[Federal Register Volume 78, Number 221 (Friday, November 15, 2013)]
[Rules and Regulations]
[Pages 68705-68713]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27027]


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FEDERAL TRADE COMMISSION

16 CFR Part 801

RIN 3084-AA91


Premerger Notification; Reporting and Waiting Period Requirements

AGENCY: Federal Trade Commission.

ACTION: Final rule.

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SUMMARY: The Federal Trade Commission (``Commission'' or ``FTC''), with 
the concurrence of the Assistant Attorney General, Antitrust Division, 
Department of Justice (the ``Assistant Attorney General'' or the 
``Antitrust Division'') (together the ``Agencies''), is amending the 
Hart-Scott-Rodino Premerger Notification Rules (the ``Rules'') in order 
to provide a framework for determining when a transaction involving the 
transfer of rights to a patent or part of 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,'' ``HSR Act'' or ``HSR''). This final rule 
defines and applies the concepts of ``all commercially significant 
rights,'' ``limited manufacturing rights,'' and ``co-rights'' in 
determining whether the rights transferred with regard to a patent or a 
part of a patent in the pharmaceutical industry constitute a 
potentially reportable asset acquisition under the Act.

DATES: Effective Date: These final rule amendments are effective on 
December 16, 2013.

FOR FURTHER INFORMATION CONTACT: Robert L. Jones, Deputy Assistant 
Director, Premerger Notification Office, Bureau of Competition, Room H-
303, Federal Trade Commission, Washington, DC 20580, (202) 326-3100, 
rjones@ftc.gov.

SUPPLEMENTARY INFORMATION:

Statement of Basis and Purpose

    Section 7A of the Clayton Act requires the parties to certain 
mergers or acquisitions to file with the Agencies and to wait a 
specified period of time before consummating such transactions. The 
reporting requirement and the waiting period that it triggers are 
intended to enable the 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, pursuant to Section 7 of the Act.
    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

[[Page 68706]]

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.
    On August 13, 2012, the Commission posted a Notice of Proposed 
Rulemaking and Request for Public Comment (``NPRM'') on its Web site, 
and it was published in the Federal Register on August 20, 2012.\1\ The 
comment period closed on October 25, 2012. The proposed rule 
recommended amendments to 16 CFR 801.1 and Sec.  801.2 to reflect the 
longstanding staff position that a transaction involving the transfer 
of exclusive rights to a patent or a part of a patent in the 
pharmaceutical industry, which typically takes the form of an exclusive 
license, is potentially reportable under the Act and to clarify the 
treatment of retained manufacturing rights. The proposed rule defined 
and applied the concepts of ``all commercially significant rights,'' 
``limited manufacturing rights,'' and ``co-rights'' in determining 
whether the rights transferred with regard to a patent or a part of a 
patent in the pharmaceutical industry constitute a potentially 
reportable asset acquisition under the Act. Under the proposed rule, 
the retention of limited manufacturing rights and co-rights does not 
affect whether the transfer of all commercially significant rights has 
occurred.
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    \1\ 77 FR 50057 (August 20, 2012).
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    The Commission received three public comments addressing the 
proposed rule. The comments are published on the FTC Web site at http://ftc.gov/os/comments/premergeriprights/index.shtm.
    The following submitted public comments on the proposed rule:

1. Clyde Dinkins. (8/13/2012)
2. Pharmaceutical Research and Manufacturers of America. (Baker Botts 
LLP, Stephen Weissman) (10/25/2012) \2\
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    \2\ PhRMA also provided additional information to the Commission 
in a letter dated June 7, 2013 (``Comment 2's Supplemental 
Letter'').
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3. Antonio Burrell. (10/26/2012)
Comments 1 and 3 supported the proposed rule. Comment 2 did not support 
the proposed rule, objecting to the adoption of rules limited to the 
pharmaceutical industry.
    After carefully considering the comments, the Commission has 
determined that the proposed rule is appropriately limited to the 
pharmaceutical industry. Thus, the Commission is adopting the rule as 
proposed.
    Although the rule is limited to the pharmaceutical industry, to the 
extent that other industries engage in similar exclusive licensing 
transactions, such transactions remain potentially reportable events 
under the Act and existing rules implementing the Act. Parties dealing 
with the transfer of exclusive rights to a patent or part of a patent 
in other industries should consult with Premerger Notification Office 
(``PNO'') staff to determine whether the arrangement at issue is 
reportable under the Act and Rules. The Commission will continue to 
assess the appropriateness of a rule for other industries.

