FTC’s Reporting Rule for Pharmaceutical Patent Transfers Upheld

By on June 4, 2014

On May 30, 2014, the U.S. District Court for the District of Columbia ruled in favor of the Federal Trade Commission (FTC) in a dispute with the Pharmaceutical Research and Manufacturers of America (PhRMA) regarding the Commission’s authority to require the pharmaceutical industry to report certain transfers of exclusive patent rights under the Hart-Scott-Rodino (HSR) Act.

The dispute centered on a Final Rule promulgated by the FTC in November 2013.  Patents are considered assets by the FTC and their transfer may be reportable.  Some transactions provide for the transfer of certain exclusive patent rights without implicating the transfer of the patent in its entirety.  The FTC maintains that the exclusive right to commercially use all or part of a patent is, in substance, identical to a full acquisition of the patent.  The challenged rule was intended to clarify the circumstances when a transfer of exclusive rights to a pharmaceutical patent is considered a potentially reportable acquisition of an asset under the HSR Act.

PhRMA sued to have the new rule set aside.  PhRMA contended in its complaint that the FTC lacked the statutory authority to issue rules that target a single industry, as opposed to rules of general effect.  The trade organization also contended that the FTC failed to establish a rational basis for an industry-specific rule and that it failed to comply with legally required procedures in instituting the rule. PhRMA and the FTC both filed motions for summary judgment.

In granting summary judgment to the FTC, Judge Beryl Howell agreed that Congress had never spoken in the HSR Act to the specific issue of whether the FTC was authorized to issue industry-specific rules: “Nothing in this text restricts the FTC to generating only general rules rather than industry specific rules.”  Given the congressional silence on this specific question, the court next considered whether the FTC’s interpretation of the statue was a permissible one.  Under the applicable legal standard, an agency’s rule is entitled to deference “as long as it is a permissible construction of the statute.”  The FTC contended that the Final Rule did not expand “‘HSR requirements to parties or transactions not covered by the Act,’  but ‘simply clarif[ied] the types of transactions that constitute asset transfers for which the Act requires prior notification.’”  The court concluded this was a permissible construction of the authority granted to the FTC under the HSR Act.

Daniel PowersDaniel Powers
Daniel (Dan) Powers focuses his practice on antitrust litigation, counseling and regulatory matters. He assists clients in a variety of industries, including health care, pharmaceuticals, mobile communications, aerospace and defense. Read Daniel Powers' full bio.

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