ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION
On September 3, 2003, the Plaintiff, Pharmaceutical Care ManagementAssociation ("PCMA"), filed a Complaint in this Court against theDefendant, G. Steven Rowe, in his official capacity as Attorney Generalof the State of Maine ("State"), seeking declaratory and injunctiverelief from "An Act To Protect Against Unfair Prescriptive DrugPractices" ("UPDPA"), 22 M.R.S.A. § 2699. With the filing of theComplaint, PCMA filed a Motion for Preliminary Injunction. This CourtGRANTS the Motion for Preliminary Injunction.
I. Facts and Procedural History
a. Background
The pharmaceutical industry in the United States lies at the center ofa complex public policy controversy about the delivery and cost of healthcare. This lawsuit is a symptom of a larger debate about access,affordability, and efficacy within the American health care system andtests the limits of state attempts to legislate a response. Located inWashington, D.C., PCMA is aPage 2trade association of pharmaceutical benefits management companies("PBMs"). PBMs administer prescriptive drug benefit plans for the morethan 200 million Americans covered by the Employee Retirement IncomeSecurity Act of 1974 ("ERISA"), 29 U.S.C. § 1001-1461, and non-ERISAhealth care plans, self-insured employers, union-sponsored plans, andfederal, state, and local government purchasers. They have become acentral force in the $175 billion national market for prescriptiondrugs.1
PCMA and the State draw strikingly different portraits of the PBMindustry. PCMA sees its members as engaging in extraordinarily fierce,industry-wide competition and playing a vital role in the delivery ofcost-effective, quality care. PCMA cites studies that indicate itsmembers have saved billions of dollars for their customers and,ultimately, for consumers. PCMA also emphasizes its members' central rolein the provision of quality health care: by organizing and rationalizingvast amounts of nationally-based data, the PBMs have been in a uniqueposition to perform drug utilization reviews; avoid dangerous drugcombinations, questionable doses, and excessive addictive medications;and engage in medical and pharmacy education.Page 3
By contrast, the State sees the PBMs as a highly-concentrated industry,insulated from competitive pressures and garnering enormous profits in anunregulated and secretive niche. The State minimizes the PBMs' role inassuring quality care. It notes that the PBMs (with the exception of mailorder services) do not handle drugs, do not purchase or sell drugs, donot prescribe drugs, do not act as insurers, and do not assume risk. Inresponse to PCMA's point about drug utilization reviews, the State raisesconcerns about the use of "switching" or "intervention" strategies.2
The State contends that unlike virtually every other area of the healthcare system, PBMs have largely escaped governmental scrutiny. They arenot regulated as financial institutions, health care providers, orinsurance companies, and have in the past consistently maintained theyare not subject to ERISA. This asserted regulatory gap has begun toattract the attention of federal and state government and the Statecontends the recent Maine legislation is only a harbinger of things tocome. The PBMs vigorously deny what they contend are the "scattershot,""inflammatory," and "egregious mischaracterizations" set forth in theState position. Pl.'s Reply Mem. at 1-2.Page 4
b. Maine Legislation.
The UPDPA was enacted by the Maine Legislature in 2003 and signed intolaw by Governor Baldacci on June 13, 2003. The UPDPA itself is succinct,containing only one new statutory section: 22 M.R.S.A. § 2699. TheUPDPA consists of a series of definitions and a list of "requiredpractices." A violation of the UPDPA constitutes a violation of the MaineUnfair Trade Practices Act ("UTPA") and subjects the violator to a fineof not more than $10,000. 22 M.R.S.A. § 2699(4).
The UPDPA's dramatic impact on the PBM industry is immediatelyapparent. It statutorily defines the relationship between a PBM and itsclients as a fiduciary relationship, imposing a "fiduciary duty" runningfrom toe PBM to each "covered entity." 22 M.R.S.A. §§ 2699(2)(A), (B).The UPDPA imposes extensive duties of disclosure from the PBM to theclient, including the duty to disclose: (1) any "conflict of interest";(2) "all financial and utilization information requested by the coveredentity relating to the provision of benefits"; and, (3) "all financialterms and arrangements for remuneration of any kind that apply betweenthe [PBM] and any prescription drug manufacturer or labeler, including,without limitation, formulary management and drug-switch programs,educational support, claims processing and pharmacy network fees. . . ."22 M.R.S.A. §§ 2699(2)(D)-(E), (G).
While the UPDPA allows a PBM to substitute a lower-priced generic drugfor a therapeutically equivalent higher-priced prescriptive drug, 22M.R.S.A. § 2699(2)(E)(1), it prohibits the PBM from substituting ahigher-priced drug for a lower-priced drug unless the substitution ismade "for medical reasons that benefit the covered individual" and the"covered entity," 22 M.R.S.A. § 2699(2)(E)(2). The UPDPA also imposesdisclosure and approval obligations on the PBM before doing so.Id. Finally, the UPDPA mandates that any benefit thePage 5PBM receives from switching to higher-priced drugs or from volumediscounting must be passed "in full" to the covered entity. 22 M.R.S.A.§§ 2699(2)(E)(3), (F). The UPDPA contains a limited confidentialityprovision, as well: if a covered entity requests financial andutilization information, the PMB may designate the information asconfidential and the covered entity is required not to disclose theinformation except as required by law. 22 M.R.S.A. § 2699(2)(D).
c. Preliminary Injunction Standard.
PCMA's Motion for Preliminary Injunction rests on three theories: (1)preemption under ERISA; (2) unlawful taking of trade secrets in violationof the Takings Clause of the United States Constitution; and (3) aviolation of the Commerce Clause of the United States Constitution
As a plaintiff in a motion for preliminary injunction, PCMA bears theburden of satisfying each element of a familiar four-part test: (1) itmust be likely to succeed on the merits; (2) it must suffer fromimmediate irreparable injury without injunctive relief; (3) the harm tothe plaintiff in the absence of an injunction must exceed the harm to thedefendant if the injunction is not granted; and, (4) the public interestmust be better served by granting the injunction than by denying it.Pharmaceutical Research &Mfrs. of Am. v. Concannon,249 F.3d 66 (1st Cir. 2001) ("PhRMA I"), aff'd, Pharmaceutical Research &Mfrs. of Am. v. Walsh, 123 S.Ct. 1855 (2003) ("PhRMA //");New Comm. Wireless Serv., Inc. v. Spintcom, Inc., 287 F.3d 1,8-9 (1st Cir. 2002).
In evaluating a motion for preliminary injunction in which theplaintiff is claiming constitutional infirmity and federal preemption,the court must apply some bedrock interpretive principles. First, thisCourt is required not only to presume the state legislative act isconstitutional, but also to apply this presumption with special force,since the UPDPA seeks toPage 6regulate an area of public health. See PhRMA II, 123 S.Ct.at 1867; Hillsborough County v. Automated Med. Lab., Inc.,471 U.S. 707 (1985). Second, this Court is charged with avoiding adeclaration of unconstitutionality if there is an alternativeinterpretation that would render the UPDPA lawful. These generalprinciples apply more particularly to a motion for preliminaryinjunction. Finally, when addressing federal preemption, if the fieldCongress is said to have preempted has traditionally been occupied by theStates, this Court must start with the assumption that the historicpowers of the States are not to be superseded by the federal act unlessthat was the "clear and manifest purpose of Congress."Hillsborough, 421 U.S. at 715; PhRMA I, 249 F.3d at 75.
II. Likelihood of Success on Merits.3
a. Standing.
