The Federal Trade Commission has finalized a rule requiring pharmaceutical companies to report more exclusive patent licenses for antitrust approval under the Hart-Scott-Rodino Act (HSR Act). The HSR Act requires that acquisitions of voting securities and/or assets be notified to the Federal FTC and the Department of Justice if the size of parties and size of transaction tests are satisfied and if no exemption applies. Where premerger notification is required, both parties must file, the acquiring person must pay a filing fee (either $45,000, $125,000 or $280,000, depending upon the size of the transaction), and the parties must observe a 30-day waiting period prior to closing.
The FTC's Premerger Notification Office has historically taken the position that transfers of exclusive licenses are subject to premerger notification as an acquisition of assets. However, if the license is not exclusive in any respect, then it has not been considered an asset transfer and premerger notification has not been required. Under the old test, the antitrust agencies generally viewed agreements that shifted the entire trio of patent rights (i.e., "make, use, and sell") to a new company to be reportable under the HSR Act. However, they considered arrangements in which the patent holder keeps the right to manufacture the product as non-reportable distribution agreements, rather than as an asset transfer.
The new rule, which will go into effect on Dec. 16, 2013, requires companies to notify the agencies of any license that gives an exclusive licensee "all commercially significant rights" to use a patent or part of one—even if the licensor retains the right to manufacture the drug. Under the new rule, the FTC formally establishes the position that reserving "co-rights" will not render an otherwise exclusive license non-exclusive for HSR purposes. Co-rights may include the right to co-develop, co-promote, co-market or co-commercialize, or to assist the licensee in developing and commercializing the product. Importantly, the amended rules only address transfers of patent rights for products whose manufacture and sale would generate revenue within the pharmaceutical and medicine manufacturing industries.
Regulators have indicated that the new rule is designed to address the fact that it is becoming more common for the drug maker to retain the right to produce the drug exclusively for the licensee to sell. The FTC has determined that the "make, use, and sell" approach is no longer adequate in evaluating the competitive impact of patent rights transfers in the pharmaceutical industry.
Questions regarding the applicability of the Act, whether or not an exemption might apply, how to value a license, and whether exclusivity exists can be complex. Parties should give careful consideration to whether intellectual property transactions require premerger notification under the HSR Act.
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