Proposed Changes to HSR Rules for Pharmaceutical Companies

by Jon B. Dubrow and Carla A. R. Hine

Today the Federal Trade Commission (FTC) announced proposed changes to the Hart-Scott-Rodino (HSR) premerger notification rules that will impact the types of transactions for which pharmaceutical companies will be required to file HSR notifications with the Department of Justice and FTC.  The proposed rulemaking is meant to clarify when a transfer of exclusive rights to a patent in the pharmaceutical industry results in a potentially reportable acquisition of assets under the HSR Act.

Previously -- although never actually codified -- the FTC would determine whether the transfer of rights to a patent (usually in the form of a license) was a reportable event under the HSR Act by focusing on whether the licensor transferred the exclusive rights to "make, use and sell" under a patent.  The emphasis on the transfer of the exclusive right to manufacture would result in scenarios where parties would not be required to report the transfer of patent rights because although the licensor transferred the rights to commercialize the product, it retained the right to manufacture the product.

In an effort to place substance over form, the proposed rulemaking instead suggests an "all commercially significant rights" test, where a transfer of "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)" would constitute a potentially reportable acquisition of assets if the size-of-transaction and size-of-person (if applicable) thresholds are met, and no exemption is applicable.  The proposed rules further explain that all commercially significant rights are transferred even if the patent holder retains limited manufacturing rights to provide the licensee with product(s) covered by the patent, or co-rights to assist the licensee in developing and commercializing the product(s) covered by the patent.  Please note that this rule would only apply to patents within the pharmaceutical industry (as this is the industry in which these scenarios most often occur).

The text of the proposed rulemaking can be found here.  The FTC is accepting comments until October 25, 2012.