As a preliminary matter, this Court must address PCMA's associationalstanding to pursue this action on behalf of its member.4 Undercertain circumstances, injury to an organization's members will satisfythe Article III requirement of a case or controversy and the organizationwill be allowed to litigate in federal court on their behalf. E.g.,United Food & Com. Workers Union Local 751 v. Brown Group,517 U.S. 544, 551 (1996); International Union, United Auto, Aerospace andAgric. Implement Workers of Am. v. Brock, 477 U.S. 274, 281 (1986);NAACP v. Alabama ex rel. Patterson, 357 U.S. 449, 459 (1958).There are threePage 7elements of associational standing: (1) association members musthave standing to sue in their own right; (2) the interests sought to beprotected must be germane to the purposes of the association; and (3)neither the relief requested nor the claim asserted requires theindividual members' participation. Hunt v. Washington State AppleAdver. Comm'n, 432 U.S. 333, 343 (1977) (quoting Warth v.Seldin, 422 U.S. 490, 511 (1975)). The parties agree that the firsttwo criteria are present; the State challenges whether the third is.
If the plaintiff claiming associational standing can ensure that "theremedy, if granted, will inure to the benefit of those members of theassociation actually injured," the association will be allowed to invokethe remedial powers of the court on behalf of its members.Brock, 477 U.S. at 288 (1986) (quoting Warth, 422 U.S.at 515 (1975)). Whether an association has standing for its members"depends in substantial measure on the nature of the relief sought."Hunt, 432 U.S. at 343. In this case, PCMA is seeing declaratoryand injunctive relief and it "can be reasonably supposed that the remedy,if granted, will inure to the benefit of those members of the associationactually injured." Id.
The First Circuit considered associational standing in the context of amotion for preliminary injunction in Camel Hair & CashmereInstitute, Inc. v. Associated Dry Goods Corp., 799 F.2d 6, 12 (1stCir. 1986). In Camel Hair, the First Circuit noted that "actionsfor declaratory, injunctive and other forms of prospective relief havegenerally been held particularly suited to group representation."Id. In addition, the Camel Hair Court distinguished"between the showing required to establish a right to injunctive reliefand that required to establish a right to damages." Id.Generally, where, as in this case, the court is addressing only thequestion of preliminary injunctive relief, the participation ofindividual members is not necessary.5 Id.Page 8
This Court concludes that PCMA has fulfilled the criteria set forth inHunt and has associational standing to press its members' claimsfor declaratory and injunctive relief. Although there may be somedifferences among the PBMs as to their treatment of the financial andrebate information, the Court is persuaded that all PBMs view thisinformation as a highly confidential trade secret. For associationalstanding purposes, the key is whether there is a nexus between themembers' commonality and the remedy their association seeks. CamelHair, 799 F.3d at 12 (finding "no conflict between the needs andinterests of the members."). In this case, it is clear there is such anexus. The members share the view that the information the UPDPA woulddisclose goes to the heart of their mutual competition and PCMA seeks aninjunction against its revelation. Put another way, if there wereevidence that the members were sufficiently disparate in their approachto trade secrets to conclude that some would gain a competitive edge bydisclosure, then this would undercut PCMA's claim for associationalstanding. However, the evidence before the Court is exactly to thecontrary: all PCMA members support its demand for relief.6Page 9
b. Commerce Clause.
PCMA claims the UPDPA violates the Commerce Clause, by havingextraterritorial effect and discriminating against out-of-state companiesin favor of in-state companies. This Court disagrees. Under the CommerceClause, Congress has the power "to regulate commerce with foreignnations, and among the several states, and with the Indian tribes." U.S.Const, art I, § 8. In matters not governed by federal legislation,the Commerce Clause has long been understood to have a "negative" aspectthat denies the States the power unjustifiably to discriminate against orburden the interstate flow of articles of commerce. See Oregon WasteSys., Inc. v. Dep't of Envtl. Quality, 511 U.S. 93, 98 (1994);Wyoming v. Oklahoma, 502 U.S. 437, 454 (1992); Welton v.Missouri, 91 U.S. 275 (1876). This negative command, known as thedormant Commerce Clause, prohibits states from acting in a manner thatburdens the flow of interstate commerce. Id.; PhRMA I, 249 F.3dat 79.
i. Per Se Violation: ExtraterritorialReach.
PCMA asserts that § 2699(1)(E) of the UPDPA impermissibly affectscommerce outside Maine by requiring the disclosure of trade secretscontained in PCMA members' contracts, even if those contracts do notrelate to Maine's "covered entities." As such, PCMA argues the UPDPAprojects Maine legislation into other states by mandating disclosure ofPBMs' confidential contracts in those states. Pl.'s Mem. at 23(citing Healy v. Beer Inst., 491 U.S. 324, 334 (1989)).
A state statute is a per se violation of the Commerce Clausewhen it has an "extraterritorial reach;" that is, necessarily requiringout-of-state commerce to be conducted according to in-state terms.PhRMAI, 249 F.3d at 79; Healy, 491 U.S. at 336. PCMAdoes not appear to argue that the UPDPA constitutes a per seviolation of the Commerce Clause and, toPage 10the extent the argument is being made, there has been no showingthat the UPDPA regulates commerce wholly outside Maine's borders. Seeid.
PCMA argues the UPDPA would impermissibly regulate PBM services outsideof Maine, since it requires disclosure of PBM contracts with drugmanufacturers even if the contracts do not relate to Maine "coveredentities." In this Court's view, the UPDPA clearly ties its reach toMaine. The statute limits PBM obligations to a "covered entity" as: . . . [A] nonprofit hospital or medical service organization, insurer, health coverage plan or heath maintenance organization licensed pursuant to Title 24 or 24-A; a health program administered by the department or the State in the capacity of provider of health coverage; or an employer, labor union or other group of persons organized in the State that provides health coverage to covered individuals who are employed or reside in the State.22 M.R.S.A. § 2699(1)(A) (emphasis added).
The disclosure provisions of the UPDPA rely on the statute's definitionof "covered entity" and, accordingly, are tied to Maine. For instance,§ 2699(2)(D)7 requires the PBM to provide to the covered entity,upon request, "all financial and utilization information requested by thecovered entity relating to the provision of benefits to coveredindividuals through thatPage 11covered entity and all financial and utilizationinformation relating to services to that covered entity."(emphasis added). Likewise, § 2699(2)(G)8 mandates disclosure tothe covered entity of "all financial terms and arrangements forremuneration of any kind that apply between the pharmacy benefits managerand any prescription drug manufacturer or labeler. . . ." Though §2269(2)(G) is not by its express terms limited to disclosure of contractsbetween PBMs and manufacturers that directly relate to covered entities,the disclosure requirements are set forth as part of the fiduciary dutiesa PBM owes a "covered entity."
The UPDPA also establishes that compliance is required "in allcontracts for pharmacy benefits management entered into in this State orby a covered entity in this State." 22 M.R.S.A. § 2699(3). If the PBMdoes not contract with Maine covered entities, the law has noapplication. The Maine UPDPA is not seeking to "project its legislation"into other States.9 See Baldwin v. G.A.F. Seelig, Inc.,294 U.S. 511, 521 (1935); PhRMA, 123 S.Ct. at 1870-71.Page 12
ii. Virtually Per Se Rule: DiscriminatoryAgainst Out-Of-State Commerce.
