The Federal Trade Commission has announced proposed rule changes
that will impact the reportability of pharmaceutical patent
licenses under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 ("HSR Act"). If the rules are enacted, a transfer of
"all commercially significant rights" with respect to a
patent will potentially subject parties to the premerger reporting
and waiting periods under the HSR Act; this will be the case
regardless of whether manufacturing rights (a guiding factor in
currently determining whether a license is "exclusive"
and therefore a potentially reportable asset transfer) are retained
by the licensor.
In explaining its rationale for the rulemaking, the FTC
indicated that, although the transfer of a patent involves a fairly
straightforward analysis under the HSR Act, the transfer of only
certain patent rights has caused much confusion. Currently, only
the transfer of a bundled right to "make, use and sell" a
product covered by a patent is reportable; as a result,
manufacturing rights retained by the licensor typically render a
license non-reportable even when valuable commercial rights are
conveyed to the licensee.
The FTC has focused its rulemaking on the pharmaceutical
industry (including biologics and medicine manufacturing) due to
what it describes as the "unique incentives" of
pharmaceutical companies to enter into exclusive licenses. For
example, it is common for an innovator without significant
financial resources to team with a larger pharmaceutical company
that has the fiscal ability to shepherd a product through the FDA
approval process. If the relationship is successful, the parties
share profits. The FTC indicated that licenses in other industries
will be considered by the Premerger Notification Office, which
administers the premerger reporting program on behalf of both the
FTC and DOJ, on a case-by-case basis.
Under the proposed rules, a license will be considered to be
exclusive (and therefore potentially reportable under the HSR Act)
Licensor retains no manufacturing rights or only "limited
manufacturing rights" with respect to the licensed product
(such as the ability to manufacture product for the licensee's
Licensee alone can use a patent in a particular therapeutic
area (or for certain indications within such therapeutic area);
Licensor's retained co-development and co-marketing rights,
if any, do not constitute a continued right to use the licensed
product in the particular therapeutic area covered by the
The proposed rulemaking is geared towards the licensing
activities of pharmaceutical companies but will capture other
transfers of commercially significant rights relating to
pharmaceutical patents, including assignments and grants. The
public comment period remains open through October 25.
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