[Federal Register Volume 77, Number 161 (Monday, August 20, 2012)]
[Proposed Rules]
[Pages 50057-50062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-20192]
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FEDERAL TRADE COMMISSION
16 CFR Part 801
Premerger Notification; Reporting and Waiting Period Requirements
AGENCY: Federal Trade Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commission is proposing amendments to the premerger
notification rules (``the Rules'') to provide a framework for
determining when a transaction involving the transfer of rights to a
patent in the pharmaceutical, including biologics, and medicine
manufacturing industry (North American Industry Classification System
Industry Group 3254) (``pharmaceutical industry'') is reportable under
the Hart Scott Rodino Act (``the Act'' or ``HSR''). The Act and Rules
require the parties to certain mergers and acquisitions to file reports
with the Federal Trade Commission (``the Commission'') and the
Assistant Attorney General in charge of the Antitrust Division of the
Department of Justice (``the Assistant Attorney General'')
(collectively, ``the Agencies'') and to wait a specified period of time
before consummating such transactions. The reporting and waiting period
requirements are intended to enable these enforcement agencies to
determine whether a proposed merger or acquisition may violate the
antitrust laws if consummated and, when appropriate, to seek a
preliminary injunction in federal court to prevent consummation. This
proposed rulemaking uses the concept of ``all commercially significant
rights'' as the basis to determine whether there is a transfer of
exclusive rights to a patent in the pharmaceutical industry resulting
in an asset acquisition that may be reportable under the Act.
DATES: Comments must be received on or before October 25, 2012.
ADDRESSES: Interested parties may file a comment online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write ``HSR IP Rulemaking,
Project No. P989316'' on your comment, and file your comment online at
https://ftcpublic.commentworks.com/ftc/hsripnprm, by following the
instructions on the web-based form. If
[[Page 50058]]
you prefer to file your comment on paper, mail or deliver your comment
to the following address: Federal Trade Commission, Office of the
Secretary, Room H-113 (Annex Q), 600 Pennsylvania Avenue NW.,
Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Robert L. Jones, Deputy Assistant
Director, Premerger Notification Office, Bureau of Competition, Room
302, Federal Trade Commission, Washington, DC 20580. Telephone: (202)
326-3100.
SUPPLEMENTARY INFORMATION:
Invitation to Comment
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before October 25,
2012. Write ``HSR IP Rulemaking, Project No. P989316'' on your comment.
Your comment--including your name and your state--will be placed on the
public record of this proceeding, including, to the extent practicable,
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to
remove individuals' home contact information from comments before
placing them on the Commission Web site.
Because your comment will be made public, you are solely
responsible for making sure that your comment does not include any
sensitive personal information, like anyone's Social Security number,
date of birth, driver's license number or other state identification
number or foreign country equivalent, passport number, financial
account number, or credit or debit card number. You are also solely
responsible for making sure that your comment does not include any
sensitive health information, like medical records or other
individually identifiable health information. In addition, do not
include any ``[t]rade secret or any commercial or financial information
which is * * * privileged or confidential,'' as discussed in Section
6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR
4.10(a)(2). In particular, do not include competitively sensitive
information such as costs, sales statistics, inventories, formulas,
patterns, devices, manufacturing processes, or customer names.
If you want the Commission to give your comment confidential
treatment, you must file it in paper form with a request for
confidential treatment, and you have to follow the procedure explained
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept
confidential only if the FTC General Counsel, in his or her sole
discretion, grants your request in accordance with the law and the
public interest.
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\1\ In particular, the written request for confidential
treatment that accompanies the comment must include the factual and
legal basis for the request, and must identify the specific portions
of the comment to be withheld from the public record. See FTC Rule
4.9(c), 16 CFR 4.9(c).
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Postal mail addressed to the Commission is subject to delay due to
heightened security screening. As a result, we encourage you to submit
your comments online. To make sure that the Commission considers your
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/hsripnprm, by following the instructions on the web-based form. If
this Notice appears at http://www.regulations.gov/#!home, you also may
file a comment through that Web site.