If a state statute discriminates against interstate commerce, the Courtwill apply strict scrutiny under what the Supreme Court has termed the"virtually per se rule of invalidity." Oregon Waste,511 U.S. at 100; Brown-Forman Distillers Corp. v. N.Y. State LiquorAuthority, 476 U.S. 573, 579 (1986); PhRMAI, 249 F.3d at80. This level of scrutiny will be applied "if the state statuediscriminates against interstate commerce on its face or in practicaleffect." PhRMA I, 249 F.3d at 80. On its face, the UPDPA doesnot favor in-state economic interests over out-of-state interests;therefore, the line of case law that addresses facially discriminatorystate statutes is inapposite.10
PCMA argues, however, the UPDPA favors an in-state Maine pharmacy overan out-of-state mail order pharmacy, since it expressly addresses the"mail service pharmacy," § 2699(2)(E)(1), but not the retailpharmacy. Yet, none of the mail order pharmacies affiliated with PCMAmembers are physically located in Maine and PCMA does not state or implythat no mail order pharmacies are located in Maine.11 At the veryleast, PCMA has failed to sustain its burden on this issue. The UPDPA"regulates even handedly with only `incidental' effects on interstatecommerce" and does not "discriminate against interstate commerce eitheron its face orPage 13in practical effect."12 See Oregon Waste, 511 U.S. at99; Hughes v. Oklahoma, 441 U.S. 322, 336 (1979).
iii. Pike v. Bruce Church Analysis.
Although PCMA did not, SLSKFFKDJGKDGKKNN make a Pike v. BruceChurch argument in its initial memorandum, it did so in rebuttal.Pike explained that where a state statute regulates evenhandedly and has only incidental effects on interstate commerce, thecourt balances the burden on interstate commerce against the putativelocal benefit. 397 U.S. 137, 142 (1970); PhRMA I, 249 F.3d at80. In this Court's view, the potential benefit to Maine consumers inreducing the enormous burden of prescriptive medication substantiallyoutweighs the incidental impact the UPDPA may have upon interstatecommerce.
c. Takings Clause.
PCMA contends that by requiring revelation of its members' tradesecrets, the UPDPA constitutes a "taking" of property for which justcompensation is due under the Fifth and Fourteenth Amendments of theUnited States Constitution. Specifically, PCMA challenges the twoprovisions of the UPDPA that mandate disclosure of information: §2699(2)(D) and § 2699(2)(G).13 The Takings Clause claim requiresan analysis of several separate issues.
i. Trade Secret.
First, this Court must determine whether the information required to bedisclosed under the UPDPA constitutes a trade secret. The PBMs' tradesecrets include the confidential terms of contracts with customers, drugmanufacturers, and pharmacies as well as financial and utilizationPage 14information. The State contends that the information is simply nota trade secret,14 arguing that a trade secret is not information "asto a single or ephemeral events in the conduct of the business, as, forexample, the amount or other terms of a secret bid for a contract."Def.'s Mem. at 27 (citing Restatement of Torts: LiabilityFor Disclosure or Use of Another's Trade Secret, § 757 cmt. b(1939)). However, intangible property can constitute a trade secret and aproperty right protected by the Takings Clause, Ruckelshaus v.Monsanto Co., 467 U.S. 986, 1003-04 (1984), the first question iswhether under Maine law, the contract terms disclosed under the UPDPA aretrade secrets. See also Reilly, 312 F.3d at 33.
Maine has adopted the Uniform Trade Secrets Act ("UTSA"), 10 M.R.S.A.§§ 1541-1548, which defines "trade secret" as: [I]nformation, including, but not limited to, a formula, pattern, compilation, program, device, method, technique or process, that: a. Derives independent economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and b. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.10 M.R.S.A. § 1542(4). In Spottiswoode v. Levine, theMaine Supreme Judicial Court listed five factors a court may examine todetermine whether the information derives independent economic value fromnot being generally known or readily ascertainable: (1) the value of theinformation to the plaintiff and to its competitors; (2) the amount ofeffort or money the plaintiff expended in developing the information; (3)the extent of measures the plaintiff took to guard the secrecy ofPage 15the information; (4) the ease or difficulty with which others couldproperly acquire or duplicate the information; and, (5) the degree towhich third parties have placed the information in the public domain orrendered the information "readily ascertainable" through patentapplications or unrestricted product marketing. 730 A.2d 166 (Me. 1999).
Applying 10 M.R.S.A. § 1542(4)'s statutory definition, PCMAcontends that the PBMs derive "independent economic value" from thespecific contract terms each PBM has been able to negotiate with its drugsuppliers and pharmacies. Precise information about rebates, if madegenerally known, would cripple the PBMs' ability to negotiate rebateswith drug manufacturers and pharmacies and "destroy the value of thistrade secret information."
The Maine statutory definition conveys the same underlying concept asthe Restatement's definition of "trade secret": information is a tradesecret if it generates "independent economic value" from not being"generally known" nor "readily ascertainable" and the holder of thesecret makes an effort to maintain its secrecy. 10 M.R.S.A. §1542(4). The record indicates that the PBMs consider this informationhighly-confidential and strive to maintain its secrecy. See, e.g.,supra note 6. Comparing the Spottiswoode criteria to thefacts in the record, the Court concludes that PCMA has sustained itsburden for purposes of the motion for preliminary injunction todemonstrate that the information the UPDPA mandates disclosed constitutesa trade secret.15
ii. Regulatory Taking.
1. Per Se Taking.Page 16
In general, the law distinguishes between two types of takings:physical takings and regulatory takings. Tahoe-Sierra Pres. Council,Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302, 323-24 (2002);Reilly, 312 F.3d at 33. In the context of tangible property, ifthe government physically takes possession of the property or a part ofthe property, then it has "a categorical duty to compensate the formerowner." Tahoe-Sierra, 535 U.S. at 322. As Justice Stevens statedin Tahoe-Sierra, jurisprudence involving condemnations andphysical takings is "as old as the Republic itself and, for the mostpart, involves the straightforward application of per se rules."Id.
By contrast, regulatory takings jurisprudence is "of more recentvintage and is characterized by "essentially ad hoc, factual inquires."Id. (quoting Penn. Cent. Transp. Co. v. New York City,438 U.S. 104, 124 (1978)). To determine how far is too far requires afact-based inquiry. Yet, the Supreme Court has also applied a perse analysis to some regulatory takings. E.g., Tahoe-Sierra,535 U.S. at 325; Lucas v. South Carolina Coastal Council,505 U.S. 1003, 1015 (1992) ("[W]e have found categorical treatmentappropriate . . . where regulation denies all economically beneficial orproductive use of land").
These distinctions, difficult enough in physical takings, become murkyindeed when applied to intellectual property. Although acknowledgingPCMA's contention that the disclosure of its members' trade secrets canbe construed no other way than a per se taking of the secret,this Court has concluded the wiser course is to apply the PennCentral analysis.
2. The Penn Central Analysis.
Courts have generally applied a three-part ad hoc, factualinquiry to evaluate whether a regulatory taking has occurred: (1) theeconomic impact of the regulation; (2) whether the government actioninterferes with reasonable investment-backed expectations; and (3) thePage 17character of the government action. E.g., Reilly, 312 F.3dat 33; Penn Central, 438 U.S. at 124. Applying these factors tothe UPDPA, it is apparent that the two disclosure sections are distinctand must be treated separately.
