honorable the judges have united states court of appeals for the fourth circuit oh yeah oh yeah oh yeah oh a person's having any manner or form of business before the honorable united states good morning your honor is in may it please the court very privileged to be here to argue today i represent the appellant's the fundamental problem with h p six thirty one if that it regulate the price to be paid in transactions between manufacturers and whole really worth of generic drugs even when both parties to the transaction are entirely outside the state of maryland and cases the only thing that is unlawful is for a manufacturer or a wholesaler to engage in price gouging in the sale of an essential off patent or generic drug and then there is a carve out for wholesale earth they're not libel if they're just passing on the price of a manufacture and the affidavits in this case and it's not challenge established that the manufactur over ninety five percent of the thales of manufacturers of drugs do not take place in the state of maryland we're only challenging the statute in as much as it would be applied to those out of a transaction case where it made clear that regardless of whether the statute extraterritorial reach was intended by the legislature if what he did actually regulating is an out of state transaction if it is setting the term and that's not the instance here no what we're we're actually what we're dealing with here is the exactly what the supreme court what this court recognized the supreme court precedent stood for when it wrote the carolina trucking case the baldwin  actually deals with products that were one hundred percent intended for new york in fact unlike these products where only a small portion of the sale when a philadelphia manufacturer filth to a california whole filler only a think what you're referring to are the price affirmation cases like brown foreman and healy in bold when the makes it right thank you your honor but in baldwin the only issue was new york cared about the price of milk sold in new york just the way maryland claims it curious about the price of drugs sold in maryland but what the statute that the supreme court said was unlawful said that when someone went and ma purchase of milk in vermont even though all that milk was intended for the new york market that transaction in vermont violated new york law and what the supreme court was clear about and this court recognize doctrine in star scientific in recognized more recently in the carolina trucking case was states simply don't have the ability to exercise their softened teeth with respect to actual argument i don't think it does anything really to the injunction action the injunction argument because we are we are in a very unsettled place right now because they are threatening they've made it clear that they are investigating they are planning to bring in for statute understand it because there's a drug has become generic and this drug certain drugs are being targeted by certain types of best is a certain people are wrong on that and then they  take these drugs because they are going to like rare type diseases of things and they increased the prices of like two thousand to three thousand percent why can't my own i'm pro tech several ways first of all it could simply pass a law that said no drug may be sold in the state of maryland that has an increase of more than twenty percent or ten percent over the prior years price it could simply pass that law and anybody who sells a drug in maryland would have to obey that statute so it could absolutely do that another thing it could do with what the supreme court in the walsh versus pharma case approved which said any drug company that sells drugs in the state has to offer a rebate to the state so that everybody in the state by the drug at the medicaid price in other words the one thing it's not allowed your honor or of your honor i'm not sure my clients would be very happy with some of these alternatives but they wouldn't be unconstitutional and that's the critical thing what maryland has done is it has said look we want to exempt our retailers from the force of this regulation we even want to with them for the most part wholesale and to sell into the state so within the entire chain if they were to pass a proper constitutional law and simply say you can't sell a drug from where the hundred dollars or for more than twenty percent or fifty percent increase or anything that with lawful in the state what would happen through the market is the retailers and the whole fillers and then your factures would also have to make certain price concessions because all of them are profit oriented businesses to try to sale in any of the forty nine other states at whatever price they wanted to make it and that would not be regulated by the maryland statute unless there was a later transaction which would seem to be covered by distribution agreement but the distribution agreement doesn't involve the manufacture the way the industry works it's a drug company take a new jersey drug company sells drugs in bulk to big buying wholesale companies there are a bunch of them around the country none of them happen to be in maryland one of the largest ones is in california so take that sale it's a still from new jersey to california then the california company sets its price and sells downstream but that transaction is not the subject of this regulation the only transaction that realistically is subject to this regulation to this law is the first transaction and that is an entirely out of a transaction quote technically that's their word reaches out of state sales between manufacturers and whole thing with which you are told for certain that you were accepting the premises that unless there was a later sale in maryland the statute did not apply no your honor what i said with they say that they will not in fourth penalties unless there is a later sale in maryland but the later sale is not a sale of our clients in other words the later sale that they are going to then the sale between other parties the only thing that our companies may that the manufacturer of may that we're challenging ourselves to take place entirely outside the state different from escrow so that when we need the state of virginia have to pay damages in potential product liability case this will have the money it did not in any way saying that the sale between the south carolina manufacturer and the georgia extraterritorial case that the supreme court decided did two very important things number one it relied on the doctrine from baldwin and from healey and then it distinguished between two parts of the main or and this is i think the most critical for actual in state sales and what the supreme court said is maine does not the main act does not regulate the price of any out of state transaction maine does not insist that manufacturers sell their drugs to a wholesaler for a certain price that's why the rebate was constitutional and the anti profiteering or the