If you file your comment on paper, write ``HSR IP Rulemaking,
Project No. P989316'' on your comment and on the envelope, and mail or
deliver it to the following address: Federal Trade Commission, Office
of the Secretary, Room H-113 (Annex Q), 600 Pennsylvania Avenue NW,
Washington, DC 20580. If possible, submit your paper comment to the
Commission by courier or overnight service.
Visit the Commission Web site at http://www.ftc.gov to read this
Notice and the news release describing it. The FTC Act and other laws
that the Commission administers permit the collection of public
comments to consider and use in this proceeding as appropriate. The
Commission will consider all timely and responsive public comments that
it receives on or before October 25, 2012. You can find more
information, including routine uses permitted by the Privacy Act, in
the Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.
Statement of Basis and Purpose
Section 7A(d)(1) of the Act, 15 U.S.C. 18a(d)(1), directs the
Commission, with the concurrence of the Assistant Attorney General, in
accordance with the Administrative Procedure Act, 5 U.S.C. 553, to
require that premerger notification be in such form and contain such
information and documentary material as may be necessary and
appropriate to determine whether the proposed transaction may, if
consummated, violate the antitrust laws. In addition, Section 7A(d)(2)
of the Act, 15 U.S.C. 18a(d)(2), grants the Commission, with the
concurrence of the Assistant Attorney General, in accordance with 5
U.S.C. 553, the authority to define the terms used in the Act and
prescribe such other rules as may be necessary and appropriate to carry
out the purposes of Section 7A.
In this proposed rulemaking, the Commission proposes amending Sec.
801.1 and Sec. 801.2 to reflect 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
proposed rules define and apply the concepts of ``all commercially
significant rights,'' ``limited manufacturing rights,'' and ``co-
rights'' in determining whether the rights transferred with regard to a
patent in the pharmaceutical industry constitute a potentially
reportable asset acquisition.
Part 801--Coverage Rules
Section 801.2 Acquiring and Acquired Persons
I. Background
The Act applies to reportable acquisitions of voting securities,
controlling non-corporate interests,\2\ and assets. Determining whether
a transaction is reportable requires applying the statute, supporting
regulations, formal interpretations, and informal staff
interpretations. As the Act covers asset acquisitions, and a patent is
an asset,\3\ it is usually a straightforward process to determine
whether the acquisition of a patent triggers a reporting obligation
under the Act.\4\
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\2\ Acquisitions of non-corporate interests must confer control
in order to be reportable.
\3\ Indeed, the Second Circuit explained in SCM Corp. v. Xerox
Corp., ``[s]ince a patent is a form of property * * * and thus an
asset, there seems little reason to exempt patent acquisitions from
scrutiny under [Section 7 of the Clayton Act.] '' 645 F.2d 1195,
1210 (2d Cir. 1981).
\4\ This rulemaking proposes to define when the transfer of
rights to a pharmaceutical patent constitutes the acquisition of an
asset. It in no way delimits the much broader definition of an asset
for purposes of Sections 7 and 7A of the Clayton Act in any other
context.
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Determining whether the transfer of rights to a patent is an asset
acquisition, and thus potentially reportable, is usually a more
challenging analysis. From an early point, the Premerger Notification
Office (``PNO'') analyzed these transactions by focusing on whether the
exclusive rights to ``make, use and sell'' under a patent were being
transferred by the license. That is, the focus was on the transfer of
the bundle of rights to use a patent to exclusively manufacture a
product, develop the product for all potential uses, and sell that
product without restriction. The
[[Page 50059]]
transfer of this bundle of rights is seen as a potentially reportable
asset acquisition under the Act. If the licensor retains the right to
manufacture, the deal is, in most instances, non-reportable. For
instance, some licensing agreements involve the exclusive use and sale
of a patent, but typically allow the licensor to retain manufacturing
rights for the patent. Under the current PNO approach, these exclusive
licenses are not reportable since, without the right to manufacture,
they are viewed as distribution agreements rather than asset
acquisitions.
