Hart-Scott-Rodino & Chevron Step Zero: Can the FTC Target the Pharmaceutical Industry?

INTRODUCTION I. OPERATION AND AMENDMENT OF THE HART-SCOTT-RODINO ACT A. Origins, Purpose, and Operation of the Hart-Scott Rodino Act B. Exercising New Power Pursuant to the Hart-Scott-Rodino Act II. THE FTC'S AUTHORITY TO REGULATE A SINGLE INDUSTRY A. Searching for Authority to Regulate a Single Industry B. The District Court's Application of Chevron Deference 1. District Court Decision 2. Chevron Deference & Step Zero III. THE EFFECTS OF THE INTERSECTION OF INTELLECTUAL PROPERTY LAW, ANTITRUST LAW, AND ADMINISTRATIVE REGULATION CONCLUSION INTRODUCTION In 2013, the Federal Trade Commission amended the Premerger Notification Program developed by the Hart-Scott-Rodino Act to "provide a framework for determining when a transaction involving the transfer of rights to a patent or part of a patent in the pharmaceutical [industry] ... is reportable under the Hart Scott Rodino Act." (1) Specifically, the Federal Trade Commission (FTC) amended [section][section] 801.1 and 801.2 of 16 C.F.R. [section] 801 to codify an analysis structure that makes exclusive patent licensing agreements in the pharmaceutical industry reportable asset acquisitions. (2) Serious questions exist, however, as to whether the FTC has authority under the Hart-Scott-Rodino Act to promulgate rules that only apply to a single industry. Furthermore, the justifications offered by the FTC for its disparate treatment of the pharmaceutical industry have been called into question. The agency's decision to single out the pharmaceutical industry could be deemed arbitrary and capricious in violation of the Administrative Procedure Act, if the disparate treatment is not based on reasonable grounds. A finding that would result in the agency action being erased from the law as it currently exists. Beyond whether it is legally permissible to single out a single industry under the Hart-Scott-Rodino Act of 1976 (HSR Act), additional policy concerns are associated with the implementation of the new amendments. In a highly competitive industry with constantly changing science, the potential for a transaction to be delayed while awaiting a decision from the FTC, consuming large amounts of time and money is a serious issue that will surely be taken into account when relevant agreements are being contemplated. While little doubt exists that regulation is necessary, regulatory costs can clog the developmental pipelines that allow small drug developers to team with larger entities capable of ensuring new drugs meet their full potential. With those concerns in mind, the Pharmaceutical Research and Manufacturers of America (PhRMA) filed suit against the FTC in the District of Columbia, challenging the FTC's authority to regulate a single industry, as well as the FTC's compliance with the Administrative Procedure Act (APA). (3) Judge Howell of the District Court for the District of Columbia dismissed the suit on summary judgment pursuant to Federal Rule of Civil Procedure 56 after affording the commission the exceptionally high deferential standard announced in Chevron, U.S.A., Inc. v. NRDC, Inc. (4) PhRMA is currently appealing the decision. While the district court engaged in what is commonly known as the "Chevron two-step," it failed to consider Chevron "step-zero." The Court may have afforded the FTC less deference and undertaken a more stringent examination of the FTC's actions, potentially resulting in different finding, had it considered step zero. This comment will contemplate whether the District Court in Pharmaceutical Research and Manufacturers of America v. Federal Trade Commission, afforded the FTC proper deference in upholding the agency's actions or if a different standard should have been used. Finally, this comment will consider the effects the amendment might have on the pharmaceutical industry as well as larger questions about the interaction of intellectual property law, antitrust law, and administrative regulation. …