The FTC has proposed a change to the Hart-Scott-Rodino filing requirements relating to acquisitions of exclusive patent rights in the pharmaceutical industry. The proposed rule would extend the circumstances under which the transfer of exclusive patent rights for pharmaceuticals would be subject to HSR reporting requirements.
Under present rules, the transfer of exclusive rights to “make, use, and sell” under a patent is generally subject to HSR filing requirements if HSR threshold tests are satisfied and no exemption applies. If the acquiring person were to acquire the exclusive right to use and sell under the patent, but not to manufacture, no HSR filing is required because the FTC has traditionally viewed this as akin to a distribution agreement. Thus if the licensor retains the right to manufacture, the transfer is generally not reportable.
The FTC’s proposed new rule would change this result in the pharmaceutical area. The agency’s stated rationale for the proposed change is that unique incentives exist in the pharmaceutical industry for use of exclusive licenses because, among other things, there is often a great deal of uncertainty as to whether the pharmaceutical compound at issue will be approved and commercially successful. At the same time, there are often significant costs associated with development and the potential for “enormous profits” for the licensee and licensor to share. Thus, exclusive licenses in the pharma area sometimes include provisions that allow the licensor to retain certain limited rights for manufacturing.
Under the FTC’s proposed rule, if the licensee of a pharmaceutical patent acquires exclusive rights to the IP, but the licensor retains the right to manufacture exclusively for the licensee, the transfer would be potentially reportable under the HSR Act. Outside of the pharma area, however, the rule for reporting transfers of exclusive rights to IP would not change and such transfers are not likely to be reportable if the licensor retains the right to manufacture even if for the benefit of the licensee.
This proposed rulemaking is noteworthy for the pharmaceutical industry because:
- It may capture additional transactions in the pharmaceutical area that previously would not have been reportable under the HSR Act because they were not considered transfers of exclusive rights to “make, sell, or use” under the patent. The FTC projects that the new rule could result in 30 new filings per year.
- Although the proposed rule is a rather narrow change from the current regulations, it is the result of the agency’s experience in evaluating IP transfers and reflects the agency’s continuing interest in IP transactions in the pharmaceutical industry.