FTC Proposes Amendments To HSR Rules Targeting Certain Pharmaceutical Licensing Arrangements

The Federal Trade Commission (FTC) recently announced proposed amendments to the Premerger Notification Rules (HSR Rules) to clarify reporting requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), for transactions involving the transfer of patent rights in the pharmaceutical industry. The proposed rule is largely a codification of the FTC's current treatment of exclusive licenses, with one significant change regarding the weight given to manufacturing rights retained by the licensor in pharmaceutical transactions.

The HSR Act requires parties engaged in certain transactions (involving the acquisition of voting securities, assets, or controlling non-corporate interests) to file a notification with the FTC and the Antitrust Division of the Department of Justice (DOJ), and to observe the statutorily prescribed waiting period prior to closing. The acquisition of a patent is treated as an asset acquisition, and thus a potentially reportable transaction under the HSR Act. However, whether the transfer of rights to a patent is also deemed an asset acquisition commonly involves a complex analysis focused on whether the transferred rights grant the licensee the exclusive right to "make, use and sell."

Commercially Significant Rights

The proposed amendments would codify the reporting requirement under the HSR Act for any transaction within the pharmaceutical industry that involves the transfer of "all commercially significant rights." These rights are defined as the exclusive patent rights to use the patent in a particular therapeutic area or in a specific indication within a therapeutic area.

The FTC has defined the pharmaceutical industry for purposes of this amendment by specifying NAICS (North American Industry Classification System) code 3254, which includes medical and botanical manufacturing, pharmaceutical preparation manufacturing, in-vitro diagnostic substance manufacturing, and biological product manufacturing. Importantly, the FTC's proposed amendments are limited to the pharmaceutical industry and do not change the current HSR Act reporting requirements related to exclusive licenses in other industries.

Retained Manufacturing Rights

Under current FTC practice, transactions where the licensor retains the right to manufacture are generally deemed non-exclusive and thus non-reportable under the HSR Act, even if the licensee obtains exclusive rights to...