Court Opinion

ID: 2676573
Source: CourtListenerOpinion
Date Created: 2014-05-31 01:00:45.184857+00
Date Added: 2024-06-11T13:10:50.540642
License: Public Domain

UNITED STATES DISTRICT COURT
                                 FOR THE DISTRICT OF COLUMBIA

PHARMACEUTICAL RESEARCH AND
MANUFACTURERS OF AMERICA,
                           Plaintiff,
                                                            Civil Case No. 13-1974 (BAH)
                           v.
FEDERAL TRADE COMMISSION,                                   Judge Beryl A. Howell

                           Defendant.

                                        MEMORANDUM OPINION

         The plaintiff, Pharmaceutical Research and Manufacturers of America (“PhRMA”), a

trade association which “represents the country’s leading biopharmaceutical researchers and

biotechnology companies,” see Compl. ¶¶ 9–10, ECF No. 1, seeks to set aside a Final Rule

issued by the Federal Trade Commission (“FTC”) that requires the pharmaceutical industry to

report certain transfers of exclusive patent rights under Section 7A of the Hart-Scott-Rodino

Antitrust Improvements Act (“HSR Act”), 15 U.S.C. § 18a; Premerger Notification; Reporting

and Waiting Period Requirements, 78 Fed. Reg. 68,705 (Nov. 15, 2013) (“Final Rule”); Jt. App.

(“JA”) at 7–15, ECF No. 19.1 PhRMA challenges the Final Rule as violative of the

Administrative Procedures Act (“APA”), 5 U.S.C. § 706, because the FTC: (1) lacked statutory

authority to issue an industry-specific rule rather than a rule of general application; (2) failed to

establish a rational basis for such an industry-specific rule; and (3) failed to comply with legally

required procedures. See Compl. ¶¶ 89–106. Pending before the Court are the parties’ cross

motions for summary judgment. See Pl.’s Mot. Summ. J. (“Pl.’s Mot.”), ECF No. 13; Def.’s

1
 In compliance with Local Civil Rule 7(n), the FTC filed a certified list of the contents of the Administrative
Record in this case, see ECF No. 14, and also filed a Joint Appendix, which appears to contain the entirety of the
AR. Relevant citations are made to the Joint Appendix.
Mot. Summ. J. (“Def.’s Mot.”), ECF No. 15. For the reasons explained below, PhRMA’s motion

is denied and the FTC’s motion is granted.2

I.       BACKGROUND

         The Final Rule states, and PhRMA does not dispute, that “the granting of an exclusive

right to commercially use a patent or part of a patent is a potentially reportable asset acquisition

under the [HSR] Act.” 78 Fed. Reg. at 68,706; JA at 8. The gravamen of PhRMA’s complaint is

that the Final Rule imposes “fundamental changes to the HSR Act pre-merger notification

requirements that would, for the first time in the Act’s 37-year history, single out and burden one

industry alone with additional notification requirements for patent license transactions previously

not regarded by the antitrust agencies as potentially anticompetitive enough to warrant any pre-

closing review whatsoever.” Pl.’s Mem. Pts & Authorities Supp. Mot. Summ. J. (“Pl.’s Mem.”)

at 5, ECF No. 13. According to PhRMA, this “selective coverage,” id., exceeds the FTC’s

statutory authority “to relieve certain classes of persons or transactions” from notification

requirements and “[i]nstead, the Rule imposes new burdens selectively on a targeted class of

persons (i.e., those in the pharmaceutical industry only) in connection with patent license

transactions suddenly now regarded by the agency as likely anticompetitive,” id. at 17 (emphasis

in original). Specifically, the Final Rule addresses two types of transfers of exclusive patent

rights that the FTC observed occurred frequently, if not exclusively, in the pharmaceutical

industry, prompting the agency to limit application of the Rule to this industry: (1) the transfer of

exclusive rights under a patent to use and sell, with retention by the licensor of the right to

manufacture (“retained manufacturing rights”); and (2) the transfer of exclusive rights under a

2
  The parties have requested oral argument on the pending motion, Compl. at 25; Pl.’s Mot. at 1; Def.’s Mot. at 1,
but given the sufficiency of the parties’ written submissions, this request is denied. See D.D.C. Local Rule 7(f)
(allowance of oral hearing is “within the discretion of the court”).
                                                         2
patent to make, use, and sell, with retention by the licensor of co-rights, in whole or part

(“retained co-rights”). 78 Fed. Reg. at 68,707–08; JA at 9–10.

        PhRMA contends that the “selective coverage” of the Final Rule exceeds the FTC’s

authority under the plain terms of the HSR Act and, furthermore, even if the statute were found

to be ambiguous, the agency’s “interpretation of its authority is completely at odds with

congressional intent,” Pl.’s Reply Supp. Mot. Summ. J. & Opp’n FTC’s Cross-Mot. Summ. J.

(“Pl.’s Reply”) at 1, ECF No. 17, such that the Final Rule “is entitled to no deference, and []

should be vacated,” id. at 18. The FTC disputes PhRMA’s view that the meaning of the HSR

Act is plain, positing instead that the statute is silent regarding whether “Congress intended to

prohibit the Commission from issuing industry-specific coverage rules.” Def.’s Mem. Pts. &

Authorities Supp. Mot. Summ. J. & Opp’n Pl.’s Mot. Summ. J. (“Def.’s Mem.”) at 11, ECF No.

15. The FTC further contends that the Final Rule is an appropriate exercise of its authority to

define terms used in the Act “as necessary and appropriate to carry out the purposes of” the

statute. Id. at 14.

        To aid in resolution of this dispute over statutory interpretation, the Court begins with an

overview of the HSR Act, before turning to a discussion of the challenged rule and procedural

history of the instant case.

        A.      Statutory and Regulatory Framework

        Enacted in 1976, the HSR Act was intended to assist enforcement agencies in

determining whether an anticipated merger or acquisition was likely to violate federal antitrust

laws. See S. REP. No. 94-803, at 1 (1976); H. R. REP. NO. 94-1373, at 5 (1976), reprinted in

1976 U.S.C.C.A.N. 2637, 1976 WL 13988; Mattox v. FTC, 752 F.2d 116, 119–20 (5th Cir.

                                                  3
1985) (finding that the HSR Act “was designed to allow review of mergers before they were

completed” to determine, pre-consummation, whether such mergers violated antitrust laws). To

this end, Section 7A of the HSR Act, codified in 15 U.S.C. § 18a, requires the transferring

parties to report to the FTC and the Assistant Attorney General at the U.S. Department of Justice

any anticipated transfers of assets when the transferred asset and/or the transferring parties meet

certain minimum size requirements specified in the Act.3 The Act “reflects a congressional

judgment that divestiture and other post-acquisition remedies were difficult, expensive and

sometimes futile,” and that safeguards were therefore necessary to evaluate anticipated mergers

before they occurred. Mattox, 752 F.2d at 119.

