Court Upholds FTC Rule for Pharma Patent License Transfers

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino,Wilson Sonsini Goodrich & Rosati

Last November, I wrote about a new Federal Trade Commission (FTC) rule which, in a change to long-standing policy, made the transfer of a license providing an exclusive licensee with “all commercially significant rights” over a patent within a therapeutic area reportable under the Hart-Scott-Rodino Act. In practice, this meant that licensing agreements which previously required only the signatures of the two parties, now required a waiting period and an FTC blessing.

Shortly before the rule was to become operative, the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry group representing biopharmaceutical researchers and biotechnology companies sued to block it. The group argued that the FTC had not observed the appropriate procedures under the Administrative Procedures Act and that the FTC lacked authority to issue an industry-specific rule rather than a rule of general application, among other claims.

In a lengthy opinion on May 30, 2014, Judge Beryl A. Howell of the United States District Court for the District of Columbia, sided with the FTC and tossed PhRMA’s claims, finding that the FTC had followed the correct processes, had a reasoned basis for creating and instituting this rule, and should be shown deference. This bottom line is this puts us right back to where the FTC hoped it would be back in November: the transfer of “all commercially significant rights” over a patent is a HSR-reportable event.

That’s the headline but there are at least two questions that result from the opinion worth pausing to consider. First, this rule continues to only apply to the pharmaceutical industry. There are virtually no other industries with HSR-specific rules applicable only to them. Does this mean the FTC plans to extend HSR-specific rules to other industries? Or is the pharma industry so important in its own right that proper antitrust enforcement demands a different set of rules? Only time will tell. More importantly, perhaps, the FTC has not defined the phrase “all commercially significant rights.” What are the contours of this definition? What’s included or excluded? How, if at all, will the FTC provide guidance to the pharma community? PhRMA has up to 60 days to appeal so this may not be the last word. Stay tuned.

Trolls and Trial Lawyers Should Curb Their Enthusiasm Over Patent Reform Timeout

patentLast week was quite a successful one in Washington for the plaintiffs’ bar. First, as WLF’s Rich Samp detailed in a May 22 Legal Pulse post, the Solicitor General of the U.S. opposed federal preemption of state failure-to-warn suits against medical device companies. Then, the following day, the Senate Judiciary Committee shelved legislation meant to curb abusive litigation and related activities by “patent-assertion entities” (PAEs), a.k.a. patent trolls.

But attorneys who represent PAEs, and the private businesses that may benefit from PAE activity, should temper their enthusiasm. The concept of “patent reform” will persist during Congress’s timeout. Various Executive Branch entities are working to shine a light on patent troll misbehavior, and the federal judiciary is gradually becoming less tolerant of patent litigation abuse. Consider the following examples of such non-legislative activity.

Federal Agencies. While the White House made the biggest splash on patent litigation last June with a Task Force on High-Tech Patent Issues report, far more impactful work regarding PAEs is being done at the Federal Trade Commission (FTC). For the past year, FTC has been conducting a formal “6(b)” study of PAEs. In a May 19 Federal Register notice, the Commission noted that it would be sending information requests to 25 PAEs as well as 15 wireless communication industry manufacturers and patent holding companies. Continue reading

Federal Regulators Shove First Amendment Down Slippery Slope with School Ad Ban Proposal

high-school-cafeteria-coloradoThink of the children!

That phrase is a “tried-and-true debate stopper,” ethicist Jack Marshall writes, “because of its ability to inhibit rational thought.” It’s no wonder, then, that professional activists and government regulators often cloak actions which might otherwise be highly questionable (and unconstitutional) in the appealing mantle of safeguarding America’s youth.

For instance, government routinely invokes protection of children as a justification for restricting commercial speech. Three years ago, a triumvirate of federal agencies tried to limit kids’ exposure to food and beverage ads through an informal guidance document. Thankfully, that effort fell flat. But Washington’s appetite for limiting “disfavored” speech—in the interest of those ubiquitous children—is never sated, as a recently proposed U.S. Department of Agriculture (USDA) regulation reminds us.

