FTC's Proposed Rule Changes Modify HSR Reporting Requirements for Pharmaceutical Exclusive Licensing Deals

This post was written by P. Gavin Eastgate and Michelle A. Mantine.

The Federal Trade Commission (“FTC”) is seeking public comment on proposed changes to the premerger notification rules to clarify when the transfer of exclusive marketing, sales and manufacturing rights to a patented pharmaceutical product requires notification to the agencies under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. § 18a) (“HSR Act”). The proposed rule changes are applicable only to the pharmaceutical industry. The comment period closes October 25, 2012. Notice of the rule change can be found here.

In consultation with the U.S. Department of Justice, the FTC has proposed amending the premerger notification rules for transfers of exclusive patent rights. While the proposed amendments will only affect a relatively small number of transactions (approximately 30 per year, according to the FTC), they again demonstrate that the FTC is carefully monitoring agreements in the pharmaceutical sector and how such agreements affect competition.

Where a patent holder for a pharmaceutical product transfers the exclusive rights to “make, use and sell” the patented product, such transfers of all rights have always been reportable under the HSR Act, where they otherwise trigger the HSR thresholds (size-of-person and size-of transaction tests). However, where the patent holder retains the manufacturing rights, the FTC’s Premerger Notification Office previously considered such agreements to be non-reportable distribution agreements, as opposed to asset transfers. The FTC’s proposed rule alters this treatment. If the rule changes are adopted as proposed, a deal in which the patent owner transfers the exclusive marketing and sales rights to another company, but retains the exclusive right to manufacture the drug solely for that company, may nonetheless be reportable. As the FTC sees it, if “the licensor is manufacturing solely for the use of the licensee, this is substantively the same as giving the licensee the exclusive right to manufacture, use and sell the product(s) covered by the license.” In such cases, the deal must be reported if it triggers the HSR filing thresholds.

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