         Section 7A of the HSR Act provides that, when planned acquisitions meet statutorily

defined minimum size requirements, “[e]xcept as exempted pursuant to subsection (c) of this

section, no person shall acquire, directly or indirectly, any voting securities or assets of any other

person, unless both persons . . . file notification pursuant to rules under subsection (d)(1) of this

section and the waiting period described in subsection (b)(1) of this section has expired.” See 15

U.S.C. § 18a(a); see also An Act to Improve and Facilitate the Expeditious and Effective

Enforcement of the Antitrust Laws, And For Other Purposes, Pub. L. No. 94-435 tit. II, § 7A(a)

(1976).4 Subsection (c) of the Act exempts altogether certain classes of transactions from the

3
 The HSR Act amended the Clayton Antitrust Act of 1914, see An Act to Improve and Facilitate the Expeditious
and Effective Enforcement of the Antitrust Laws, And For Other Purposes, Pub. L. No. 94-435 tit. II, § 7A(a)
(1976), and is codified in the U.S. Code as follows: Title I in 15 U.S.C. §§ 1311–14 and 18 U.S.C. § 1505; Title II,
which is at issue in the instant litigation, in 15 U.S.C. § 18a; and Title III in 15 U.S.C. § 15c–15h. See Pub. L. No.
94-435; Mattox, 752 F.2d at 119.
4
  The minimum size requirements for an acquisition to trigger notification requirements under the HSR Act specify
that parties must report transactions where:
          [A]s a result of such acquisition, the acquiring person would hold an aggregate total amount of the
          voting securities and assets of the acquired person--
                                                           4
reporting requirement in subsection (a). 15 U.S.C. § 18a(c). In addition to eleven categories of

statutorily defined exempt transactions, subsection (c) also authorizes the FTC to exempt from

premerger notification “such other acquisitions, transfers, or transactions” that otherwise meet

the minimum size requirements. See id. § 18a(c)(12).

        The FTC’s broad exemption authority is also repeated in subsection (d), which provides

for the exercise of rulemaking and exemption authorities at issue in the instant suit. Specifically,

subsection (d)(1) authorizes the FTC to promulgate rules to implement the Act, stating that the

FTC “shall require that the notification required under subsection (a) of this section be in such

form and contain such documentary material and information relevant to a proposed acquisition

as is necessary and appropriate to enable the Federal Trade Commission and the Assistant

Attorney General to determine whether such acquisition may, if consummated, violate the

antitrust laws[.]” 15 U.S.C. § 18a(d)(1). Subsection (d)(2) grants the FTC authority to “define

the terms used in this section” and “prescribe such other rules as may be necessary and

         (A) in excess of $200,000,000 (as adjusted and published for each fiscal year beginning after
         September 30, 2004, in the same manner as provided in section 19(a)(5) of this title to reflect the
         percentage change in the gross national product for such fiscal year compared to the gross national
         product for the year ending September 30, 2003); or
         (B)(i) in excess of $50,000,000 (as so adjusted and published) but not in excess of $200,000,000
         (as so adjusted and published); and
         (ii)(I) any voting securities or assets of a person engaged in manufacturing which has annual net
         sales or total assets of $10,000,000 (as so adjusted and published) or more are being acquired by
         any person which has total assets or annual net sales of $100,000,000 (as so adjusted and
         published) or more;
         (II) any voting securities or assets of a person not engaged in manufacturing which has total assets
         of $10,000,000 (as so adjusted and published) or more are being acquired by any person which has
         total assets or annual net sales of $100,000,000 (as so adjusted and published) or more; or
         (III) any voting securities or assets of a person with annual net sales or total assets of
         $100,000,000 (as so adjusted and published) or more are being acquired by any person with total
         assets or annual net sales of $10,000,000 (as so adjusted and published) or more.
15 U.S.C. § 18a(a)(1), (2)(A)–(B). The minimum size requirements have been updated since the passage of the
HSR Act, compare id., with Pub. L. No. 94-435 tit. II, § 7A(a)(2), pursuant to the FTC’s authority to make annual
updates that “reflect the percentage change in the gross national product,” see District of Columbia
Appropriations—FY 2001, Pub. L. No. 106-553, 114 Stat. 2762 (2000), but such changes are immaterial to the
resolution of the instant motion.

                                                         5
appropriate to carry out the purposes of this section.” Id. § 18a(d)(2)(A), (C). Finally,

subsection (d)(2)(B) authorizes the FTC to “exempt, from the requirements of this section,

classes of persons, acquisitions, transfers, or transactions which are not likely to violate the

antitrust laws[.]” Id. § 18a(d)(2)(B).5 Pursuant to the rulemaking authority granted by

subsection 18a(d), the FTC has promulgated rules codified in 16 C.F.R. §§ 801–03. The Final

Rule challenged in this action amended the regulation at 16 C.F.R. § 801.2.

        In sum, three provision in the HSR Act, subsections (a), (c), and (d), expressly authorize

the FTC to exempt certain “classes of persons, acquisitions, transfers, or transactions” from the

requisite reporting, even if the transfer of assets meets the minimum size requirements under

subsection (a).

        B.        Challenged FTC Rule

        In order to clarify the meaning of an acquiring or acquired person, used in section (a) of

the HSR Act, 15 U.S.C. § 18a(a), the Final Rule adds a new paragraph (g) to 16 C.F.R. § 801.2,

which sets out the criteria for transfers that are reportable under the HSR Act. 78 Fed. Reg. at

68,712–13; JA at 14–15. This new paragraph (g) clarifies that the “[t]ransfers of patent rights

within NAICS Industry Group 32546 [i.e., the pharmaceutical industry] . . . constitutes an asset

acquisition . . . if and only if all commercially significant rights to a patent . . . for any

5
 The language of subsections (c) and (d) has remained largely unchanged in the nearly four decades since the HSR
Act was passed in 1976. Compare 15 U.S.C. § 18a(c)(1)–(12), (d), with Pub. L. No. 94-435 tit. II, § 7A(c) and (d).
6
 The NAICS (North American Industry Classification System) is a code system developed for the benefit of
businesses and Federal statistical agencies under the auspices of the White House Office of Management and Budget
that numerically classifies industries based on the activities they engage in. See INTRODUCTION TO NAICS,
http://www.census.gov/eos/www/naics/ (last revised Feb. 27, 2014). The Final Rule specifies that the industries
comprising NAICS Industry Group 3254 are: medical and botanical manufacturing, pharmaceutical preparation
manufacturing, in-vitro diagnostic substance manufacturing, and biological product (except diagnostic)
manufacturing. 78 Fed. Reg. at 68,705.