The February 26 proposal dictates how local education agencies (i.e. school boards) are to devise “local school wellness policies.” The USDA Secretary, joined by First Lady Michelle Obama, announced the rule at a White House event and proudly touted the proposal’s unprecedented prohibition of advertising for selected foods and beverages on school property. That part of the proposal violates the First Amendment, a conclusion which WLF shared with USDA last week in its formal comments to the agency. Continue reading

Does FTC Glass Settlement Break the Efficiencies Mold?

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino,Wilson Sonsini Goodrich & Rosati

(Editors note: The Legal Pulse would like to (belatedly) congratulate Andrea on her promotion to partner, the announcement for which at the end of last year escaped our discovery)

As expected, on April 11, 2014, the Federal Trade Commission (“FTC”) announced the resolution of their investigation and administrative court challenge into the $1.7 billion acquisition of Saint-Gobain Containers, Inc. (“St. Gobain”) by Ardagh Group SA (“Ardagh”). In order to allow the transaction to proceed and resolve the pending administrative trial, Ardagh agreed to sell six of its nine glass container manufacturing plants in the United States to an FTC-approved buyer within six months, including all tangible and intangible assets, and customer contracts. (All pleadings and filings for all parties, including the original complaint, which argued that the acquisition would harm competition in the markets for glass containers used to package beer and spirits, are available online.)

The fact that this litigation was resolved via a divestiture of brick-and-mortar facilities in an industry like glass manufacturing is not news of note to this FTC observer. What is worthy of pause, however, is that the vote to approve this consent was not unanimous (it was 3-1) and that the efficiencies defense stands front-and-center in the dispute between the majority and minority.

For the majority, Chairwoman Ramirez and Commissioners Brill and Ohlhausen, found that the transaction as originally structured would have resulted in a violation of Section 7 of the Clayton Act. When presented with a carefully crafted remedy, these Commissioners believed that the remedy would “fully replace[ ] the competition that would have been lost in both the beer and spirits glass container markets had the merger proceeded unchallenged.” Thus, they voted to accept the settlement. Continue reading

WLF Program to Address FTC’s Dual Role in Administrative Litigation: Prosecutorial and Adjudicative

FTC’S ADMINISTRATIVE LITIGATION PROCESS:

Should the Commission Be Both Prosecutor and Judge?

A Washington Legal Foundation Briefing

Tuesday, March 11, 9:30-10:30 a.m.

RSVP to attend in person (2009 Massachusetts Ave., NW) to glammi@wlf.org

To view live online click HERE to register

Our Speakers:

FTC Sets New Rules for Pharma Licenses and Antitrust Approvals

MurinoFeatured Expert Column

Andrea Agathoklis Murino, Wilson Sonsini Goodrich & Rosati

Certain transfers of exclusive patent licenses in the pharmaceutical sector will face new antitrust scrutiny from the Federal Trade Commission (“FTC”).*  In a change to long-standing policy, the FTC announced that the transfer of a license providing an exclusive licensee with “all commercially significant rights” over a patent within a therapeutic area will be reportable under the HSR Act.

Under the old scheme, only the transfer of licenses giving the licensee a right to make, use, and sell the product were subject to the provisions of the HSR Act.  This meant that in cases where a licensor retained the right to manufacture the patented pharmaceutical product, even if the licensee had the exclusive right to use and sell the patented pharmaceutical product, the transfer was deemed non-exclusive and thus non-reportable.  The shift means that parties will need to prepare the HSR Act filing itself, observe the mandatory waiting period before closing (typically 30 days), and, of course, be prepared to respond to any competitive concerns raised by the FTC.  Continue reading

The Many Faces of the FTC on Display in Commissioners Review of Administrative Case

MurinoFeatured Expert Column

Andrea Agathoklis Murino, Wilson Sonsini Goodrich & Rosati

[Editor's Note: Today, Washington Legal Foundation is releasing a Legal Backgrounder in which former Federal Trade Commission (FTC) Policy Director David Balto critiques the Commission's administrative litigation process, which features the five Commissioners in the role of both prosecutors and appellate judges. We asked our featured expert FTC blogger, also an FTC alumna, her views on the issue. While WLF respects her thoughts on FTC's administrative litigation process, we respectfully disagree.]

