FTC Makes Changes to HSR Rules to Reach More Pharmaceutical Licenses

The Federal Trade Commission (FTC) has made amendments to the Hart-Scott-Rodino Premerger Notification Rules (HSR Rules) to codify the long-standing position of the FTC’s Premerger Notification Office (PNO) that a transaction involving the transfer of exclusive pharmaceutical patent rights is potentially reportable under the Hart-Scott-Rodino Act (HSR Act). These amendments will be effective 30 days after their publication, which we expect will take place in two weeks.

The HSR Act requires parties of certain transactions involving the acquisition of voting securities, controlling non-corporate interests and assets to notify the FTC and the Antitrust Division of the Department of Justice and observe a waiting period before completing the transaction. A patent is considered to be an asset for purposes of the HSR Act; and the PNO has taken the position for many years that an exclusive license to commercially use a patent, or part of a patent, is a potentially reportable transaction under the HSR Act. In particular, the PNO views an exclusive patent license in the pharmaceutical industry to develop, manufacture, and sell a product without restriction as a reportable transaction, provided that the HSR Act’s jurisdictional thresholds are satisfied. The PNO’s "make, use and sell" position is reflected in its informal interpretations of the HSR Rules.

In recent years, the "make, use and sell" approach has become harder to apply because pharmaceutical licensors have increasingly retained certain patent rights, such as the limited right to manufacture the product for the licensee, or so-called "co-rights" to co-develop, co-promote, co-market and co-commercialize the patented product along with the licensee.

The current amendments to the HSR Rules codify the HSR Act’s reach to an exclusive license in the pharmaceutical industry that transfers "all commercially significant rights" to a patent.1 The amendments define "all commercially significant rights" to mean "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 a specific indication within a therapeutic area.2 Under the HSR Act, such a license is considered to be an asset acquisition.

The current amendments also clarify that the HSR Act applies to such a license even if the licensor retains (i) "limited manufacturing rights" to manufacture the patented product for the licensee,3 or (ii) "co-rights," by which the licensor retains shared rights to assist the recipient of the exclusive patent rights in developing and commercializing the product covered by the patent.4 New HSR Rule 801.2(g) includes several examples of transactions that would, or would not, be reportable under the HSR Act. The examples make clear that an exclusive distribution agreement would not be covered by the new HSR Rules.

The FTC estimates that these amendments will result in 60 additional HSR filings annually.


1 16 C.F.R. § 801.2(g)(3). The limitation of the amendments to the pharmaceutical industry is accomplished by stating that Rule 801.2(g)(3) applies only to patents covering products whose manufacture and sale would generate revenues in NAICS Industry Group 3254. See 16 C.F.R. § 801.2(g)(1).

2 16 C.F.R. § 801.1(o).

3 16 C.F.R. § 801.1(p).

4 16 C.F.R. § 801.1(q).



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