                                                        6
therapeutic area (or specific indication within a therapeutic area) are transferred to another entity.

All commercially significant rights are transferred even if the patent holder retains limited

manufacturing rights . . . or co-rights . . . .” 78 Fed. Reg. at 68,713; JA at 15. The Final Rule

also adds and defines three new terms: “[a]ll commercially significant rights,”7 “[l]imited

manufacturing rights,”8 and “co-rights”9 to 16 C.F.R. § 801.1, which contains HSR Act

definitions, 78 Fed. Reg. at 68,712–13; JA at 14–15. The rulemaking process underlying the

adoption of the Final Rule is described below.

                  1.        Notice of Proposed Rulemaking

         On August 20, 2012, the FTC issued a Notice of Proposed Rulemaking (“NPRM”) to

clarify when “the transfer of exclusive rights to a patent in the pharmaceutical industry [for a

specific therapeutic area]. . . constitute[s] a potentially reportable asset acquisition.” Premerger

Notification; Reporting and Waiting Period Requirements, 77 Fed. Reg. 50,057, 50,058 (Aug.

20, 2012); JA at 2. The NPRM proposed a new paragraph to 16 C.F.R. § 801.2 stating that the

transfer of patent rights covering products for which the manufacture and sale would generate

7
 The term “all commercially significant rights,” as used in the Final Rule’s new paragraph describing “all
commercially significant rights” subject to reporting, is defined in the Final Rule to “mean[] the exclusive rights to a
patent that allow only the recipient of the exclusive patent rights to use the patent in a particular therapeutic area (or
specific indication within a therapeutic area).” 77 Fed. Reg. at 50,061; JA at 5.
8
  The term “limited manufacturing rights,” as used in the Final Rule’s new paragraph describing “all commercially
significant rights” subject to reporting, is defined to “mean[] the rights retained by a patent holder to manufacture
the product(s) covered by a patent when all other exclusive rights to the patent within a therapeutic area (or specific
indication within a therapeutic area) have been transferred to the recipient of the patent rights. The retained right to
manufacture is limited in that it is retained by the patent holder solely to provide the recipient of the patent rights
with product(s) covered by the patent (which either the patent holder alone or both the patent holder and the
recipient may manufacture).” Id.
9
  The term “co-rights,” as used in the Final Rule’s new paragraph describing “all commercially significant rights”
subject to reporting, is defined to mean “shared rights retained by the patent holder to assist the recipient of the
exclusive patent rights in developing and commercializing the product covered by the patent. These co-rights
include, but are not limited to, co-development, co-promotion, co-marketing and co-commercialization.” Id.

                                                            7
revenues in the pharmaceutical industry, are reportable acquisitions when “[a]ll commercially

significant rights” are transferred even if the patent holder retains “limited manufacturing rights”

or “co-rights,” as defined in the new proposed definitions at 16 C.F.R. § 801.1 (p) and (q),

respectively. 77 Fed. Reg. at 50,061; JA at 5. Since the discussion in the NPRM about the

proposed rule is repeated and supplemented in the Final Rule, the Court summarizes the

background and rationale for the new definitions and new paragraph comprising the challenged

rule in the discussion of the Final Rule.

       The FTC received three comments in response to the NPRM, two in support and one in

opposition. JA at 16–21 (Comment 1 from Antonio Burrell, private citizen) (Oct. 25, 2012)

(supporting the rule); id. at 22–68 (Comment 2 from PhRMA (“PhRMA Comment”)) (Oct. 25,

2012) (opposing the rule); and id. at 69 (Comment 3 from Clyde Dinkins, private citizen) (Aug.

13, 2012) (supporting the rule as “long overdue”). In support of its critical comment, PhRMA

submitted the declaration of economic consultant Thomas R. Varner (“Varner Decl.”), who was

retained by PhRMA. See generally Varner Decl., JA at 38–68. After the close of the comment

period on October 25, 2012, 78 Fed. Reg. at 68,706; JA at 8, PhRMA met with Commissioners

on the FTC on four different occasions to discuss the proposed rule. See JA at 71 (Summary of

Communications: Apr. 18, 2013 meeting between PhRMA and FTC Chairwoman Edith Ramirez

and FTC staff); JA at 70 (Summary of Communications: Apr. 3, 2013 meeting between PhRMA

and FTC Commissioner Joshua D. Wright and his advisers); JA at 75 (Summary of

Communications: Mar. 13, 2013 meeting between PhRMA and FTC Commissioner Julie Brill

and her attorney advisors and staff); JA at 77 (Summary of Communications: Feb. 26, 2013

meeting between PhRMA and FTC Commissioner Maureen K. Ohlhausen and her attorney

                                                 8
advisors). Over the course of these meetings, PhRMA submitted “additional information about

[the] projected costs” of the proposed rule, see JA at 72–74 (Letter dated June 7, 2013, from

plaintiff’s counsel to an FTC Commissioner), reiterated the objections discussed in its comment

to the proposed rule, and raised three additional objections: (1) the rule conflicted with

international antitrust principles of nondiscrimination, id. at 70, 71, 77; (2) pharmaceutical

transactions subject to the proposed rule would be easy to unwind, id. at 70, 75; and (3) the

proposed rule would set a bad precedent, id. at 77.

               2.      The Final Rule

       Notwithstanding the critical views expressed by PhRMA in response to the NPRM and in

meetings with FTC Commissioners, the Final Rule was promulgated without any changes from

the proposed version on November 15, 2013, and became effective on December 16, 2013. 78

Fed. Reg. at 68,705; JA at 7; see also 78 Fed. Reg. at 68,706; JA at 8 (stating that “[a]fter

carefully considering the comments,” the FTC decided to “adopt[] the rule as proposed”). The

Final Rule rested on the FTC’s authority under 15 U.S.C. 18(a)(d) “to require that premerger

notification be in such form and contain such information and documentary material as may be

necessary and appropriate,” and “to define the terms used in the Act and prescribe such other

rules as may be necessary and appropriate to carry out the purposes” of the section. 78 Fed. Reg.

at 68,705–06; JA at 7–8 (citing 15 U.S.C. § 18a(d)(1), (2)). The rule “is limited to the

pharmaceutical industry,” but makes clear that “to the extent [] other industries engage in similar

exclusive licensing transactions, such transactions remain potentially reportable events under the

Act,” and that the FTC continued “to assess the appropriateness of a rule for other industries.”