As the Court understands it, § 2269(2)(D) requires the PBM toprovide information to an employer, for example, about drug utilizationand prescriptive medication payments to or on behalf of its employees.Similarly, it requires the disclosure to the covered entity of "allfinancial and utilization information relating to services to thatcovered entity." 22 M.R.S.A. § 2269(2)(D). This language presumablyrefers to services the PBM provide that do not result in the payment of abenefit. For example, if the PBM performs a drug utilization reviewuntied to a particular payment, then the employer could require the PBMto disclose the information to it. It is true that the breadth of thephrase, "all financial . . . information," may implicate the rebate andremuneration information contemplated by § 2699(2)(G), but if thiswere the case, § 2699(2)(G) would be redundant.
Assuming § 2699(2)(D) is limited to information about benefits thecovered entity has paid for or services the PBM provided to it, thisCourt cannot conclude that it runs afoul of the Penn Centralcriteria. Moreover, § 2699(2)(D) contains a confidentiality provisionthat prohibits disclosure of information the PBM has designated asconfidential. To the extent this information is in fact a trade secret,the statute's protection from further disclosure inoculates it fromconstitutional infirmity.16 See Reilly, 312 F.3d at 53("[A] more limited disclosure likely would not suffer from the sameconstitutional infirmities") (Lipez, J., dissenting).Page 18
However, § 2699(2)(G) presents a different problem. It not onlymandates disclosure of information that goes to the heart of what thePBMs contend are trade secrets, but it also fails to protect thatinformation from further disclosure. The covered entities would be freeto share this information with drug companies or pharmacies and revealwith impunity its PBMs' trade secrets to competitor PBMs. Turning to thefirst Penn Central factor, the record establishes thatdisclosure of this information would destroy its value. Reilly,312 F.3d at 39 ("[A] trade secret is lost if its holder gives the tradesecret to another without extracting a guarantee of confidentiality"). Toparaphrase Judge Torruella in Reilly, once the competitorsobtain this information, they can use it in a fashion that will undermineits value. Reilly, 312 F.3d at 41.
Likewise, PCMA has met the second Penn Central criterion:reasonable investment-backed expectations that the information would notbe disclosed. To determine whether the holder of a trade secret hadreasonable investment-backed expectations is, to borrow Judge Toruella'swording again, to "proceed into [a] quagmire." See Reilly, 312F.3d at 37. In this case, the parties agree that the UPDPA is Maine'sfirst foray into PBM regulation. Def.'s Mem. at 6. On the otherhand, as an unregulated island in a highly regulated sea, the PBMs mightwell have expected that government regulation was inevitable, since "suchrestrictions are the burdens we all must bear in exchange for `theadvantage of living and doing business in a civilized community.'"Ruckelshaus, 467 U.S. at 1007 (quoting Andrus v.Allard, 444 U.S. 51, 67 (1979)). But the PBMs can effectively arguethat the prospect of some regulation does not absolve the State from justcompensation, especially since the PBMs should not have anticipateduntrammeled and unprotected disclosure of their trade secrets. Thesereasonable investor-backed expectations were further enhanced by Maine'senactment of the UTSA.Page 19
Similarly, the third Penn Central criterion has been met. Indetermining the character of the government action-how the UPDPAregulates and the UPDPA's effect on the PBMs' trade secrets, the Courtmust balance Maine's interest in regulation against the PBMs interest inprotecting their trade secrets. See Reilly, 312 F.3d at 41. Asin Reilly, the unprotected disclosure of the PBMs' trade secretswill result in their inability to exclude others, a right that isfundamental to a property interest, Kaiser Aetna, 444 U.S. at179-80, and a destruction of the value of the trade secret.Reilly, 312, F.3d at 41. At the same time, the state has a"significant, even compelling" interest in regulation involving publichealth. Id. at 44; Keystone Bituminous CoalAssoc. v.DeBenedictis, 480 U.S. 470, 488 (1987).
Where the economic impact of the regulation and effect on reasonableinvestment-backed expectations is profound, the Court is required toexamine whether the regulation bears a reasonable relation to its ends.Of course, toe parties disagree on the impact of the regulation: PCMAargues the benefits of disclosure are "speculative" and raises thepossibility of serious economic consequences to Maine citizens; the Statecontends the UPDPA requires only "full and fair disclosure" to enablecovered entities to "ensure that their PBMs are not gouging them."
However, the timing of a motion for preliminary injunction places thearguments in a different context. PCMA essentially asks for themaintenance of the status quo while the case is litigated. Inweighing the respective positions of the parties, this Court concludesthat for purposes of the motion for preliminary injunction, the PennCentral criteria have been met and the UPDPA to violate the TakingsClause.17Page 20
d. Preemption.
PCMA argues ERISA preemption on the following grounds: (1) the UPDPAhas a "connection with" employee benefit plans covered by ERISA; (2) theUPDPA has a "reference to" employee benefit plans covered by ERISA; and(3) the UPDPA undermines the exclusivity of ERISA's civil enforcementscheme. The State disputes these grounds and responds that because PBMsare not ERISA fiduciaries and do not otherwise fall into an ERISA entitycategory, the State is free to regulate them.
i. Background.
Congress enacted ERISA with the express intent to "establish pensionplan regulation as exclusively a federal concern." Alessi v.Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981). In Shaw v.Delta Air Lines, Inc., the Supreme Court concluded that throughERISA, Congress intended not only to preempt the field, but that thepreemptive scope was as broad as ERISA's language. 463 U.S. 85, 98(1983). ERISA defines "employee welfare benefit plan" to mean:
[A]ny plan . . . established or maintained by an employer . . . for the purpose of providing for its participants or their beneficiaries, through the purchase or insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability. . . .Page 21
29 U.S.C. § 1002(1); see Pilot Life Ins. Co. v. Dedeaux,481 U.S. 41, 44 (1987). Congress "capped off' ERISA with provisionsrelating to the preemptive effect of the federal legislation, includingthe following: Except as provided in [ERISA's savings clause], the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan. . . .29 U.S.C. § 1144(a).
Recently, however, the Supreme Court has grown "more guarded" ininterpreting the scope of ERISA, Carpenters Local Union No. 26 v.United States Fiduciary & Guaranty, Co., 215 F.3d 136, 139(2000), and emphasized the starting presumption that "Congress does notintend to supplant state law," New York State Conference of BlueCross & Blue Shield Plans v. Travelers Insurance Co.,514 U.S. 645, 654 (1995); see California Div. of Lab. Stds. Enf. v. DillinghamConstr., 519 U.S. 316, 324 (1997). The Court has been especiallycareful to note the field of health care is distinctive and "nothing inthe language of [ERISA] or the context of its passage indicates thatCongress chose to displace general health care regulation, whichhistorically has been a matter of local concern." Travelers, 514U.S. at 661. Indeed, there is no ERISA preemption in health care withoutclear manifestation of congressional purpose. E.g., Pegram v.Herdrich, 530 U.S. 211, 237 (2000).
Within these parameters, this Court must evaluate whether the UPDPA"relates to" any employee benefit plan, for, if it does, it is preempted.Carpenters Local, 215 F.3d at 140. A state law "relates to" anemployee benefit plan if it either (1) has a connection with or (2) makesreference to such a plan. Id.; Dillingham, 519 U.S. at 324.Page 22
ii. Connection.
In Travelers and Dillingham, the Supreme Courtmodified the analysis as to whether a state law has a "connection with"ERISA: the Court "abandoned strict textualism in favor of a more nuancedapproach." Carpenters Local, 215 F.3d at 140. Travelersexplained, "For the same reasons that infinite relations cannot be themeasure of pre-emption, neither can infinite connections." 514 U.S. at656. Thus, to determine whether a State law is subject to ERISApreemption under the "connection with" portion of the inquiry, courtsmust consider the objectives of ERISA as a guide to the scope of thestate law Congress understood would survive. Id.
