FTC Proposes New HSR Rules for Reporting Pharmaceutical Patent Transfers

Earlier this month, the Federal Trade Commission proposed a new set of reporting requirements for the acquisition or transfer of pharmaceutical patents. From the FTC press release:

“The Federal Trade Commission is seeking public comments on proposed changes to the premerger notification rules that could require companies in the pharmaceutical industry to report proposed acquisitions of exclusive patent rights to the FTC and the Department of Justice for antitrust review. The proposed rulemaking clarifies when a transfer of exclusive rights to a patent in the pharmaceutical industry results in a potentially reportable asset acquisition under the Hart Scott Rodino (HSR) Act.”

The changes would revise HSR premerger notification rules for pharma companies to codify the agency’s current practices regarding the transfer of exclusive licenses. Again, the FTC:

“In this proposed rulemaking, the Commission proposes amending § 801.1 and § 801.2 [of the Hart Scott Rodino Act] to reflect the longstanding staff position that a transaction involving the transfer of exclusive rights to a patent in the pharmaceutical industry, which typically takes the form of an exclusive license, is potentially reportable under the Act.”

For your reference, here’s a roundup of legal commentary on the new rules and what they mean for the industry:

FTC Flexes Healthcare Regulatory Muscle (Morgan Lewis):

“Under the Proposed Rule, a license or other transfer of pharmaceutical patent rights will be potentially reportable under the HSR Act if the patent owner transfers all ‘commercially significant rights’ to a patent, meaning the transfer of exclusive patent rights to the licensee or transferee where the licensee or transferee is only allowed to use the patent in a particular therapeutic area (or specific indication within a therapeutic area). This transfer will be potentially reportable even if (i) either the patent owner alone or both the patent owner and licensee/transferee have the right to manufacture the product covered by the patent being transferred or (ii) the patent owner retains ‘co-rights’ to develop and commercialize the product covered under the patent.” Read on>>

Yet Another Turn of the Screw: The FTC Again Targets Pharmaceutical Industry, This Time Through the HSR Act (K&L Gates LLP):

“Given the timing and the unprecedented nature of this latest proposal, it is hard not to see an intent by the agency to subject the pharmaceutical industry to even greater scrutiny than the already high level it has been facing. The FTC estimates that the proposed rules would render reportable an additional 30 transactions per year, a relatively small increase in the FTC’s workload, but a potentially significant increase in regulatory burden for the pharmaceutical industry, which will bear the full brunt of the additional regulatory cost.” Read on>>

FTC Proposes Amendments to HSR Rules Targeting Certain Pharmaceutical Licensing Arrangements (Mintz Levin):

“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 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.’” Read on>>

FTC’s Proposed Rules Would Generate More HSR Filings for Transfers of Pharmaceutical Patent Rights (McDermott Will & Emery):

“[T]his proposed rule-making applies exclusively to patents in the ‘pharmaceutical, including biologic, and medicine manufacturing industry.’ As the FTC explains, these arrangements create unique dynamics in the pharmaceutical industry because in the typical situation, a smaller innovation firm that likely could not successfully develop and commercialize the product grants rights to a large pharmaceutical firm that then takes control of development and ultimate commercial sales (if it succeeds). This is different from a standard distribution agreement in which a manufacturer with an existing product selects another company to be the distributor.” Read on>>

FTC Proposes Amendments to the Premerger Notification Rules to Expand the Reportability of Transfers of Exclusive Patent Rights in the Pharmaceutical Industry (Sheppard Mullin Richter & Hampton LLP):

“The proposed amendments also add three new definitions to the HSR Rules. The first, ‘all commercially significant rights’ means the exclusive rights to a patent that allow only the recipient to use the patent in a particular therapeutic area or specific indication within a therapeutic area. ‘Limited manufacturing rights’ means the retention of manufacturing rights ‘solely to provide the recipient of the patent rights with product(s) covered by the patents.’ The third, ‘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.’” Read on>>

FTC Proposes New HSR Rules for Exclusive Patent Licenses in the Pharmaceutical Industry (Duane Morris LLP):

“In its notice of proposed rulemaking, the FTC takes the position that ‘in licensing arrangements in the pharmaceutical industry, the right to manufacture is far less important than the right to commercialize.’ Where the licensor is retaining the rights to manufacture solely for the use of the licensee in the particular therapeutic areas or indications that are the subject of the license, the FTC defines the retained rights as ‘limited manufacturing rights’ and takes the position that this is basically the same as giving the licensee the exclusive right to manufacture the product covered by the license.” Read on>>

FTC Proposes Changes to HSR Reportability of Patent Licenses (Ropes & Gray LLP):

“The FTC has focused its rulemaking on the pharmaceutical industry (including biologics and medicine manufacturing) due to what it describes as the ‘unique incentives” of pharmaceutical companies to enter into exclusive licenses. For example, it is common for an innovator without significant financial resources to team with a larger pharmaceutical company that has the fiscal ability to shepherd a product through the FDA approval process. If the relationship is successful, the parties share profits.” Read on>>

FTC May Expand Premerger Reporting Requirements to Include Pharmaceutical Patent Exclusive Marketing and Sales Licenses (Howard Ullman):

“Apparently, the FTC has become concerned that where a licensor manufactures solely for the use of a licensee, and the licensee has exclusive marketing and sales rights, the transaction may be economically indistinguishable from one actually giving the licensee the exclusive right to manufacture. It thus proposes to focus the new rule on ‘all commercially significant rights.’” Read on>>

FTC Sights Set on Pharma Deals – Calls for Additional Hart-Scott-Rodino Reporting (Proskauer Rose LLP):

“According to the Statement of Basis and Purpose for the proposed rulemaking, ‘the proposed all commercially significant rights test should greatly simplify the question of whether an asset acquisition is occurring as the result of the transfer of rights to a patent in the pharmaceutical industry.’ Experience in practice, though, tells that this will remain an area subject to interpretation, and that will be guided not only by experience with the variety of rights associated with pharmaceutical industry license agreements but by experience with agency practice and approach.” Read on>>

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