November 20, 2013
Earlier this month, the U.S. Federal Trade Commission (“FTC”) finalized its amendment to the rules governing when an exclusive patent license in the pharmaceutical industry must be reported to the FTC and the U.S. Justice Department’s Antitrust Division in advance of the license’s effective date. The new rules potentially require reporting where “all commercially significant rights” are transferred to the licensee, replacing the old practice of requiring filings only where the rights to “make, use, and sell” were transferred. The number of exclusive licenses that must be reported to the FTC is expected to increase under the new rules.
Reporting of exclusive licenses is required under the Hart-Scott-Rodino Act (“HSR Act”) if the sizes of the parties and the transactions exceed certain thresholds. Where reports are required, the parties must wait—typically for 30 days—before the license can become effective, in order to give the antitrust agencies an opportunity to review the exclusive license and investigate, if warranted.
The revised rules clarify when an exclusive license to a patent in the pharmaceutical industry transfers sufficient rights to become potentially reportable under the HSR Act. While the FTC limited the new rules to the pharmaceutical industry, it noted that similar licenses in other industries may be potentially reportable under existing rules.
The FTC announced the finalized amendment on November 6. (Announcement: http://www.ftc.gov/opa/2013/11/pmn.shtm.) The new rules become effective on December 16, 2013. The text of the amendment and Federal Register notice explaining the amendment are available at https://www.federalregister.gov/articles/2013/11/15/2013-27027/premerger-notification-reporting-and-waiting-period-requirements.
The FTC has long taken the position that the transfer of a patent or exclusive rights to make, use, and sell under a patent is potentially reportable as an asset acquisition under the HSR Act. The new rules clarify that the licensor’s retention of limited manufacturing rights and co-rights under the patent does not affect the new test of whether “all commercially significant rights” have been transferred and the exclusive license is potentially reportable.
The FTC explained that, under the existing rules, exclusive licenses transferring the exclusive rights to make, use, and sell the patented invention would be reportable, if the thresholds are met. According to the FTC, however, in the pharmaceutical industry licenses transferring most but not all of the rights to make, use, and sell are not uncommon. For example, a licensor may retain the right to manufacture the drug product only for the licensee. Also, a licensor may retain the rights to co-develop, co-promote, co-market, or co-commercialize the drug product to assist the licensee. Questions have been raised as to whether transfers with those types of retained rights are potentially reportable under the HSR Act.
Under the new rules, the transfer of “all commercially significant rights” through an exclusive license, including an exclusive field of use license, will be potentially reportable. It defines those rights 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).” The FTC explained that the test focuses on whether the licensee receives the exclusive right to commercially use the patented product or technology. “In such a case, only the recipient of the exclusive rights to the patent may generate revenue from those exclusive rights, even when some of those profits will likely be shared with the licensor through royalties or other revenue sharing arrangements.”
For example, the FTC explained, where the licensor retains “co-rights” to assist the licensee in developing and commercializing the patented product, but not the right to commercially use the patented product or technology for its own purposes, a transfer of all commercially significant rights occurs. Similarly, the licensor’s retention of the exclusive right to manufacture the product solely for the licensee will not affect whether all commercially significant rights have been transferred and the transaction is potentially reportable.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
Workshop
Life Sciences Workshop: Updates and Key Trends in Pharmaceutical and Biotechnology IP Law
May 2, 2024
Cambridge
INCONTESTABLE® Blog
Winning the Battle but Not the War: Disclaimer Requirement Overturned, Section 2(d) Objection Upheld
March 28, 2024
Due to international data regulations, we’ve updated our privacy policy. Click here to read our privacy policy in full.
We use cookies on this website to provide you with the best user experience. By accepting cookies, you agree to our use of cookies. Please note that if you opt not to accept or if you disable cookies, the “Your Finnegan” feature on this website will be disabled as well. For more information on how we use cookies, please see our Privacy Policy.
Finnegan is thrilled to announce the launch of our new blog, Ad Law Buzz, devoted solely to breaking news, developments, trends, and analysis in advertising law.