Merger review

Powers of competition authority

Does the competition authority have the same authority with respect to reviewing mergers involving IP rights as it does with respect to any other merger?

Acquisitions involving IP rights are reportable under the HSR Act if the value of the transaction rights triggers statutory thresholds and the parties otherwise meet the standard regulatory requirements for premerger notification. The FTC and DOJ review both reportable and non-reportable mergers and acquisitions involving IP rights under the same statutes that apply to other mergers (the Sherman, Clayton and FTC Acts). State attorneys general also have the authority to review and challenge mergers and that authority includes mergers that involve IP.

Certain IP licensing agreements that fall short of a full transfer or assignment of rights may also be reportable. Based on informal guidance from the FTC Premerger Notification Office, exclusive patent or trademark licences may be reportable under the HSR Act. Such licences may be reportable even if exclusivity extends only to a particular geographic region. Although non-exclusive licences are generally not reportable, the FTC issued a rule in 2013 that requires reporting for certain non-exclusive pharmaceutical patent licences that transfer ‘all commercially significant’ rights, even where the licensor retains manufacturing rights.

Analysis of the competitive impact of a merger involving IP rights

Does the competition authority’s analysis of the competitive impact of a merger involving IP rights differ from a traditional analysis in which IP rights are not involved? If so, how?

The same principles apply to the evaluation of mergers and acquisitions involving IP rights as to transactions involving other forms of property. However, in analysing mergers involving IP, the agencies may consider competitive effects in upstream technology markets for the IP rights themselves as well as downstream product markets.

In limited cases, the agencies may also consider the impact of a merger on research and development activities and the analysis of the competitive effects on R&D may be more likely in merger that involves the transfer of significant IP. However, potential anticompetitive effects in R&D or innovation markets have not played a meaningful role in merger investigations outside the pharmaceutical sector, where the agencies will evaluate the pipeline products of the merging parties. However, even those matters can be understood as focusing on potential competition rather than pure R&D.

Challenge of a merger

In what circumstances might the competition authority challenge a merger involving the transfer or concentration of IP rights? Does this differ from the circumstances in which the competition authority might challenge a merger in which IP rights were not a focus?

As stated above, the US agencies will apply the same statutes and legal standards towards evaluating the competitive effects of mergers involving IP as to other transactions, and will take both horizontal and vertical effects into account. For example, the agencies may consider whether the transfer of a patent portfolio would combine ownership over technologies that would otherwise compete in upstream technology markets and whether that combination may substantially lessen competition. The agencies may also evaluate whether the acquisition will change the incentives of the merging parties towards licensing potential downstream rivals. In 2011 and 2012, the DOJ investigated a series of transactions involving the transfer of large patent portfolios that included standard-essential patents and patents relevant to open-source products. The agencies evaluated how the transfer would change incentives to share IP with downstream product market rivals. The DOJ allowed the transactions to proceed after certain acquiring parties made public assurances regarding their future licensing behaviour (statement of the DOJ’s Antitrust Division, 13 February 2012).

Remedies to address the competitive effects of mergers involving IP

What remedies are available to address competitive effects generated by a merger when those effects revolve around the transfer of IP rights?

The normal range of remedies is available to restore competition that may be lost in mergers that involve IP rights, including divestiture and behavioural remedies. In some cases, one of the merging parties may own IP that creates a barrier to entry into the relevant market. To resolve competitive concerns with the merger, the agencies may require the merging parties to provide a licence to new entrants to ameliorate the potential anticompetitive effects from the merger. Courts also have the authority to require divestiture of assets, including IP rights, to remedy an anticompetitive merger. As described in question 21, in 2012, the DOJ at least informally appeared to require certain technology companies acquiring stakes in large patent portfolios to provide assurances regarding their willingness to provide downstream competitors with access to standard-essential patents or patents relevant to open-source products.