78 Fed. Reg. at 68,706; JA at 8

                                                  9
        A brief review of the practice of transferring exclusive patent rights, as described in the

Final Rule (and the NPRM), is helpful in understanding the context for the FTC’s action.

                        a) Transfer of Exclusive Patent Rights

        As noted, while the HSR Act sets out statutory minimum threshold size requirements for

reportable acquisitions, 15 U.S.C. § 18a(a), the Act also authorizes the FTC to define critical

terms in order to target those transactions triggering the reporting requirement, id. §

18a(d)(2)(A). A patent is considered an asset by the FTC, the transfer of which may be

reportable. 78 Fed. Reg. at 68,706 & n.4; JA at 8 & n.4 (citing SCM Corp. v Xerox Corp., 645
F.2d 1195, 1210 (2d Cir. 1981), for proposition that “[s]ince a patent is a form of property . . .

and thus an asset, there seems little reason to exempt patent acquisitions from scrutiny under” the

HSR Act). Transactions may, however, involve the transfer of certain exclusive patent rights

without transferring the patent in its entirety, which requires a more searching analysis of the

nature of the rights being transferred. See id. According to the FTC, the transfer of the “right to

commercially use [a] patent, or a part of [a] patent, to the exclusion of all others . . . is

substantively the same as buying the patent or part of the patent outright” and is “a potentially

reportable asset acquisition under the Act.” Id. “For years” the Premerger Notification Office

(“PNO”), the division of the FTC that administers the premerger notification program, Def.’s

Mem. at 3, would evaluate whether the transfer of rights to a patent was potentially reportable by

analyzing whether the exclusive rights to “make, use, and sell” under a patent were being

transferred, see 78 Fed. Reg. at 68,706; JA at 8 (“[T]he PNO had only to verify that the transfer

involved the exclusive right to use a patent or part of a patent to develop a product, manufacture

the product, and sell that product without restriction”); see also Def.’s Mem. at 4. The FTC

                                                   10
explained that “[a]lthough never codified, the ‘make, use and sell’ approach became well-known

throughout the HSR bar and is reflected in the numerous letters and emails from practitioners in

the PNO’s informal interpretation database on its Web site,” 78 Fed. Reg. at 68,706 & n.8; JA at

8 & n.8 (including in a footnote a link to the online location of the informal interpretation

database).

       The Final Rule discussed two categories of patent rights transfers that, according to the

FTC, appeared predominantly, if not exclusively, in the pharmaceutical industry. 78 Fed. Reg. at

68,707–08; JA at 9–10. The first category of transactions occurs when the licensor sells

exclusive rights to use and sell a patent to a licensee, but retains for itself manufacturing rights.

Id. The FTC noted that “in the pharmaceutical industry, the right to manufacture is less

important than the right to commercialize,” such that transferring use and sale rights to a patent

and retaining “the right to manufacture solely for the licensee . . . has the same effect as a

transfer to the licensee of all patent rights” under the “make, use, and sell” approach. 78 Fed.

Reg. at 68,708; JA at 10. The second category of transactions occurs when the licensor retains

co-rights, which are “shared rights to assist the licensee in developing and commercializing the

patented product and includes rights to co-develop, co-promote, co-market, and co-

commercialize,” even though the licensor has already granted the licensee “an exclusive license

to ‘make, use, and sell’ under a patent.” 78 Fed. Reg. at 68,707; JA at 9. Under such

agreements, the licensor does not retain the right “to commercially use the patent or part of the

patent” and, consequently, even under the “make, use, and sell” approach, such transaction is

potentially reportable under “the PNO staff’s established position.” Id. These two categories of

patent rights transfers, where the licensor retains only manufacturing rights or co-rights, are the

                                                  11
subject of the FTC’s Final Rule.

                       b) Need for Proposed Rule

       According to the FTC, transfers of exclusive patent rights covered by the Final Rule

“carr[y] the same potential anticompetitive effects” as buying a patent outright. 78 Fed. Reg. at

68,706; JA at 8; see also 78 Fed. Reg. at 68,709; JA at 11 (transfers of patent rights subject to the

Final Rule “are functionally equivalent to patent transfers and are thus properly viewed as asset

acquisitions under the Act”); 78 Fed. Reg. at 68,711; JA at 13 (“Like patent sales, exclusive

patent licenses prevalent in the pharmaceutical industry are asset acquisitions that may produce

anticompetitive effects.”). Further, in the FTC’s view, “[a]llowing such transactions to go

unreported would deprive the Commission of an opportunity, consistent with the purpose of the

Act, to review these significant asset acquisitions that, like other reportable asset acquisitions, are

potentially anticompetitive.” 78 Fed. Reg. at 68,709; JA at 11. Consequently, the Final Rule

adopts the “all commercially significant rights” concept to determine whether the exclusive

rights to a patent are an “asset” subject to reporting under the Act, as proposed in the NPRM. 78

Fed. Reg. at 68,707; JA at 9; see also 77 Fed. Reg. at 50,059; JA at 3. The FTC pointed out that

the test for “‘all commercially significant rights’” adopted in the rule “captures more completely

what the ‘make, use, and sell’ approach was a proxy for, namely whether the license has

transferred the exclusive right to commercially use a patent or a part of a patent.” 78 Fed. Reg.

at 68,707; JA at 9. The FTC stated that “the amended reporting requirements are necessary to

effectuate the purposes of the HSR Act,” which “is intended to allow the Agencies to review

significant transactions to determine, prior to consummation of a transaction, if it is

anticompetitive.” 78 Fed. Reg. at 68,711; JA at 13. The FTC clarified that the rule only codified

                                                  12
“the PNO’s long-standing position that the retention of co-rights does not render a license to the

patent or part of the patent as non-exclusive,” and explained that “a reportable asset transfer may

occur even if the licensor retains the limited right to manufacture under the patent or part of a

patent for the licensee.” 78 Fed. Reg. 68,707; JA at 9; see also id. (“[W]ith the exception of the

treatment of the right to manufacture exclusively for the licensee, the rule treats the reportability

of exclusive licensing arrangements, including those where the licensor retains co-rights, in the

same way that the PNO has for decades.”).

