What you don't know can hurt you.
Ninth Circuit upholds Oregon's drug disclosure laws.
In 2018, Oregon passed a law requiring prescription drug manufacturers to disclose information relating to drug pricing, generic alternatives, and time on the market to a government entity—and to post these disclosures on their websites. See ORS §§ 646.680 et seq. In Pharmaceutical Research and Manufacturers of America v. Stolfi, No. 24-1570 (9th Cir.), an association of drug manufacturers (PhRMA) brought facial First Amendment and Fifth Amendment challenges to this law.
A. Takeaways
Government reporting requirements are only subject to strict scrutiny in the Ninth Circuit if they require making a political or ideological statement. Otherwise, they are subject to a lower standard of scrutiny (though it’s not fully clear which one).
Speech can be commercial speech for First Amendment purposes even if it does not “propose” a commercial transaction but merely provides information about the transaction. So, a company’s provision of information about products is commercial speech, even if not in an advertisement.
The potential to be forced to disclose a trade secret is enough to support Article III standing, even if the government has not yet forced anyone to make that disclosure.
A facial challenge to an alleged regulatory taking is incredibly hard to win, and thus parties must decide whether it is worth the uphill battle to defeat the entire law (rather than just defeating an as-applied challenge). In this case, an as-applied challenge may have been the better course of action.
B. First Amendment Analysis
The first question the court needed to answer was the appropriate level of scrutiny for the First Amendment challenge. Traditionally, a direct disclosure requirement that compels individuals to speak a particular message or which alters the content of speech is subject to strict scrutiny, unless the speech is “commercial speech,” in which case the law is subject to intermediate scrutiny.
The Ninth Circuit determined that government reporting requirements do not fit neatly into this framework, and so the court was forced to decide the appropriate test to apply. PhRMA urged that the court adopt a “presumptively strict” approach, in which government reporting is subject to strict scrutiny unless it is shown to be commercial speech. In contrast, the state urged the court to adopt a “potentially strict” approach, meaning that strict scrutiny applies only if the regulation requires a political or ideological statement.
The court concluded that the “potentially strict” approach was proper. This test distinguishes between government reporting requirements that force an association between a speaker and viewpoint versus those that involve only routine disclosure of economically significant information. (Op. 27.) And it does not require a threshold analysis of whether the speech is “commercial,” which more commonly refers to speech that proposes a commercial transaction.
Even so, the Ninth Circuit did not actually apply the potentially strict approach, but instead applied the presumptively strict approach in the alternative, just to show that the case would have come out the same way.[1] The court concluded that the regulated speech was commercial, because it provided parties to “actual or potential” commercial transactions with information about those transactions (even though it did not strictly “propose a commercial transaction”). (Op. 39.) Thus, the court proceeded to apply intermediate scrutiny (as is done for commercial speech), concluding that the disclosure rule passed intermediate scrutiny because the state has a substantial interest in providing drug information to the public, that the reporting law directly advances those interests, and that the regulation is not more extensive than necessary.
As an aside, the state asked the court to sever this provision from the statute if PhRMA prevailed. PhRMA asserted that the state waived this argument. The court noted that parties cannot waive severability arguments (though it did not have to reach this point because PhRMA did not prevail, so this was dicta).
C. Fifth Amendment Analysis
On the Fifth Amendment, the court sought to determine whether it was an unconstitutional taking for the statute to require drug manufacturers to disclose trade secrets if doing so was in the public interest.
The Ninth Circuit first concluded that PhRMA had Article III standing because there was a nonspeculative possibility that PhRMA would be forced to disclose a trade secret under the law (even though no company had yet been forced to do so).
On the merits, the Ninth Circuit concluded that the forced disclosure of a trade secret could constitute a regulatory taking under the Fifth Amendment, therefore requiring the court to consider:
(1) the regulation’s interference with reasonable investment-backed expectations,
(2) the economic impact of the regulation, and
(3) the character of the government action.
Importantly, the court noted that PhRMA had brought a facial challenge to the law (rather than claiming it had been unconstitutionally applied in a particular circumstance), which is much harder to win. This case is a good example. Applying the regulatory takings analysis, the court had to consider whether every disclosure of a trade secret under this law would upset reasonable investment-backed expectations, which the court concluded it would not. Next, the court could not conclude that every instance of this public interest exception would result in an economic harm. Finally, the court could not conclude that no circumstances existed where the public interest would not outweigh the private trade secret interests, the last prong failed as well.
In sum, PhRMA’s Takings Clause claim was effectively doomed by the facial nature of the challenge.
[1] Because the Ninth Circuit did not actually apply the “potentially strict” approach, it’s not clear which level of scrutiny applies if it is not strict. Presumably it is intermediate scrutiny, but it’s possible it’s simply rational basis.