Background

    The Act applies to reportable acquisitions of voting securities, 
controlling non-corporate interests,\3\ and assets. A patent is an 
asset under the Act.\4\ The acquisition of a patent gives the buyer the 
right to commercially use that patent to the exclusion of all others. 
The same is true of an exclusive license to a patent. In an exclusive 
patent licensing arrangement, the licensor gives the licensee the right 
to commercially use the patent, or a part of the patent,\5\ to the 
exclusion of all others, including the licensor.\6\ An exclusive 
license is substantively the same as buying the patent or part of the 
patent outright, and carries the same potential anticompetitive 
effects. Thus, the granting of an exclusive right to commercially use a 
patent or part of a patent is a potentially reportable asset 
acquisition under the Act.
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    \3\ Acquisitions of non-corporate interests must confer control 
in order to be reportable.
    \4\ As 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).
    \5\ In this rule, the phrase ``part of the patent'' refers to a 
subset of potential uses under the patent. For example, in the 
pharmaceutical industry, the phrase refers to a therapeutic area or 
a specific indication within a therapeutic area. See discussion in 
the all commercially significant rights section.
    \6\ A patent holder may choose to enter into a licensing 
arrangement instead of an outright sale because a license provides 
for a royalty revenue stream over many years and may better allow 
parties to agree on a method of valuing an unproven patent. See 
discussion of limitation to the pharmaceutical industry.
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    In determining reportability, the parties must analyze what the 
licensor is transferring to the licensee and determine whether the 
license conveys the exclusive rights to commercially use the patent or 
part of a patent. For years, this analysis was straightforward as 
evidenced by the questions and filings received by the PNO about 
exclusive patent licenses in the pharmaceutical industry that expressly 
included the rights to ``make, use, and sell'' under the patent or part 
of the patent.\7\ For such licenses, the PNO had only to verify that 
the transfer involved the exclusive right to use a patent or part of a 
patent to develop a product, manufacture the product, and sell that 
product without restriction. Although never codified, the ``make, use 
and sell'' approach became well-known throughout the HSR bar and is 
reflected in the numerous letters and emails from practitioners in the 
PNO's informal interpretation database on its Web site.\8\
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    \7\ The pharmaceutical industry has been making HSR filings for 
exclusive licenses that trigger the reporting requirements of the 
Act since the early 1980s.
    \8\ http://ftc.gov/bc/hsr/informal/index.shtm.
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    In recent years, however, it has become more common for 
pharmaceutical companies to transfer most but not all of the rights to 
``make, use, and sell'' under an exclusive license, such that the 
``make, use and sell'' approach is no longer adequate in evaluating the 
reportability of exclusive licenses in the pharmaceutical industry for 
HSR purposes. A licensor will often, for example, retain the right to 
manufacture under the patent, but under the agreement the licensor can 
only manufacture for the licensee. In such a case, under the PNO's 
``make, use, and sell'' approach, the retention of the right to 
manufacture would render the transaction non-reportable even though the 
licensor would not be manufacturing for its own commercial use, but 
exclusively for the licensee. In addition, the PNO has seen with 
increasing frequency licensors retaining the right to co-develop, co-
promote, co-market and co-commercialize the product along with the 
licensee, and the retention of these ``co-rights'' also raises 
questions about the adequacy of using the ``make, use, and sell'' 
approach to determine reportability. Practitioners who represent 
clients in the pharmaceutical industry have often sought guidance from 
the PNO about transactions where the licensor grants the licensee the 
exclusive right to commercially use a pharmaceutical patent or part of 
a patent but retains the right to manufacture for the licensee and/or 
to co-develop, co-promote, co-market and co-commercialize the product 
along with the licensee. This

[[Page 68707]]

rule addresses when an exclusive patent license to a pharmaceutical 
patent or part of a patent constitutes an asset transfer under the HSR 
Act.
    The ``all commercially significant rights'' test in the rule 
captures more completely what the ``make, use, and sell'' approach was 
a proxy for, namely whether the license has transferred the exclusive 
right to commercially use a patent or a part of a patent. Sec.  
801.2(g)(3) of the rule provides that 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.\9\ The rule codifies the PNO's long-standing position that the 
retention of co-rights does not render a license to the patent or part 
of the patent as non-exclusive. The rule also provides that such a 
reportable asset transfer may occur even if the licensor retains the 
limited right to manufacture under the patent or part of a patent for 
the licensee.\10\
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    \9\ This rulemaking defines when the transfer of exclusive 
rights to a pharmaceutical patent or part of a 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.
    \10\ The focus of the rule is exclusive patent licenses that 
transfer the rights to use the patent or part of a patent to the 
exclusion of all others, even the licensor. Exclusive licenses that 
do not involve the transfer of exclusive rights to use the patent or 
part of the patent, such as an exclusive distribution agreement, are 
not covered by the rule.
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All Commercially Significant Rights

    As noted above, due to the evolution of pharmaceutical patent 
licenses, the ``make, use, and sell'' approach is no longer adequate to 
evaluate the HSR reportability of exclusive patent licenses in the 
pharmaceutical industry.
    In this rule, the ``all commercially significant rights'' test 
modifies the analysis to address the evolving structure of exclusive 
patent licenses in the pharmaceutical industry, providing the Agencies 
with a more effective means of reviewing exclusive patent licenses 
meeting the statutory requirements under the Act.\11\ In effect, 
however, with the exception of the treatment of the right to 
manufacture exclusively for the licensee, the rule treats the 
reportability of exclusive licensing arrangements, including those 
where the licensor retains co-rights, in the same way that the PNO has 
for decades.
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    \11\ 15 U.S.C. 18a. See also http://ftc.gov/bc/hsr/stepstofile.shtm
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    The ``all commercially significant rights'' test focuses on whether 
the licensee receives the exclusive right to commercially use the 
patent.\12\ In such a case, only the recipient of the exclusive rights 
to the patent may generate revenue from those exclusive rights, even 
when some of those profits will likely be shared with the licensor 
through royalties or other revenue sharing arrangements.
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    \12\ Although the transfer of exclusive rights to a patent or 
part of a patent in the pharmaceutical industry typically occurs 
through a license, the rule does not use this term and instead 
focuses on the broader concept of exclusive rights to a patent or 
part of a patent in defining ``all commercially significant 
rights.'' This is intended to keep the focus on the exclusivity of 
the rights being transferred and not on the form of the transfer.
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    An exclusive patent license may be reportable even if it transfers 
exclusive rights to only a part of the patent--that is, a subset of 
potential uses under the patent--because only the recipient of the 
exclusive rights to a part of a patent may generate revenue from those 
exclusive rights. The rule clarifies that, in the pharmaceutical 
industry, a patent licensing arrangement constitutes an asset 
acquisition if it transfers all commercially significant rights to the 
patent in a particular therapeutic area or specific indication within a 
therapeutic area. The terms ``therapeutic area'' and ``indication'' 
should provide clear guidance to the pharmaceutical industry, as these 
terms are well-known in the industry and frequently appear in exclusive 
patent licenses. A therapeutic area covers the intended use for a part 
of 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 the 
neurological therapeutic area.