                        c) Justification for Limiting Rule to the Pharmaceutical Industry

        The FTC limited the Final Rule to the pharmaceutical industry based upon the following

four findings: First, “exclusive patent licensing agreements that transfer all of the rights to

commercially use a patent or part of a patent almost solely occur in the pharmaceutical industry.”

78 Fed. Reg. at 68,708; JA at 10; see also id. (“[T]he PNO typically does not see exclusive

transfers of rights to a patent or part of a patent outside the pharmaceutical context, and this is

likely a result of the incentives that characterize the industry.”).

        Second, the use of this transfer mechanism in the pharmaceutical industry is growing. 78

Fed. Reg. at 68,706; JA at 8 (“In recent years . . . it has become more common for

pharmaceutical companies to transfer most but not all of the rights to ‘make, use and sell’ under

an exclusive license, such that [this] approach is no longer adequate in evaluating the

reportability of exclusive licenses in the pharmaceutical industry for HSR purposes.”); see also

78 Fed. Reg. at 68,707; JA at 9 (“[D]ue to the evolution of pharmaceutical patent licenses, the

‘make, use, and sell’ approach is no longer adequate to evaluate the HSR reportability of

exclusive patent licenses in the pharmaceutical industry.”).

                                                  13
         Third, according to the FTC, transfers of exclusive patent rights in the pharmaceutical

industry operate differently as compared to other industries. 78 Fed. Reg. at 68,708; JA at 10.

As explained in the Final Rule, a licensor typically grants exclusive patent rights to a licensee in

exchange for the requisite resources and funding to complete the FDA approval process, whereas

in other industries, the sale of a patent comes “at a much later stage in development, and the

patent owner can simply sell the patent for its proven value.” Id. 10 Further, outside the

pharmaceutical industry, licensors are typically incentivized to “engag[e] as many licensees as

possible,” rather than to grant exclusive licenses, as in the pharmaceutical industry. Id. The FTC

explained that it reached this conclusion “[b]ased on HSR filings and requests for advice on the

reportability of transactions,” id., noting that the FTC found that “[p]ractitioners who represent

clients in the pharmaceutical industry have often sought guidance from the PNO about” the

acquisitions covered by the Final Rule, 78 Fed. Reg. at 68,706; JA at 8. Consequently, the Final

Rule was limited to the pharmaceutical industry because “this is where the need for clarification

arises and where the Commission has experience with the relevant transactions.” 78 Fed. Reg. at

68,708; JA at 10. The Final Rule elaborated that, since 2008,

         the PNO received filings for 66 transactions involving exclusive patent licenses,
         and all were for pharmaceutical patents. The PNO has not found other industries
         that rely on these types of arrangements. Although it is possible for other
         industries to engage in the kind of exclusive licensing that typifies the
         pharmaceutical industry, the PNO has not processed filings related to these kinds
         of exclusive licenses in any other industry in the past five years. In addition,
         requests for guidance on the treatment of exclusive patent licensing transactions
         have generally been limited to the pharmaceutical industry. Accordingly, the

10
   The FTC provided an explanatory scenario that “[t]he PNO quite frequently sees”: an innovator discovers and
obtains a patent for a compound but lacks the resources to bring it to market, and subsequently enters into an
exclusive licensing agreement with a typically larger pharmaceutical company that will usher the drug through the
FDA approval process and subsequent marketing and promotion. 78 Fed. Reg. at 68,708; JA at 10. While the
licensee reaps the lion’s share of any profits, the innovator-licensor receives a smaller share of profits “through
royalties or other revenue sharing arrangements.” Id.
                                                         14
       Commission has not found a need for a rule applicable to other industries.

Id. (emphasis added). The Final Rule reiterated the points made in the NPRM that the rule

would “address the evolving structure of exclusive patent licenses in the pharmaceutical

industry, [and] provide[] the Agencies with a more effective means of reviewing exclusive patent

licenses meeting the statutory requirements under the Act.” 78 Fed. Reg. at 68,707; JA at 9.

       Finally, the FTC limited the new rule to one industry because it “need not take an all-or-

nothing approach . . . [but] may proceed incrementally” in promulgating regulations and “may

limit rules to those areas where [it has] observed a problem to be addressed.” 78 Fed. Reg. at

68,709–10; JA at 11–12. The FTC believed it was “not required to resolve a problem that may

occur more broadly ‘in one fell regulatory swoop’” but will, instead, “continue to assess the

appropriateness of a rule for other industries.” 78 Fed. Reg 68,710; JA at 12.

                      d) Consideration and Rejection of PhRMA’s Objections

       Throughout the Final Rule, the FTC addressed the objections PhRMA raised in its

comment to the NPRM. See generally 78 Fed. Reg. at 68,705–13; JA at 7–15. Specifically,

PhRMA criticized the proposed rule for three significant perceived shortcomings, none of which

were determined by the FTC to warrant modification or rejection of the rule as proposed in the

NPRM.

                             i.   Objection to Treatment of Retained Co-Rights

       First, PhRMA objected to the PNO’s uniform treatment of the retention of co-rights as

“unclear and/or inconsistent,” because it failed to “differentiate between the kinds, magnitude, or

scope of co-rights being retained,” as required under the HSR Act. 78 Fed. Reg. at 68,707; JA at

9. PhRMA reasoned that such a “blanket rule . . . mak[ing] the nature, extent, and other terms of

                                                15
co-rights retained by a licensor irrelevant to the transaction’s HSR reportability is at a minimum

overbroad.” PhRMA Comment at 12; JA at 33. The FTC gave two reasons for rejecting the

objection. First, the FTC explained that the new approach reflected in the Final Rule treated co-

rights consistently with the prior “make, use and sell” approach, “as illustrated by numerous

informal interpretations” available on the FTC’s public informal interpretations database. 78 Fed.

Reg. at 68,707; JA at 9. Second, the asset transfer determination “does not hinge” on the scope

of the co-right retained, “but on whether the exclusive patent license allows only the licensee to

commercially use the patent[.]” Id.

