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From Antitrust Law Daily, June 2, 2014

HSR rule amendments regarding transfer of exclusive patent rights in pharmaceutical industry survive challenge

By Jeffrey May, J.D.

Pharmaceutical industry participants must comply with recent amendments to the Hart-Scott-Rodino (HSR) Act premerger notification rules regarding the reportability of certain transfers of exclusive patent rights to the federal antitrust agencies for review. The federal district court in Washington, D.C. has rejected a challenge to the HSR rule amendments raised by the Pharmaceutical Research and Manufacturers of America (PhRMA) (Pharmaceutical Research and Manufacturers of America v. FTC, May 30, 2014, Howell, B.).

In November 2013, the FTC issued HSR amendments that made the granting of an exclusive right to commercially use a patent or part of a patent a potentially reportable asset acquisition under the HSR Act. The rule addressed two types of transfers of exclusive patent rights that the FTC observed occurred frequently, if not exclusively, in the pharmaceutical industry: (1) the transfer of exclusive rights under a patent to use and sell, with retention by the licensor of the right to manufacture (“retained manufacturing rights”); and (2) the transfer of exclusive rights under a patent to make, use, and sell, with retention by the licensor of co-rights, in whole or part (“retained co-rights”).

PhRMA, a trade association which “represents the country’s leading biopharmaceutical researchers and biotechnology companies,” filed a federal court challenge to the amendments. The group questioned the amendments on the ground that they singled out a particular industry.

The HSR Act states that “no person shall acquire, directly or indirectly, any . . . assets of any other person, unless both persons file notification . . . .” PhRMA based its argument that the HSR Act was intended to apply with equal force across all industries on the statute's use of the words “no person.” “PhRMA’s narrow focus on these two words is too thin a reed to rest its conclusion given the broader language granting the FTC rulemaking and exemption authority,” the court concluded.

The court agreed with the FTC that it was entitled to deference in its interpretation of the HSR Act’s grant of authority to promulgate industry-specific rules. Moreover, the court concluded that the agency provided a reasoned basis for its promulgation of the rule. The rule was not arbitrary and capricious because the FTC relied on its expertise, HSR filings, and publicly available data in support of it, according to the court.

The plain language of the statutory text did not mandate that the FTC only promulgate rules of general applicability and did not foreclose the FTC’s issuance of an industry-specific rule, the court concluded. Moreover, the legislative history of the HSR Act did not suggest that Congress intended to bar the FTC from promulgating industry-specific rules.

The court also rejected PhRMA's contention that, because the purpose of the HSR Act was to ensure uniformity in the promulgation of rules under the premerger notification requirements, promulgation of an industry-specific rule was prohibited. PhRMA did not present any evidence, other than the “no person” words, to support its contention. The purpose of the HSR Act was to combat illegal acquisitions that violate antitrust laws, according to the court.

Therefore, PhRMA’s motion for summary judgment in its favor was denied and the FTC’s motion for summary judgment was granted.

This is Civil Case No. 13-1974 (BAH).

Attorneys: Joseph A. Ostoyich (Baker Botts, LLP) for Pharmaceutical Research and Manufacturers of America. Michele Arington for the FTC.

Companies: Pharmaceutical Research and Manufacturers of America

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