The FTC Establishes New Premerger Notification Rules for Pharmaceutical Patent Licensing Transactions
Recent Developments
On November 6, 2013, the Federal Trade Commission (“FTC”) finalized its amendments to the Hart-Scott-Rodino (“HSR”) premerger notification rules relating to the transfer of patent rights in the pharmaceutical and medicine
manufacturing industry. The amendments—which will go to into effect one month after publication in the Federal Register—establish that exclusive licenses of pharmaceutical patents or parts of a patent are potentially HSR reportable1 even where the licensor retains (1) limited manufacturing rights or (2) co-rights for development or commercialization.
The Amendments
Under the amendments, an exclusive pharmaceutical licensing transaction can constitute an HSR-reportable asset acquisition where it involves the transfer of “all commercially significant rights” to the patent in a particular
therapeutic area or specific indication within a therapeutic area. This test revises the FTC Premerger Notification Office’s (“PNO”) previous approach, under which an exclusive license could be reportable only if it conferred
exclusive rights to “make, use, and sell” under the patent. The FTC explained that its previous approach was no longer adequate because licensors increasingly have not been transferring the full bundle of patent rights, and
instead have been retaining certain rights.
Limited Manufacturing Rights. Under the amendments, transactions can be HSR reportable where the licensor retains limited rights to manufacture the patented product solely for the licensee. This represents a reversal of
previous FTC practice, where the retention of manufacturing rights did not meet the “make, use, and sell” test. Though the amendments do not expressly state this, it seems likely that the FTC grew concerned that
transacting parties could retain limited manufacturing rights solely to avoid making HSR filings.
Co-Rights. Under the amendments, exclusive licenses can be HSR reportable where the licensor retains “co-rights.” The term co-rights “refers to shared rights to assist the licensee in developing and commercializing the
patented product and includes rights to co-develop, co-promote, co-market, and co-commercialize.” Unlike manufacturing rights, the amendments regarding co-rights are consistent with and simply codify the FTC’s current practice. According to the FTC, transactions can be reportable under these circumstances because the licensor is excluded from commercially using the patent even though it may share profits with the licensee.
Who is Affected
These amendments are limited to the pharmaceutical industry because other industries do not utilize such exclusive licenses, according to the FTC. For example, in the last five years, all 66 HSR filings relating to exclusive patent licensing transactions were for pharmaceutical patents.
Companies in all industries should be aware, however, that exclusive licensing transactions that confer exclusive manufacturing rights are subject to the HSR Act and may be reportable.
Conclusion
Pharmaceutical companies should be aware that exclusive licenses where the licensor retains limited manufacturing rights now are potentially HSR reportable where they were not previously and that transactions where the licensor retains co-rights remain potentially reportable.
The amendments, which will allow the FTC and the Department of Justice to review an estimated 60 additional pharmaceutical licensing transactions before they are completed, reflect the agencies’ continued scrutiny of the pharmaceutical industry. Furthermore, companies in all industries should be aware that the FTC and the Department of Justice can investigate any transaction or conduct they believe may be anticompetitive, whether or not it is HSR reportable.
This legal alert keeps the clients of the firm “Baker & McKenzie” and other interested parties abreast of changes in legislation that may, to one degree or another, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this legal alert are not legal opinions and cannot replace the necessity of receiving legal consultations or opinions in specific practical situations. Please consult Baker & McKenzie’s website for information on antitrust services we offer www.bakermckenzie.com/antitrustcompetition
