Federal Trade Commission Finalizes Amendments to Rules Regarding Exclusive Transfers of Patent Rights in Pharmaceutical Industry

On November 15, 2013, the Federal Trade Commission (“FTC”) published its final Amendments to Hart-Scott-Rodino (HSR) Premerger Notification Rules (the “Rules”) to expand the authority of the FTC to require additional pre-deal notification and approval of certain exclusive licensing transactions in the pharmaceutical industry. Under the new Rules, transfer of “all commercially significant rights” to “any therapeutic area (or specific indication within a therapeutic area)” will require pre-notification if the transaction transfers the rights to “make, use and sell” a product regardless of whether the licensor retains the rights to manufacture or use the product. Previously, if the licensor retained the right to manufacture or use the product, HSR pre-notification was not required. The FTC modified the Rules in an attempt to capture transactions designed to evade the pre-notification requirements by the licensor retaining a manufacturing or use rights.

Now under the Rules, transactions involving the transfer of rights to a patent or part of a patent in the pharmaceutical, biologics, and medicine manufacturing may be subject to pre-review and approval by the FTC if certain thresholds are met.

The first threshold concerns the “size of the transaction” which states that if the size of the transaction results in the acquiring person or entity receiving voting securities, non-corporate interests and/or assets exceeding an aggregate of $70.9 million (adjusted yearly according to inflation), then the Rules would require FTC pre-notification and approval for the transaction.

Under the second threshold, if the size of the transaction is less than $283.6 million (adjusted yearly according to inflation), then there is also a “size of the parties” test to determine if the transaction must undergo notification and approval by the FTC. Under this threshold, if the acquirer of the assets or license has annual net sales or total assets totaling $141.8 million or more and the sellor/licensor has annual net sales or total assets of $14.2 or more then the transaction may require FTC pre-notification and approval.

The new Rules are set to take effect on December 16, 2013. Failure to comply with the pre-notification provisions can lead to significant penalties for the entities involved, including but not limited to fines of up to $16,000 per day. Pharmaceutical and biotechnology companies considering assignment of intellectual property to another firm or those entering exclusive licensing or co-licensing agreements should provide additional scrutiny when reviewing these transactions to ensure compliance with the new Rules.

Contact: John Williford, Esq. (703) 734-0484 Ext. 104 jwilliford@cttg-law.com

*This CTTG-Global Client Alert is brought to you by the Clinical Technology Transfer Group (CTTG), based in Mclean, VA.

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