On Nov. 6, 2013, the Federal Trade Commission (FTC or Commission) modified its Hart-Scott-Rodino Act (HSR) rules to clarify that transfers of patent rights within the pharmaceutical industry constitute potentially reportable asset transactions even if patent holders retain limited manufacturing rights or co-rights. This week, the United States Court of Appeals for the District of Columbia Circuit upheld the FTC’s rulemaking procedures.
Prior to 2013, the FTC applied a “make, use and sell” test to determine whether a transfer of patent rights was a reportable asset acquisition. That test looked to whether the acquired patent rights provided the exclusive right to make, use and sell the patented products to the exclusion of all others. However, the FTC explained in its Notice of Final Rulemaking that the “make, use and sell” test no longer fit the current realities of the industry.
In its place, the Commission’s new rule substitutes the “all commercially significant rights” test, which asks whether “all commercially significant rights to a patent . . . are transferred to another entity.” If the test is met, the transfer is an asset acquisition potentially reportable under the HSR Act, even if the licensor retains limited manufacturing rights or co-rights. The rule defines “all commercially significant 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 made clear it will focus on whether the licensee obtained the exclusive right to use the patent commercially, not whether the licensor retained limited rights.
A trade group representing pharmaceutical companies challenged the Commission’s rule, but a district court granted summary judgment to the FTC. The Court of Appeals confirmed, finding no error in the Commission’s rulemaking process. The decision clears the path for the FTC to review patent rights transfers of a reportable size and potentially to block deals that, in its view, may substantially lessen competition.
The court noted that, though the new rule focuses on the pharmaceutical industry, an identical analysis could be applied to other industries using similar patent transfer practices.
The case is Pharmaceutical Research and Manufacturers of America v. FTC, Civil Action No. 1:13-cv-01974 (D.C. Cir. June 9, 2015).
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