                             ii.   Objection to Limitation to Pharmaceutical Industry

       Second, PhRMA vigorously objected to limiting the Final Rule to the pharmaceutical

industry on five separate grounds, ranging from the use by other industries of similar patent

rights transfers and extending to challenging the fundamental authority of the agency to issue

such a rule. Each of these grounds were addressed in the Final Rule. First, in PhRMA’s view,

“there are agreements in other industries that involve the retention of manufacturing rights,”

which undermines the agency’s rationale for restricting the Final Rule to the pharmaceutical

industry. 78 Fed. Reg. at 68,708; JA at 10. In support of this objection, PhRMA cited examples

identified in the Varner Declaration of license agreements in which a party retains manufacturing

rights occurring outside of the pharmaceutical industry. See PhRMA Comment at 9 & n.36; JA

at 30 & n.36; Varner Decl. at 12–14; JA at 49–51. These agreements include “licensors

licens[ing patent rights] on an exclusive basis . . . and retain[ing] manufacturing rights” in the

chemical, electronic component, and medical device industries. Varner Decl. at 12–14; JA at

49–51; see, e.g., Varner Decl. at 13; JA at 50 (“Electronic Components: Licensor Sanken

                                                 16
Electric Co., Ltd., entered into a Distribution Agreement with Allegro MicroSystems, Inc. in

which Sanken licensed on an exclusive basis semiconductor technologies and retained the

manufacturing rights.”); Varner Decl. at 14; JA at 51 (“Medical Device Industry: Licensor

Unique Mobility, Inc. entered into a License Agreement and a Supply Agreement with Invacare

Corporation in which Unique Mobility licensed patented motor technology for wheelchairs on an

exclusive basis and retained the manufacturing rights.”). The FTC declined to expand the rule

across industries for two reasons. First, although acknowledging the examples of agreements of

purportedly similar rights transfers in other industries, the FTC viewed such arrangements as

distinct from the patent rights transfers covered in the Final Rule. Specifically, the FTC

explained that the proffered examples “are exclusive distribution agreements, which convey to

the licensee only the exclusive right to distribute the patented product . . . [and] the licensor

retains not just the right to manufacture but all commercially significant rights to the patent,” by

contrast to the type of transaction the FTC sought to regulate by promulgation of this rule. 78

Fed. Reg. at 68,708; JA at 10 (citing and distinguishing the Varner Declaration). Second, the

FTC noted that, other than these distribution agreements, PhRMA “has not identified any other

industry in which exclusive patent licenses, as opposed to exclusive distribution agreements, are

common.” 78 Fed. Reg. at 68,709; JA at 11.

       Second, PhRMA contested the premise expressed in the NPRM restricting the Final Rule

to the pharmaceutical industry on the basis that manufacturing is less important in the

pharmaceutical industry than the right to commercialize. 78 Fed. Reg. at 68,708; JA at 10.

Again, relying on the Varner Declaration, PhRMA’s Comment pointed out that “the right to

manufacture in pharmaceuticals can be important,” in part because pharmaceutical products may

                                                  17
have patents based on, inter alia, manufacturing technologies. See Varner Decl. at 15; JA at 52.

As support, the declaration listed a number of agreements in the pharmaceutical industry that

grant manufacturing, process, or production patents. Id. at 15–16; JA at 52–53; see, e.g., Varner

Decl. at 16; JA at 53 (“Merck & Co, Inc. entered into an Asset Transfer and License Agreement

with Guilford Pharmaceuticals Inc. in which “Process Patents” are specified”); id. (“Amgen Inc.

entered into a License and Commercialization Agreement with InterMune Pharmaceuticals, Inc.

in which ‘Manufacturing Patents’ are specified”). In response, the FTC stated that the referenced

discussion in the NPRM was not “a general assessment of the value of manufacturing,” but only

sought to “provide a possible explanation as to why the PNO sees exclusive patent licenses in the

pharmaceutical industry structured the way they are structured, namely more and more

frequently without the transfer of manufacturing rights.” 78 Fed. Reg. at 68,708; JA at 10.

       Third, PhRMA objected to the Final Rule’s restriction to the pharmaceutical industry

based on the industry’s unique “regulatory hurdles,” “incentives[,] and market structure,” since

these characteristics may be found in other industries. Id. The Final Rule acknowledged

PhRMA’s identification of other industries that encounter the same “regulatory hurdles” and,

further, that have similar “royalty rates” reflecting that “the incentives to maximize future profits

are no different.” Id.; see also Varner Decl. at 9–11; JA at 46–48. Nevertheless, the FTC

explained that “[t]he rule is limited to the pharmaceutical industry not because of the uniqueness

of the incentives in that industry but because it is the only industry to the PNO’s knowledge in

which exclusive patent licenses are prevalent.” 78 Fed. Reg. at 68,708–09; JA at 10–11; see also

78 Fed. Reg. at 68,709; JA at 11 (“[T]he exclusive patent licenses frequently seen in the

pharmaceutical industry have not been seen by the PNO in other industries.”). The FTC clarified

                                                 18
that its discussion of incentives and market structure was not a justification for restricting the

rule, but was raised to “help explain” why transferring patent rights in the pharmaceutical

industry “takes the form of an exclusive license instead of an outright sale.” 78 Fed. Reg. at

68,709; JA at 11.

       Fourth, PhRMA objected on the same grounds raised in this lawsuit, that the FTC does

not have the authority to “expand[] the Act’s requirements with respect to only a single

industry.” Id. In PhRMA’s view, the plain language and legislative history of the HSR Act

reflect Congress’s intent for uniform application of the FTC’s regulations, and, consequently, the

FTC has never before promulgated an HSR rule that “increases the [HSR] Act’s requirements for

only a single industry, nor has it even tried to do so until now.” PhRMA Comment at 3; JA at

24; see also PhRMA Comment at 4–5; JA at 25–26 (reasoning that Congress “nowhere granted

the FTC authority to increase the HSR Act’s reporting burden for only a single industry” ). By

contrast to other statutory schemes, where Congress has explicitly imposed additional filing

requirements on the pharmaceutical industry, Congress has not done so under the HSR Act.

PhRMA Comment at 4–5; JA at 25–26. The FTC disagreed with this statutory interpretation for

two reasons. First, the FTC stated its view that the Final Rule was not an expansion of the FTC’s

statutory authority, nor an expansion of the HSR Act’s coverage, but a rulemaking to determine

which types of transactions already covered by the HSR Act constitute asset transfers requiring

notification. 78 Fed. Reg. at 68,709; JA at 11. Second, the FTC stated that “Section

18(a)(d)(2)(B), which grants the Commission [exemption] authority . . . does not limit the broad

and discretionary rulemaking authority granted in Sections 18a(d)(2)(A) and (C).” Id. It further

reasoned that “[t]he authority to exempt specific industries or transactions from the Act’s filing

                                                  19
requirements is not inconsistent with the authority to implement these requirements on an

industry-specific basis prior to consummation of these agreements.” Id.