Retention of Co-Rights

    In transferring exclusive rights to a patent or a part of a patent 
in the pharmaceutical industry, the licensor often retains ``co-
rights.'' This term, as defined by Sec.  801.1(q), refers to shared 
rights to assist the licensee in developing and commercializing the 
patented product and includes rights to co-develop, co-promote, co-
market, and co-commercialize. In the PNO's experience with exclusive 
patent licensing transactions in the pharmaceutical industry, the 
licensor grants the licensee an exclusive license to ``make, use, and 
sell'' under a patent or part of a patent, but retains co-rights to 
assist the licensee in maximizing its sales of the licensed product. In 
such cases, all sales are typically booked by the licensee, but the 
licensor often benefits from sharing in a more robust royalty revenue 
stream or other revenue sharing arrangement.
    ``Co-rights'' do not include the right of the licensor to 
commercially use the patent or part of the patent. Therefore a transfer 
of ``all commercially significant rights'' has occurred even when the 
grantor retains co-rights. Accordingly, this rule reflects the PNO 
staff's established position that exclusive licenses in which the 
licensor retains co-rights are asset acquisitions and potentially 
reportable under the Act. While Comment 2 asserts that the PNO's 
treatment of co-rights has been unclear and/or inconsistent,\13\ the 
PNO has consistently taken this approach for many years, as illustrated 
by numerous informal interpretations available on the PNO's Web site in 
its informal interpretations database. We note that in the case of a 
co-exclusive license, no exclusivity exists and the agreement would not 
be reportable.\14\
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    \13\ Cmt. 2 at 11.
    \14\ Comment 2 cited an informal interpretation from 2008, 
number 0806009, as inconsistent with the PNO's position in the rule. 
Id. In fact, this interpretation is not inconsistent because it 
concerns a case where the IP at issue was co-exclusively licensed. 
As a result, no filing was required because no transfer of exclusive 
patent rights occurred. The co-rights do not factor into the 
analysis.
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    Comment 2 also asserts that the rule does not differentiate between 
the kinds, magnitude, or scope of co-rights being retained and that 
blanket treatment of co-rights is inconsistent with the Act's 
coverage.\15\ When a licensee obtains the exclusive right to 
commercially use a patent or part of a patent, a potentially reportable 
asset transfer occurs regardless of the kind or magnitude of co-right 
retained by the licensee. In the PNO's experience, the existence of a 
co-right is indicative of an effort on the part of the licensor to 
support the sales and marketing of the licensee in order to create a 
more lucrative royalty stream. Whether an asset transfer has occurred 
does not hinge on the kind, magnitude, or scope of co-right retained, 
but on whether the exclusive patent license allows only the licensee to 
commercially use the patent or part of the patent. 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 commercially use the patent or part of the patent.
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    \15\ Cmt. 2 at 12.
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Retention of Limited Manufacturing Rights

    The ``all commercially significant rights'' test in the rule also 
clarifies the analysis of manufacturing rights under

[[Page 68708]]

an exclusive patent license in the pharmaceutical industry. Exclusive 
patent licensing arrangements have evolved such that, in many 
instances, an exclusive patent license in the pharmaceutical industry 
no longer includes the exclusive right to manufacture; typically the 
licensor grants the licensee exclusive rights to the patent but retains 
the right to manufacture solely for the licensee. Under the prior 
``make, use, and sell'' approach, the retention of such manufacturing 
rights renders the arrangement non-reportable because not all of the 
rights to ``make, use, and sell'' under the patent or part of a patent 
transfer to the licensee. This has been the PNO's approach even though 
the arrangement has the same effect as a transfer to the licensee of 
all patent rights. The final rule ensures that transactions in which 
the licensor retains only the right to manufacture exclusively for the 
licensee, and thus retains ``limited manufacturing rights,'' as defined 
by Sec.  801.1(p), will be reported if the relevant HSR statutory 
thresholds are met.
    Comment 2 asserts that there are agreements in other industries 
that involve the retention of manufacturing rights.\16\ The Commission 
does not disagree. There are many kinds of exclusive licensing 
agreements in other industries that involve the retention of 
manufacturing rights. But, the rule is not focused on all exclusive 
licensing agreements where the licensor retains manufacturing rights; 
it is focused on exclusive patent licenses that transfer all rights to 
a patent or part of a patent but where the licensor retains rights to 
manufacture solely for the licensee. The agreements cited by Comment 2 
are not the kind of agreements that are the subject of the rule. They 
are exclusive distribution agreements, which convey to the licensee 
only the exclusive right to distribute the patented product. In 
exclusive distribution agreements, the licensor retains not just the 
right to manufacture but all commercially significant rights to the 
patent, such that no reportable asset acquisition takes place. Based on 
HSR filings and requests for advice on the reportability of 
transactions, the PNO has found that exclusive patent licensing 
agreements that transfer all of the rights to commercially use a patent 
or part of a patent almost solely occur in the pharmaceutical industry.
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    \16\ Cmt. 2 Varner Decl. at 11-14.
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    Comment 2 also takes issue with the NPRM's statement that, in 
licensing arrangements in the pharmaceutical industry, the right to 
manufacture is less important than the right to commercialize. Comment 
2 asserts that the right to manufacture is integral to the 
pharmaceutical industry and that the NPRM discounts the importance of 
manufacturing in this industry.\17\ The statement in the NPRM, however, 
was not a general assessment of the value of manufacturing in the 
pharmaceutical industry but was intended only to provide a possible 
explanation as to why the PNO sees exclusive patent licenses in the 
pharmaceutical industry structured the way they are structured, namely 
more and more frequently without the transfer of manufacturing rights.
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    \17\ Cmt. 2 Varner Decl. at 15.
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Limitation to the Pharmaceutical Industry