Cataloguing the objectives of ERISA is a "fairly straightforwardexercise." Carpenters Local, 215 F.3d at 140. When Congressenacted ERISA, it made manifest its intention to "protect . . . theinterests of participants in employee benefit plans and theirbeneficiaries . . . by establishing standards of conduct, responsibility,and obligation for fiduciaries of employee benefit plans, and byproviding for appropriate remedies." Id.;29 U.S.C. § 1001(b). Achieving this end requires the avoidance of "amultiplicity of regulation" and, concomitantly, the creation of a climatethat "permits the nationally uniform administration of employee benefitplans." Travelers, 514 U.S. at 657; Carpenters Local, 215 F.3dat 140. The First Circuit summarized the inquiry as follows: whether thestate laws have a "real bearing on the intricate web of relationshipsamong the principal players in the ERISA scenario (e.g., the plan, theadministrators, the fiduciaries, the beneficiaries, and the employer)."Carpenters Local, 215 F.3d at 141.
Here, there is no dispute that the UPDPA imposes new and broadregulations upon PBMs. It defines them as fiduciaries, requiresdisclosures of their provision of benefits and utilization reviews,mandates notification of any conflicts of interest, and compelsdisclosure ofPage 23contractual terms with drug companies and pharmacies. The UPDPAalso establishes restrictions on the way the PBMs may operate: PBMs areallowed to substitute generic drugs for higher-priced prescription drugsbut are forbidden from doing the opposite without obtaining the approvalof the "prescribing health professional" and disclosing both thesubstitution and the cost of both drugs and any benefit derived from theswitch to the covered individual and the covered entity. The PBMs arealso obligated to transfer in full to the covered entity any financialbenefit garnered from either substituting drugs or volume discounts.
This Court concludes that the provisions of the UPDPA are virtuallybound to collide with the ERISA goal of a "nationally uniformadministration of employee benefit plans." See Travelers, 514U.S. at 657. For example, consider the inherent conflict between thePBM's duties to the covered entity and covered individuals and the entityand individuals' ability to resort to state litigation under theUPDPA18 This conflict is codified in 22 M.R.S.A. § 2699(2)(B): "A[PBM] shall discharge its duties with respect to the covered entity forthe primary purpose of providing benefits to covered individualsand defraying reasonable expenses of administering healthplans." The UPDPA assumes the two duties are reconcilable; however, ananalysis of § 2699(2)(E)(2)'s implications demonstrates they are not.Section 2699(2)(E)(2) governs the substitution of a more expensive drugfor a less expensive generic medication The law requires the substitution"be made for medical reasons that benefit the covered individualand must benefit the covered entity." 22 M.R.S.A. §2699(2)(E)(2) (emphasis added). If the PBM, even after obtaining doctorapproval, were to substitute a drastically more expensive prescriptivemedication for a generic drug, the covered entity could well be extremelyPage 24dissatisfied with the increased cost, but the individual could wellbe fully satisfied-indeed happy-with the switch. Under the UPDPA, though,the PBM does not owe a direct fiduciary duty to the patient; it owes thisduty solely to the covered entity. 22 M.R.S.A. § 2699(2) ("A [PBM]owes a fiduciary duty to a covered entity. . . . .) (emphasisadded). If the PBM acts in the best medical interest of the patient overthe best financial interest of the covered entity, the UPDPA virtuallyinvites litigation through its notice and enforcement provisions.
Under § 2699(2(E)(2), before making the switch to a more expensivedrug, the PBM must first reveal to both the covered entity and thepatient the cost of both drugs and any payments the PBM is receivingdirectly or indirectly as a result of the substitution. It must thenobtain the approval of the person's physician. Armed with informationabout the cost differential and any rebate, the covered entity isauthorized to file suit under the Maine UTPA.
Further, the terms of the UPDPA provide an avenue for legal redress: aviolation of the law constitutes a violation of the UTPA. The UTPAcontains provisions for action by the Maine Attorney General and thefiling of private causes of actions, 5 M.R.S.A. § 213, grantsjurisdiction to toe Maine Superior Court, and provides the right to trialby jury, 5 M.R.S.A. § 213(1). If a PBM were to switch to ahigher-cost drug with the approval of the covered individual and hisphysician, but over the objection of the covered entity, the UPDPA givesthe covered entity a clear cause of action against the PBM for violatingits fiduciary obligation On the other hand, if the PBM refused tosubstitute the higher priced prescription despite physician approval, thecovered individual could presumably initiate a private cause of actionunder the UTPA for violation of the UPDPA's conflict of interestprovision, seeking to enjoin the PBM.Page 25This example is only the first of a host of issues that this Courtconcludes will find their way to state court as an inevitable consequenceof the duties and remedies the UPDPA creates.19
The inquiry, then, is twofold: first, whether these potential issuesinvade the province of ERISA; and second, whether they raise the spectreof an alternative state enforcement mechanism to ERISA's enforcementscheme, triggering preemption. Rush Prudential, 536 U.S. at 375;Ingersoll-Rand, 408 U.S. at 142-45; Carpenters Local,215 F.3d at 141. The decision as to what drug to prescribe, the price ofthe drug, the comparative medical efficacy of the drug, and thedisclosure requirements to the covered entity and covered individual allseem to fall squarely within the First Circuit's concern: state lawinterference with the administration of covered employee benefit plans,purporting to regulate plan benefits or impose additional reportingrequirements. Carpenters Local, 215 F.3d at 141.
Similarly, the prospect of Maine state law suits initiated to enjoin,fine, or obtain monetary damages for the filling of a prescription appearto this Court to conflict with the Rush Prudential Court'sobservation that there is an "overpowering federal policy in the civilPage 26enforcement provisions" of ERISA. 536 U.S. at 375-76. If the MaineUTPA provides a remedy for covered individuals to the extent they havemade a co-pay or deductible payment for a prescriptive medication, thisremedy conflicts with the remedy provided in 29 U.S.C. § 1132(a)(1).The UPDPA provides without question the right of covered entities to suefor injunctive relief and monetary damages under the UTPA The UPDPA'sright to injunctive relief would be duplicative of the fiduciary's rightto redress under § 1132(a)(3). But the UPDPA also provides formonetary relief not found in § 1132(a)(3). Massachusetts MutualLife, 473 U.S. at 146 (quoting Nachman Corp. v. Pension BenefitGuaranty Corp., 446 U.S. 359, 361 (1980) (noting ERISA is an"interlocking interrelated, and interdependent remedial scheme, which isin turn part of a `comprehensive and reticulated statute") (internalcitation omitted).
Accordingly, this Court concludes that the terms of the UPDPA and itsenforcement mechanisms intrude too far into the ambit of federalregulation of health benefits by ERISA plans. Therefore, the UPDPA has animpermissible "connection with" ERISA.
iii. Reference.