Although this basic approach was never codified, it became well-
known throughout the HSR bar and is reflected in the letters and emails
from practitioners in the PNO's informal interpretation database. While
each situation in the database is factually unique, the questions from
practitioners overwhelmingly focus on exclusive licenses in the
pharmaceutical industry where the licensor grants some rights but
retains others. In those situations, PNO staff was asked to analyze the
retained rights to determine if an asset acquisition was taking place.
The retained rights typically fall into two categories: manufacturing
rights and co-rights.
(a) Retention of Manufacturing Rights
As mentioned above, if the licensee was not granted the right to
manufacture, but only the rights to use and sell, PNO staff viewed this
as a non-reportable event because the license appeared essentially to
be a distribution agreement. Yet, in licensing arrangements in the
pharmaceutical industry, the right to manufacture is far less important
than the right to commercialize. In fact, the right to manufacture is
often retained by the licensor who has the relevant manufacturing
expertise and facilities. As a result, pharmaceutical companies often
enter into licenses in which the licensee receives the exclusive right
to use and sell under the license, but the licensor retains the right
to manufacture exclusively for the licensee. As the licensor is
manufacturing solely for the use of the licensee, this is substantively
the same as giving the licensee the exclusive right to manufacture, use
and sell the product(s) covered by the license.
The proposed rule would treat this kind of exclusive license
agreement as a potentially reportable asset acquisition. This aspect of
the rule is a significant change in the weight given to manufacturing
rights in determining whether or not exclusive rights to a patent are
being transferred. Under the proposed rules, if the licensor retains
the right to manufacture exclusively for the licensee, it is a
potentially reportable asset acquisition because all commercially
significant rights, as discussed below, will still have passed to the
licensee.
(b) Retention of Co-Rights
In the pharmaceutical industry, a licensor also often retains co-
rights in granting an exclusive license. Co-rights cover the shared
responsibility for seeing the licensed product through the Food and
Drug Administration (``FDA'') approval process and then marketing and
promoting the product. For example, the licensee is granted the
exclusive right to make, use and sell a product, but the patent holder
retains the right to co-develop and co-market the product along with
the licensee. The licensor generally retains co-rights to assist the
licensee in maximizing the licensee's sales of the licensed product so
that the licensor might have a more robust royalty revenue stream or
other revenue sharing arrangement.
Under current policy, the retention of these rights does not render
the license non-exclusive. In the PNO's experience, when the licensor
retains co-rights, typically only the licensee can use the patent
rights as it strives to gain FDA approval for the pharmaceutical
product, and any eventual royalty stream or other revenue sharing
mechanism flows from this exclusivity. So, even though both the
licensee and licensor will share any eventual profits, the profits
result from a potentially reportable transfer to the licensee of the
exclusive right to use the patent. This approach will not change under
the proposed ``all commercially significant rights'' concept.
(c) Limitation to the Pharmaceutical Industry
PNO staff has extensive experience providing advice regarding the
transfer of rights to a patent through exclusive licenses in the
pharmaceutical industry. In the PNO's view, the pharmaceutical industry
presents unique incentives for the use of exclusive licenses. For
example, in a scenario the PNO has seen quite frequently, an innovator
discovers a compound, but that innovator does not have the financial
resources to shepherd the compound through the approval process
required by the FDA, nor to effectively market or promote it in drug
form after FDA approval. Thus, the innovator will enter into an
exclusive licensing agreement with a (typically much larger)
pharmaceutical company to provide the financial resources for the FDA
approval process and the eventual marketing and promotion of the drug.
There is a great deal of uncertainty involved, as neither party to the
exclusive licensing agreement knows whether the compound will actually
become an approved drug and be commercially successful. But if the drug
is successful, the licensee will be able to book enormous profits, some
of which will be shared with the licensor through royalties or other
revenue sharing arrangements. Given its financial investment, the
licensee wants the exclusive right to as much of these profits as
possible to recoup its costs. The result is an exclusive license
agreement that is, in the PNO's experience, unlike that seen in any
other industry.
