|August 20, 2012|
Schiff Hardin LLP Client Alert
FTC Proposes to Expand Types of
The Federal Trade Commission proposes to amend its Premerger Notification Rules to expand the circumstances under which patent licenses in the pharmaceutical industry must be notified to the government pursuant to the Hart-Scott-Rodino Act. The FTC has published the proposed rule in the Federal Register and is requesting comments from the public and the business community about the proposal. (Comments must be received on or before October 25, 2012.)
Under the HSR Act, the acquisition of assets — as well as the acquisition of stock — must be reported to the government and a waiting period observed before the transaction can close. Because a patent is an "asset," the transfer of a patent is reportable (if the dollar value thresholds are met). Where rights to a patent are transferred by means of a license, the question arises as to when the license constitutes an acquisition of an asset. In the government's view, the proposed rule will clarify and expand the current approach to this issue of the FTC and DOJ.
Traditionally the government agencies focused on whether the exclusive rights to "make, use and sell" under a patent were being transferred by the license. If the licensee receives the exclusive right to manufacture a product, develop the product for all potential uses, and sell that product without restriction, the licensing of this bundle of rights was seen as a potentially reportable transaction. If the patent holder retained any of these rights, however, the transfer was not deemed an asset acquisition and not reportable.
Under the proposed new rule, an acquisition of assets would occur whenever "all commercially significant rights" to a patent for any therapeutic area (or specific indication within a therapeutic area) are transferred to the licensee. The license will fall within this definition even if the patent holder retains "limited manufacturing rights" or "co-rights." This represents a significant change from the prior approach.
If the patent holder retains the right to manufacture solely for the purpose of providing the licensee with products covered by the patent, the proposed rule would still treat the patent license as a reportable acquisition. Similarly, if the patent holder retains shared rights simply in order to assist the licensee in developing and commercializing the product covered by the patent, the arrangement would still be treated as a reportable asset acquisition.
The FTC asserts that the proposed rule "should greatly simplify" analyzing whether the transfer of pharmaceutical patent rights is reportable, while also providing the FTC and DOJ with a better opportunity to review the transfers of exclusive rights to such patents. Pharmaceutical manufacturers may wish to comment on the proposal and, in any event, be sure to take the changes into account if and when the rule is approved.
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