Pharmaceutical Research & Manufacturers of America v. Federal Trade Commission
416 U.S. App. D.C. 129
| D.C. Cir. | 2015Background
- The FTC amended its HSR Act premerger reporting rules in 2013 to treat certain transfers of pharmaceutical patent rights as reportable "asset acquisitions" when they convey "all commercially significant rights," even if the licensor retains limited manufacturing rights or co-rights.
- Before the Rule, the FTC considered a patent transfer reportable only when all rights to make, use, and sell were exclusively transferred. The Rule adopted an "all commercially significant rights" test tailored to pharmaceutical exclusive licenses.
- PhRMA sued the FTC, challenging the Rule as exceeding statutory authority under the APA (5 U.S.C. § 706(2)(C)) and as arbitrary and capricious (5 U.S.C. § 706(2)(A)). The District Court granted summary judgment to the FTC; PhRMA appealed.
- PhRMA did not dispute that the specific pharmaceutical patent transfers at issue are reportable if the Rule applies; it challenged only the industry-specific focus of the Rule.
- The FTC justified the industry focus by citing its experience: in the five years before rulemaking, its Premerger Notification Office received 66 filings of exclusive patent-license transactions and all were pharmaceutical; informal guidance requests also came largely from that industry.
- The FTC kept individual HSR filings confidential (as required by statute), and provided public, redacted informal guidance documents; PhRMA argued lack of access to the 66 filings and inadequate agency response to its expert.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the HSR Act unambiguously prohibits an industry-specific rulemaking (Chevron Step One) | PhRMA: Statute requires generally applicable notification rules; Congress did not authorize industry-targeted reporting requirements. | FTC: Statute delegates authority to define terms and prescribe rules necessary to carry out the Act; focusing on a single industry to address a discrete problem is permitted. | Court: No unambiguous statutory prohibition; Chevron Step One fails. |
| Whether the FTC's Rule is a permissible construction of the Act (Chevron Step Two) | PhRMA: Targeting one industry is beyond FTC authority and inconsistent with past practice. | FTC: The Rule fills a statutory gap reasonably; tailored to documented industry practice and furthers the Act's purpose. | Court: Deference owed; FTC's interpretation is permissible and rationally related to statutory goals. |
| Whether the Rule was arbitrary and capricious (APA §706(2)(A)) | PhRMA: FTC relied on vague "experience" without showing data; failed to respond adequately to comments; departure from prior views unexplained. | FTC: Agency relied on accumulated filings and guidance requests, reasonably explained industry focus, responded to comments, and followed procedure. | Court: FTC's decisionmaking was reasoned and not arbitrary or capricious. |
| Whether confidentiality of HSR filings and redactions prejudiced PhRMA's ability to challenge the Rule | PhRMA: FTC should have produced the 66 filings and more source material; heavy redaction limited meaningful comment and review. | FTC: HSR filings are statutorily confidential; filings were used only to show industry prevalence, not to supply technical data; public redacted guidance was available and used by PhRMA. | Court: Confidentiality justified; PhRMA suffered no prejudice; procedural challenge fails. |
Key Cases Cited
- Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (establishes two-step administrative deference framework)
- Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (standard for arbitrary and capricious review)
- City of Arlington v. FCC, 569 U.S. 290 (agency interpretation of its jurisdiction entitled to Chevron deference)
- Rust v. Sullivan, 500 U.S. 173 (agency may change positions with reasoned explanation)
- Judulang v. Holder, 565 U.S. 42 (Chevron-step-two and arbitrary-and-capricious overlap)
- National Classification Committee v. United States, 779 F.2d 687 (D.C. Cir. 1985) (agencies may take official notice based on cumulative experience)