FTC Expands the Scope of Pharmaceutical Licensing Transactions That Will Be Subject to Premerger Review

by Wilson Sonsini Goodrich & Rosati

The Federal Trade Commission (FTC) recently announced that it has finalized amendments to the premerger notification rules (HSR Rules) that provide a framework for determining when a transaction involving the transfer of rights to a pharmaceutical patent is a potentially reportable asset acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act).1 The new rule in large part codifies the FTC Premerger Notification Office's (PNO's) long-standing position that transactions involving the transfer of exclusive patent rights are treated as asset acquisitions under the HSR Act (and thus are subject to premerger notification requirements). However, the "all commercially significant rights" approach established by the new rule deviates from the existing PNO approach in its treatment of retained manufacturing rights and applies solely to the pharmaceutical industry.

Under the new rule, the transfer of exclusive rights to a pharmaceutical patent in a particular therapeutic area or for a specific indication constitutes an asset acquisition even if the patent holder retains limited manufacturing rights and/or co-rights. This amendment potentially will result in an increase in licensing transactions that will be subject to HSR notification requirements (which include filing fees and waiting periods before the transactions can close).

"Make, Use, and Sell" Approach Under Existing PNO Guidance

Generally, under the HSR Rules, acquisitions of assets, voting securities, or controlling non-corporate interests that exceed the applicable size-of-transaction (currently $70.9 million) and size-of-persons thresholds require notification under the HSR Act, unless an exemption applies. For the transfer of exclusive patent rights, the PNO has long viewed the transfer of such rights as a potentially reportable HSR asset acquisition. This policy, reflected in guidance given by the PNO in numerous "informal interpretations," applies to any exclusive transfer of intellectual property rights, regardless of industry or subject matter. Prior PNO guidance has focused on whether the rights to make, use, and sell under the patent are being transferred exclusively to the licensee. The exclusive transfer of this bundle of rights is considered to be a potentially reportable transaction even if the transfer is limited to a particular field of use, period of time, or geographic area.

If the licensor retains the right to license the patent to others for the same field of use, geographic area, and time period as granted to the licensee, then the license is not considered sufficiently exclusive for HSR purposes, and thus not an asset acquisition. The license may also not be considered sufficiently exclusive if the licensor retains for itself certain other rights to the patent. For example, the retention of manufacturing rights has generally been sufficient to render an otherwise exclusive licensing arrangement non-exclusive even if the grantor has no intent to manufacture the product. On the other hand, merely retaining the right to co-develop, co-promote, or co-market a product has in most instances not been sufficient in the PNO's view to render an otherwise exclusive license non-exclusive for HSR purposes.

"All Commercially Significant Rights" Approach Under the New Rule

Under the new rule, a license or other transfer of patent rights to a pharmaceutical product will amount to an asset acquisition if all commercially significant rights to the patent are conveyed by the transferor to the transferee. The transfer of all commercially significant rights means that the transfer of exclusive patent rights allows only the recipient of such rights to use the patent—whether as a whole or in part—in a particular therapeutic area or for a specific indication. Such a transfer will remain potentially reportable even if the licensor retains (a) limited manufacturing rights (i.e., the right to manufacture the products covered by the patent solely for the licensee) or (b) co-rights (i.e., shared rights retained by the licensor to assist the licensee in developing and commercializing the product covered by the patent, including rights related to co-development, co-promotion, co-marketing, and co-commercialization).

Limitation to Pharmaceutical Industry and Application to Other Industries

The "all commercially significant rights" test will apply only to transactions involving patents covering products whose manufacture and sale would generate revenues in NAICS Industry Group 3254. This industry group includes finished pharmaceutical products, active pharmaceutical ingredients, biologics, and in-vivo and in-vitro diagnostic substances. Exclusive licensing transactions relating to other types of products nevertheless remain potentially reportable asset acquisitions under the HSR Act. It is not clear whether the PNO will analyze exclusive licenses in other industries under the "make, use, and sell" or "all commercially significant rights" approach. Therefore, consultation with PNO staff may be required for such transactions.

FTC's Rationale for Rule Change

The FTC has observed that in recent years it has become more common in the pharmaceutical industry for licensors to grant licensees exclusive patent rights but retain the right to manufacture solely for the licensee. Under the "make, use, and sell" approach, the retention of manufacturing rights would render the license non-exclusive even though the arrangement has the same effect as a transfer to the licensee of all patent rights. As such, the FTC determined that the "make, use, and sell" approach is no longer adequate in evaluating the reportability of patent rights transfers in the pharmaceutical industry.

The FTC's purported rationale for limiting the rule to the pharmaceutical industry is that the PNO does not see exclusive transfers of patent rights in other industries. According to the FTC, all exclusive licensing arrangements notified for the calendar years 2008-2012 involved pharmaceutical patents and requests for guidance on the treatment of exclusive patent licensing transactions have generally been limited to the pharmaceutical industry.


The new rule expands the application of the HSR Act to exclusive transfers of pharmaceutical patent rights where the transferor retains limited manufacturing rights. The FTC estimates that this rule change will result in the notification of approximately 30 more transactions per year. This is a substantial increase, given that only 66 exclusive licensing transactions were notified for calendar years 2008 through 2012 (i.e., on average, approximately 13 annually).

The effective date for the new rules is 30 days after the date of publication in the Federal Register, which is expected to occur later this week. Thus, any parties considering transactions involving the transfer of rights to a patent in the pharmaceutical industry that are expected to close in December or thereafter should consult antitrust counsel to determine whether the rule change will affect the reportability of the transactions.

1 See "FTC Finalizes Amendments to the Premerger Notification Rules Related to the Transfer of Exclusive Patent Rights in the Pharmaceutical Industry," (Nov. 6, 2013), available at http://www.ftc.gov/opa/2013/11/pmn.shtm.


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.

© Wilson Sonsini Goodrich & Rosati | Attorney Advertising

Written by:

Wilson Sonsini Goodrich & Rosati

Wilson Sonsini Goodrich & Rosati 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.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

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.


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.