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

more+
less-

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

Topics:  Administrative Procedure Act, Filing Requirements, FTC, Hart-Scott-Rodino Act, Patent Transfers, Patents, Pharmaceutical, Pharmaceutical Patents, PHRMA, Reporting Requirements

Published In: Antitrust & Trade Regulation Updates, Civil Procedure Updates, Intellectual Property Updates, Mergers & Acquisitions Updates, Science, Computers & Technology Updates

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

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »