Hart-Scott-Rodino Filings For Exclusive License Agreements

By Neal Nathan Beaton (New York), John R. Dierking (Orlando) and Michael Schmieder (New York)

Although Hart-Scott-Rodino filings are usually the province of M&A attorneys, IP attorneys involved in transactions including grants of exclusive licenses may also need to be alert to the possible need for them. The U.S. Federal Trade Commission (FTC) has taken the position that the grant of an exclusive license is the transfer of an asset to the licensee and may trigger the requirement to report the transaction to the FTC and the U.S. Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (15 U.S.C. ß 18a or ß 7A of the Clayton Act (or the Act)) assuming jurisdictional thresholds are met. In order for the transaction to be treated as an acquisition under the Act, the license must be exclusive - even against the grantor. Moreover, the FTC has taken the position that partial or limited exclusivity, such as license grants for exclusive geographic territories or for specific exclusive uses, may be considered an acquisition of an asset for purposes of the Act. See ABA Section of Antitrust Law, Premerger Notification Practice Manual at page 29 (3rd ed. 2003).

Antitrust clearance filings under the Act are required and the associated waiting period (which in these types of cases is 30 days after both parties file, unless earlier terminated or extended as a result of a request by the regulatory authorities for additional information) applies in connection with acquisitions which meet certain jurisdictional thresholds set out in the Act. The three applicable thresholds which determine if filings are required (absent an available exemption), are generally termed the "Commerce Test," the "Size-of-the-Parties Test" and the "Size-of-the-Transaction Test." The Commerce Test is easily satisfied as it simply looks to whether either party is engaged in commerce or an activity affecting U.S. commerce. 16 C.F.R. ß 801.4. The Size-of-the-Parties Test generally requires that one party to the transaction has annual sales or total assets of at least $100 million and that the other party has annual sales or total assets of at least $10 million. See 15 U.S.C. ß 18a(a)(2). The size of each party is measured with respect to its ultimate parent entity and also includes any other entities such ultimate parent entity controls either directly or indirectly. 15 C.F.R. ß 801.1(a)(1). The Size-of-the-Transaction Test is met if the fair...