Premerger Rules for Patent Assets Determined

WASHINGTON (CN) - The Federal Trade Commission plans to determine whether a pharmaceutical company must report a patent as an asset acquisition before a merger, based on whether "all commercially significant rights" have been transferred.

Generally, a transfer of exclusive rights to a pharmaceutical patent results in an asset acquisition, which must be reported to the government, premerger.

The Hart-Scott-Rodino Antitrust Improvements Act, signed into law by Then-President Gerald Ford, prohibits certain mergers and acquisitions until the parties have filed with the FTC and Department of Justice. It also includes a waiting period for the government to determine if the business transfer would adversely affect commerce. It applies to the pharmaceutical, biologics, and medicine manufacturing industries.

The proposal represents "the longstanding staff position that a transaction involving the transfer of exclusive rights to a patent in the pharmaceutical industry, which typically takes the form of an exclusive license, is potentially reportable under the act," the FTC wrote.

The amended rules would use the concepts of "all commercially significant rights," "limited manufacturing rights," and "co-rights" to determine which patent rights would need to be reported as an asset acquisition.

The FTC noted that pharmaceutical companies often enter into licenses where the licensee receives an exclusive right to use and sell, but the licensor keeps the right to manufacture exclusively for the licensee.

"In licensing arrangements in the pharmaceutical industry, the right to manufacture is far less important than the right to commercialize," the FTC wrote. When a licensor manufactures solely for the use of the licensee, it is "substantially the same" as giving the licensee an exclusive right, which would need to be reported, according to the proposal. The FTC also proposed a test to determine all of the "commercially significant rights," to simplify the processes of both transferring patent rights and review by the government.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit