FTC Finalizes Amendments to the Premerger Notification Rules Related to the Transfer of Exclusive Patent Rights in the Pharmaceutical Industry

November 7, 2013 | Life Sciences


On November 6, 2013, the Federal Trade Commission (“FTC”) officially adopted a change to its Hart-Scott-Rodino Act (HSR) premerger notification rules governing the transfer of pharmaceutical patent rights. Previously, exclusive patent licenses (regardless of subject matter or industry) were subject to HSR filing requirements only if they were fully exclusive. But determining whether a patent was fully exclusive proved problematic in the past. The FTC’s Premerger Notification Office (“PNO”) had opined, through a number of informal rule interpretations, that when the licensor retained any significant rights under the patent, the license was non-exclusive, and therefore not an asset acquisition subject to HSR filing requirements.

Under the new rule–which is applicable solely in the case of patent rights in the pharmaceutical and biologics industries–a pharmaceutical license that transfers “all commercially significant rights” to a “patent or part of a patent in a pharmaceutical” will require reporting to the FTC and a waiting period. In other words, it will be treated like an asset acquisition if the deal otherwise meets the filing thresholds (e.g., under most circumstances, the deal has a value of $70.9 million or greater). [FN § 801.2(g)(3).]

“All commercially significant rights” is defined as “the exclusive rights to a patent that allow only the recipient of the exclusive patent rights to use the patent in a particular therapeutic area (or specific indication within a therapeutic area).” [FN § 801.1(o).] Two categories of rights are singled out in the FTC rule, with the effect that, even if a licensor retains these rights, the parties are still considered to have transferred “commercially significant rights,” thus triggering HSR filing requirements. Those categories are:

  1. Limited manufacturing rights,” defined as “the rights retained by a patent holder to manufacture the product(s) covered by a patent when all other exclusive rights to the patent within a therapeutic area (or specific indication within a therapeutic area) have been transferred to the recipient of the patent rights.” [FN § 801.1(p).] This exclusion represents a significant change in the way such rights are treated for HSR purposes. Under previous PNO interpretations, when a licensor retained manufacturing rights, the license was considered non-exclusive and thus not an asset acquisition subject to HSR filing requirements.
  2. Co-rights,” defined as “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 . . . [which] include, but are not limited to, co-development, co-promotion, co-marketing and co-commercialization.” [FN § 801.1(q).] This portion of the rule codifies the current policy of the PNO, with the potential for expansive application in the future.

This change has been widely expected since the rule change was proposed in August 2012. According to the FTC, the rule is meant to codify its informal rule interpretations, and is meant more as a clarification than a change. However, it is anticipated that the new rule will result in an upsurge of filings in the biopharma industry where these transactions constitute a basic form of doing business.

The rule change will become effective 30 days after its publication in the Federal Register. For more details, please see the FTC announcement at http://ftc.gov/opa/2013/11/pmn.shtm.

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