|February 19, 2014|
Previously published on February 14, 2014
On February 7, 2014, the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry group composed of research-focused pharmaceutical and biotechnology companies, filed a motion in the U.S. District Court for the District of Columbia to invalidate the Premerger Notification; Reporting and Waiting Period Requirements Final Rule (Rule) promulgated by the Federal Trade Commission.
As we discussed on December 16, 2013, this new Rule adopts an “all commercially significant rights” test to determine whether a transfer of assets has occurred in an exclusive patent license agreement. The new Rule applies only to the pharmaceutical industry.
PhRMA filed a Complaint seeking injunctive relief against the FTC, No. 1:13-cv-01974-BAH, (D. D.C. 2013), just days before the final rule took effect on December 16, 2013. The Complaint alleges the following: (1) the new Rule exceeds the FTC’s statutory authority under the Hart Scott Rodino (HSR) Act; (2) the Rule is arbitrary, capricious, and an abuse of discretion in violation of the Administrative Procedure Act (APA); (3) the rulemaking took place without the observance of procedure required by law, as the Notice of Proposed Rulemaking did not adequately or fairly apprise the public of the basis and rationale for the Rule; and (4) declaratory judgment is appropriate to clarify the legal relations of the parties. PhRMA asks the Court to invalidate and vacate the Rule and “permanently enjoin and restrain” the FTC from enforcing or applying the Rule.
PhRMA’s Motion for Summary Judgment.
Final Rule Exceeds Statutory Authority.
Aside from asserting that the Rule imposes significant costs solely on the pharmaceutical industry, PhRMA argues that the Rule is an unlawful expansion of the authority and powers granted to the FTC by Congress. Specifically, according to PhRMA, the lawsuit “challenges an agency’s unauthorized assumption of authority that Congress elected to retain for itself and specifically refused to cede to the Agency.” PhRMA focuses on the express terms of the HSR Act, which, it argues, unequivocally provide that “notification requirements are to be applied across-the-board to every ‘person’ who is party to a transaction that meets the Act’s thresholds.” The only exceptions under the Act, PhRMA explains, are for certain specific and limited “classes” of transactions, some of which are defined and others of which the FTC has authority to create by regulation when it determines that those classes of transactions are “not likely to violate the antitrust laws.”
PhRMA relies on the HSR Act’s legislative history to argue that the Act does not provide for such sweeping rulemaking authority by the FTC. The legislative history shows that the provision in the Senate bill that would have given the FTC the power to impose reporting burdens on “classes or categories” of persons with respect to the same proposed transactions was removed by the House in the final bill that became law.
Likewise, PhRMA emphasizes that, until now, the FTC has always recognized this limitation on its authority by stating: “In the Commission’s numerous rulemakings over the 37-year history of the HSR Act, it has never once, until now, issued an industry-specific coverage rule.” The FTC describes its new Rule as a “clarification” of prior agency practice; however, PhRMA argues that “[i]n reality, the agency action taken here is not a clarification, but simply put, an impermissible aberration.” In response to the FTC’s assertion that the new Rule is a valid exercise of its authority to create ancillary rules that are “necessary and appropriate” to carrying out the HSR Act, PhRMA states:
[N]othing in the statute, its legislative history, applicable case law, or agency practice event hints that Congress considered it either “necessary” or “appropriate” to the HSR Act’s purposes to provide the FTC with unfettered authority to saddle targeted industries with onerous reporting obligations before they can enter into certain patent license agreements deemed for the first time by the agency to raise antitrust concerns, while refraining from imposing similar obligations on all others before they enter into the same licensing arrangements. (emphasis added).
Final Rule Violates APA.
PhRMA argues that the FTC’s rulemaking is “arbitrary and capricious” and violates the APA because the FTC failed to justify or explain why regulation of license agreements should be limited to the pharmaceutical industry. PhRMA reiterates the point made in its comment to the original proposed rule that the specific agreements, which are now asset acquisitions in the pharmaceutical industry, are prevalent in a variety of other fields as well.
The FTC’s explanation for the Rule’s strict application to the pharmaceutical industry is that in the Commission’s experience, the newly reportable agreements occurred solely in the pharmaceutical industry; the FTC cited as an example the 66 filings received by the Premerger Notification Office for exclusive license agreements, all for pharmaceutical patents. However, PhRMA responds that “[u]nsupported assertions—particularly those disproved by credible evidence that was available to, but disregarded by, the agency—are no substitute for the reasoned analysis required by the APA.” (emphasis added).
PhRMA also asserts that the FTC violated the APA’s procedure requirements for the rule-making process as it failed to set forth any factual information on which it relied in deciding to propose the Rule. Because of this, PhRMA and its members “were deprived of an opportunity to assess and refute the data supporting the agency’s vague assertions and conclusory remarks regarding institutional ‘knowledge,’ ‘experience,’ and ‘expertise.’”
The FTC’s opposition to PhRMA’s motion and any cross motion for summary judgment will be due by March 10, 2014, with PhRMA’s reply and opposition due by March 24, 2014. The FTC’s reply to a cross motion for summary judgment is due by March 31, 2014.