       Finally, PhRMA objected that applying the rule selectively on an industry-specific basis

was “arbitrary and capricious” for failure to provide sufficient evidentiary support. PhRMA

Comment at 8; JA at 29. As support for this objection, PhRMA stated that the FTC does not

provide “facts and analysis” or objective evidence in support of the rule but “offers up only its

own [agency] ‘expertise,’” which is insufficient. Id. Furthermore, since the licensing

transactions subject to the rule “are not limited to the pharmaceutical industry” and are found in

other industries, which have the same incentives for retaining co-rights and manufacturing rights

as the pharmaceutical industry, the industry-specific rule is not well-reasoned. PhRMA

Comment at 9–10; JA at 30–31. The FTC disagreed, providing three reasons justifying its

adoption of the rule as proposed. First, the FTC explained that the rule applied to the

pharmaceutical industry “because the PNO has not received filings over the past five years for

exclusive patent licensing arrangements in other industries and requests for guidance on the

treatment of exclusive patent licensing arrangements have nearly always come from practitioners

in the pharmaceutical industry.” 78 Fed. Reg. at 68,709; JA at 11. The FTC added that its

experience allows it “to tailor the rule to the pharmaceutical industry.” Id. Second, the FTC

stated that its experience “indicated a need for a rule for the pharmaceutical industry” but that “at

this time, the [FTC] has not yet determined that a specific rule is necessary with respect to other

industries.” Id. The FTC stated that to the extent they occur, such transfers of exclusive rights

may still be reportable “under the Act and existing HSR rules.” Id. Third, the FTC stated that it

“may limit rules to those areas where they have observed a problem to be addressed,” id., and

                                                 20
that the FTC “need not take an all-or-nothing approach” but may “proceed incrementally,” 78

Fed. Reg. at 68,710; JA at 12.

                             iii.   Objections As To Cost

       As a third category of objections to the Final Rule, PhRMA raised concern over the costs

of the proposed rule. Specifically, PhRMA’s objected to the premerger notification requirement

because the filing cost would have a negative impact on small businesses, 78 Fed. Reg. at

68,711; JA at 13, by “increas[ing] by at least 50% the number of HSR filings required annually

by members of the pharmaceutical industry” resulting in “substantial” costs “with small

businesses bearing a significant brunt of” these costs. PhRMA Comment at 13; JA at 34. The

FTC rejected this predicted impact on small businesses for three reasons. First, the FTC stated

that a transaction “must be valued at more than $50 million (as adjusted)” to fall under the HSR

Act, which “typically [would] not catch most transactions involving small entities.” 78 Fed.

Reg. at 68,710; JA at 12. Second, the FTC reasoned that because the HSR Act requires a party

to the transaction to have at least $10 million in sales, the “size of person test also ensures that

the Act does not regularly reach small entities.” Id. Third, the FTC stated that any small

business having to file such notification “would in most instances be filing under the Act as the

acquired person in the context of an asset transaction and would therefore be submitting less

information” resulting in less of a burden on small entities. Id. Regarding the concerns that such

increased filing costs “could chill pharmaceutical transactions,” the FTC responded that such

filing costs are relatively small compared to “the profits at stake in the multi-million dollar

transactions reportable under the Act,” and thus, would not be a deterrent. Id. Moreover, the

FTC pointed out that the parties would likely “conduct a patent valuation as part of their due

                                                  21
diligence notwithstanding HSR” and that therefore the transferring parties would already be

incurring these costs regardless of the promulgation of the Final Rule. Id.

       Additionally, related to the concern over cost, the FTC analyzed the cost estimates of

filing requirements and filing fees submitted by PhRMA in its original comment and

supplemental documentation. JA at 72–74 (Letter dated June 7, 2013, from plaintiff’s counsel to

an FTC Commissioner); 78 Fed. Reg. at 68,711–12; JA at 13–14; see also PhRMA Comment at

13–14; JA at 34–35. The FTC concluded that PhRMA’s estimates were higher than those of the

FTC’s, and consequently adjusted its burden increase estimate “out of an abundance of caution

and in light of the comments.” 78 Fed. Reg. at 68,712; JA at 14; see also id. (responding to

PhRMA comment’s concern regarding the costs of responding to additional information

requests).

                      e) PhRMA’s Complaint

       Less than a week before the effective date of the Final Rule, PhRMA filed the instant

action challenging the FTC’s promulgation of the Final Rule. See generally Compl. PhRMA

alleges in three claims under the APA that the issuance of the Final Rule was: (1) “in excess of

[the FTC’s] statutory jurisdiction, authority, or limitations” under the HSR Act, 5 U.S.C. §

706(2)(C); Compl. ¶¶ 89–93 (Count I); (2) “arbitrary, capricious, and an abuse of discretion,” 5

U.S.C. § 706(2)(A); Compl. ¶¶ 94–100 (Count II); and (3) “without observance of procedure

required by law,” 5 U.S.C. § 706(2)(D); Compl. ¶¶ 101–06 (Count III). Count Four of PhRMA’s

complaint seeks a declaratory judgment “clarifying the legal relations of the parties.” Compl. ¶¶

107–09 (Count IV). In addition, PhRMA seeks vacatur of the Rule, attorneys’ fees, and a

permanent injunction preventing the FTC and its officers from “enforcing, applying, or

                                                22
implementing” the Final Rule. Compl. at 26.

       The parties’ cross-motions for summary judgment are now pending before this Court.

See Pl.’s Mem.; Def.’s Mem.

II.    STANDARD OF REVIEW

       A.      Summary Judgment Standard

       Pursuant to Federal Rule of Civil Procedure 56, summary judgment may be granted when

the Court finds, based upon the pleadings, depositions, and affidavits and other factual materials

in the record, “that there is no genuine dispute as to any material fact and the movant is entitled

to judgment as a matter of law.” FED. R. CIV. P. 56(a), (c); see Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 247 (1986). “A genuine issue of material fact exists if the evidence, ‘viewed in a

light most favorable to the nonmoving party,’ could support a reasonable jury’s verdict for the

non-moving party.” Muwekma Ohlone Tribe v. Salazar, 708 F.3d 209, 215 (D.C. Cir. 2013)

(quoting McCready v. Nicholson, 465 F.3d 1, 7 (D.C. Cir. 2006)).

       When, as here, “a party seeks review of agency action under the APA, the district judge

sits as an appellate tribunal. The ‘entire case’ on review is a question of law.” Am. Bioscience,

Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001) (citing Marshall Cnty. Health Care

Auth. v. Shalala, 988 F.2d 1221, 1226 (D.C. Cir. 1993); and Univ. Med. Ctr. of S. Nevada v.

