Kensington Antitrust Advisors Group

The Federal Trade Commission is coming under fire by pharmaceutical groups for proposing to expand its review of exclusive pharmaceutical patent rights licenses.  Under the proposed change, a drug patent holder would need to report a license to the FTC under the Hart-Scott-Rodino (HSR) Act if the patent owner transfers the exclusive marketing and sales rights to another company even if it retains the exclusive right to make the drug.

Although the sale of a patent has long been considered a reportable HSR transaction if it otherwise met the general filing thresholds in the act, the licensing of patent rights, particularly exclusive licenses, have proven more difficult to categorize.  Until recently, the FTC asked whether the license transferred the exclusive right to make, use, and sell a patented produce.  Licenses in which the patent holder retains the right to make the product have generally been viewed as un-reportable distribution agreements rather than as the reportable transfer of an asset.

The FTC argues that the right to commercialize a drug, rather than the right to manufacture, is critical to competition concerns.  It thus wants to review drug licenses that retain the distribution agreement form.  Drug lobbying group PhRMA opposed the change, arguing in filed comments that “[t]he proposed rules constitute an unprecedented attempt by the agency to increase the HSR Act requirements for a single industry.”  According to the group, the statute does not permit the FTC to expand pre-transaction notification requirements in this way.