n t douching statute in maine was unconstitutional and in fact it w unconstitutional at the district court it wasn't even appealed but when the supreme court wrote its decision it distinguished and this is at sixty nine of the walsh opinion in the supreme court and it makes the very point that this court made in carolina trucks where in the carolina trucks case the court said we are only going to read that statute to relate to in state transactions to the extent that the a reading of the statute that involves declaring invalid a transaction that outside of the state of carolina it would be unconstitutional under the dorman commerce both and therefore we have to have a citizen construction but in this statute there is no saving construction because if you read the statute it simply says a manufacturer may not engage in price gouging in the sale of it off patent drug and this sales that are at issue in this law are out of state still and i just want to reiterate there there are a lot of things to maine maryland has the authority to do it i agree your honor there are some obviously terrible example that we've seen in the market place this gentleman is properly in jail i would point out that he's actually not a manufacturer of generic drugs he had a one off off patent drug but the bulk of something like seventy percent of all prescriptions in america are actually filled by low cost generic drugs the ibuprofens and the antibiotics and all of the drugs we cake are sourced usually by many many different companies and these are sales that take place out of the state but that  state is imposing its restrictions or its regulation within the state or outside of the city it does make a difference with respect to our baking the challenge and the state makes a big deal of saying well we just set the terms here is unconscionable and the truth is if all they had said was unconscionable i think it would be a much harder case for me because we we have a conventional meaning of unconscionable it means shocks the conscience what they've done is they've compounded the problem because they defined unconscionable with subjective terms like excessive not justified and even applied it into the case where there are three different competitors in a marketplace which by definition is  competitive marketplace so i think it is relevant your honor it's relevant to the vagueness challenge but on the dormant commerce clause challenge the only focus for this court is really does the transaction they want to regulate take place entirely thank you judge i'm a place the court the stink you clarify right from the beginning is that maryland's position and that the statute can apply to a transaction in another state before there is a downstream transaction in maryland this is the the statutes is triggered by an in state  essential drug includes made available for sale of marijuana well but made available for sale in maryland doesn't mean only for sale in maryland made available for sale in maryland could also be they're selling it in west virginia they're selling a in california that's a problem and then the other provision that we rely on is the provision that talks about liability touching even if the party that engaged in the act did not  brook wrote for the southern circuit that goes to stamp wishing something that can't be at the fan but that doesn't go to the overall jurisdiction may what we say is that it's technically accurate that in manufactor the conduct that violates the statute could manifest itself in a wholesale trip wholesale transaction that occurs out of state that's them that's that's actually what we said and that was true of the very same extent in star scientific the headline point here is that upstream impact is ok if that's what th as we do not have the authority to bring an action under the statute and tillers a sale in maryland and that's what i'm looking for in the statute because that would seem to be the linch whether or not it reaches out of state that that precise language your honor does not appear in the statute that is the way that that we think the statue should correctly be interpreted it would be interpreted by the court of appeals in maryland and in k s pharmacy's the seven circuit in front of this precise question and it said what's the point of interpreting a statute broadly when it would raise constitutional questions and in precisely the precise context it interpreted the statute at issue in that case  exactly right your honor and we certainly think there's language in the statute could it be more precise on this point you can see that it could be but there certainly language in the statute which will kind of limit in construction the court found it necessary to do that could be based the court of a be like the state of maryland saying maryland resident you can't go to pennsylvania or virginia buy drugs at the price that they're available for them and that's completely different than what's at issue here this is this is this is a this is a this is a statute that regulate in state consumer sales but that recognizes that the price increase unconscionable price increases the source of unconscionable price increases maybe up straight upstream transactions between wholesalers and distributors know only applies to consumer sales in maryland he i think he accepted at the beginning of his argument that it does not proport to regulate consumer transactions in california our virginia i think that's my necessary given the language in the statute but we don't object to one if this court feels that it's necessary to make it to make it to interpret the statute to apply only when there's an in state consumer sale i thought correct the this is a statute intension of which is to protect maryland patients from price gouging for massive unjustified increases in the price of certain essential medicines where market statute and to the extent that it has any kind of effect it's because the manufacturers say they don't have a distribution system today that lets them figure out where their drugs are going to control where the drugs are shock the conscience so in the ordinary case unlike stocks unlike star scientific which every time an out of state manufacture sells to an out of state distributor a cigarette intended for sale in virginia there is an escrow  star scientific this court held that the commonwealth of virginia without infringing dormant commerce clause could impose a two cent three on each cigarette sold by an out of state manufacturer to an out of state distributor exactly the same case in addition the manufacturers don't acknowledge but the other provisions of the escrow statute provided for the attorney general  the same character again and this one this this statue as much now or its impact but of the same character as the impact issue here because of the virginia escrow fee statute out of state manufacturers have decide whether to sell so first of all it's a district court decision it was not appealed and i think i think i will be