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D.C. Circuit Affirms: FTC Can Change HSR Rules Targeted at Pharmaceutical Patents

In a confluence of IP and antitrust law, a three judge panel for the D.C. Circuit recently affirmed a lower court decision upholding the Federal Trade Commission’s (“FTC”) 2013 modification of regulations under the Hart Scott Rodino (“HSR”) Act to require reporting of even partial transfers of pharmaceutical patent rights as an “asset acquisition” if all commercially significant rights are transferred.  Prior to the change, an acquisition of pharmaceutical patent rights was reportable only if all rights to “make, use and sell” the patented technology were transferred; that rule still applies to patent transfer practices in other industries. The FTC changed the rule with respect to pharmaceutical patents after observing that in recent years pharmaceutical companies had been transferring most of the essential (or “all commercially significant”) rights under an exclusive license, but were able to avoid reporting such transfers under the current approach of the HSR Act.

Pharmaceutical Research and Manufacturers of America (“PhRMA”), the pharmaceutical industry group challenging the FTC, argued that that the lower court decision should be overturned, as the agency does not have authority under the HSR Act to make industry-specific rules and that the FTC’s adoption of the rule was arbitrary and capricious. The panel disagreed, holding that Congress’s intent was not to restrict the agency’s authority under the Act to broad rules only.  Further, they noted that PhRMA and other industry groups had significant opportunity to participate and comment during the rulemaking period.

Although this decision specifically targets pharmaceutical deals, other industry deals are not in the clear. The court and the FTC were unequivocal, stating that “if other industries adopted patent transfer practices of the sort found in the pharmaceutical industry, ‘such exclusive patent licenses remain potentially reportable.’” Thus, parties transferring patents in all industries should proceed with caution and consult counsel when structuring their deals.

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Dionne Lomax