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The Federal Trade Commission has proposed expanding
Hart-Scott-Rodino reporting and waiting period obligations for
certain pharmaceutical, biologics and medicine manufacturing
licenses. The new rules are subject to public comment and would not
take effect until later this year, but could impact transactions
currently underway. According to the agency, an estimated 30
transactions per year presently not subject to reporting will be
captured by the proposed rule change.
Under the HSR Act, certain stock or asset acquisitions are
subject to notification and waiting period requirements prior to
consummation to allow antitrust enforcers to evaluate potential
anticompetitive effects. Patent transfers or assignments are
treated as asset acquisitions under the HSR Act and are potentially
reportable, but it has not always been clear when an exclusive
patent license qualifies as an acquisition of an asset for HSR
purposes.
The proposed rules would make two important changes from the
current state of play and would codify one informal FTC position.
First, even if a patent holder retains the exclusive right to
manufacture the product covered by the patent for the third-party
licensee, the licensing transaction could still be reportable as a
transfer of "all commercially significant rights"
– a new term in the proposed rule. Second, the new rule
would apply only to the transfer of patents that cover products
whose manufacture and sale would generate revenues in NAICS
Industry Group 3254 (Pharmaceutical and Medicine Manufacturing).
Third, even if the patent holder retains the right to assist the
recipient of exclusive patent rights in the development and
commercializing of the product covered by the patent –
co-rights – the license may still be subject to the
Act.
Historically, transactions where the licensee is not granted
exclusive manufacturing rights have been able to escape HSR review
since without the right to manufacture, they were viewed more as
distribution agreements than asset acquisitions. The agency has for
some time voiced dissatisfaction with this treatment and promised a
fix, noting in the proposed rulemaking that, unique to the
pharmaceutical industry, the right to manufacture is far less
important than the right to commercialize. Thus, under the proposed
new rule, licensors that grant exclusive commercialization rights
but retain the right to manufacture for the licensee will be deemed
to have retained only "limited manufacturing rights," a
newly defined term, and to have granted an exclusive license
subject to HSR notification and antitrust review.
According to the Statement of Basis and Purpose for the proposed
rulemaking, "the proposed all commercially significant rights
test should greatly simplify the question of whether an asset
acquisition is occurring as the result of the transfer of rights to
a patent in the pharmaceutical industry." Experience in
practice, though, tells that this will remain an area subject to
interpretation, and that will be guided not only by experience with
the variety of rights associated with pharmaceutical industry
license agreements but by experience with agency practice and
approach.
The comment period on the proposed rulemaking expires October
25, 2012, and we expect that a number of significant comments will
be lodged. If you believe your business or transaction may be
impacted by the potentially expanded reporting requirements, we are
available to discuss whether comments, either on an individual
basis or as part of a larger group, may be fruitful.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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