    The Commission is limiting the rule to the pharmaceutical industry 
because, as stated in the NPRM, this is where the need for 
clarification arises and where the Commission has experience with the 
relevant transactions. For the five-year period ending December 31, 
2012, the PNO received filings for 66 transactions involving exclusive 
patent licenses, and all were for pharmaceutical patents. The PNO has 
not found other industries that rely on these types of arrangements. 
Although it is possible for other industries to engage in the kind of 
exclusive licensing that typifies the pharmaceutical industry, the PNO 
has not processed filings related to these kinds of exclusive licenses 
in any other industry in the past five years. In addition, requests for 
guidance on the treatment of exclusive patent licensing transactions 
have generally been limited to the pharmaceutical industry. 
Accordingly, the Commission has not found a need for a rule applicable 
to other industries. Moreover, the Commission's experience with such 
transactions in the pharmaceutical industry allows it to develop a rule 
that is tailored to exclusive patent licenses in the pharmaceutical 
industry, defining the relevant scope of the transfer of part of a 
patent by reference to the therapeutic area or specific indication 
within a therapeutic area.
    As noted above, the PNO typically does not see exclusive transfers 
of rights to a patent or part of a patent outside the pharmaceutical 
context, and this is likely a result of the incentives that 
characterize the industry. The PNO quite frequently sees situations in 
which an innovator discovers and patents a pharmaceutical or biomedical 
compound, but that innovator does not have the financial resources to 
shepherd the compound through the FDA approval process, nor to 
effectively market or promote it in drug form after FDA approval. Thus, 
the innovator will enter into an exclusive licensing agreement 
transferring all the rights to the patent or part of the patent with a 
(typically, although not always, 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 because the transfer takes place very early in the 
development of the product covered by the patent and neither party to 
the exclusive licensing agreement knows whether the compound will 
actually become an approved drug and achieve commercial success. If the 
drug is successful, however, the licensee will book enormous profits, 
some of which will be shared with the licensor through royalties or 
other revenue sharing arrangements. As a result, there is a tremendous 
incentive for the pharmaceutical innovator to enter into an exclusive 
licensing arrangement rather than a patent sale.
    By contrast, in many other industries, the products are generated 
pursuant to the exercise of a patent or part of a patent at a much 
later stage in development, and the patent owner can simply sell the 
patent for its proven value.\18\ Where companies in other industries do 
enter into patent licensing agreements, the incentives for licensors 
typically lie in engaging as many licensees as possible and not in the 
exclusivity that characterizes patent licenses in the pharmaceutical 
industry.
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    \18\ For example, the electronics, semiconductor, and chemicals 
industries.
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    Comment 2 argues that the pharmaceutical industry incentives and 
market structure are not unique.\19\ The comment points to several 
other industries as encountering regulatory hurdles similar to those 
presented by the FDA in the pharmaceutical industry. It also asserts 
that the royalty rates in the pharmaceutical industry are similar to 
those in other industries and appears to claim that, therefore, the 
incentives to maximize future profits are no different in the 
pharmaceutical industry.\20\ The rule is limited to the pharmaceutical 
industry not because of the uniqueness of the incentives in that 
industry but because it is the only industry to the

[[Page 68709]]

PNO's knowledge in which exclusive patent licenses are prevalent. The 
incentives are discussed because they may help explain why the 
mechanism for transferring patent rights in the pharmaceutical industry 
takes the form of an exclusive license instead of an outright sale. 
However, even if there are other industries that may encounter similar 
regulatory hurdles or share certain other structural similarities with 
the pharmaceutical industry, this does not change the fact that the 
exclusive patent licenses frequently seen in the pharmaceutical 
industry have not been seen by the PNO in other industries. As 
discussed above, Comment 2 has not identified any other industry in 
which exclusive patent licenses, as opposed to exclusive distribution 
agreements, are common.\21\
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    \19\ Cmt. 2 Varner Decl. at 9-11.
    \20\ Comment 2 also cites to the prevalence of ``know how'' to 
argue that co-rights are ubiquitous, appearing in numerous 
industries. Cmt. 2 Varner Decl. at 10. The NPRM did not state that 
the retention of co-rights is unique to the pharmaceutical industry. 
It stated only that the retention of such co-rights is common in 
that industry.
    \21\ In addition, Comment 2 references technology licenses, but 
these are not the kinds of exclusive patent licenses covered by the 
final rule. Cmt. 2 Varner Decl. at 9. Technology licenses grant the 
use of technology covered by a patent and do not involve the 
potentially reportable transfer of patent rights.
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    In sum, in the PNO's experience, the pharmaceutical industry is the 
only industry in which parties regularly enter into exclusive patent 
licenses that transfer all commercially significant rights. If the PNO 
finds that such arrangements occur in other industries, the Agencies 
can then assess the appropriateness of a similar rule for those other 
industries. Even in the absence of a specific rule concerning other 
industries, however, such exclusive patent licenses remain potentially 
reportable.

