FTC Proposal Would Require Drug Firms to Report Acquisition of Exclusive Patent Rights to Antitrust Enforcement Agencies

This posting was written by John W. Arden.

The Federal Trade Commission is seeking public comment on proposed changes to its premerger notification rules to require pharmaceutical companies to report acquisitions of exclusive patent rights to the FTC and Department of Justice for antitrust review, the agency announced today. The proposed rulemaking is intended to clarify when a transfer of exclusive patent rights in the pharmaceutical industry constitutes a reportable asset acquisition under the Hart Scott Rodino Act.

The Hart Scott Rodino Act requires parties to mergers and acquisitions to file reports with the FTC and Assistant Attorney General in charge of the Antitrust Division and to wait a specified period of time before consummating covered transactions. The reporting and waiting period are intended to enable the enforcement agencies to determine whether a proposed merger or acquisition may violate antitrust laws and, when appropriate, to seek an injunction to prevent the transaction.

This proposal would amend the coverage of the FTC rule to “reflect the longstanding staff position that a transaction involving the transfer of exclusive rights to a patent in the pharmaceutical industry, which typically takes the form of an exclusive license, is potentially reportable” under the Hart Scott Rodino Act.

The changes would bring the transfer of exclusive patent rights in the pharmaceutical industry within the rule’s requirement of reporting of “all commercially significant rights,” the FTC stated in a Notice of Proposed Rulemaking, which will appear in the Federal Register.

Under the proposal, a license granting exclusive rights to use and sell—but not the right to manufacture—is a potentially reportable asset acquisition. The retention of co-rights in granting an exclusive license would not render the license non-exclusive, under the proposal. The rulemaking is limited to the pharmaceutical industry, where the transfer of exclusive rights to a patent is a common practice, particularly when a patentee does not have the financial resources to shepherd a new drug compound through the FDA approval process.

The Commission worked closely with the Department of Justice to develop the proposed changes to the Premerger Notification Program, which determines when industry transactions must be reported under the Hart Scott Rodino Act. The FTC believes that the changes would enhance the effectiveness of the premerger notification program. The Commission voted 5-0 to approve the Notice of Proposed Rulemaking.

Interested parties may submit comments on the proposal through October 25, 2012. Comments, labeled “HSR IP Rulemaking, Project No. P989316,” may be submitted online at https://ftcpubliccommetworks.com/ftc/hsripnprm. Hard copy comments may be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex Q), 600 Pennsylvania Avenue, NW, Washington, D.C. 20580. Details appear here on the FTC website.

Further information will be reported in CCH Trade Regulation Reporter.