The Supreme Court has provided that a State law has a "reference to" anERISA covered program, if it "acts immediately and exclusively upon ERISAplans . . . or where the existence of ERISA plans is essential to thelaw's operation." Dillingham, 519 U.S. at 325. InCarpenter's Local, Judge Selya concluded that Travelersand Dillingham required a revised approach to the "reference to"analysis: The sockdolager is that emergent Supreme Court precedent, by disavowing a strictly textual approach to the interpretation of ERISA's preemption provision, encourages us for the first time to conduct the "reference to" inquiry in light of the actual operation of the challenged state statue.215 F.3d at 144.Page 27
The relevant factors in such an analysis include: (1) whether the Statelaw imposes requirements on ERISA plans; (2) whether the State lawexempts such plans from otherwise applicable statutory provisions; (3)whether the State law in its operation, comports with ERISA's objectives;(4) whether the State law dictates the form that a covered plan wouldtake; (5) whether the State law specifies the mode or manner of planadministration; (6) whether the State law otherwise jeopardizes the sortof uniformity Congress aspired to achieve. Id. Additionally, theCourt is to consider whether the state law applies "to a wide range ofsituations, including an appreciable number that have no specific linkageto ERISA plans" or "to a sufficiently broad, sufficiently generalizeduniverse of situations." Id. at 144-45.
If the State law is one of general application, does not single outERISA plans for special treatment, does not depend on the ERISA plans'existence as an essential part of its operation, and is indifferent toERISA coverage, the State law is considered valid and not preempted.Indeed, Carpenter's Local reasoned that if the State law is oneof the "myriad state laws" of general applicability that impose someburdens on the administration of ERISA plans, but do not "relate to them"within the meaning of the governing statute, preemption will not betriggered. 215 F.3d at 145 (citing DeBuono v. Medical and ClinicalServ. Fund, 520 U.S. 806, 815 (1997)).
To apply the Carpenters Local analysis, this Court is requiredto balance the impact of the statute on ERISA plans. The UPDPA imposes noexpress requirements on ERISA plans, does not exempt ERISA plans from itsoperation, is one of general applicability, and makes no expressreference to ERISA-factors which weigh strongly against preemption.Carpenters Local, 215 F.3d at 144-45. On the other hand, for thereasons set forth above, this Court has concluded that the UPDPAsubstantially interferes with the "mode and manner of planPage 28administration" and in operation jeopardizes the sort of uniformitythat Congress aspired to achieve. Id. at 144.
ERISA itself has become such an all-encompassing part of our legallexicon that it is virtually impossible to wade into health careregulatory waters without referring, intentionally or not, to ERISAterminology. This is particularly true when the State seeks to regulatethe administration and provision of a significant slice of health carebenefits, as Maine is seeking to do in this case. Even where the Stateconsciously seeks to craft its terms so as to avoid ERISA definitions,the language ultimately ends up bumping into ERISA terminology. Thus,where the UPDPA defines "covered entity" as, "an employer . . . or othergroup of persons organized in the State that provides health coverage tocovered individuals," even though the UPDPA does not use the phrase,"employee welfare benefit plan," it is defining the same concept. ERISAdefines "employee welfare benefit plan" as, "any plan . . . maintained byan employer . . . for the purpose of providing . . . medical . . .benefits. . . ." 29 U.S.C. § 1002(1). At oral argument, the State didnot disagree with PCMA's contention that the "vast amount" of the coveredindividuals the PBMs service in Maine are covered under ERISAplans.20 At least a significant number of "covered individuals,"§ 2699(1)(B), under "covered entities," § 2699(1)(A), receiveprescriptive drug benefits through PBMs pursuant to ERISA-regulated"employee welfare benefit plans" under ERISA.Page 29
Similarly, the ERISA regulatory scheme is premised on defining criticalplayers as fiduciaries, imposing fiduciary obligations on them, andpenalizing them for their failure to comply. What Maine has done is mimicERISA's regulatory scheme on an emerging and important player, one notcurrently regulated by ERISA. The UPDPA defines the PBMs as fiduciaries,requires disclosures, and then penalizes non-compliance. From thisCourt's perspective, the very size and significance of the PBMindustry-its national scope, its crucial position in the center of thehealth care delivery system-make it less likely that a comprehensivestate regulatory scheme can be enacted against such a major playerwithout reference to the overriding federal law that so permeates theemployee health benefit plan landscape. This is especially true since theroute the State has chosen tracks the federal regulatory scheme,effectively filling in by state law an ever-expanding hole in federaloversight.
This is not to say the State cannot enact legislation generally toregulate health care. The Travelers Court has expressly saidotherwise. However, this legislation presents a series of factors thatmake it problematic in light of ERISA preemption: (1) the national, asopposed to state or even regional, impact of the PBM industry; (2) thesignificant economic weight of the industry; (3) the centrality of theindustry in the delivery and cost of health care benefits; (4) the vitalnature of the health care benefits the PBM industry affects; (5) thebreadth and detail of State regulation over the PBM industry; (6) thecomprehensive scope of its enforcement provisions; and (7) theavailability of private causes of actions on benefit issues. In thiscontext, for the Court to ignore ERISA would be to ignore the proverbialelephant in the room.
The final analysis relies on the Carpenters Local sockdolager:conducting the "reference to" inquiry in light of the actual operation ofthe statute. Having concluded that the UPDPA has a "connection with"ERISA plans, this Court is led by a similar process to the conclusionthat thePage 30UPDPA has simply too profound an impact on ERISA plans-theiradministration and benefits-to avoid the reality that, in its operation,the UPDPA has a "reference to" ERISA.
iv. Preemption Conclusion.
This Court does not take lightly its obligation to presume that statestatutes, particularly those imposing general health regulations, are notpreempted by federal law. However, reviewing the UPDPA in the shadow ofTravelers and Dillingham, this Court concludes thatPCMA has demonstrated substantial likelihood of success on the issue ofwhether the UPDPA relates to ERISA so as to trigger preemption. As JudgeHornby recently wrote, even though Travelers represented "aretreat from the broadest reading once given to `relate to,'" it did notoverrule Shaw. Catholic Charities, 2004 WL 231778 at 1, *8 (D.Me. 2004).
VIII. Other Preliminary Injunction Considerations.
As noted earlier, before this Court can issue a preliminary injunction,PCMA has the burden of satisfying each element of a four-part test: (1)the probability of success on the merits; (2) the likelihood ofirreparable harm; (3) a favorable balance of equities; and (4) the impactthe injunction will have on the public interest. Based on the recordbefore this Court, PCMA has met the first two requirements: a likelihoodof success on the merits and a significant risk of irreparable harm. Tobalance the equities, this Court notes that PCMA is currently seekingmaintenance of the status quo pending final resolution of the case andthis Order does not decide the State's ultimate ability to enforce thelaw. Finally, although the State has argued that a delay in enforcementwill affect the public interest, this Court concludes the delay in anypublic benefit pending final resolution of the litigation is offset bythe three other preliminary injunction criteria.Page 31
IX. Conclusion.
Considering the factors applicable to the extraordinary relief of apreliminary injunction, this Court concludes that PCMA has made acompelling showing to warrant the grant of a short-term injunction inthis case. Accordingly, in order to preserve the status quo during thependency of this action, the State is PRELIMINARILY ENJOINED from seekingto enforce 22 M.R.S.A. § 2699.
SO ORDERED.