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As an alumna of the FTC, I know first-hand the many roles played by those working inside the agency:  they are investigators, prosecutors, judges, and policy-makers.   On the vast majority of days, those roles mesh seamlessly and without controversy.  But on occasion, as is happening today, there is a clash of roles.  The Commissioners is sitting as an appellate body…charged with reviewing the decision of an FTC Administrative Law Judge (ALJ) that held against the FTC complaint counsel…in a matter that some of the very same Commissioners voted to put into litigation in the first case.

During the hearing, Chairwoman Ramirez and Commissioners Brill, Ohlhausen, and Wright will examine an FTC ALJ decision In the Matter of McWane, Inc..  The case originated in January of 2012 when the Commission, including a then-Commissioner Ramirez and Commissioner Brill, found reason to believe that the defendant, McWane, Inc., a manufacturer of iron waterworks and other plumbing products, had engaged in price-fixing and unlawful information exchange with two competitors, as well as certain exclusionary conduct, and authorized staff to file a Complaint in the FTC’s administrative court.  Following a trial, the ALJ held against the FTC on the first two – and candidly, more serious counts – but found that there was evidence McWane engaged in certain exclusionary conduct and instituted an remedial order on that basis.  Both sides are appealing the portions of the decision held not in their favor.  As they listen, the Commissioners will use the de novo standard of review– which functionally means they can review all of the evidence as they see fit – and therefore ignore the findings of the ALJ.  Continue reading

Update: Transit Association Suit, FTC Chair’s Speech Highlights “Patent Troll” Developments

NYC SubwayWhile it may not have reached critical mass yet, the momentum towards “doing something” about abusive patent litigation has definitely increased since WLF held its “Patent Assertion Entities” and Antitrust: The FTC/DOJ Inquiry and Underlying Legal Policy Issues program on May 30. Of course, just five days after our program, the President made his big splash about “patent trolls,” so that might have had something to do with the momentum as well.

A Taste of Their Own Medicine? On Tuesday, the American Public Transit Association (APTA) took legal action to protect its members and other government-run transportation entities from patent-assertion entities based in Luxembourg and the British Virgin Islands. APTA v. ArrivalStar and Melvino, filed in the Southern District of New York, seeks a declaratory judgment on the invalidity of the defendants’ patents, which allegedly cover arrival and status messaging systems that transit authorities use, and also claims that the Eleventh Amendment immunizes those transit entities from patent suits.

APTA’s complaint lists ten ArrivalStar lawsuits against transit authorities which led to quick settlements for amounts that were “well below the expected cost of litigation.” It also includes a sample “license our patent or else” letter (marked on each page “FOR SETTLEMENT PURPOSES ONLY” just in case the recipient didn’t get the message), which helpfully lists some of the “over 180″ for-profit companies that have taken the licensing route with ArrivalStar.

FTC Chairwoman’s Announcement. At a June 20 program co-sponsored by CCIA and the Antitrust Institute, FTC Chairwoman Ramirez took what Lisa Kimmel discussed at WLF’s May 30 program one step further, announcing that she would encourage the Commission to pursue a formal “Section 6(b)” study of patent-assertion entities. She would need support from a majority of the Commissioners to initiate an investigation, and with the FTC populated by only four Commissioners at the moment, including one (Joshua Wright) who is skeptical of Section 5 enforcement, such a study isn’t a foregone conclusion. Chairwoman Ramirez’s statements garnered quite a bit of coverage and analysis, some of which the Patent Progress blog links to here.