Rulemaking Authority Under the HSR Act

    As mentioned above, the HSR Act requires the Agencies to review 
asset acquisitions meeting certain size of transaction and size of 
party thresholds. The Act provides the Commission, with concurrence of 
the Assistant Attorney General, rulemaking authority to implement this 
requirement. Section 18(a)(d)(2)(A) gives the Commission authority to 
define terms, which allows it to determine which types of patent rights 
constitute reportable assets under the Act. In addition, Section 
18a(d)(2)(C) gives the Commission authority to prescribe rules ``as may 
be necessary and appropriate to carry out the purposes of this 
section.''
    Comment 2 has argued that the Commission does not have authority to 
issue a rule under the HSR Act that expands the Act's requirements with 
respect to only a single industry.\22\ First, the Commission is not 
expanding the HSR requirements to parties or transactions not covered 
by the Act. The Commission is simply clarifying the types of 
transactions that constitute asset transfers for which the Act requires 
prior notification.\23\ Second, the Commission has broad authority to 
issue rules to facilitate the review of large transactions.\24\ Nothing 
in the HSR Act prevents the Commission from issuing such rules on an 
industry-specific basis. Section 18(a)(d)(2)(B), which grants the 
Commission authority to exempt from the filing requirement classes of 
persons, acquisitions, transfers, or transactions which are not likely 
to violate the antitrust laws, does not limit the broad and 
discretionary rulemaking authority granted in Sections 18a(d)(2)(A) and 
(C).\25\ The authority to exempt specific industries or transactions 
from the Act's filing requirements is not inconsistent with the 
authority to implement these requirements on an industry-specific basis 
prior to consummation of these agreements.\26\
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    \22\ Cmt. 2 at 1, 3-6.
    \23\ Indeed, with the exception of agreements in which the 
licensor retains limited manufacturing rights, the pharmaceutical 
industry has been filing the exclusive patent licenses at issue for 
decades.
    \24\ Citing H.R. Rep. No. 94-1372 (July 28, 1976), Comment 2 has 
argued that, in order to issue a rule under the FTC's authority to 
issue regulations necessary and appropriate to carry out the 
purposes of the Act, the FTC must show that the transactions at 
issue are ``the most likely to substantially lessen competition and 
the most difficult to unscramble.'' Cmt 2 at n. 23. The cited House 
Report excerpt merely explains Congress's rationale for including 
only large mergers and asset acquisitions in the HSR Act. It does 
not purport to alter the Commission's authority to implement rules 
carrying out the purpose of the Act, which is to ensure that large 
transactions are reported. Moreover, the language of the HSR Act is 
controlling, and that statutory language requires premerger 
reporting of asset acquisitions based on size thresholds, without 
limitation to transactions that might prove particularly difficult 
to untangle.
    \25\ See, e.g., Texas Oil & Gas Ass'n v. EPA, 161 F.3d 923, 938-
39 (5th Cir. 1998) (holding that particularized exemption authority 
did not speak to the scope of agency's plenary rulemaking authority 
to differentiate among groups of covered parties).
    \26\ Nor does the legislative history of the HSR Act suggest 
that the Commission may not use its broad rulemaking authority to 
issue industry-specific rules. Comment 2 has asserted that 
Congress's exclusion of a provision that would have permitted the 
Commission to require pre-merger notification from persons or 
categories of persons not otherwise required to file (namely, 
parties below the minimum size thresholds) indicates Congress's 
intent not to allow the Commission to impose requirements on an 
industry-specific basis. See Cmt. 2 at 3. However, the omission of a 
provision allowing the Commission to expand the Act's coverage 
beyond the minimum thresholds says nothing about the Commission's 
authority to issue industry-specific rules for parties or 
transactions that meet the thresholds.
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    The licensing arrangements covered by this rule are functionally 
equivalent to patent transfers and are thus properly viewed as asset 
acquisitions under the Act. Allowing such transactions to go unreported 
would deprive the Commission of an opportunity, consistent with the 
purpose of the Act, to review these significant asset acquisitions 
that, like other reportable asset acquisitions, are potentially 
anticompetitive.\27\
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    \27\ See 122 Cong. Rec. 29342 (statement of Sen. Hart) (``The 
whole purpose of [the Pre-Merger Notification section] is to provide 
antitrust authorities with a meaningful opportunity to study the 
potential antitrust consequences of significant mergers and 
acquisitions prior to consummation.''); The Antitrust Improvements 
Act of 1975, S. 1284, 94th Cong. (1975) (``It is the purpose of the 
Congress in this Act to support and invigorate effective and 
expeditious enforcement of the antitrust laws, to improve and 
modernize antitrust investigation and enforcement mechanisms, to 
facilitate the restoration and maintenance of competition in the 
marketplace, and to prevent and eliminate monopoly and oligopoly 
power in the economy.'').
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Consistency With the APA

    Comment 2 has also argued that the rule is arbitrary and capricious 
because there is no basis to limit the rule to the pharmaceutical 
industry.\28\ The rule is limited to the pharmaceutical industry 
because the PNO has not received filings over the past five years for 
exclusive patent licensing arrangements in other industries and 
requests for guidance on the treatment of exclusive patent licensing 
arrangements have nearly always come from practitioners in the 
pharmaceutical industry. Moreover, the PNO's experience with such 
arrangements in the pharmaceutical context allows the Commission to 
tailor the rule to the pharmaceutical industry by covering exclusive 
patent rights to use the patent in a therapeutic area or for a specific 
indication within a therapeutic area. While the PNO's experience with 
exclusive patent licensing arrangements has indicated a need for a rule 
for the pharmaceutical industry, at this time the Commission has not 
yet determined that a specific rule is necessary with respect to other 
industries. Nevertheless, to the extent they occur, transfers of 
exclusive rights to patents in other industries remain potentially 
reportable under the Act and existing HSR rules. Parties to such a 
transaction should contact the PNO, which will advise whether the 
arrangements are reportable under the Act.
---------------------------------------------------------------------------

    \28\ Cmt. 2 at 2, 7-13.
---------------------------------------------------------------------------

    Agencies may limit rules to those areas where they have observed a 
problem to be addressed.\29\ As noted

[[Page 68710]]

above, the Agencies will continue to assess the appropriateness of a 
similar rule for other industries, but they need not take an all-or-
nothing approach. In promulgating regulations, agencies may proceed 
incrementally. Like legislatures, they are not required to resolve a 
problem that may occur more broadly ``in one fell regulatory swoop.'' 
\30\
---------------------------------------------------------------------------

    \29\ See, e.g., Illinois Commercial Fishing Ass'n v. Salazar, 
867 F.Supp.2d 108 (D.D.C. 2012) (upholding rule banning take of 
certain fish by commercial fishermen but not recreational fisherman, 
where evidence indicated that greatest risk to endangered fish was 
posed by commercial fishing rather than recreational fishing); 
Manufactured Housing Instit. v. EPA, 467 F.3d 391 (4th Cir. 2006) 
(upholding EPA regulation treating apartment buildings differently 
from manufactured home communities for purposes of determining 
whether submetering constituted a sale of water, effectively 
exempting apartment buildings from certain water safety 
requirements; although EPA had deemed the water distribution system 
to be safe in apartment houses, it could not categorically say the 
same for manufactured home communities, which would be exempted on a 
case-by-case basis); Investment Co. Inst. v. United States Commodity 
Futures Trading Comm'n, 891 F.Supp.2d 162, 187 (D.D.C. 2012) 
(upholding CFTC regulation requiring registration and reporting by 
some entities engaging in derivatives trading, but exempting others, 
where CFTC justified exempting these other entities on the basis 
that it was not aware of any such other entities engaging in 
derivatives trading).
    \30\ Investment Co. Inst., 891 F.Supp.2d at 201. See also City 
of Las Vegas v. Lujan, 891 F.2d 927, 935 (D.C. Cir. 1989) 
(``agencies have great discretion to treat a problem partially''); 
National Ass'n of Broadcasters v. FCC, 740 F.2d 1190, 1207-08 (D.C. 
Cir. 1984) (``agencies . . . need not deal in one fell swoop with 
the entire breadth of a novel development; instead, reform may take 
place one step at a time, addressing itself to the phase of the 
problem which seems most acute to the regulatory mind.'') 
(quotation, quotation marks, and brackets omitted).
---------------------------------------------------------------------------

