Tuesday, September 30, 2014

PMRA v. County of Alameda (9th Cir. - Sept. 30, 2014)

You don't get a plethora of dormant Commerce Clause cases in the Court of Appeals.  Even in these relatively conservative times.

But here's one.  And it's fascinating.

The facts are fairly straightforward.  Alameda County passed an ordinance in 2012 that essentially requires prescription drug manufacturers to set up and run "kiosks" in which customers can safely return unwanted drugs.  Makes a lot of sense.  We want people to be able to safely dispose of now-unwanted prescription drugs, rather than keeping them about for others to steal, abuse, or mistakenly consumer.  The prescription drug companies benefited from the initial sales.  So they should cover the costs of disposal.  Fair enough.

The drug companies, however, alongside a plethora of conservative interest groups as amici, claim that the ordinance violates the dormant Commerce Clause because all of the relevant prescription drugs travel in interstate commerce.  Judge Randy Smith demolishes this argument.  In an opinion that you can hardly claim is authored by a flaming liberal who's never met an economic regulation that he didn't like.

So that's how the merits get resolved.

For me, however, there's one portion of the ordinance that's discussed at some length in the opinion but that nonetheless continues to trouble me.

The ordinance indisputably obtains local benefits; i.e., protects the health of residents of Alameda County.  But under the statute, the seven-figure cost of that regulation also indisputably is borne largely by consumers outside of this locality.  That's because the statute affirmatively prohibits the drug manufacturers from imposing a "tax" or "fee" on local purchases in order to reimburse the manufacturers for the cost of the program.  As a result, the people of Alameda County benefit from the program, but the cost of that program is borne almost entirely by people outside of Alameda County (in the form of higher prices).

That doesn't seem entirely fair, does it?  As a matter of equity, one might think that the costs of a program that benefits a particular locality should be borne by that locality.  A result that the Alameda ordinance expressly precludes by barring drug companies from charging local residents for the cost of the program via a tax or fee.

Judge Smith hold that, as a constitutional matter, that's not a huge problem.  And his reasoning on this point isn't at all frivolous.  The program costs a million bucks or so.  As contrasted to the billion or two that the drug companies make.  The program's not disproportionate.  It doesn't result in a huge increase (at all) in drug prices.  It's a fairly minimal burden in the scheme of things.  And it doesn't have the effect of precluding the importation of drugs, either de jure or de facto, into the county.  So it's constitutionally permissible.

I get all that.

But it nonetheless seems to me that there's a serious agency problem here.  Alameda County obtains costly benefits for its residents at virtually no cost to itself but at real costs to others.  You can see the systemic problem with such a regime.  If Alameda County can do that -- and you see the incentive for it to do so -- then so can everyone else.  Every locality can obtain local benefits and externalize its costs.  Even when the local benefits aren't even close to equivalent to the costs.  You're not paying them.  Why should you care?

That's the very definition of a collective action problem.  Too many cows on the commons.  To allow a structure the permits localities to externalize the cost of local benefits is to legitimize a subpar, and monstrously inefficient, institutional regime.  And that's exactly what the ordinance does by barring the drug companies from imposing fees that impose the burden of the ordinance on those who benefit by it.

You can see why you'd want to gussy that up into a constitutional argument.  Maybe even a valid one.

So, for me, the most difficult part of the ordinance is the "no fee" provision.  Everything else I'm entirely comfortable with.  Seems perfectly fine.  But that "no fee" part continues to trouble me.

Ultimately, Judge Smith says that if there's a problem with the ordinance, it's up to the other branches of government.  Okay.  I get that.  He's undeniably correct that if the federal government thinks this is a problem, Congress can preempt ordinances like Alameda's.  Absolutely right.

But I'm perhaps a little more worried than Judge Smith is about the separate agency problems with that potential solution as well.  I'm not sure that Congress really has the practical ability to respond to every penny-ante extraction propounded by a particular locality.  Yeah, if it becomes a trend, or if a particular ordinance is particularly burdensome, I have no doubt that the pharmaceutical companies (and their well-paid lobbyists) will be on it like white on rice.  So maybe, given the practical reality of the agency-cost-laden world in which we live, I shouldn't worry so much about the agency costs I definitely see associated with the particular ordinance at issue here.  These are big boys.  They can more than take care of themselves.

But there's nonetheless still something that nags at me at the codification of the resulting principle as a matter of constitutional law.  Because extractions aren't always taken from the powerful.  Sometimes they're taken from the weak.  And the principle here doesn't articulate a difference.

Interesting stuff.