FTC Proposes Amendments To The Premerger Notification Rules To Expand The Reportability Of Transfers Of Exclusive Patent Rights In The Pharmaceutical Industry

On August 13, 2012, the Federal Trade Commission ("FTC") proposed amendments to the Premerger Notification Rules issued under the Hart Scott Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). The proposed amendments would expand when a transfer of exclusive rights to a patent in the pharmaceutical industry is potentially reportable under the HSR Act.

The HSR Act requires the parties to an acquisition of assets, voting securities or non-corporate interests meeting certain thresholds to file notifications with the FTC and the Antitrust Division of the Department of Justice and observe a waiting period before they can consummate the transaction. As a patent clearly is an asset, there is no question that the acquisition of a patent is potentially subject to the requirements of the HSR Act. However, it is not so clear as to when an exclusive patent license qualifies as an asset acquisition.

Under the present HSR Rules, the Premerger Notification Office ("PNO") of the FTC (which provides informal interpretations of the Rules) has taken the position that, in order to qualify as an asset acquisition, the license must grant the licensee exclusive rights to "make, use and sell" under the patent, even against the licensor. Thus, if the licensor retains the right to manufacture under the patent, the transaction is not reportable.

In explaining the rationale for the proposed amendments, the FTC noted that in many exclusive licenses in the pharmaceutical industry, the licensor retains rights in one or both of two categories: manufacturing rights and co-rights. According to the FTC, if the retention of manufacturing rights is solely to manufacture for the licensee, that is substantively the same as giving the licensee the exclusive right to manufacture. As to co-rights, which permit the licensor to assist in the Food and Drug Administration approval process, and in the promotion and marketing of the product, they do not detract from the exclusivity of the license.

Proposed new Section 801.2(g) of the HSR Rules...