As a result of these unique incentives and because, in the PNO
staff's experience, these arrangements have been limited to the
pharmaceutical industry, the Commission has limited the proposed rule
to analyzing the transfer of rights to a patent in the pharmaceutical
industry. Thus, the proposed rule is limited to those specific NAICS
codes that involve the pharmaceutical industry. Although the proposed
rule is limited to the pharmaceutical industry, the transfer of
exclusive rights to a patent in other industries remains a potentially
reportable event under the Act. Parties dealing with exclusive rights
to a patent in other industries should consult PNO staff, which will
consider such questions on a case-by-case basis.
II. All Commercially Significant Rights
Although the typical mechanism used to transfer exclusive rights to
a patent in the pharmaceutical industry is a license, the proposed rule
does not use this term and instead focuses on the broader concept of
exclusive rights to a patent in defining the key concept of ``all
commercially significant rights.'' This broad language is intended to
keep the focus on the substance of what is being transferred, not the
form of the transfer. Thus, any transfer of exclusive rights to a
patent in the pharmaceutical industry is a potentially reportable
event, regardless of whether this transfer is called an exclusive
license or something else.
The proposed rule focuses on the transfer of exclusive rights to a
pharmaceutical patent in a particular therapeutic area. A therapeutic
area covers the intended use for the patent, such as for cardiovascular
use or neurological use, and includes all indications. An indication
encompasses a narrower segment of a therapeutic area, such as
Alzheimer's disease within
[[Page 50060]]
the neurological therapeutic area. As discussed above, the proposed
rule emphasizes the substance of what is being transferred, not the
form that this transfer takes, even though the transfer will most often
occur in the form of an exclusive license. When the recipient,
typically a licensee, receives the exclusive rights to the patent in a
therapeutic area, it is receiving the exclusive right to use the patent
in that therapeutic area.
``All commercially significant rights,'' as defined in proposed
Sec. 801.1(o), flow from the exclusive rights to a patent. As a result
of these exclusive rights, only the recipient has the right to use the
patent in a particular therapeutic area, or specific indications within
that therapeutic area, to generate eventual profits (some of which will
be shared with the licensor through royalties or other revenue sharing
arrangements). The recipient alone gains all commercially significant
rights to the patent through the transfer of the exclusive rights to
it.
In transferring exclusive rights to a patent in the pharmaceutical
industry, the patent holder will often retain ``co-rights,'' as defined
by proposed Sec. 801.1(q). As discussed above, in the PNO's
experience, a licensor will often grant the licensee an exclusive
license to make, use and sell a product, but retain co-rights to assist
the licensee in maximizing its sales of the licensed product. All sales
are booked by the licensee, but the licensor benefits as a result of a
more robust royalty revenue stream or other revenue sharing
arrangements. The key is that, in retaining these kinds of rights, the
licensor does not retain the right to use the patent in the same
therapeutic area.
Under current policy, the patent holder's retention of these rights
does not render the license non-exclusive, and under the proposed rule,
will not affect the transfer of all commercially significant rights to
the licensee. As a result, the all commercially significant rights test
reflects the PNO staff's existing position on the reportability of
exclusive licenses in which the patent holder retains co-rights.
The proposed all commercially significant rights test does,
however, establish a new approach to the analysis of manufacturing
rights under an exclusive license. Under the proposed rule, when the
licensor retains the right to manufacture exclusively for the licensee,
it will retain ``limited manufacturing rights,'' as defined by proposed
Sec. 801.1(p). In retaining these rights, the licensor does not retain
the right to use the patent in the same therapeutic area. As in the
case of co-rights, the licensor retains limited manufacturing rights to
aid the licensee's efforts to market and sell the product and generate
royalties in that therapeutic area. Thus, when it retains limited
manufacturing rights, the licensor is still transferring all
commercially significant rights to the licensee and a potentially
reportable asset acquisition is taking place.