Effect on Pharmaceutical Industry

    Comment 3, although expressing support for the rule, indicated a 
concern that the administrative costs associated with HSR filings, as 
well as the cost of obtaining a patent valuation to determine whether a 
filing is required, could chill pharmaceutical transactions. Comment 
2's Supplemental Letter raised a similar concern that the rule could 
chill pharmaceutical transactions or cause parties to alter the terms 
of such transactions. In the PNO's experience, the administrative costs 
of filing are very small compared to the profits at stake in the multi-
million dollar transactions reportable under the Act and are unlikely 
to deter or materially distort these acquisitions. In an exclusive 
licensing transaction the parties would be very likely to conduct a 
patent valuation as part of their due diligence notwithstanding 
HSR.\31\
---------------------------------------------------------------------------

    \31\ Comment 3 also argued that the rule would have a chilling 
effect stemming from companies' fears that the transaction will be 
challenged by the Agencies. The Agencies can challenge any 
transaction that is anticompetitive under the antitrust laws, 
regardless of whether it triggers the need for an HSR filing.
---------------------------------------------------------------------------

Conclusion

    In sum, the ``all commercially significant rights'' test should 
provide clarity and consistency to the assessment of whether an asset 
acquisition is occurring as the result of the transfer of rights to a 
patent or part of a patent in the pharmaceutical industry. In addition, 
the test explains that even if there is a retention of ``limited 
manufacturing rights'' and ``co-rights'' the transfer of all 
commercially significant rights has occurred. The rule thus clarifies 
the analysis of the reportability of transfers of pharmaceutical patent 
rights while providing the Agencies with an opportunity to assess under 
the HSR Act the competitive impact of exclusive pharmaceutical patent 
licenses that may not have been reportable under PNO staff's prior 
approach. The Commission believes these benefits outweigh any potential 
additional burden on filing parties.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-612, 
requires that the Commission provide an Initial Regulatory Flexibility 
Analysis (``IRFA'') with a proposed rule, and a Final Regulatory 
Flexibility Analysis (``FRFA'') with the final rule, unless the 
Commission certifies that the rule will not have a significant economic 
impact on a substantial number of small entities.
    The Commission does not anticipate that the rule will have a 
significant economic impact on a substantial number of small entities. 
The Act is designed to have minimal impact on small entities. First, 
for a transaction to trigger a reporting requirement under the Act, the 
transaction must be valued at more than $50 million (as adjusted).\32\ 
Such a high transaction threshold will typically not catch most 
transactions involving small entities.
---------------------------------------------------------------------------

    \32\ The 2000 amendments to the Clayton Act require the 
Commission to revise certain reportability thresholds annually, 
based on the change in the level of gross national product. The 
minimum size of transaction threshold as of February 11, 2013, is 
$70.9 million with one person having sales or assets of at least 
$141.8 million and the other person having sales or assets of at 
least $14.2 million.
---------------------------------------------------------------------------

    In addition, the Act requires that in cases where the transaction 
is valued at greater than $50 million (as adjusted) but $200 million or 
less (as adjusted), one party to the transaction must have at least $10 
million (as adjusted) in sales or assets in order to trigger reporting 
requirements. This size of person test also ensures that the Act does 
not regularly reach small entities. Of the 6,487 transactions filed 
over the last five years, only 66 of this total number were related to 
exclusive licenses involving the pharmaceutical industry. Of these 66 
transactions, only one involved an entity that did not have reportable 
sales or assets of $10 million or more (as adjusted).
    The Commission recognizes that some of the affected manufacturers 
may qualify as small businesses under the relevant Small Business 
Administration (``SBA'') thresholds, which for the pharmaceutical 
industry are based on number of employees and not on annual receipts. 
However, the Commission does not expect that the requirements specified 
in the rule will have a significant impact on these businesses. A 
business falling within the SBA thresholds that is subject to a 
reporting obligation as a result of the rule would in most instances be 
filing under the Act as the acquired person in the context of an asset 
transaction and would therefore be submitting less information. For 
example, an acquired person in an asset acquisition is not required to 
complete Item 6 of the Form. In addition, the acquired person in the 
types of licensing transactions covered by the rule would typically not 
report any revenues in Item 5 of the Form because the product has not 
yet generated any revenues, and this would mean no requirement to 
report overlaps in Item 7 of the Form. The acquired person would thus 
be required to submit only annual financial statements in Item 4(b) of 
the Form (assuming it is not publicly traded) and relevant transaction 
documents in Items 4(c) and 4(d) of the Form. Although there is some 
burden associated with gathering documents responsive to Items 4(c) and 
4(d) of the Form, most of that burden will fall on the buyer with whom 
these kinds of documents typically reside. The buyer also typically 
pays the filing fee associated with the notification requirement.
    Although the Commission continues to certify under the RFA, as it 
did in the NPRM, that the amendments would not, if promulgated, have a 
significant impact on a substantial number of small entities, the 
Commission has determined, nonetheless, that it is appropriate to 
publish an FRFA in order to explain the impact of the amendments on 
small entities as follows:

A. Need for and Objectives of the Final Rule Amendments

    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

[[Page 68711]]

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. The objective of 
the rule is to clarify when transactions involving the transfer of 
exclusive rights to a pharmaceutical patent are reportable under the 
Act.

