Opinion ID: 199407
Heading Depth: 3
Heading Rank: 1

Heading: Per Se Invalidity: Extraterritorial Reach

Text: 50 A state may not pass laws that have the 'practical effect' of regulating commerce occurring wholly outside that State's borders . . . . Healy, 491 U.S. at 332. When evaluating the practical effect of the statute, the court should consider the statute itself, and how the challenged statute may interact with the legitimate regulatory regimes of other States and what effect would arise if not one, but many or every, State adopted similar legislation. Id. at 336. 51 PhRMA relies on three cases to support its argument that the Maine Act is per se invalid because it regulates conduct beyond the borders of Maine. The cases cited, however, are inapposite to the facial construction of the Maine Act. PhRMA construes these cases as standing for the proposition that, a state may not dictate the terms on which buyers and sellers do business outside of the state. See, e.g., Healy, 491 U.S. at 338; Brown-Forman, 476 U.S. at 583-84. This is partially correct but does not reflect the entire picture. The cases on which PhRMA relies, however, involve price control, price affirmation or price tying schemes. See Healy, 491 U.S. at 326; Brown-Forman, 476 U.S. at 575-76; Baldwin v. G.A.F. Seelig, 294 U.S. 511, 519 (1935) (Seelig). The statutes in these cases involved regulating the prices charged in the home state and those charged in other states in order to benefit the buyers and sellers in the home state, resulting in a direct burden on the buyers and sellers in the other states. 52 In Healy, the Court struck down a Connecticut Liquor Control Act that required out-of-state shippers of beer to affirm that the prices at which the products were sold to Connecticut wholesalers were no higher than prices at which those same products were sold in bordering states. 491 U.S. at 326. The Court held the statute to be unconstitutional because it controlled prices in neighboring states and interfered with the regulatory schemes in those states. Id. at 338-39. 53 In Brown-Forman, the Court struck down a provision of the New York Alcoholic Beverage Control Law that required liquor distillers to affirm that their prices were no higher than the lowest price at which the same product would be sold in any other state during the month. 476 U.S. at 575-76. The Court determined that this was an extraterritorial reach violative of the Constitution. It held that [o]nce a distiller has posted prices in New York, it is not free to change its prices elsewhere in the United States during the relevant month. Forcing a merchant to seek regulatory approval in one State before undertaking a transaction in another directly regulates interstate commerce. Id. at 582 (footnote omitted). 54 In Seelig, the Court struck down the New York Milk Control Act, which set minimum prices for milk purchased from in-state and out-of-state producers and banned the resale of milk in New York when that milk had been purchased out-of-state for a lower price. 294 U.S. at 519. By requiring New York wholesalers to buy out-of-state milk at certain prices, the effect of the statute was to essentially set out-of-state milk prices. The Court recognized that the Commerce Clause does not permit a state to create a scale of prices for use in other states, and to bar the sale of products . . . unless the scale has been observed. Id. at 528. 55 The Maine Act is different from these statutes. Unlike these price affirmation and price control statutes, the Maine Act does not regulate the price of any out-of-state transaction, either by its express terms or by its inevitable effect. Maine does not insist that manufacturers sell their drugs to a wholesaler for a certain price. 10 Similarly, Maine is not tying the price of its in-state products to out-of-state prices. There is nothing within the Act that requires the rebate to be a certain amount dependent on the price of prescription drugs in other states. The Act merely says that the Commissioner of the Maine Department of Human Services shall use best efforts to obtain an initial rebate amount equal to or greater than the rebate calculated under the Medicaid program . . . . Me. Rev. Stat. Ann. tit. 22, § 2681(4)(B). Furthermore, unlike Brown-Forman and Seelig, the Maine Act does not impose direct controls on a transaction that occurs wholly out-of-state. 56 PhRMA argues strenuously that the effect of the Act will be to regulate the transaction that occurs between the manufacturer and the wholesaler -- a transaction that occurs entirely out of state. It argues that as a result of the rebate provision, manufacturers will lose a portion of their profits otherwise obtained from distributors. Admittedly, it is possible that the rebate provisions of the statute may decrease the profits of manufacturers. Simply because the manufacturers' profits might be negatively affected by the Maine Act, however, does not necessarily mean that the Maine Act is regulating those profits. 57 The Act does not regulate the transaction between manufacturers and wholesalers. It provides for a negotiated rebate agreement between [a] drug manufacturer or labeler that sells prescription drugs in [Maine] through the elderly low-cost drug program . . . or any other publicly supported pharmaceutical assistance program . . . . Me. Rev. Stat. Ann. tit. 22, § 2681(3). The rebate program is voluntary and either the manufacturer or the State may withdraw at any time with sixty days' notice. The Act directs the commissioner to use the commissioner's best efforts to negotiate the amount of the rebate required from the manufacturer. Id. § 2681(4)(B). We note that the commissioner's best efforts may become coercive or otherwise inappropriate, but we cannot say so on this facial challenge. This may be an issue that needs to be revisited once the Act takes effect. On a facial challenge, however, the use of the commissioner's best efforts indicates that the Act is not regulating prices, but merely negotiating rebates. 58 The Act clearly does not interfere with regulatory schemes in other states. Ultimately, the Maine Act simply regulates activity that occurs in state: (1) the purchase of the prescription drugs that triggers the rebate; (2) the negotiation of a rebate amount; and (3) the State's action subjecting a manufacturer's drug to prior authorization and releasing the manufacturer's name to health care providers and the public occurs in state. Because the regulation only applies to in-state activities, there is no extraterritorial reach and the Act is not per se invalid under the Commerce Clause. 59 One final consideration is the consequence of other states passing similar statutes. See Healy, 491 U.S. at 336 (considering what effect would arise if not one, but many or every, State adopted similar legislation). The most apparent effect of similar statutes being passed in other states would be a loss in profits for manufacturers. It does not appear, and PhRMA does not argue, that statutes similar to the Maine Act, if enacted, would result in manufacturers having inconsistent obligations to states, or in creating a price gridlock linking prices in some states to the prices in other states. See Healy, 491 U.S. at 340. Therefore, at this time, when we are dealing with a facial challenge to the Act, there is no evidence that adverse effects on interstate commerce will occur if such legislation were passed in other states. The Act is not per se violative of the Commerce Clause. 60