In sum, the proposed all commercially significant rights test
should greatly simplify the question of whether an asset acquisition is
occurring as the result of the transfer of rights to a patent in the
pharmaceutical industry. In addition, the proposed test makes clear
that the retention of certain rights, such as ``limited manufacturing
rights'' and ``co-rights,'' does not affect whether the transfer of all
commercially significant rights has occurred. The proposed rule thus
clarifies the analysis of the reportability of transfers of
pharmaceutical patent rights while providing the Agencies with a better
opportunity to review the transfers of exclusive rights to a patent in
the pharmaceutical industry for competitive concerns. The Commission
believes these benefits outweigh any additional burden on filing
parties.
Communications by Outside Parties to Commissioners and Their Advisors
Written communications and summaries or transcripts of oral
communications respecting the merits of this proceeding from any
outside party to any Commissioner or Commissioner's advisor will be
placed in the public record. 16 CFR 1.26(b)(5).
Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires that the
agency conduct an initial and final regulatory analysis of the
anticipated economic impact of the proposed amendments on small
businesses, except where the Commission certifies that the regulatory
action will not have a significant economic impact on a substantial
number of small entities. 5 U.S.C. 605.
Because of the size of the transactions necessary to invoke an HSR
filing, the premerger notification rules rarely, if ever, affect small
businesses. The 2000 amendments to the Act exempted all transactions
valued at $50 million or less, with subsequent automatic adjustments to
take account of changes in GNP resulting in a current threshold of
$68.2 million. Further, none of the proposed rule amendments expands
the coverage of the premerger notification rules in a way that would
affect small business. Accordingly, the Commission certifies that these
proposed rules will not have a significant economic impact on a
substantial number of small entities. This document serves as the
required notice of this certification to the Small Business
Administration.
Paperwork Reduction Act
The Paperwork Reduction Act, 44 U.S.C. 3501-3521, requires agencies
to submit ``collections of information'' to the Office of Management
and Budget (``OMB'') and obtain clearance before instituting them. Such
collections of information include reporting, recordkeeping, or
disclosure requirements contained in regulations. The information
collection requirements in the HSR rules and Form have been reviewed
and approved by OMB under OMB Control No. 3084-0005. The current
clearance expires on August 31, 2014. Because the rule amendments
proposed in this NPR would change existing reporting requirements, the
Commission is submitting a Supporting Statement for Information
Collection Provisions to OMB.
To estimate the impact of this proposed rulemaking on the number of
filings, PNO staff reviewed letters from outside counsel discussing
non-reportable transactions that would be reportable under this
proposal. The average annual number of letters over the past five years
was 21. Consultations with several outside practitioners who are
heavily involved in analyzing HSR reportability for patent licensing in
the pharmaceutical industry indicate that there are an estimated 9
additional transactions per year that fall into this category and are
not confirmed by letter with staff.
Consequently, PNO staff estimates that there will be an increase of
30 transactions per year requiring non-index HSR filings due to the
proposed rule change.\5\ The outside practitioners who were contacted
by staff agreed that this is a reasonable estimate. Based on the FTC's
projection of 1,500 total transactions per year, this represents a
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2% increase due to the proposed rules, averaged from annual expected
filings in FY2012-2014 (30 / 1500 = .02 or 2%). As a result, staff
estimates that the total burden hours under the HSR rules as revised
will be 56,420 hours, an increase of 2,664 hours from the staff's
estimate of 53,756 hours for the current Rules.\6\ Similarly, staff
estimates the labor costs under the proposed rules will be $25,953,000
(rounded to the nearest thousand), an increase of approximately
$1,225,000 from the estimate of $24,728,000 for the current rules.
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\5\ ``Index'' filings pertain to banking transactions, and thus
would not be affected by the proposed amendments. Index filings are
incorporated, however, into the FTC's currently cleared burden
estimates (the FTC has jurisdiction over the administration of index
filings). They are mentioned here to distinguish them from and to
further explain what a ``non-index'' filing is. Clayton Act Sections
7A(c)(6) and (c)(8) exempt from the requirements of the premerger
notification program certain transactions that are subject to the
approval of other agencies, but only if copies of the information
submitted to these other agencies are also submitted to the FTC and
the Assistant Attorney General. Thus, parties must submit copies of
these ``index'' filings, but completing the task requires
significantly less time than non-exempt transactions (which require
``non-index'' filings), as illustrated by the calculations in
footnote 6 below.
