FTC Seeks Comments on Proposed HSR Rule Amendments Related to the Transfer of Exclusive Patent Rights in the Pharmaceutical Industry

by Perkins Coie
Contact

The Federal Trade Commission (“FTC”) recently announced and asked for comments on proposed changes to the premerger notification rules under the Hart-Scott-Rodino Act (“HSR Act”).  The proposed rules would require pharmaceutical companies to report to the FTC and the Department of Justice ("DOJ") acquisitions of exclusive patent licenses in which the licensor retains the right to manufacture patented products for the licensee.  The acquisition of such licenses is not reportable under the current rules.  The FTC estimates the proposed rule amendments will result in an additional 30 reportable transactions per year.

The proposed rule amendments provide a framework for determining when a transfer of rights to a patent in the pharmaceutical and medicine manufacturing industry results in a potentially reportable transaction.  The proposed amendments are important because they introduce the concept of “all commercially significant rights” as the basis for analyzing the transfer of rights to a patent in the pharmaceutical industry under the HSR Act.

Comments can be submitted electronically at https://ftcpublic.commentworks.com/ftc/hsripnprm/ or on paper by following the instructions at http://ftc.gov/opa/2012/08/hsr.shtm.  The comment period for the proposed new rules ends October 25, 2012.

Background

The HSR Act requires parties to proposed acquisitions of voting securities, non-corporate interests or assets to notify the FTC and the DOJ (the “enforcement agencies”) before consummating the proposed acquisition.  The parties must wait a specific period of time while the enforcement agencies review the proposed transaction, usually 30 days (15 days in the case of a cash tender offer or a bankruptcy sale), before they may complete the transaction.

Applying the existing HSR rules to acquisitions of intangible assets such as patents has not proved controversial.  But acquisitions of patent licenses, rather than patents themselves, have presented difficulties.

FTC staff has long taken the position that the grant of an exclusive intellectual property license is the transfer of an asset to the licensee, which may be reportable under the HSR Act (assuming the applicable size-of-person and size-of-transaction thresholds are met). 

FTC staff analysis of whether "exclusive" rights to a patent are to be transferred has focused on the rights to “make, use and sell” under the patent – in other words, whether the license covers the bundle of rights to exclusively make, develop for all potential uses, and sell products covered by a patent.  The transfer of all such rights is a potentially reportable asset acquisition under the HSR Act.  But where the licensor retains the right to manufacture (even if it has no intention of doing so), the license is considered non-exclusive and, in most instances, not a reportable acquisition under the HSR Act.  Even if not reportable under the HSR Act, though, the transaction may still be subject to substantive antitrust review under Section 7 of the Clayton Act or Section 2 of the Sherman Act.

Exclusive Licensing Agreements Unique to the Pharmaceutical Industry

FTC staff has concluded that the exclusive licensing arrangements in the pharmaceutical industry are unlike those in any other industry.  In pharma, the right to manufacture may be less important than the right to commercialize a product.  In pharma licensing deals, the right to manufacture is often retained by the licensor, who has the relevant manufacturing expertise and facilities.  The licensee receives the exclusive right to use and sell (that is, commercialize) the product covered by the patent.  If the licensor's retained right to manufacture is limited to manufacturing the product solely for the use of the licensee, the license effectively transfers exclusive rights to manufacture, use and sell that product to the licensee.  The proposed rule amendments would treat this kind of exclusive pharmaceutical license as a potentially reportable asset acquisition under the HSR Act.

New Concepts Under the Proposed Rules – “All Commercially Significant Rights,” “Limited Manufacturing Rights” and “Co-Rights”

Under the proposed rules, the determination of whether a transfer of exclusive rights to a pharmaceutical patent is a reportable asset acquisition focuses on the rights being acquired rather than the form of the transfer.  While the usual mechanism of such a transfer is a license, the proposed rules set forth the key concept of "all commercially significant rights" as the definition of the exclusive rights to be acquired that constitute a reportable acquisition of assets.  In addition, the newly defined terms "limited manufacturing rights" and "co-rights" define the rights that may be retained by the licensor but are not sufficient to render the license non‑exclusive.

The proposed rules define these new concepts as set forth below.

All commercially significant rights.  The term "all commercially significant rights" means "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)."

Limited manufacturing rights.  The term "limited manufacturing rights" means "the rights retained by a patent holder to manufacture the product(s) covered by a patent when all other exclusive rights to the patent within a therapeutic area (or specific indication within a therapeutic area) have been transferred to the recipient of the patent rights.  The retained right to manufacture is limited in that it is retained by the patent holder solely to provide the recipient of the patent rights with product(s) covered by the patent (which either the patent holder alone or both the patent holder and the recipient may manufacture)."

Co-rights.  The term "co-rights" means "shared rights retained by the patent holder to assist the recipient of the exclusive patent rights in developing and commercializing the product covered by the patent.  These co-rights include, but are not limited to, co-development, co-promotion, co‑marketing and co-commercialization."

The proposed rules limit the application of the above concepts to transfers involving patents covering products whose manufacture and sale would generate revenues in North American Industry Classification System (NAICS) industry group 3254, Pharmaceutical and Medicine Manufacturing Industries, which includes Medicinal and Botanical Manufacturing, Pharmaceutical Preparation Manufacturing, In-Vitro Diagnostic Substance Manufacturing and Biological Product (except Diagnostic) Manufacturing.

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.

© Perkins Coie | Attorney Advertising

Written by:

Perkins Coie
Contact
more
less

Perkins Coie 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):
hide

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.

Security

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.