1. To describe, even briefly, the role of PBMs in the Americanhealth care system takes a moment. After a physician prescribes a drugand the patient presents the prescription to a pharmacy, the insuredportion of the bill (after any co-pays or deductibles) is forwarded to ahealth maintenance organization ("HMO"), an employer, or an insurer forpayment. These third-party payers have commonly entered into contractswith PBMs to process prescription drug payments. When PBMs first appearedon the national scene more than thirty years ago, they offered a nicheservice to third-party payers: computerized processing of prescriptivedrug bills. The PBMs, in essence, became efficient financialintermediaries among third-party payers, pharmacies, and drug companies. This has become no small service. As prescriptive medicine has becomemore vital to the provision of quality health care, it has assumed anever-increasing percentage of the overall health care dollar. At the sametime, third-party reimbursement mechanisms have become bewilderinglycomplex. The PBMs' niche has evolved as a consequence of enormous marketforces, thaumaturgic scientific breakthroughs, spiraling health carecosts, and Byzantine reimbursement formulas. As time passed, however, PBMs have begun to offer more to their clientsthan efficient claims handling. By amalgamating the economic weight oftheir clients, the PBMs began to approach drug companies and pharmaciesand negotiate significant volume discounts or rebates. The PBMs now offera wide range of services, including rebate programs, pharmacy networks,and drug utilization reviews. Instead of remaining on the sidelines asquiet claims processors, the PBMs have themselves emerged as majorplayers in the health care system with their own undeniable economicclout.
2. Again, to understand this allegation takes a moment. The Statealleges the PBMs and the drug companies have made what amounts to adevil's bargain: in exchange for volume discounts and rebatesrelinquished by drug manufacturers, the PBMs agree to promote thatmanufacturer's drugs and, by doing so, receive a financial reward. Thus,when a physician prescribes one drug brand and the pharmacy begins tofill it, the PBM may seek to influence the choice by steering toward thefavored drug manufacturer. Although this practice may inure to thebenefit of the client and customer, there are instances when the PBMsengage in "low-to-high" switching, whereby the drug manufacturer pays thePBM to switch patients from less expensive to more expensive drugs. TheState claims the PBMs employ scores of pharmacists whose sole function isto review computerized records and contact prescribers to persuade themto switch drugs for individual patients. The State portrays these arrangements between the PBMs and drugcompanies as an undisclosed conflict of interest. The State claims thesize and terms of these undisclosed paybacks are uniformly concealed fromthe PBMs clients and the lion's share of PBM profits come rot from thecovered entities, but from drug company payments deliberately concealedfrom their clients. A report by the Maine Legislature's Health and HumanServices Committee estimated the PBMs receive $12.2 billion inundisclosed payments from drug manufacturers each year. Althoughacknowledging there are many PBMs, the State asserts that the industry asa whole is highly concentrated with four, soon to be three, companiescontrolling the national market and enjoying unusual levels ofprofitability.
3. This Court will not consider language not used in the finalversion of the UPDPA as indicative of legislative intent. See, e.g.,Availl Serv. Inc. v. Cooper Ind., Inc., 263 F.3d 134 (5th Cir. 2001)(stating court should limit reliance on legislative history to that partof history that Congress adopts into law); United States v. Fox,845 F.2d 152 (7th Cir. 1988) (holding that deletion of language mootsweight otherwise given to legislative history regarding that language);Cairns v. Franklin Mint Co., 120 F. Supp.2d 880 (C.D. Cal. 2000)(noting state court readings of deleted language as persuasive that suchprovisions should not be read into law).
4. In its response, the State has questioned whether PCMA hasstanding to raise a takings issue for its members. As the absence ofassociational standing would bar PCMA from bringing any of its claims onbehalf of its members, not just the takings clause claim, the Court willaddress the issue of standing before considering the claimsthemselves.
5. The State contends not all PCMA members have taken the sameposition on the secrecy of the information the UPDPA mandates theydisclose. It cites the "client principles" from PCMA member Advance PCS,which state it views all rebates as the property of its clients and allows the clientto audit the rebate amounts down to the transaction level. Similarly, theState points out that PCMA member Express Scripts, Inc., allows fullaudits by its clients. These differences, the State contends, negatePCMA's claim of associational standing, since enforcement of the UPDPAwould affect its members differently. PCMA responded with supplementaldeclarations from Susan de Mars of Advance PCS and Edward Ignaczak ofExpress Script, explaining that their companies require the auditorsperforming the rebate audits to sign confidentiality agreements andcomplete the review at their company offices. These auditing proceduresare insufficient to convince this Court that the UPDPA disclosures wouldaffect PCMA members differently.
6. In Rent Stabilization Association v. Dinkins, 5 F.3d 591(2d Cir. 1993), the Second Circuit discussed the Hunt criteriain the context of a takings claim. Noting that Hunt mandates'neither the claim asserted nor the relief requested" requirethe participation of the individual members (emphasis in RentStabilization), the Second Circuit concluded that because a takingsclaim commonly mandates an essentially ad hoc, factual inquiry,associational standing could not be granted to an association of 25,000building owners because the law would necessarily affect each ownerdifferently. Rent Stabilization, 5 F.3d at 597 (citingKaiser Aetna v. United States, 444 U.S. 164, 175 (1979)). TheRent Stabilization holding does not prohibit the grant ofassociational standing in this case. Here, PCMA's members are readilyidentifiable. Further, even though there may be some differences in theexact way the UPDPA's mandated disclosures could affect individualmembers, this Court concludes that the UPDPA's disclosures would not onlyinjure each member, but that the requested remedy would "inure to thebenefit of those members of the association actually injured."Warth, 422 U.S. at 515; see infra note 17 (discussingfacial and as-applied claims).
7. 22 M.R.S.A. § 2699(2)(D) provides: A pharmacy benefits manager owes a fiduciary duty to a covered entity and shall discharge that duty in accordance with the provisions of state and federal law. . . . . D. A pharmacy benefits manager shall provide to a covered entity all financial and utilization information requested by the covered entity relating to the provision of benefits to covered individuals through that covered entity and all financial and utilization information relating to services to that covered entity. A pharmacy benefits manager providing information under this paragraph may designate that material as confidential. Information designated as confidential by a pharmacy benefits manager and provided to a covered entity under this paragraph may not be disclosed by the covered entity to any person without the consent of the pharmacy benefits manager, except that disclosure may be made in a court filing under the Maine Unfair Trade Practices UPDPA or when authorized by that UPDPA or ordered by a court of this State for good cause shown.
8. 22 M.R.S.A. § 2699(2)(G) provides: A pharmacy benefits manager owes a fiduciary duty to a covered entity and shall discharge that duty in accordance with the provisions of state and federal law. . . . . G. A pharmacy benefits manager shall disclose to the covered entity all financial terms and arrangements for remuneration of any kind that apply between the pharmacy benefits manager and any prescription drug manufacturer or labeler, including, without limitation, formulary management and drug-switch programs, educational support, claims processing and pharmacy network fees that are charged from retail pharmacies and data sales fees.
9. PCMA argues that disclosure of trade secrets for "coveredentities" in Maine could "expose trade secret information relevant to thePBM's commercial relationships in other States-depriving PBMs of thecompetitive advantages they have in those jurisdictions that derive fromtheir trade secrets." Pl.'s Reply Mem. at 23. But, as the FirstCircuit said in PhRMA I, "simply because the manufacturers'profits might be negatively affected by the Maine UPDPA . . . does notnecessarily mean that the Maine UPDPA is regulating those profits." 249F.3d at 82. The fact a law may have a potentially devastating effect on aparticular interstate firm is not sufficient to rise to a Commerce Clauseburden. Id. (citing Instructional Sys., Inc. v. ComputerCurriculum Corp., 35 F.3d 813, 827 (3rd Cir. 1994)). Where theburden on out-of-state interests rises no higher than that placed oncompeting in-state interests, it is a burden on commerce ratherthan a burden on interstate commerce. Id. The fact theState regulated indiscriminately supports the conclusion that theCommerce Clause has not been violated. Id.
