Posted on November 7, 2012 by Anthony A. Dean

PhRMA Opposes FTC's Proposed Rules for Reporting Certain Pharmaceutical Licensing Transactions

We recently reported that during the August doldrums the Federal Trade Commission (FTC) proposed for comment amendments to the Hart-Scott-Rodino rules that would require reporting of licensing agreements under which a patent holder grants an “exclusive” license, but retains the limited right to manufacture solely for the recipient of the patent rights, or a right to assist in developing and commercializing the product covered by the patent (“co-rights”) and the value of the license exceeds the HSR minimum (currently $68.2 million).

On the last day of the comment period, the Pharmaceutical Research and Manufacturers of America (PhRMA), whose membership includes most large developers and manufacturers of branded drugs, filed a 47-page comment objecting to the proposed Rulemaking.

According to PhRMA, “[t]he proposed rules constitute an unprecedented attempt by the agency to increase the HSR Act requirements for a single industry.” PhRMA’s most fundamental concerns are that: (1) “the HSR Act is a statute of general application that must be applied even-handedly to all ‘persons,’ except as Congress expressly authorized.” Nothing in the Act empowers the FTC to increase the reporting burdens for a single industry; (2) “The proposed discriminatory treatment of the pharmaceutical industry … directly conflicts with the principles of non-discrimination in antitrust enforcement espoused by the U.S. antitrust agencies globally;” (3) the proposed rules fail to comply with the Administrative Procedures Act because there is no basis for the discriminatory treatment of the industry, and the proposed rulemaking “fails to point to any evidence to justify such adverse discrimination.” Indeed, PhRMA states, “the types of intellectual property licensing transactions targeted by the proposed amendments are by no means limited to the pharmaceutical industry,” and “frequently occur in many other industries where innovators may turn to third parties to collaborate on development and commercialization”; and (4) the proposal fails to comply with the Paperwork Reduction Act.

How much weight will PhRMA’s comments carry? We will continue to follow and report.


Anthony A. Dean is Counsel to the Gibbons Business & Commercial Litigation Department.

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Posted on August 21, 2012 by Anthony A. Dean

FTC Proposes Rules to Codify Reporting of Exclusive Patent Right Transfers in the Pharmaceutical Industry

Is the sale or assignment of a patent reportable? The Hart-Scott Rodino Antitrust Improvements Act of 1976 (“HSR”) and related rules require that all acquisitions of voting securities or assets exceeding a threshold amount be reported to the Federal Trade Commission (“FTC”), as well as the Antitrust Division of the Department of Justice. The current threshold is $68.2 million.

Although the statute and rules are silent on the subject, the FTC staff has consistently taken the position that a sale or assignment of a patent is an asset sale subject to reporting if the dollar threshold is exceeded. Likewise, an exclusive license that conveys all significant rights under the patent also is reportable. Until now, however, a license that conveyed the rights to make, use and sell the invention, while reserving a right to manufacture to the patent holder, was not viewed as exclusive and was not reportable. (The value of an exclusive license, according to FTC informal interpretations, can be either the gross, undiscounted sum of future royalties, if determined, or, if royalty amounts are speculative, then the fair market value.)

On August 14, 2012, the FTC proposed for comment amendments to the HSR rules.  If adopted, the amendments would make reportable agreements relating to certain pharmaceutical industry products under which the patent holder grants an “exclusive” license, but retains the limited right to manufacture solely for the recipient of the patent rights, or a right to assist in developing and commercializing the product covered by the patent (“co-rights”).

The FTC believes this change is appropriate because, “in the pharmaceutical industry, the right to manufacture is far less important than the right to commercialize…. As the licensor is manufacturing solely for the use of the licensee, this is substantively the same as giving the licensee the exclusive right to manufacture, use and sell the product(s) covered by the license.” Under current informal interpretations, a patent holder’s reservation of “co-rights,” typically permitting it to assist in the Food and Drug Administration approval process, and in the promotion and marketing of the product, is not deemed to make an agreement nonexclusive and non reportable. That interpretation is now made explicit.

The proposed rule applies only to patents covering pharmaceutical products whose manufacture and sale would generate revenues in NAICS Industry Group 3254, including: 325411, Medical and Botanical Manufacturing; 325412, Pharmaceutical Preparation Manufacturing; 325413, In-Vitro Diagnostic Substance Manufacturing; and 325414, Biological Product (except Diagnostic) Manufacturing. The transfer of patent rights within those groups constitutes a potentially reportable asset acquisition, “if and only if all commercially significant rights to a patent, … [as defined]… for any therapeutic area (or specific indication within a therapeutic area) are transferred to another entity. All commercially significant rights are transferred even if the patent holder retains limited manufacturing rights,… [as defined]…or co-rights,…[as defined].”

The FTC estimates that approximately 30 additional transactions per year will be subject to reporting if the amendments are adopted, and is inviting comments through October 25, 2012. The expectation of the FTC is that the comments “will enable it to: (1) evaluate whether the proposed collections of information are necessary for the proper performance of the functions of the Commission, including whether the information will have practical utility; (2) evaluate the accuracy of the Commission’s estimate of the burden of the proposed collections of information, including the validity of the methodology and assumptions used; (3) enhance the quality, utility, and clarity of the information to be collected; and (4) minimize the burden of the collections of information on those who must comply.”

Gibbons will continue to monitor the progress of the proposed rules.


Anthony A. Dean is Counsel to the Gibbons Business & Commercial Litigation Department.

 
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