(CN) - New regulatory scrutiny concerning patent transfers in the pharmaceutical industry is warranted to meet the growing trend, a federal judge ruled.
Enacted in 1976, the Hart-Scott-Rodino Antitrust Improvements Act (HSRA) prevents parties from completing large mergers, acquisitions or transfers until they file notice with the FTC nd the Department of Justice.
The agencies then have 15 to 30 days to determine whether the proposed transaction would violate federal antitrust laws.
In November 2013, the FTC issued a final rule identifying two types of transfers unique to the pharmaceutical industry that would require notice before completion: the transfer of exclusive patent rights to another party to use and sell while allowing the original patent holder to keep limited manufacturing rights; and the transfer of exclusive rights "to make, use and sell" while letting the original licensor maintain partial or complete co-rights.
Pharmaceutical Research and Manufacturers of America (PhRMA) challenged the rule, arguing that it "single[d] out and burden[ed]" the industry alone with extra rules for patent-license transfers once deemed not anticompetitive enough to warrant the scrutiny of additional review.
The industry claimed that the FTC exceeded its statutory authority under the HSRA in targeting it selectively.
In turn, the FTC argued that the HSRA is ambiguous about whether the FTC can issue rule pertaining to a single industry, and that the final rule is necessary for it to carry out its duties under the statute.
U.S. District Judge Beryl Howell in Washington, D.C., granted the FTC summary judgment last week.
She determined that the HSRA does not directly address whether the FTC can issue industry-specific rules.
PhRMA failed to show that the words "no person" in the statute meant that the rule should apply equally to all industries.
But Howell said the industry's "narrow focus on these two words is too thin a reed to rest its conclusion given the broader language granting the FTC rulemaking and exemption authority."
That Congress created a list of industries exempt from reporting mandates strongly implies that the FTC has the authority to craft industry-specific rules to achieve the HSRA's goals, the ruling states.
Claims that the statute limits the FTC to simply relieving industries from regulation also failed.
Howell said the FTC properly explained that the rule was necessary because transferring exclusive patent licenses is a growing trend in the pharmaceutical industry and is used almost solely by that industry, according to the ruling.
Though the court credited PhRMA's argument that independent investigations for evidence to support the final rule may have been preferable to the FTC relying on its own experience administering the HSRA, reliance on agency experience is not improper, the ruling states.
As for concerns PhRMA raised during the comment process, Howell said the FTC properly addressed them.
Indeed the final rule mentioned PhRMA's comments "twenty-three times," noted all the objections it raised, and why the FTC disagreed with its claims, the court found.
"The FTC also justified promulgation of an industry-specific rule on separate grounds, that the FTC intended to 'proceed incrementally' and to implement the rule where the FTC believed it was necessary," Howell wrote. "The FTC explained that even if such transactions exist in other industries, the FTC has not encountered these and therefore the FTC 'has not found a need for a rule applicable to other industries."
Since the FTC must promulgate rules to carry out the HSRA, applying the final rule to all industries "where there is no demonstrated need to do so might have rendered such rule vulnerable to a separate challenge that the FTC had exceeded its statutory authority on these grounds," the ruling continues.
Howell added: "The final rule was adopted as proposed, and interested parties were apprised of the bases and rationale for the FTC's proposed rule in the NPRM [notice of proposed rulemaking] and provided an opportunity to comment. As previously discussed, with respect to the 66 HSR filings the FTC relied upon, such information is confidential and likely could not have been made public. The requests for interpretation were available on the PNO's [Premerger Notification Office] public database recording informal requests for interpretation, and PhRMA accessed this database to support its comment to the proposed rule. Moreover, PhRMA representatives met with the FTC commissioners and staff members on four occasions after the close of the comment period and were provided the opportunity to submit additional material to the FTC's consideration, providing them ample opportunity to comment on the proposed rule. ... Consequently, the FTC's rulemaking process thus did not fail to observe the procedure required by law under 5 U.S.C. § 706(2)(D)."
The Department of Justice has not returned emails for comment.