District Court Upholds FTC Hart-Scott-Rodino Rules for Pharmaceutical Patent Transfers

by Foley & Lardner LLP
Contact

A federal court has upheld the validity of the FTC’s recent rules for reporting certain transfers of exclusive patent rights in the pharmaceutical industry under the Hart-Scott-Rodino Antitrust Improvements (“HSR”) Act. We explained these Hart-Scott Rodino rules back in November when the FTC announced them, but note here that these rules require that an HSR filing be made for transfers of exclusive patent rights constituting “all commercially significant rights” in the pharmaceuticals sector that meet the other HSR criteria. A pharmaceuticals trade association challenged these regulations under the Administrative Procedures Act. On May 30, the court issued a seventy-page opinion rejecting this challenge and keeping the FTC’s rules intact and in full force.

The Challenge

The Pharmaceutical Research and Manufacturers of America (“PhRMA”) has been a vocal opponent to the FTC’s new rules for the pharmaceuticals industry. While the FTC was first considering the regulation, PhRMA submitted comments to the proposed rule and met privately with the individual Commissioners and their staffs in an effort to prevent the regulations from being adopted. Thus, when the FTC went forward with the regulations, PhRMA brought suit in the U.S. District Court for the District Columbia, in an uphill battle to set the rules aside.

PhRMA challenged the FTC under a host of grounds. Most interesting of all, PhRMA argued that the FTC lacks the statutory authority under the HSR Act to make rules that only apply to specific industries. Citing the statutory text, PhRMA argued that the HSR Act only gives the FTC the discretion “to relieve certain classes of persons or transactions” from reporting requirements; thus, it argued, the FTC should not be making special rules that affirmatively single out industries, like the pharmaceuticals rule does.

The Court Decision

Although the court thought that PhRMA’s interpretation the HSR Act was “not implausible,” the court nevertheless upheld the FTC’s rule. The court reasoned that the HSR Act’s “exemption” provision would have allowed the FTC to achieve the same regulatory result a different way—namely, by issuing a generally applicable rule for all industries, and then “exempting” every industry except for pharmaceuticals. As the end result would have remained the same, the court declined to “elevate form completely over substance,” and instead allowed the FTC to retain the new rule that singles out the pharmaceutical industry by name.

The court found that the FTC had concluded, based on years of experience, that transfers of “all commercially significant rights” tend only to raise antitrust concerns in the pharmaceutical industry. Therefore, the court reasoned, the FTC was arguably required to limit its rule to the pharmaceutical industry, since otherwise the FTC would risk exceeding its mandate to promulgate “necessary and appropriate rules.”

Broader Lessons

The immediate impact of the court’s decision is that the FTC’s rule for transfers of exclusive patent rights in the pharmaceuticals sector remains in effect, requiring companies and inventors to consider HSR reporting obligations before transferring patent rights.

The most important consequence of the court’s decision is that a court has recognized the FTC to have broad rulemaking powers under the HSR Act. Following recent Supreme Court precedent, the court deferred to the FTC’s broad interpretation of its own authority. The court held that the “FTC need only provide a rational basis” for its HSR rules, and it specifically recognized that the FTC may take an “incremental approach” to adopting new rules. Time will tell how the FTC uses this affirmation of its rulemaking powers.

However, on the flip side, the court’s ruling creates precedent for the argument that the FTC may only make rules in order to address actual, identified antitrust concerns; otherwise, the FTC risks exceeding its authority to make “necessary and appropriate” rules.

Finally, the court’s decision is notable for its discussion of HSR confidentiality. Confidentiality is always a major concern for parties making HSR filings to the FTC and DOJ, but unfortunately it is an issue that no court has discussed for 29 years. It thus is significant that the court opined (albeit in dicta) that HSR filings may not be disclosed for purposes of aiding public comments to proposed rules, even if the FTC references these filings as grounds for the proposed rules. According to the court, such disclosure likely does not count as a use “relevant to any administrative or judicial action or proceeding,” such that HSR confidentiality would not apply. Therefore, the case provides small—but welcome—assurance that HSR filings will remain confidential, absent truly exceptional circumstances such as an HSR enforcement action or a Congressional investigation.

View This Blog

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Foley & Lardner LLP | Attorney Advertising

Written by:

Foley & Lardner LLP
Contact
more
less

Foley & Lardner LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.