FTC Finalizes Amendments to Premerger Notification Rules for the Transfer of Exclusive Patent Rights in the Pharmaceutical Industry

written by James Klocubar, Esq., Patent Attorney at Gearhart Law

The Federal Trade Commission (FTC) has finalized amendments to the Hart-Scott-Rodino Act (HSR Act) clarifying the scope of reportable transactions involving the transfer of rights in a patent in the pharmaceutical (including biologics and medicine manufacturing) industry. The final rule defines and applies the concepts of “all commercially significant rights,” “limited manufacturing rights,” and “co-rights” in determining whether the rights transferred constitute a potentially reportable asset acquisition under the HSR Act. These amendments were originally published in August 2012 with public comments having been accepted until October 25, 2012. The amendments to the rule were published to the Federal Register on November 15, 2013 making the amendments effective 30 days thereafter or on December 16, 2013.

In general, the HSR Act applies to reportable acquisitions of voting securities, controlling non-corporate interests, and assets (a patent qualifies as an asset). HSR Act filings are required for acquisitions of patents valued in excess of the applicable jurisdictional threshold. For 2013, the minimum jurisdictional threshold is met if the acquiring person (entity) holds USD$70.9 million dollars worth of voting securities and assets and the parties meet the “size-of-person” requirements. If the acquiring person (entity) will hold more than USD$283.6 milliondollars worth of voting securities and assets, then the jurisdictional threshold is met regardless of the parties’ sizes.

In order to properly determine reportability, parties must analyze: 1) what the licensor is transferring to the licensee and 2) determine whether the license conveys the exclusive rights to commercially use the patent or part of a patent. Although not expressly codified by the HSR Act, the “make, use, and sell” approach became a well known summation of this analysis. However, in recent years, it has become commonplace for pharmaceutical companies to transfer most, but not all, of these aforementioned rights. For example, the licensor will often retain manufacturing rights under the patent, but under the licensing agreement the licensor will agree to only manufacture for the licensee. Thus, the new amendments set out to clearly define the scope of what is/isn’t a reportable transaction.

“All Commercially Significant Rights”

Section 801.2(g)(3) provides that the transfer of exclusive rights to a patent or part of a patent in the pharmaceutical industry is a reportable asset if it allows only the recipient to commercially use the patent as a whole or a part of the patent in a particular therapeutic area or a specific indication within a therapeutic area.


Section 801.1(q) provides for shared rights to assist the licensee in developing and commercializing the patented product and includes rights to co-develop, co-promote, co-market, and co-commercialize. Co-rights do not include the right of the licensor to commercially use the patent of part of the patent, thus a transfer of “all commercially significant rights” has occurred even when the licensor retains co-rights.

“Limited manufacturing rights”

Section 801.2(p) provides for the rights retained by a patent holder to manufacture the product(s) covered by a patent when all other exclusive rights to the patent within a therapeutic area have been transferred to the recipient of the patent rights.

In conclusion, the new rules provide that all commercially significant rights are transferred even if the patent holder retains limited co-rights or manufacturing rights. This gives the FTC and U.S. Department of Justice ample opportunity to examine and review licenses which they believe would have the same competitive effect as if the patent were transferred outright. As a result, the FTC estimates this will result in approximately 30 new HSR Act filings per year. Thus, numerous transactions in the pharmaceutical marketplace will be subject to new timely and financial burdens such as assessing the transaction value(s) against the current jurisdictional thresholds, gathering pertinent financial information, paying the HSR Act filing fee, and waiting the at least 30 day waiting period to close the transaction. Even if your transaction does not qualify as reportable under the amendments it is wise to always be diligent in your dealings, as most any transaction can be reviewed and/or investigated as being anti-competitive.

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