A federal court has endorsed the Federal Trade Commission’s authority to adopt regulations under the Hart-Scott-Rodino (HSR) Act that target specific industries. In Pharmaceutical Research and Manufacturers of America v. Federal Trade Commission, the court rejected a challenge to the legality of a new FTC rule that subjected pharmaceutical patent licensing transactions to unique reporting requirements.

As we wrote in an earlier e-alert in November 2013, the FTC has adopted a rule that expanded the HSR reporting requirements for licensing transactions involving pharmaceuticals and biologics where the licensor retains manufacturing rights or other co-rights (e.g., co-marketing or co-commercialization rights). The new rule became effective on December 16, 2013. Previously, the transfer of a pharmaceutical patent license was reportable only if it involved the exclusive right to use a patent (or part of a patent) to develop a product, manufacture the product, and sell that product without restriction.

Shortly before the new rule became effective, the Pharmaceutical Research and Manufacturers of America (PhRMA) filed suit against the FTC claiming that the HSR Act does not permit the FTC to issue rules that discriminatorily expand the scope of reporting requirements for specific industries. Deciding the parties’ cross-motions for summary judgment, the court sided with the FTC that the agency is entitled to Chevron deference for its interpretation that the HSR Act grants authority to promulgate industry-specific rules. Finding that Congress did not restrict the FTC’s authority to target specific industries, the court reasoned that the purpose of the HSR Act is not uniform application among industries, but the prevention of anticompetitive mergers.

PhRMA may appeal the decision to the U.S. Court of Appeals for the District of Columbia Circuit, but in the meantime, transfers of patent rights that satisfy the new rule must continue to be reported to the FTC. Companies engaging in pharmaceutical and biotechnology licensing transactions should consult HSR counsel to make an informed decision about their reporting obligations. The FTC has not indicated that it will promulgate rules for patent licensing in other industries, but the rationale of this decision could support such action.