FTC, DOJ to Heighten Reporting Requirements on Patents

The Federal Trade Commission and Department of Justice announced in August proposed revisions to the Hart-Scott-Rodino (HSR) Act’s premerger notification rules to require enhanced reporting of transactions—including licenses—relating to patents of pharmaceutical, biological and diagnostic products. ¹ A comment period has now passed, and the new rules are likely to take effect sometime in the first quarter of 2013.

Under the existing rules, licensing transactions in these industries need not be reported under HSR if the licensor retained either manufacturing rights—even if only to manufacture for the licensee—or certain other forms of “co-exclusivity.” The rules precluded the need to assess HSR valuation issues on many transactions that might otherwise have met “size of transaction” thresholds for reporting. The revised rules, which apply to patents in traditional “pharma” manufacturing as well as a broader range of medical and biological products, eliminate the historical exemptions. As a result, more pharma patent licenses will need to be reported under HSR, and valuation of those licenses will take on greater importance.