A federal district court recently ruled that Oregon’s drug price transparency statute, House Bill 4005 (HB 4005), is unconstitutional. Specifically, the court held that (1) HB 4005’s price increase reporting requirements violate the First Amendment and (2) HB 4005 effects an unconstitutional taking of drug manufacturers’ private property by authorizing the state to publish manufacturers’ trade secrets if the "public interest" requires such publication. The ruling (which comes nearly five years after the plaintiff, Pharmaceutical Research and Manufacturers of America (PhRMA), filed its complaint challenging the law) quickly led the Oregon Department of Consumer and Business Services (DCBS) to suspend its price increase reporting requirements (which are due annually by March 15) and could spur challenges to similar drug price transparency laws in other states.
Background on HB 4005
HB 4005 was enacted in February 2018 and includes, but is not limited to, two key reporting elements: (1) Manufacturers must annually submit price increase reports to the state if the wholesale acquisition cost (WAC) of a prescription drug is at least $100 and underwent a net increase of 10% or more over the course of the previous calendar year; and (2) manufacturers must submit new prescription drug reports if they introduce a product to market at a WAC that exceeds the Medicare Part D specialty drug threshold (which is $950 for CY 2024).
Under HB 4005, both price increase reports and new prescription drug reports require manufacturers to submit detailed pricing information in connection with their products. Importantly, HB 4005 requires DCBS to publish on its website all information manufacturers submit as part of their price increase and new drug reports unless (1) the information is “conditionally exempt” from disclosure as a “trade secret” under Oregon law and (2) DCBS determines that “the public interest does not require disclosure of the information.” Thus, the law requires DCBS to publish manufacturers’ trade secrets whenever the agency finds that disclosure is in the “public interest.”
District Court Decision
PhRMA’s suit, filed in the District of Oregon in December 2019, raised several constitutional claims against HB 4005. In a declaratory judgment entered on February 16, 2024, Judge Michael Mosman agreed with two of PhRMA’s constitutional theories. First, the court ruled that HB 4005’s price increase reporting requirements violate the First Amendment because they compel drug manufacturers to justify their price increases in a manner that endorses Oregon’s preferred message that drug manufacturers are solely responsible for high drug prices. Second, the court held that the requirement that DCBS publish certain manufacturer trade secrets violates the Takings Clause of the Fifth Amendment by extinguishing manufacturers’ property rights in their trade secrets without just compensation.
At the same time, the court rejected PhRMA’s claim that HB 4005 conflicts with, and is therefore preempted by, the federal Defend Trade Secrets Act of 2016 and declined to resolve PhRMA’s argument that HB 4005 violates the dormant Commerce Clause by impermissibly interfering with interstate commerce in attaching penalties to actions related to a product’s national list price. The judgment provides no analysis in support of the decision but states that “[a] full basis for these rulings” will “be set forth in a written opinion to follow.”
PhRMA’s complaint in Oregon mirrored a separate complaint it filed in December 2017 against California’s drug price transparency law, which is similar to Oregon’s in that it includes both price increase and new prescription drug reporting requirements, but California’s law differs in that manufacturers are required to submit only pricing information that is publicly available. In the California case, PhRMA v. Landsberg, 2:17-cv-02573 (E.D. Cal.), the court denied PhRMA’s motion for summary judgment on its claims that California’s law violated both the dormant Commerce Clause and the First Amendment. After the Ninth Circuit affirmed the district court’s holding on appeal, PhRMA agreed to dismiss the case with prejudice.
Implications for Manufacturers
Shortly after the court issued its declaratory judgment, DCBS released a bulletin announcing that Oregon’s annual price increase reporting requirements have been suspended in light of the court’s decision. Importantly, this suspension is limited to annual price increase reports and does not relieve manufacturers of the obligation to submit other reports under HB 4005, such as new drug reports or information related to patient assistance programs.
Additionally, while PhRMA’s success on its Takings Clause claims will prevent DCBS from citing the public interest exception to justify publishing information that manufacturers have claimed as trade secrets in their price increase, new drug, or patient assistance program reports, DCBS still retains discretion in determining whether such information constitutes a trade secret under Oregon law, which provides a separate avenue for potential publication. Manufacturers should monitor for the court’s complete written opinion, which should provide additional insight and context for the court’s holding and for developments on appeal, as Oregon stated its intent to appeal the decision in the DCBS bulletin.
More broadly, PhRMA’s success in the district court could spark similar challenges to analogous drug price transparency laws in other states. Twenty-three states currently have some form of drug price transparency law in effect. Additionally, the ruling could provide an extra boost to manufacturers as they continue to combat restrictive drug pricing statutes on multiple fronts, including pending federal challenges to the price negotiation provisions of the Inflation Reduction Act. The ruling could also give fuel to legal challenges outside the drug price transparency context, including in other contexts where state or federal governments may disclose trade secret information or compel regulated entities to speak, even on traditionally commercial subjects such as pricing.
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