straightforward in saying that i think our main response on that or it is that we think it ought to be regarded as not persuasive because it preceded most of the case law we're talking about here that recognize that upstream impact is permissible in part impact in the norm or commerce clause there are there were elements of it that may be significant there were elements of that statue that ma clause purposes to for example there was a price tying mechanism in that statute that that tied in some sense the price in d c to international prices and that of course is a trigger under the healey baldwin and brown form a lot of cases that the manufacturers here miss cite but i think in the main our our position is that the judge in the d c case did not recognize as this court point said that i can't for the cell yet i need to do some discovery and neither party seems to really join that particular issue what's wrong with that this is a facial court and it may well be that a more developed factual record will be of some assistance the district court our position is particular because as a facial challenge it should be dismissed the manufacturers are really completely i don't know th the basic framework of an easy case manufacturer walks into his lawyers office and says i have this lifesaving drug to treat a chronic condition once you start taking it take us your life and we've been charging two thousand dollars a year for it the last twenty years tomorrow raising the price two hundred thousand dollars a year and there's been no change in our production costs there's been no change in any anything material to the pricing or pricing de and i know that some of our patients don't have insurance and i know that some of our patients have health insurance with high deductibles and this may in some way impact their access to the drug but i don't care about that now that manufacture includes a definition for unconscionable on the statute which has several terms innit may be classified as loose of our position your honor to be very blunt about it we strongly disagree with which mirrors the procedural component one of which mirrors the substantive component the procedural component says we're concerned when consumers and parties to the transaction have no meaningful choice the legislature here said we're concerned that consumers have no meaningful choice the substantive component says we're concerned when the terms including the price terms term would be unreasonably favorable to one party here it looks like you use the word excessive instead of unreasonably favor moreover in the legislative history there's a letter from the attorney general to legislative  this law to adopt for a particular application the common law doctrine of unconscionable including its standard of shocks the conscience so with the very very very sort of on that and the fact they say doesn't well they just haven't read carefully enough same on the point of market competition the staff you clearly says it applies only in circumstances where there's been insufficient competition and competition but insufficient thank you and if i mad like to clear up the one bit of confusion here we never can feeded that the statute applies only to sales merit what we said what could after all that's the essence of our thing what we said w well it is it's not a question of whether it affects the price if the question and baldwin makes this clear is if it simply says that a transaction the takes place in a nother sovereign state is unlawful under maryland law when it would be it's a couple percent of the sales they make directly into maryland and those can be regulated but you know when they talk about the upstream effect it's absolutely correct that when a state properly regulates within the state like in star scientific when they're just assessing a fee based on a per youth or the rebate in walsh it can have a lot of strong upstream effects and the constitution doesn't checked against that's the difference when  in california that is a sale of drugs in another state it may not be a sale to a consumer but it is a sale to a nother entity and maryland is saying that that sale is invalid and we talked a have violated the statute can't assert as a defense that he didn't have a transaction with someone in maryland so i don't think like in the k s case the judge easterbrook decided with wisconsin or the carolina trucks all of maryland if because it's not the company they want to penalize is not ever making a sale in maryland with respect to what we are challenge i understand that if the new jersey manufacture does make a small number of thales to a hospital in maryland that is subject to this statute whether we like it or not but they are not making later sales if they sell to a big company cardinal or mckesson in california  ohio or indiana that's the sale that they want to penalize and that is simply beyond the boundaries of the congress thought and this court has made clear in the carolina trucks and in the start scientific what the boundaries of extraterritoriality are and the only time when states can regulate are when they are regulating the instate transaction they certainly can regulate it late in state products as much as they want but one thing that they cannot do is exercise their sovereignty to say that something that is lawful in another state a transaction the price of the transaction is nevertheless unlawful under maryland law but it is  they're they they are saying it's invalid they're saying it's unlawful in fact the statute says the sale is unlawful so yes your honor i would respectfully very respectfully disagree they are saying that that out of state transactions unlawful and the only way they're trying but they're not sold by the company that they are targeting and that's the critical distinction in star scientific they were simply assessing a fee to the producer to the manufacturer who's drugs worse who's tobacco with all they are free to do something like that as the main state did in the case that was approved in pharma what they're not allowed to do is the other part of the main decision which with struck down they don't the statute doesn't directly say that it applies to drugs actually sold in maryland it says made available for sale and sold in maryland the issue would be who is selling in maryland retailers sell in maryland so retailers could be subjected to this wholesalers selling maryland but unfortunately and it's not that main maryland is without recourse maryland could simply pass any number of laws that we might find very draconian they could say no one can sew in maryland that does for any price other than the medicaid or no one can so with for more than ten dollars a prescription we wouldn't like that but it wouldn't violate the dorman commerce clause and it would require everyone in the chain the in state retailers out of state manufacturers to negotiate a solution as opposed to exempting the instinct retailers from the thrust of the statute to only regulate outside the