\6\ The currently cleared estimate was calculated as follows:
[(1428 non-index filings x 37 hours) + (22 transactions requiring
more precise valuation x 40 hours) + (20 index filings x 2 hours) =
53,756 hours]. See 76 FR 42471, 42479 (July 19, 2011). Staff
estimates that the proposed rules will increase by 30 the number of
transactions that require non-index filings, resulting in an
estimate of 1,500 filings per year, averaged from FY2012 to FY2014,
coinciding closely with the current clearance duration. Accordingly,
staff estimates the hours burden for the proposed rule as follows:
[(1,500 non-index filings x 37 hours) + (22 transactions requiring
more precise valuation x 40 hours) + (20 index filings x 2 hours) =
56,420 hours.]. Associated labor costs: 56,420 hours x $460/hour for
executives and attorneys' wages = $25,953,000.
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PNO staff believes that any incremental capital/non-labor costs
presented by the proposed amendments would be marginal. Businesses
subject to the HSR Rules generally have or would obtain necessary
equipment for other business purposes. Staff believes that the existing
requirements (and proposed extension to certain additional
transactions) necessitate ongoing, regular training so that covered
entities stay current and have a clear understanding of federal
mandates. This should constitute a small portion of and be subsumed
within the ordinary training that employees receive apart from that
associated with the information collected under the HSR Rules and the
corresponding Notification and Report Form.
The Commission invites comments that will enable it to: (1)
Evaluate whether the proposed collections of information are necessary
for the proper performance of the functions of the Commission,
including whether the information will have practical utility; (2)
evaluate the accuracy of the Commission's estimate of the burden of the
proposed collections of information, including the validity of the
methodology and assumptions used; (3) enhance the quality, utility, and
clarity of the information to be collected; and (4) minimize the burden
of the collections of information on those who must comply.
Comments on any proposed reporting requirements that are subject to
OMB review under the PRA should additionally be submitted to: Office of
Information and Regulatory Affairs, Office of Management and Budget,
Attention: Desk Officer for Federal Trade Commission. Comments should
be submitted via facsimile to (202) 395-5167 because U.S. postal mail
at the OMB is subject to lengthy delays due to heightened security
precautions.
List of Subjects in 16 CFR Part 801
Antitrust.
For the reasons stated in the preamble, the Federal Trade
Commission proposes to amend 16 CFR part 801 as set forth below:
PART 801--COVERAGE RULES
1. The authority citation for part 801 continues to read as
follows:
Authority: 15 U.S.C. 18a(d).
2. Amend Sec. 801.1 by adding paragraphs (o), (p) and (q) to read
as follows:
Sec. 801.1 Definitions.
* * * * *
(o) All commercially significant rights. For purposes of paragraph
(g) of Sec. 801.2, the term all commercially significant rights means
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).
(p) Limited manufacturing rights. For purposes of paragraph (o)
above and paragraph (g) of Sec. 801.2, the term limited manufacturing
rights means 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 product(s) covered by the patent (which either the
patent holder alone or both the patent holder and the recipient may
manufacture).
(q) Co-rights. For purposes of paragraph (o) above and paragraph
(g) of Sec. 801.2, the term co-rights means shared rights retained by
the patent holder to assist the recipient of the exclusive patent
rights in developing and commercializing the product covered by the
patent. These co-rights include, but are not limited to, co-
development, co-promotion, co-marketing and co-commercialization.
3. Amend Sec. 801.2 by adding paragraph (g) to read as follows:
Sec. 801.2 Acquiring and acquired persons.
* * * * *
(g) Transfers of patent rights within NAICS Industry Group 3254.
