Question
From:
(Redacted)
Sent:
Tuesday, May 18, 2010 10:46 AM
To:
Verne, B. Michael
Cc:
(Redacted)
Subject:RE: Licensing Transaction Reportability
Mike,
I writing toconfirm the conversation that you, (redacted) and I had this morningconcerning the timing of the reportability of a licensing transaction. Theissue is whether the parties can report the transaction now, or have to waituntil shortly before the license is going to be converted to a perpetual one(or the title to the IP is transferred outright).
The terms of theproposed agreement are as follows:
a) A grants B anexclusive license for certain IP.
b)The license has an initial period for which B will pay an upfront fee, a regulatoryapproval based milestone, and royalties totaling less than $63:4 million inFMV. This initial period is expected to extend approximately 3 to 5 years fromthe execution of the agreement
c)After the initial period, the license will convert "automatically"(unless B affirmatively opts out by terminating the agreement) to a perpetual,non-royalty bearing, exclusive license for which B will pay A an amount with anFMV in excess of $63:4 million.
d)The agreement also provides for the possibility that, instead of A granting Ban exclusive perpetual license to the IP, A simply transfers the title to theIP to B, for which B would pay an amount approximating the amount B would havepaid for the exclusive perpetual license. The acquiring company (B) currentlysees this as the preferred outcome.
We have consultedFTC informal interpretation 0602009 and understand it to say that it ispermissible to analyze the transaction in two ways, and that the parties couldelect to either (i) file now. or (ii) is no filing is made now, file later(assuming such filing is required at the later date):
a)First, we can treat the entire transaction as the acquisition of a singleasset, and include in the FMV calculation a reflection of the likelihood thattitle to the IP will transfer or that the license will be ex1ended inperpetuity. Under this treatment, the parties would make an HSR filing now, andnot when the license becomes perpetual or the IP is transferred outright
b)Alternatively, the transaction could be split into the acquisition of twoassets: (i) an exclusive license for the initial period, and (ii) the perpetuallicense or transfer of the IP. Since the acquirer has already determined thatthe FMV for the license during the initial period does not exceed $63:4million, no filing is required now. However, the parties may need to file anHSR report later, before the license becomes perpetual or the title to the IPis transferred.
Based on ourconversation, we understand that the analysis above is correct and confirm (i)that it is permissible to file now with respect to the entire transaction, and(ii) if a filing is made now with respect to the entire transaction, a laterfiling would not be required.
Please let me knowif I have misunderstood our conversation. As always, we appreciate your helpwith these matters.