Supreme Court must right wrong striking down Md.'s drug price-gouging statute

Before the Supreme Court is a case that pits the Martin Shkrelis of the pharmaceutical industry against Maryland residents in need of life-saving medications.

The case lies at the intersection of three realities. First, Marylanders with acute medical conditions, ranging from cancer to diabetes, rely on certain medications to live. Second, pharmaceutical companies have hiked the prices for specific life-saving medications. (For example, Mylan, the company with exclusive rights to distribute Epipen, a primary treatment for severe allergies, raised the price of a two-pack of injections by over 500 percent from $94 in 2007 to $609 in 2014). Third, market forces have failed to drive down prices for these medications, enabling opportunistic companies to set sky-high prices without competitive restraint.

In response to this tripartite situation, some across the country held hearings, typed out reports or delivered bombastic speeches. Maryland took action.

Drawing on its sovereign power to protect the health and welfare of its residents, Maryland enacted the Anti-Price-Gouging Act. This statute prohibits a drug manufacturer or distributor from charging “unconscionable” prices for critical, off-patent and generic medicines. According to Maryland Attorney General Brian Frosh, the law would “give Maryland a necessary tool to combat unjustified and extreme price increases for medicines that have long been on the market and that are essential to our health and well-being.”

Gov. Larry Hogan supported the law in principle but declined to sign it due to reservations about its constitutionality. The essence of Governor Hogan’s constitutional concerns is what is called the extraterritoriality doctrine, the legal theory that a state cannot impact commerce outside of its borders because the Constitution permits only Congress — not the states — to regulate interstate commerce.

Governor Hogan opined that the price-gouging statute would impact drug prices outside of Maryland and thereby violate this doctrine.

In 2017, a pharmaceutical trade association brought a lawsuit, alleging that, as Governor Hogan suspected, the price-gouging statute runs afoul of the extraterritoriality doctrine. The trial court upheld the statute against this constitutional challenge. On appeal, however, the Richmond-based U.S. Court of Appeals for the Fourth Circuit sided with the trade group, wiping away the statute and re-exposing Marylanders to runaway prices for life-saving drugs.

The Supreme Court must right this wrong.

It cannot be said that a state law goes too far when it seeks to protect its own citizens from predatory prices for commercial products sold in its own state, particularly where the law does not limit or even reference prices charged outside of the state. Nor can companies complain of the law’s reach when they are specifically targeting Maryland consumers and directing their goods into the state. Indeed, the statute applies only to critical drugs “made available for sale in the State.”

Pharmaceutical companies may argue that the doctrine helps eliminate disparate policies imposed by Maryland and other states that collectively clog interstate commerce. But the Supreme Court recognized in a recent internet sales tax case that, in today’s modern economy, technology helps companies navigate these diverse state regulatory systems themselves, obviating the need for companies to run to the courts with doctrine in hand. In that same case, the justices focused on where the companies shipped goods to, not where the ripple effects of the law may end up, further undercutting the relevance of the doctrine.

The doctrine has lost steam over time and arguably should not have been judicially engineered in the first place. For starters, the doctrine cannot be found anywhere in the text of the Constitution. It also does not fit within the straightforward structure of the Constitution. The ostensible constitutional source for the doctrine, Article I, Section 8, is only affirmative in nature: It enumerates what Congress can do. The part that is restrictive and that specifically lists what states cannot do, Article I, Section 10, does not include the doctrine. Historically, the Supreme Court has mentioned, but has never relied on, the doctrine, meaning that lower courts may have mistakenly invented the doctrine from stray comments.

Even when invoking the doctrine, lower courts have offered inconsistent reasons as to when a law crosses the line, suggesting that the doctrine itself may not be capable of precise definition or even-handed application. Indeed, the Fourth Circuit’s expansive view of the doctrine conflicts directly with the measured approach adopted by the San Francisco-based Ninth Circuit and the Denver-based Tenth Circuit.

An incoherent doctrine with otherwise shaky credentials has no business in a sound and stable legal system. The Supreme Court must rein in the doctrine and in doing so restore the authority of Maryland and other states to address the health needs of their people. Nothing short of our constitutional order and public health depend on the Justices doing the right thing.

Dawinder S. Sidhu (dsidhu@gmail.com), an attorney from Maryland, filed a brief on behalf of legal scholars in support of the Maryland Attorney General’s petition for Supreme Court review of this case. A decision on the petition is expected early this year.

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