7, 2019, California Governor Gavin Newsom signed Assembly Bill (AB) 824, which is intended to lower prescription drug costs for Californians.   Its passage was supported by labor advocates as well as advocates for consumers and senior citizens. 

AB 824 makes “pay-for-delay” agreements presumptively anticompetitive under state law. Such agreements are typically legal settlements in patent infringement lawsuits, whereby one drug company agrees to limit or forego the research, development, manufacturing, marketing, or selling of a generic drug. More generally, they are agreements whereby the manufacturer of a name-brand drug pays a generic drug manufacturer to delay creating a generic version of the drug once its patent expires, or not create one at all.  Such anti-competitive agreements hurt consumers and increase drug company profits by blocking the development of generic drug competition.  As a result, consumers have fewer generic options for life-saving and costly medications.

According to Attorney General Becerra, who supported AB 824, under existing law it was very difficult to challenge “pay-for-delay” agreements because the burden was on the Attorney General to prove the agreement was anticompetitive, and because drug companies have the resources to mount a significant legal defense. Under AB 824, the burden of proof shifts to the drug company to prove their agreement does not violate the law, making it easier for the Attorney General to prosecute such anticompetitive arrangements.

AB 824 should lead to lower drug costs for Union health plans, which will in turn make the plans more solvent in the years to come.

For more information, please contact your labor law counsel.

By: Jerry Chang and Jolene Kramer | October 22, 2019

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