Finalized Amendments to Premerger Notification Rules Will Impact Pharma Companies

by Williams Mullen

FTC Issues Final Rule That Will Increase Burdens on Drug Companies Engaging in Certain Patent Licensing Transactions

Pharmaceutical companies that use exclusive patent licenses to bring drugs and medicines to market must now notify the U.S. antitrust agencies of more of these types of licensing transactions and await approval before consummating them.  On November 6, 2013, the Federal Trade Commission (“FTC”), with the concurrence of the Department of Justice’s Antitrust Division (collectively, the “antitrust agencies”), issued final amendments to the Hart-Scott-Rodino (“HSR”) Premerger Notification Rules that broaden reporting requirements for members of the pharmaceutical, biologic and medicine manufacturing industry.  The new rules will go into effect 30 days after they are published in the Federal Register, which is expected to happen in the next few days.


Parties to certain large mergers and acquisitions must notify the antitrust agencies and observe a waiting period before closing their transaction, so that the agencies can determine whether the deal may lessen competition.  Our alert summarizing the current HSR filing thresholds and fees can be found here. The acquisition of a patent is treated as an asset acquisition, and must be reported if the transaction meets the applicable HSR thresholds.  Oftentimes, though, patent holders will choose to license the right to commercially use their patent or part of their patent rather than sell it outright – particularly where the future value of the patent is speculative. 

The FTC has historically distinguished between the grant of an exclusive intellectual property license (which it treats as the transfer of an asset and thus potentially reportable) and other, non-reportable transactions such as the grant of a nonexclusive license or the grant of marketing and distribution rights.  Previously, the FTC had taken the position that, in order to be treated as an acquisition, a license must be exclusive even against the grantor.  This meant that, when a patentee granted an exclusive right to market and sell certain drugs but retained the right to manufacture the products covered by the license, the license was not sufficiently “exclusive” to be treated as an asset transfer and was thus not captured by the HSR Act’s filing and waiting period requirements. 

The FTC proposed to formally change its treatment of this licensing scenario in August 2012, when it published a proposed rulemaking and requested public comments from affected parties.  Despite vigorous opposition to the proposed rule changes from the industry trade group  PhRMA, or Pharmaceutical Research and Manufacturers of America, the FTC adopted its proposed rules wholesale into the final rule. 

A New Filing Test for Drug Companies: “All Commercially Significant Rights”

Under the FTC’s new rules, a transfer of patent rights will be considered a potentially reportable asset acquisition if “all commercially significant rights” to the patent for any therapeutic area (or specific indication within a therapeutic area) are transferred to another entity.  “All commercially significant rights” are 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). 

Notably, the HSR coverage rules have been revised to make clear that “[a]ll commercially significant rights are transferred even if the patent holder retains limited manufacturing rights … or co-rights.”  Thus, when licensors grant an exclusive right to commercially use the patented drug but retain the right to manufacture, co-develop, co-promote, co-market, or co-commercialize that patent, they and their licensee must determine whether an HSR filing is necessary. 

New Burdens on Pharmaceutical Players … And Perhaps Others

These new rules will undoubtedly increase transaction costs and uncertainty for numerous drug makers and innovators.  Some once-exempt transactions will now subject patent holders and licensees to several new burdens: parties must assess transaction valuation against current HSR filing thresholds, gather financial data and documentation needed for the HSR notification, pay the HSR filing fee, and wait 30 days (and potentially much longer in some cases) to close the transaction.  In addition, the somewhat vague definition of “commercially significant rights” may require parties to engage in lengthy back-and-forth communications with FTC premerger office staff to clarify whether a particular licensing arrangement requires a filing. 

The reach of the FTC’s Amendments may also extend beyond the pharmaceutical industry.  In the final rules’ statement of basis and purpose, the FTC states that “[a]lthough the rule is limited to the pharmaceutical industry, to the extent that other industries engage in similar exclusive licensing transactions, such transactions remain potentially reportable events.”  Therefore, parties to exclusive licensing agreements in other industries – especially in the technology sector – should consider carefully whether the transaction is reportable under the HSR Act and new Rules. 


The FTC’s new Rules reflect the agency’s continued focus on the pharmaceutical industry.  The Commission has for years scrutinized agreements involving patent rights between players in the pharma arena, most notably agreements settling patent infringement litigation between branded and generic drug companies.  These Amended Rules expand the FTC’s oversight even further, formally enabling the agency to review licensing agreements for antitrust concerns.  Companies should remember, however, that the antitrust agencies may still investigate licensing agreements – or any other types of transactions – that are not subject to the HSR Act’s reporting requirements. 

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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