B. Significant Issues Raised by Public Comments, Summary of the 
Agency's Assessment of These Issues, and Changes, if Any, Made in 
Response to Such Comments

    The Commission received three comments on the proposed pule, two of 
which addressed possible small business impacts. Comments 2 and 3 
asserted that small businesses would be impacted by the rule because of 
the costs associated with a HSR filing. However, as discussed above, 
any business falling within the SBA threshold would likely be the 
acquired person in the transaction, while most of the costs associated 
with a filing required by the Rules would be borne by the acquiring 
person.

C. Description and Estimate of the Number of Small Entities Subject to 
the Final Rule or Explanation Why No Estimate Is Available

    Under the Small Business Size Standards issued by the Small 
Business Administration, the standards for the pharmaceutical industry 
are 750 or 500 employees, depending on the specific NAICS code. Based 
on an assessment of prior filings, the Commission estimates that of the 
60 additional filings expected annually as a result of the rule, 
roughly 20 of the filers will qualify as small businesses, although 
these businesses will typically have revenues or assets large enough to 
meet the minimum HSR filing thresholds.

D. Description of the Projected Reporting, Recordkeeping, and Other 
Compliance Requirements of the Final Rule Amendments, Including an 
Estimate of the Classes of Small Entities Which Will Be Subject to the 
Rule and the Type of Professional Skills That Will Be Necessary To 
Comply

    The Commission recognizes that the rule will involve some burdens 
on affected entities and related fees. However, the amendments should 
not have a significant impact on entities falling within the SBA 
thresholds that are acquired persons. As discussed above, such acquired 
entities required to submit HSR filings as a result of the rule would 
submit an HSR form along with yearly financials and related deal 
documents, but less information than acquiring entities.

E. Steps the Agency Has Taken To Minimize Any Significant Economic 
Impact on Small Entities, Consistent With the Stated Objectives of the 
Applicable Statute

    As discussed above, the Agencies have minimized the filing burden 
for acquired persons because the current Rules allow acquired persons 
to submit less information than the acquirer. Any entities newly 
covered by the final rule amendments that fall within the SBA 
thresholds would likely be acquired persons and have reduced filing 
burdens.

Paperwork Reduction Act

    The Paperwork Reduction Act, 44 U.S.C. 3501-3521 (``PRA''), 
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 
existing information collection requirements in the Rules and Form have 
been reviewed and approved by OMB under Control No. 3084-0005. In 
accordance with the PRA, the FTC submitted the proposed rule \33\ and 
supporting statement to OMB. The currently cleared burden hours total 
is 53,759. Comment 2 and its Supplemental Letter addressed the PRA 
estimates.


---------------------------------------------------------------------------

    \33\ 76 FR 42471 (July 19, 2011).
---------------------------------------------------------------------------

A. Necessity for the Rule Amendments

    The PRA requires that an agency's collection of information be 
necessary for the proper performance of the agency's function, and that 
the information collected have ``practical utility.'' \34\ According to 
the PRA, ``practical utility'' is the ability of an agency to use 
information, particularly the ability to process such information in a 
timely and useful fashion.\35\
---------------------------------------------------------------------------

    \34\ 44 U.S.C. 3508: Determination of necessity for information; 
hearing
    Before approving a proposed collection of information, the 
Director [of the Office of Management and Budget] shall determine 
whether the collection of information by the agency is necessary for 
the proper performance of the functions of the agency, including 
whether the information shall have practical utility. Before making 
a determination the Director may give the agency and other 
interested persons an opportunity to be heard or to submit 
statements in writing. To the extent, if any, that the Director 
determines that the collection of information by an agency is 
unnecessary for any reason, the agency may not engage in the 
collection of information.
    \35\ 44 U.S.C. 3502(11). In determining whether information will 
have ``practical utility,'' OMB will consider ``whether the agency 
demonstrates actual timely use for the information either to carry 
out its functions or make it available to third-parties or the 
public, either directly or by means of a third-party or public 
posting, notification, labeling, or similar disclosure requirement, 
for the use of persons who have an interest in entities or 
transactions over which the agency has jurisdiction.'' 5 CFR 
1320.3(l).
---------------------------------------------------------------------------

    Comment 2 questions the need for the rulemaking to further the 
purposes of the HSR Act.\36\ The HSR Act is intended to allow the 
Agencies to review significant transactions to determine, prior to 
consummation of a transaction, if it is anticompetitive. Like patent 
sales, exclusive patent licenses prevalent in the pharmaceutical 
industry are asset acquisitions that may produce anticompetitive 
effects. This rule ensures that exclusive patent licensing transactions 
in the pharmaceutical industry are reported when they meet the 
requisite minimum thresholds, enabling the agencies to assess under the 
HSR Act the competitive impact of these transactions. Thus, the amended 
reporting requirements are necessary to effectuate the purposes of the 
HSR Act and have practical utility.
---------------------------------------------------------------------------

    \36\ Cmt. 2 at 13.
---------------------------------------------------------------------------

B. Filing Requirements, Including Form Preparation and Document 
Collection

    Commenter 2 submitted two cost estimates. In its original 
submission, the commenter stated that the cost associated with 
preparation and completion of HSR forms for a ``straightforward'' 
transaction is at least $15,000 per party. Subsequently, however, the 
commenter submitted a Supplemental Letter stating that, on average, the 
cost associated with preparation of HSR forms, including collection and 
review of documents, is between $40,000 and $60,000 for each party to a 
transaction, with more straightforward transactions costing in the 
$15,000-$20,000 range. This assessment is higher than the Agencies' 
assessment, which is based on an hourly cost estimate derived after 
consultation with practitioners from the private bar. The FTC's 
estimate for a standard non-index filing \37\ is $16,650 (based on an

[[Page 68712]]

assumed 37 hours per filing multiplied by $460/hour), and for filings 
requiring more precise valuation for fee determination purposes, it is 
$18,400 (based on an assumed 40 hours per filing, multiplied by $460/
hour).
---------------------------------------------------------------------------

    \37\ 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.
---------------------------------------------------------------------------

