The Hart Scott Rodino Act (“HSR” or the “Act”) requires reporting certain transactions valued in excess of the current threshold of $68.2 million to the FTC and the Department of Justice. Among the reportable transactions are mergers and acquisitions of voting securities, controlling noncorporate interests and certain other types of assets. For HSR purposes, patents are considered assets which, if valued above the reporting threshold, may need to be reported when transferred.  

Current Pharmaceutical Patent Reporting Requirements

Under the current Act, the sale of a patent requires a relatively straightforward analysis of the patent’s value to determine whether the transaction is reportable. The transfer of rights to that patent, however, calls for a more involved inquiry. Currently the Premerger Notification Office of the FTC (“PNO”) analyzes exclusive patent rights transfers by looking to the troika of rights known as “make, use and sell.” Assuming the other reporting requirements are fulfilled, the bundling and exclusive transfer of these three rights—manufacture, use and sale—from a patent holder to a third party by a patent licensing agreement will be a reportable transaction.

Under some pharmaceutical patent licensing agreements, however, a “right to manufacture” is retained by the licensor. Even in cases in which these agreements may confer exclusive use and sale rights to the licensee, a transaction so structured is not reportable because the current PNO approach views such agreements as distribution agreements due to the lack of manufacturing rights vested in the licensee. As a result, if a patent licensing agreement does not confer the right to manufacture upon the licensee, no HSR report need be filed, regardless of the size of transaction.  

Proposed Coverage Rules

The proposed coverage rules seek to alter the current reporting requirements by identifying and addressing three specific types of transactions that would specifically require reporting the proposed transaction under HSR: the transfer of all commercially significant rights, the retention of limited manufacturing rights, and the retention of co-rights.

All Commercially Significant Rights

Typically, exclusive rights to a pharmaceutical patent are transferred via license. The proposed rule foregoes limiting itself to the term “license,” instead using broad language to capture the substance of the transaction over the nomenclature. The proposed changes would require the transaction to be reported when all commercially significant rights in the patent are transferred to a third party, defining 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).

By focusing on the substance of the transaction, the PNO aims to capture any transfer of exclusive rights to a pharmaceutical patent. A transfer of all commercially significant rights would require reporting under HSR, assuming other requirements are met. If certain significant rights are retained by the patent owner, further analysis must be performed to determine if the transaction is reportable.

Limited Manufacturing Rights

As discussed above, licensing transactions in which the licensor retains the right to manufacture exclusively for the licensee are not currently reportable under the Act. Such arrangements are common in instances where the licensor has the relevant manufacturing expertise and facilities. The PNO’s proposed rules seek to make such transactions reportable in the future by creating the designation limited manufacturing rights which are defined as:

The rights retained by a patent holder to manufacture the product(s) covered by a patent when all other exclusive rights to the patent within a therapeutic area (or specific indication within a therapeutic area) have been transferred to the recipient of the patent rights. The retained right to manufacture is limited in that it is retained by the patent holder solely to provide the recipient of the patent rights with the product(s) covered by the patent (which either the patent holder alone or both the patent holder and the recipient may manufacture).

Thus, under the proposed rules, all commercially significant rights are deemed transferred, even if the patent holder retains such limited manufacturing rights. The proposed changes reflect the PNO’s desire to view such arrangements as substantively the same as exclusive licenses, and seek to classify them accordingly.  


Aside from limited manufacturing rights, a patent owner sometimes retains what are known as “co-rights” in granting a exclusive license. The proposed rules define co-rights as:  

Shared rights retained by the patent holder to assist the recipient of the exclusive rights patent rights in developing and commercializing the product covered by the patent. These co rights include, but are not limited to, co-development, copromotion, co-marketing and co-commercialization.

Such agreements, in the case of a pharmaceutical patent, provide for the patent owner and licensee to share the responsibility for seeing the licensed product through the Food and Drug Administration approval process and/or its presentation to the medical community and public at large, often providing the patent owner with a larger share of realized revenue from the product’s sales. Since, under current trules, the retention of such co-rights does not obviate the need to meet HSR reporting requirement, this is not a significant rule change, but merely a clarification. Under the wording of the proposed rules, all commercially significant rights will be deemed transferred, even if such co-rights exist, thereby making the transaction reportable.

The FTC is accepting comment on these proposed regulations until October 25, 2012.