Question
March 19, 2009
Mr. B. MichaelVerne
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
Re: Hard TabletFormulation Technology License
Dear Mr. Verne:
Weare submitting this letter in order to see if you agree with our view that the grantof a license under the facts and circumstances described below would notrequire a filing under the Hart-Scott-Rodino Antitrust Improvements Act of1976, as amended (the "Act").' Although the license is fairlydescribed in the parties' agreement as exclusive, for purposes of determiningcompliance under the Act we believe that the license is non-exclusive.
Weare counsel to a pharmaceutical company ("Grantee") which has enteredinto a licensing agreement with another corporation ("Grantor"). Byits terms, the licensing agreement will not become effective until the waitingperiod under the Act, if applicable to the transaction, has expired or beenterminated. Grantor will license to Grantee certain patent rights related tothe manufacturing and marketing of two different pharmaceutical products whichincorporate a "technology." That technology includes a harddelayed-release tablet formulation having physical properties which mayincrease the difficulty of tampering (hereafter, the technology is referred toas the "Hard Tablet Formulation" or "HTF).2
Morespecifically, the proposed agreement provides that Grantee, which has preexisting patent rights to two pharmaceutical products, will receive a licenseto utilize the HTF for the purpose of developing, manufacturing, warehousing,distributing, promoting, marketing and selling an RTF-version of those twopharmaceutical products. Grantee currently manufactures and sells one of theseproducts ("Product One") in a form not utilizing the RTF and is inthe early stages of development with respect to the second of these products("Product Two"). Under that license, Grantee will acquire theexclusive right to manufacture the end product, which will be a combination ofthe RTF and solely Product One and/or solely Product Two products which are, toreiterate, Grantee's own drug products. Accordingly, the Grantor will not beable to manufacture or license the RTF for use in products containing the samesole active pharmaceutical ingredient ("API") as contained in ProductOne or Product Two. Significantly, however, Grantor will retain: (a) the rightto manufacture any other products using the HTF; (b) the right to license theRTF to other pharmaceutical companies for use with an API other than thatcontained in Product One or Product Two; and (c) the right to manufacture orlicense to other pharmaceutical companies the right to manufacture productsutilizing the RTF containing more than one API, even if one of those APIs isthe same as the API used in Product One and/or Product Two.
Weare aware that PNO Manual Interpretation No. 27 suggests that "a license[which] grants exclusive geographic territories or exclusivity for specificuses" may be reportable under the Act. Here, however, the license issubstantively closer to "a co-exclusive license where the licensor retainsrights to the intellectual property" --specifically the right to licensethe patented RTF technology for use in other drugs. See PNO ManualInterpr. No. 27. Such a limited license is "not considered by the PNO tobe [a reportable] exclusive license." [d., citing RSR InformalInterpretation Letter No. 0203001(March 6, 2002).
Inthe instant transaction, as mentioned above, the Grantor would also retain theintellectual property rights to its RTF and may utilize or license suchtechnology to third parties for developing, manufacturing, warehousing,distributing, promoting, marketing and selling any pharmaceutical product otherthan products containing the same sole API contained in either of Grantee's twopatented products. These circumstances may be viewed as similar to thosepresented in Informal Staff Opinion 0612003 (December 4, 2006).
Inthe December2006informalstaffopinion,the staff of the Premerger NotificationOffice held that a licensing transaction was not reportable when a granteeacquired the exclusive right to a delivery vehicle compound for the manufactureof an end product which was a combination of a grantor's delivery vehiclecompound and grantee's own drugs. The grantor, as mentioned in the 2006informal staff opinion, retained the manufacturing rights for the licensedcompound.
Webelieve under the facts and circumstances as described above the filing of PremergerNotification Forms under the Act would not be necessary with respect to Grantee'santicipated utilization of the HTF as applied to Products One and Two. We wouldappreciate knowing if you concur or do not concur with our analysis.
Footnotes
1.For purposes of this letter, please assume that both the "size of-personsand "size o-the transaction" criteria would be satisfied.
2.The description of the terms of the licensing agreement discussed herein arelimited to use of U.S. intellectual property in the United States. Theagreement also has provisions referring to the use of intellectual propertyoutside o the United States.