10. See, e.g., Oregon Waste, 511 U.S. at 93 (Oregon statuteimposed higher disposal fee on out-of-state waste); Wyoming, 502U.S. at 437 (Oklahoma statute required Oklahoma electric plants to burn amixture of coal containing at least 10 percent Oklahoma-mined coal);New Energy Co. v. Limbach, 486 U.S. 269 (1988) (Ohio statuteawarded tax credit against Ohio fuel sales tax for ethanol produced inOhio or to out-of-state producers only if the other State granted similarcredits); Lewis v. BT Inv. Managers, Inc., 447 U.S. 27 (1980)(Florida statute favored in-state businesses over businesses withprincipal operations outside Florida).
11. The State points out in its memorandum that PCMA could notdemonstrate there are no mail order pharmacies located in Maine.Def.'s Mem. at 39.
12. See supra note 9.
13. See supra notes 7, 8.
14. The State contends PCMA's motion should fail because PCMA didnot comply with the best evidence rule since it did not introduce theoriginal contracts that form the bases of PCMA's claims. SeeF.R.E. 1002. The State's argument, however, misperceives the issue. Forpurposes of ruling on this motion, whether the information set forth in acontract constitutes a trade secret does not depend upon the detailedcontents of the document itself, but the context and significance of thecontract. A description of what was negotiated in the contracts and whythe PBMs consider the contents a trade secret is more significant thanthe specific contract terms. For this purpose, the declarations of thecompany officials are sufficiently probative. SeeR &R Associates,Inc. v. Visual Scene, Inc. 726 F.2d 36, 38 (1st Cir. 1984). However,this is not to say the actual contents of the contracts may not becomefair game later.
15. This should not be interpreted as the last word on this issue.The Court is disquieted by the notion that the rebate and secretcontractual arrangements in this case can constitute a protected tradesecret. Unlike the trade secrets in Ruckelshaus (data onpesticide ingredients) and Reilly (ingredient lists for tobaccoproducts), information about negotiated contractual terms has nointrinsic economic value. Its true value is derived from thenon-competitive impact of its confidentiality. The affidavits andargument submitted by the parties for purposes of a motion forpreliminary injunction are insufficient to draw final conclusions on thisissue and the consequences of denial of the motion on this ground wouldbe that the information that the Court could ultimately conclude shouldbe protected will be forever released. As Judge Selya stated inReilly, 312 F.3d at 50, "a secret remains secret when notdivulged."
16. This Court does not credit PCMA's fear that the disclosureprotections of § 2699(2)(D) are illusory because the informationcould be revealed in a subsequent judicial proceeding. A court would havethe authority to impose restrictions on dissemination of disclosedinformation and presumably would do so, unless the information did notwarrant such protection.
17. In its supplemental brief, the State raises what amounts to aripeness argument, though characterizes it as one of standing. Citingcase law that requires a litigant to exhaust state remedies beforeseeking relief from a taking, the State claims that the Plaintiff'smembers do not have standing to contest the UPDPA because they neverchallenged the law in Maine. Accordingly, the State asserts the claimsare not ripe and the Plaintiff does not have associational standing topursue the claims on their behalf. While the State is correct that the Plaintiff does not have a claimunless its members have claims, the argument paints existing case lawwith too broad a brush. In the regulatory takings context, challenges toa law may be facial; that is, a claim that the law affects a taking byits very terms, and as-applied; that is, a claim that the law affects ataking when applied to the claimant or particular property. It is truean as-applied claim is not ripe until the government entity charged withimplementing the law has denied the property owner just compensation,Williamson Co. Reg'l Planning Comm'n v. Hamilton Bank of JohnsonCity, 473 U.S. 172, 186 (1985), because the "taking" depends on theextent to which the entity deprives the claimant of the use of theproperty without adequate compensation. Yee v. City of Escondido,Cal, 503 U.S. 519, 533 (1992). In the instant case, the Plaintiff has mounted a facial challenge tothe UPDPA, arguing by its terms, the law effects a taking of thePlaintiff's members' trade secrets. The offense is not the State's lackof adequate compensation for the taking, but rather the taking itself. Asa facial challenge, the argument ripened when the State enacted theUPDPA. See Yee, 503 U.S. at 533. Further, with facial challenges, where an adequate remedy is notavailable at law, equitable relief, such as a preliminary injunction, isappropriate. E.g., Euclid v. Ambler Realty Co., 272 U.S. 365,386 (1926) (stating that equitable relief is clear in instances of facialchallenges); Reilly, 312 F.3d at 50 (evaluating merits ofrequest for preliminary injunction where claimant had no adequate remedyat law and faced Hobson's choice of forfeiting trade secrets orwithdrawing from market). Thus, equitable relief, such as a preliminaryinjunction, is appropriate to the extent that the UPDPA actually offendsthe Plaintiff's members' property rights.
18. The State can well argue that the law only recognizes a conflictthat the PBMs already have, regardless of whether it is codified.However, the point for ERISA preemption purposes is whether the UPDPA inits operation is likely to have a real bearing on the intricate web ofrelationships described in Carpenters Local and this example, inthe Court's view, demonstrates that it will.
19. The UPDPA raises the likelihood that the Maine Superior Courtwill become the forum of choice for the resolution of controversies thatare essentially between the covered entity and the covered individual. Ifthe covered entity or covered individual were to challenge a PBM decisionunder the UTCP, although the pretext of the complaint might be the PBM'srole, the nub of the issue could very likely be whether the coveredentity's financial interests should take precedence over the coveredindividual's medical interests. For those health plans covered by ERISA,the issue litigated in Maine State Superior Court under the UTPA shouldbe resolved under 29 U.S.C. § 1132(a)(1). The Supreme Court has notretreated from its view that ERISA enacted a comprehensive enforcementscheme, which preempts state regulation on the same issues. RushPrudential HMO, Inc. v. Moran, 536 U.S. 355 (2002); Pilot LifeIns. Co. v. Dedeaux, 481 U.S. 41 (1987); Massachusetts Mut. LifeIns. Co. v. Russell, 473 U.S. 134(1985). The Court is also concerned that the UPDPA places the personalphysician in the center of the dispute about the cost and effectivenessof medication. Before the physician is asked to render an opinion, theUPDPA requires the PBM first to disclose the cost information to thecovered entity and the patient (plus any benefit payment to the PBM),thereby making it a virtual certainty (if the expense is sufficientlygreat) that the doctor will be lobbied at least by his patient andperhaps by the covered entity, on her decision as to which drug is bestand most cost effective for the patient. Finally, the UPDPA provides that the PBM "shall transfer in full" tothe covered entity any benefit or payment it receives as a result of thesubstitution. 22 M.R.S.A. § 2699(2)(E)(3). The determination of whatis "in full" is a potential source of litigation, the extent to which itincludes PBM overhead, for example. This portion of the UPDPA can beenforced only if the covered entity has detailed knowledge of the PBM'sbooks, a knowledge consistent with the disclosures contemplated undersubsection (2)(D), but for which there is no enforcement mechanism otherthan state litigation. Similar issues appear with subsection (2)(F).
20. At oral argument, the Assistant Attorney General stated: And the point is-here is that PBMs, they said, the vast amount of plans that they service are ERISA plans. That may be, in fact, true in the sense that they-that they're working on providing pharmaceutical products that ultimately will end up in the hands of ERISA participants. But, the contracts that they have themselves are not necessarily with ERISA fiduciaries, and they could be with a whole host of different entities and certainly could-I dare to say that most of them are not with the particular plans themselves.