The Federal Trade Commission ("FTC") is now targeting pharma and biotech patent license agreements in which less than all the patent rights are licensed. In particular, the FTC has modified its rules for reporting asset acquisitions under the Hart Scott Rodino ("HSR") Act to include exclusive patent license agreements for pharmaceuticals where manufacturing or other rights are retained by the licensor.
Prior to these rule changes, the Premerger Notification Office ("PNO") considered exclusive patent license agreements that transferred the exclusive right to make, use, and sell a product under a patent as an asset acquisition. This was known as the "make, use, and sell" approach. The FTC now recognizes that pharmaceutical companies often transfer some, but not all, of the rights to make, use, and sell under a patent, and that these rights may have significant value. For example, a licensor may exclusively license the right to use and sell a pharmaceutical product, but retain the right to manufacture the product under a patent. Prior to the new rules, the retention of the right to manufacture would render the transaction non-reportable.
The new rules apply an "all commercially significant rights" test. According to the FTC, "the transfer of exclusive rights to a patent or a part of a patent in the pharmaceutical industry is a reportable asset transfer if it allows only the recipient to commercially use the patent as a whole, or a part of the patent in a particular therapeutic area or specific indication within a therapeutic area." See also 16 C.F.R. §801.2(g)(3). In particular, the rules define "all commercially significant rights" as "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 specific indication within a therapeutic area)" (§801.1(o)). The FTC does not consider a license agreement non-exclusive where the licensor retains manufacturing rights or co-development, co-promotion, co-marketing, or co-commercialization rights (co-rights). Id.; see also §801.1(p) and (q). This new rule applies to pharmaceutical products, medical products, botanical products, biological products, and in vitro diagnostics. The new rule does not apply to exclusive licenses that do not involve the transfer of exclusive rights to use a patent or part of a patent, such as an exclusive distribution agreement.
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