(1) This paragraph applies only to patents covering products whose
manufacture and sale would generate revenues in NAICS Industry Group
3254, including:
325411 Medical and Botanical Manufacturing
325412 Pharmaceutical Preparation Manufacturing
325413 In-Vitro Diagnostic Substance Manufacturing
325414 Biological Product (except Diagnostic) Manufacturing
(2) The transfer of patent rights covered by this paragraph
constitutes an asset acquisition; and
(3) Patent rights are transferred if and only if all commercially
significant rights to a patent, as defined in Sec. 801.1(o), for any
therapeutic area (or specific indication within a therapeutic area) are
transferred to another entity. All commercially significant rights are
transferred even if the patent holder retains limited manufacturing
rights, as defined in Sec. 801.1(p), or co-rights, as defined in Sec.
801.1(q).
Examples
Although these examples refer to licenses, which are typically used
to effect the transfer of pharmaceutical patent rights to a recipient
of those rights, other methods of transferring patent rights, by
assignment or grant, among others, are similarly covered by these rules
and examples.
1. B holds a patent relating to an active pharmaceutical ingredient
for cardiovascular use. A will obtain a license from B that grants A
the exclusive right to all of B's patent rights except that both A and
B can manufacture the active pharmaceutical ingredient to be sold by A
under the exclusive license agreement. B retains limited manufacturing
rights as defined in Sec. 801.1(p) because it retains the right to
manufacture the product covered by the patent for cardiovascular use
solely to provide the product to A. A is still receiving all
commercially significant rights to the patent, and the transfer of
these rights via the license constitutes an asset acquisition. Further,
even if B retained all rights to manufacture (so that A could not
manufacture), B would still retain limited manufacturing rights, and A
would still receive all commercially significant rights to the patent.
Thus, the transfer of these rights via the license would constitute an
asset acquisition.
2. B holds a patent for an in-vitro diagnostic substance relating
to arthritis.
[[Page 50062]]
B will grant A an exclusive license to all of B's patent rights for all
veterinary indications. B retains all patent rights for all human
indications. The exclusive license to all commercially significant
rights for all veterinary indications is an asset acquisition because A
is receiving all rights to the patent for a therapeutic area.
3. B holds a patent relating to a biological product. B will grant
A an exclusive license to all of B's patent rights in all therapeutic
areas. A and B are also entering into a co-development and co-
commercialization agreement under which B will assist A in developing,
marketing and promoting the product to physicians. B cannot separately
use the patent in the same therapeutic area as A under the co-
development and co-commercialization agreement. A will book all sales
of the product and will pay B a portion of the profits resulting from
those sales. Despite B's retention of these co-rights, A is still
receiving all commercially significant rights. The licensing agreement
is an asset acquisition. This would be an asset acquisition even if B
also retained limited manufacturing rights.
4. B holds a patent relating to an active pharmaceutical ingredient
and a bulk compound that contains that active pharmaceutical
ingredient. B will grant A an exclusive license to use the bulk
compound to manufacture and sell a finished product in the neurological
therapeutic area. B cannot manufacture the active pharmaceutical
ingredient or bulk compound for any other finished products in the
neurological area, but it can manufacture either for use by another
party in a different therapeutic area. Despite B's retention of
manufacturing rights of the active pharmaceutical ingredient and bulk
compound for therapeutic areas other than neurology, A is still
receiving all commercially significant rights in a therapeutic area and
the licensing agreement is the acquisition of an asset.
5. B holds a patent related to a pharmaceutical product that has
been approved by the FDA. B will enter into an exclusive distribution
agreement with A that will give A the right to distribute the product
in the U.S. B will manufacture the product for A and will receive a
portion of all revenues from the sale of the product. A receives no
exclusive patent rights under the distribution agreement. A has not
obtained all commercially significant rights to the patent because it
is only handling the logistics of selling and distributing the product
on B's behalf. Therefore, the distribution agreement is not an asset
acquisition.
* * * * *
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2012-20192 Filed 8-17-12; 8:45 am]
BILLING CODE 6750-01-P