The U.S. Federal Trade Commission (FTC) announced final changes to the Hart-Scott-Rodino (HSR) Act premerger notification rules that will broaden the circumstances under which parties must file premerger notifications in connection with the transfer of exclusive rights to pharmaceutical patents. The FTC adopted without change the proposed rules announced in August 2012, following receipt and review of a handful of public comments. See “FTC’s Proposed Rules Would Generate More HSR Filings for Transfers of Pharmaceutical Patent Rights” for a detailed description of the rules. The new rules are meant to clarify when a transfer of exclusive rights to a pharmaceutical patent is considered a potentially reportable acquisition of an asset under the HSR Act.
The rulemaking establishes an “all commercially significant rights” test, focused on whether there is a transfer of “the exclusive rights to a patent that allow only the recipient of the exclusive patent rights to use the patent in a particular therapeutic area (or specific indication within a therapeutic area).” The rulemaking further clarifies that all commercially significant rights are deemed to be transferred even if the patent holder retains limited manufacturing rights for the purpose of providing the licensee with product(s) covered by the patent, or co-rights to assist the licensee in developing and commercializing the product(s) covered by the patent.
Notably, this rulemaking applies exclusively to patents in the “pharmaceutical, including biologic, and medicine manufacturing industry.” As the FTC explains, in its view these arrangements create unique dynamics in the pharmaceutical industry because in a typical situation, a smaller innovation firm that likely could not successfully develop and commercialize the product grants rights to a large pharmaceutical firm that then takes control of development and ultimate commercial sales (if it succeeds). This is different from a standard distribution agreement in which a manufacturer with an existing product selects another company to be the distributor. Also, in the FTC’s experience, “the pharmaceutical industry is the only industry in which parties enter into exclusive patent licenses that transfer all commercially significant rights.” For example, the FTC observed that for the five-year period ending December 31, 2012, it received filings for 66 transactions involving exclusive patent licenses, and all were for pharmaceutical patents. Finally, the FTC notes that exclusive patent licenses in other industries may be reportable, and encourages parties to consult with staff to determine whether the proposed transaction at issue may be reportable.
View the text of the final rule here. The rule will become effective 30 days after it is published in the Federal Register, which is expected to occur shortly.