    In the PNO's experience, Comment 2's Supplemental Letter 
substantially overestimates the costs of preparing an HSR filing. 
First, Comment 2's estimate suggests that the cost of preparing the HSR 
filing would depend in substantial part on the number of people 
involved in investigating, assessing, negotiating, and approving 
licensing transactions. In the PNO's experience, however, the 
competitive impact documents required by the HSR Rules usually reside 
with a core team of individuals, as not every person with some 
involvement in the transaction will have the specific documents that 
must be produced. Indeed, in the PNO's experience, HSR filings for 
exclusive licensing transactions typically contain fewer documents than 
company-wide acquisitions or mergers. Moreover, by not differentiating 
between the acquiring and acquired person, Comment 2's estimate 
suggests that both parties to a transaction would incur comparable 
costs. However, the acquired person's costs would be significantly 
lower, as that person does not have to supply as much information for 
the HSR form.\38\
---------------------------------------------------------------------------

    \38\ For example, see Regulatory Flexibility section above.
---------------------------------------------------------------------------

    In addition, Comment 2's original estimate appears to include the 
costs of valuing the transactions.\39\ Parties to an exclusive patent 
licensing agreement, however, are very likely to conduct a patent 
valuation as part of their due diligence for the transaction; 
accordingly, this is not an additional cost of rule compliance. While 
in some circumstances a more precise valuation would assist in 
determining whether a filing is required or the appropriate filing fee, 
such a more precise estimate would be needed only where the existing 
estimate is a range that straddles the minimum filing threshold or two 
filing fee categories.
---------------------------------------------------------------------------

    \39\ Comment 3 also expressed concern that the Rule would add 
administrative costs to pharmaceutical deals, including the costs of 
analyzing whether the transaction is reportable and the costs of 
conducting a valuation of the acquisition.
---------------------------------------------------------------------------

    While the FTC's per transaction estimate is lower than the 
estimates in Comment 2's Supplemental Letter, the FTC's estimate of the 
industry-wide incremental costs of filing due to the rule is roughly 
comparable to Comment 2's original estimate. Comment 2's original 
estimate stated that the proposed rule amendments would increase the 
costs of form preparation and document collection, cumulatively, by 
more than $1,000,000.\40\ By comparison, in the NPRM, the FTC stated 
that, rounding upward the number of expected new filings, this rule 
would increase the cost burden of the existing Rules by a total of 
$1,225,000. Without such upward rounding, the estimated burden increase 
is smaller. Calculating the burden under the assumption that the rule 
will result in the filing of 30 additional transactions per year, or 60 
additional filings, with 10 filings requiring a more precise valuation, 
the estimated increase in the industry-wide burden is 2,250 hours per 
year,\41\ or $1,035,000 using a rate of $460 per hour.\42\ 
Nevertheless, out of an abundance of caution and in light of the 
comments, the Commission retains the larger burden increase estimate of 
2,664 hours, or $1,225,000.
---------------------------------------------------------------------------

    \40\ Cmt. 2 at 14.
    \41\ Based on a review of valuations for prior licensing 
transactions, the FTC estimates that about one third of the 30 added 
transactions will require a more precise valuation, with one party 
per transaction conducting such valuation. [(50 filings x 37 burden 
hours) + (10 filings requiring a more precise valuation x 40 burden 
hours) = 2,250 burden hours]. Even assuming, however, that two 
thirds of the transactions would require a more precise valuation, 
the total estimated burden hours are not significantly higher. [(40 
filings x 37 burden hours) + (20 filings requiring a more precise 
valuation x 40 burden hours) = 2280].
    \42\ As noted above, because the acquired person (or licensor) 
would be submitting less information for the HSR form than the 
acquiring person (or licensee), it would have a smaller burden than 
the acquiring person. Nevertheless, for purposes of this rulemaking, 
the FTC will assume that, like the acquiring person, the acquired 
person will incur a burden of 37 hours per filing.
---------------------------------------------------------------------------

C. Filing Fees

    Comment 2 asserts further that filing fees associated with 
reporting a transaction covered by the HSR Act should be included in 
the PRA cost estimates.\43\ Filing fees, however, are not part of a 
respondent's burden of a PRA ``collection of information'' as they are 
not resources expended ``to generate, maintain, or provide 
information'' regarding the transactions to the Agencies, see 44 U.S.C. 
3502(2), but rather are paid pursuant to an accompanying, additional 
statutory requirement in order to offset the Agencies' expenses. See 
Public Law 106-553, 114 Stat. 2762.
---------------------------------------------------------------------------

    \43\ Cmt. 2 at 14.
---------------------------------------------------------------------------

D. Second Requests

    Comment 2 also asserts that the costs of responding to additional 
information requests (``second requests'') should also be included in 
the PRA estimates.\44\ ``Second requests,'' however, are not a 
``collection of information'' subject to the PRA because they are 
issued ``during the conduct of an . . . investigation . . . involving 
an agency against specific individuals or entities.'' See 44 U.S.C. 
3518(c)(1)(B)(ii); 5 CFR 1320.4(a)(2).
---------------------------------------------------------------------------

    \44\ Id at 14-15.
---------------------------------------------------------------------------

    Accordingly, the FTC retains its previously published estimates 
that the amendments will yield an additional 2,664 burden hours and 
approximately $1,225,000 in associated labor costs (based on an assumed 
hourly rate of $460 per hour).

List of Subjects in 16 CFR Part 801

    Antitrust.
    For the reasons stated in the preamble, the Federal Trade 
Commission amends 16 CFR part 801 as set forth below:

PART 801--COVERAGE RULES

0
1. The authority citation for part 801 continues to read as follows:

    Authority:  15 U.S.C. 18a(d).


0
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) of 
this section 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) of this section and 
paragraph (g) of Sec.  801.2, the term co-rights means shared rights 
retained by

[[Page 68713]]

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.

0
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 also 
constitute an asset acquisition.
    2. B holds a patent for an in-vitro diagnostic substance relating 
to arthritis. 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 exclusive distribution agreement is not 
an asset acquisition.

    By direction of the Commission.

Donald S. Clark,
Secretary.
[FR Doc. 2013-27027 Filed 11-14-13; 8:45 am]
BILLING CODE 6750-01-P