Congressional Letter Writing. On the same day as the aforementioned program, Senate Judiciary Committee Chairman Patrick Leahy (not) coincidentally wrote to Chairwoman Ramirez encouraging her to “use aggressively the consumer protection and competition laws already in place.” Earlier this month, a bipartisan group of House Members led by Representatives Judy Chu and Blake Farenthold wrote to the Chairwoman supporting a deeper patent-assertion entity inquiry. And on June 25, Representative Daniel Lipinski sent a letter to Ramirez which focused on patent suits targeting public agencies. Representative Lipinski included a report, Trolling for a Public Trough: How Patent Assertion Entities Cost Taxpayers, which includes licensing demand letters and copies of complaints as exhibits.

A Simplistic Compliment Endures: The Roberts Court As “Pro-Business”

supreme court

Cross-posted at WLF’s Forbes.com contributor page

“The Roberts Court is pro-business.”  The Roberts Court “comes to the defense of business.”

Stories peddling this angle seem to be a compulsory part of reporting at the conclusion of each Supreme Court term. The completion of the October 2012 term is no exception. King & Spalding’s Ashley Parrish took strong exception to this characterization of the Court during Washington Legal Foundation’s annual end-of-the-term briefing this past Tuesday. The entire program can be viewed here.

The “pro-business” bromide is a trite and woefully simplistic byproduct of the need to label things. One could argue that the term implies judicial bias, i.e. deciding cases based on the nature of the litigant rather than on the law. It can also be seen as ideological or political in nature. If, for instance, Justice Ginsberg happened to be the Chief Justice at a time when the Court’s rulings favored free enterprise, would we be seeing stories about how pro-business the “Ginsberg Court” is? Further, has anyone seen the justices who rule against business litigants described as “anti-business”?

As an institution which for 36 years has sought to advance legal principles which support the conduct of free enterprise, Washington Legal Foundation views “pro-business” Court as a compliment. We’re pleased that in the nine cases in which we filed during the October 2012 term, seven resulted in victories for “business” litigants. Our perspectives on the law, on the judiciary’s limited role, and on constitutional protections for business entities are prevailing. But WLF should not be alone in applauding this Court’s rulings against plaintiffs’ lawyers, activist groups, and federal regulators. Businesses employ Americans, Americans invest in businesses, and our free enterprise system gives people of all backgrounds a fighting chance to succeed.

So if a label must be imposed, did the Roberts Court earn its “pro-business” stripes this term? If one looks strictly at the numbers, generally it did.

By our count, in the 28 cases which directly affected free enterprise, free enterprise “won” 21 and “lost” 7. Continue reading

Commissioner Wright Moves to Advance Discussion on FTC Act Section 5

MurinoFeatured Expert Column

Andrea Agathoklis Murino, Wilson Sonsini Goodrich & Rosati*

Still just a few months into his tenure, Federal Trade Commissioner Joshua Wright made good on his early promise to move Section 5 of the Federal Trade Commission Act into the public dialogue. N1  On June 19, 2013, Wright released a “Proposed Policy Statement Regarding Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act,” together with an accompanying explanatory speech.  Some two months after announcing his intention (about which I wrote here), the proposal calls for the FTC to “recast its unfair methods of competition authority with an eye toward regulatory humility in order to effectively target plainly anticompetitive conduct” by clarifying the standards and limits the FTC will employ in the context of Section 5.  Wright’s call to arms is necessary, he says, because the failure to articulate clear standards by which Section 5 will be prosecuted creates uncertainty for the business community and consumers, and risks the Commission’s credibility as an expert body and future steward of Section 5.

Importantly, Wright’s proposal is not merely an intellectual think piece.  Rather, Wright provides for a specific definition of conduct that will violate Section 5, as well as concrete examples.  There is no doubt in his mind (or in the mind of this observer), that Section 5 was intended to condemn conduct beyond that which the Sherman or Clayton Acts capture.  But he finds that without a precise definition, the Commission’s ability to consistently apply Section 5, and the ability of businesses and consumers to meaningfully predict whether their conduct could be found violative of Section 5, is virtually impossible.  Thus, he proposes defining “an unfair method of competition [as] an act or practice that (1) harms or is likely to harm competition significantly and (2) lacks cognizable efficiencies.”  Continue reading