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FTC Proposes Increasing HSR Review of Pharmaceutical Patent Transfers
Practical Law Legal Update 9-520-9467 (Approx. 4 pages)
FTC Proposes Increasing HSR Review of Pharmaceutical Patent Transfers
by PLC Antitrust
| Published on 17 Aug 2012 • USA (National/Federal) |
The FTC recently issued proposed changes to the Hart-Scott-Rodino (HSR) rules regarding tranfers of exclusive rights to pharmaceutical patents. If the amendments are adopted, transfers of all commercially significant pharmaceutical patent rights would be potentially reportable under the HSR Act.
The FTC recently issued a notice of proposed rulemaking, amending the Hart-Scott-Rodino (HSR) rules that, if approved, will broaden the HSR Act's coverage of transfers of pharmaceutical patent rights. The FTC's Premerger Notification Office (PNO) has long held that because asset acquisitions are covered by the HSR Act, and patents are considered assets, patent acquisitions are potentially HSR reportable. The PNO has also interpreted the HSR Act to cover patent licenses that transfer the exclusive rights to make, use and sell under the patent. Often a patent holder retains manufacturing rights while transferring the remaining patent rights. Under the current law, that type of transfer is viewed as a distribution agreement, not an asset acquisition, and is not reportable under the HSR Act.
However, the proposed rules focus on transfers of all commercially significant patent rights (rather than the bundle of rights to make, use and sell) within a certain therapeutic area or a specific indication within that therapeutic area (for instance, Alzheimer's disease within the neurological therapeutic area). The following transactions are potentially reportable under the proposed rules:
- Transfers of all rights except limited manufacturing rights. The FTC reasoned that in the pharmaceutical industry, the right to manufacture is far less important than the exclusive rights to use and sell under the patent. A patent holder who retains the right to manufacture for the exclusive use of the recipient does not retain the patent right for the same therapeutic area. The transfer is still of all commercially significant rights and is therefore potentially reportable.
- Transfers of all patent rights with the patent holder retaining co-rights. The approach to co-rights will not change. It is the PNO's current position that the retention of co-rights by a patent holder does not affect exclusivity and therefore does not render a patent license nonreportable under the HSR Act. Co-rights indicate that the holder and recipient are jointly responsible for ushering the product through the Food and Drug Administration approval process, marketing the product and promoting the product. While co-rights permit the patent holder to share in the profits derived from the patent, they do not affect the recipient's rights to use the patent in a particular therapeutic area or indication to generate profits. Therefore, a patent holder's retention of co-rights will not make the transfer of pharmaceutical patent rights nonreportable.
In the proposed amendments, the FTC also attempts to broaden what kind of transfers could be reportable under the HSR Act by replacing "licensee" with "recipient." This will function to cover all kinds of transfers, regardless of their form.
The FTC estimates that the proposed change will result in an increase of 30 reportable transactions annually, which is a 2% increase from current intake. The FTC clarified that while these amendments are pharmaceutical-specific, transfers of exclusive patent rights in other industries remain potentially reportable under the HSR Act.
Public comments regarding the proposed amendments are due by October 25, 2012.
For more information about the HSR Act process generally, see Practice Note, Hart-Scott-Rodino Act: Overview.