FTC Flexes Healthcare Regulatory Muscle


[authors: Harry T. Robins and David R. Brenneman]

Proposed rule includes new requirements for reporting pharmaceutical patent transfers.

On August 13, the Federal Trade Commission (FTC) released proposed amendments to the premerger notification rules (the Proposed Rule), clarifying when the transfer of pharmaceutical (including biological) patent rights is reportable to the FTC as an asset sale under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act).[1] If the Proposed Rule is implemented, any transfer of exclusive pharmaceutical patent rights would be potentially reportable under the HSR Act, even when the patent owner retains certain manufacturing rights or certain "co-rights"—generally rights to co-develop or co-market the pharmaceutical product.

Proposed Rule at a Glance

Under the Proposed Rule, a license or other transfer of pharmaceutical patent rights will be potentially reportable under the HSR Act if the patent owner transfers all "commercially significant rights" to a patent, meaning the transfer of exclusive patent rights to the licensee or transferee where the licensee or transferee is only allowed to use the patent in a particular therapeutic area (or specific indication within a therapeutic area). This transfer will be potentially reportable even if (i) either the patent owner alone or both the patent owner and licensee/transferee have the right to manufacture the product covered by the patent being transferred or (ii) the patent owner retains "co-rights" to develop and commercialize the product covered under the patent.

For such arrangements to be deemed reportable, however, the proposed transaction would still need to meet the size-of-person and size-of-transaction thresholds established by the HSR Act. Early-stage pharmaceutical collaboration arrangements often are not reportable under the HSR Act because one party fails to meet the $13.6 million (adjusted annually) size-of-person test, or the fair market value of the license at issue does not exceed the above $68.2 million (adjusted annually) size-of-transaction test. (There are complex rules regarding valuing payments contemplated by such collaborations, but often many of the later-stage milestone payments (e.g., payments triggered by advancing to a new stage in the Food and Drug Administration process, filing the new drug application, or payments of commercial royalties) can be discounted to zero due to the uncertainty of the milestone ever being reached.)

The Proposed Rule appears to serve the following FTC objectives:

  • Simplifying a body of complex interpretations surrounding the reportability of pharmaceutical transfer arrangements under the HSR Act.
  • Closing a long-standing "loophole" in which pharmaceutical patent transfer arrangements have been exempt from the HSR Act when the patent owner retained the right to manufacture the underlying product, even if solely for sale to the licensee or transferee.
  • Facilitating the FTC's HSR Act pre-closing review of developmental-stage pharmaceutical product collaborations that may involve potential competitors.


Although the FTC's Proposed Rule creates certainty with respect to the treatment of pharmaceutical collaborations under the HSR Act, and the FTC predicts the new rule will result in only an additional 30 HSR filings annually, the Proposed Rule is not without its detractors. Some practitioners question whether such arrangements fall within the jurisdiction of the HSR Act because the transfer of title (i.e., sale of an asset), which is a requirement under the statute, is arguably not occurring. Still other practitioners worry that the Proposed Rule will unnecessarily burden pharmaceutical companies' development of products-the majority of which may never come to market and which will therefore present no need for antitrust oversight.

Parties interested in commenting on the Proposed Rule have until October 25, 2012, to submit comments.

1]. Notice of the proposed rulemaking and instructions for submitting comments can be accessed here.


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.

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