Premerger Notification; Reporting and Waiting Period Requirements, 50057-50062 [2012-20192]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 77, Number 161 (Monday, August 20, 2012)]
[Proposed Rules]
[Pages 50057-50062]
From the Federal Register Online via the Government Printing 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 https://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 https://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 https://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 https://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