Antitrust Law Daily Wrap Up, ANTITRUST NEWS: HSR rules amended to require reporting of patent acquisitions in pharmaceutical industry, (Nov 6, 2013)

By Jeffrey May, J.D.

The premerger notification rules have been amended to require pharmaceutical industry participants to report acquisitions of exclusive patent rights to the FTC and Department of Justice for antitrust review. The amendment will take effect 30 days after the date of publication in the Federal Register, which is anticipated shortly.

Last August, the FTC issued a Notice of Proposed Rulemaking and Request for Public Comment on the reportability of the transfer of exclusive patent rights in the pharmaceutical industry under the Hart-Scott-Rodino Act. According to the FTC, the transfer of exclusive rights to a patent is a common practice in the pharmaceutical industry, particularly when a patentee does not have the financial resources to shepherd a new drug compound through the FDA approval process.

The amendment “reflect[s] the longstanding staff position that a transaction involving the transfer of exclusive rights to a patent or a part of a patent in the pharmaceutical industry, which typically takes the form of an exclusive license, is potentially reportable under the Act and [seeks] to clarify the treatment of retained manufacturing rights.”

“In determining reportability, the parties must analyze what the licensor is transferring to the licensee and determine whether the license conveys the exclusive rights to commercially use the patent or part of a patent,” the FTC explained. In recent years, pharmaceutical companies have begun to transfer most but not all of the rights to “make, use, and sell” under an exclusive license.

The changes bring the transfer of exclusive patent rights in the pharmaceutical industry within the rule’s requirement of reporting of “all commercially significant rights,” the FTC stated. The rule codifies the view that the retention of co-rights (shared rights to assist the licensee in developing and commercializing the patented product, including the rights to co-develop, co-promote, co-market, and co-commercialize) does not render a license to the patent or part of the patent as non-exclusive. A transfer of “all commercially significant rights” has occurred even when the grantor retains co-rights.

The rule also provides that such a reportable asset transfer may occur even if the licensor retains the limited right to manufacture under the patent or part of a patent for the licensee. “The final rule ensures that transactions in which the licensor retains only the right to manufacture exclusively for the licensee, and thus retains ‘limited manufacturing rights,’ as defined by § 801.1(p), will be reported if the relevant HSR statutory thresholds are met.”

Objection to Rule.

Only three public comments were submitted addressing the proposed rule during the public comment period. Of those three, only the comment from the Pharmaceutical Research and Manufacturers of America objected to the change. That group questioned the adoption of rules limited to the pharmaceutical industry.

“Although the rule is limited to the pharmaceutical industry, to the extent that other industries engage in similar exclusive licensing transactions, such transactions remain potentially reportable events under the Act and existing rules implementing the Act,” the Commission noted. “The Commission will continue to assess the appropriateness of a rule for other industries.”

News: Antitrust FederalTradeCommissionNews