Shalala, 173 F.3d 438, 440 n. 3 (D.C. Cir. 1999)). Accordingly, this Court need not and ought

not engage in lengthy fact finding, since “[g]enerally speaking, district courts reviewing agency

action under the APA’s arbitrary and capricious standard do not resolve factual issues, but

operate instead as appellate courts resolving legal questions.” James Madison Ltd. by Hecht v.

Ludwig, 82 F.3d 1085, 1096 (D.C. Cir. 1996); see also Sierra Club v. Mainella, 459 F. Supp. 2d
23
76, 90 (D.D.C. 2006) (“Under the APA . . . the function of the district court is to determine

whether or not as a matter of law the evidence in the administrative record permitted the agency

to make the decision it did.”) (quotation marks and citation omitted)); accord McDonough v.

Mabus, 907 F. Supp. 2d 33, 42 (D.D.C. 2012); Wilson v. McHugh, 842 F. Supp. 2d 310, 315

(D.D.C. 2012). Judicial review is limited to the administrative record. 5 U.S.C. § 706(2) (“[T]he

Court shall review the whole record or those parts of it cited by a party . . . .”); Florida Power &

Light Co. v. Lorion, 470 U.S. 729, 743–44 (1985) (in applying the arbitrary and capricious

standard under the APA, “[t]he focal point for judicial review should be the administrative

record already in existence . . . .” (quoting Camp v. Pitts, 411 U.S. 138, 142 (1973))).

        B.      Chevron Framework

        The D.C. Circuit has applied the familiar two-step process set out in Chevron U.S.A., Inc.

v. Natural Res. Def. Council, Inc. (Chevron), 467 U.S. 837, 842 (1984), for judicial review

determining whether an agency has acted “in excess of statutory jurisdiction, authority or

limitations, or short of statutory right” under the APA. See Am. Fed’n of Gov’t Emps., AFL-CIO,

Local 3669 v. Shinseki, 709 F.3d 29, 32–33 (D.C. Cir. 2013). The court must begin at Chevron

Step One by “ask[ing] whether Congress has directly addressed the precise question at issue.”

Mayo Found. for Med. Educ. & Research v. United States, 131 S. Ct. 704, 706 (2011) (internal

citations omitted). “‘If the intent of Congress is clear, that is the end of the matter; for the court,

as well as the agency, must give effect to the unambiguously expressed intent of Congress.’”

City of Arlington, Tex. v. FCC, 133 S. Ct. 1863, 1868 (2013) (quoting Chevron, 467 U.S. at 842–

43). A statute that is unambiguous “means that there is ‘no gap for the agency to fill’ and thus

‘no room for agency discretion.’” United States v. Home Concrete & Supply, LLC, 132 S. Ct.
24
1836, 1843 (2012) (quoting Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545
U.S. 967, 982–83 (2005)). To discern whether Congress has addressed the precise question, the

court applies the “traditional tools of statutory construction.” Id. at 1844 (quoting Chevron, 467
U.S. at 843 n.9). These tools include evaluation of the plain statutory text at issue, the purpose

and structure of the statute as a whole, while giving effect, if possible, to every clause and word

of a statute, and—where appropriate—the drafting history. See Loving v. IRS, 742 F.3d 1013,

1016 (D.C. Cir. 2014) (quoting Pharm. Research & Mfrs. of Am. v. Thompson, 251 F.3d 219,

224 (D.C. Cir. 2001)); see also Duncan v. Walker, 533 U.S. 167, 174 (2001); Bell Atl. Tel. Co. v.

FCC, 131 F.3d 1044, 1047 (D.C. Cir. 1997).

       If the statute is silent or ambiguous with respect to the specific issue under consideration,

however, the analysis shifts to Chevron Step Two, where “the question for the court is whether

the agency’s answer is based on a permissible construction of the statute.” City of Arlington,

Tex., 133 S. Ct. at 1868. The job of the courts is not to engage in “their own interstitial

lawmaking” and “mak[e] public policy by prescribing the meaning of ambiguous statutory

commands.” Id. at 1873. Rather, the “archetypal Chevron questions, about how best to construe

an ambiguous term in light of competing policy interests” belongs to the “agencies that

administer the statutes.” Id. When Congress has delegated to the agency authority to make rules

carrying the force of law, and the challenged agency interpretation was promulgated in the

exercise of that authority, then the agency’s rule is entitled to deference “as long as it is a

permissible construction of the statute, even if it differs from how the court would have

interpreted the statute in the absence of an agency regulation.” Sebelius v. Auburn Reg’l Med.

Ctr., 133 S. Ct. 817, 826 (2013); see also Nat’l Cable & Telecomms. Ass’n, 545 U.S. at 980 (“If

                                                  25
a statute is ambiguous, and if the implementing agency’s construction is reasonable, Chevron

requires a federal court to accept the agency’s construction of the statute, even if the agency’s

reading differs from what the court believes is the best statutory interpretation.”).

        Even when Congress has not provided the agency an express delegation of authority or

responsibility “‘to implement a particular provision or fill a particular gap, [ ] it can still be

apparent from the agency’s generally conferred authority and other statutory circumstances that

Congress would expect the agency to be able to speak with the force of law when it addresses

ambiguity in the statute or fills a space in the enacted law, even one about which Congress did

not actually have an intent as to a particular result.’” Home Concrete & Supply, LLC, 132 S. Ct.

at 1843–44 (quoting United States v. Mead Corp., 533 U.S. 218, 229 (2001)). Agencies are

owed deference under Chevron even where their interpretation of an ambiguous statutory

provision “could be said to delineate the scope of the agency’s jurisdiction.” Verizon v. FCC,

740 F.3d 623, 635 (D.C. Cir. 2014) (noting that “the Supreme Court has recently made [this]

clear”); see also City of Arlington, Tex., 133 S. Ct. at 1870 (holding that “there is no difference,

insofar as the validity of agency action is concerned, between an agency’s exceeding the scope of

its authority (its ‘jurisdiction’) and its exceeding authorized application of authority that it

unquestionably has” (emphasis in original)).

        C.      Administrative Procedure Act

        Under the APA, a reviewing court shall “hold unlawful and set aside agency action,

findings, and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law,” 5 U.S.C. § 706(2)(A), “in excess of statutory jurisdiction,

                                                   26
authority, or limitations, or short of statutory right,” id. § 706(2)(C), or “without observance of

procedure required by law,” id. § 706(2)(D).

       In evaluating agency actions under the “arbitrary and capricious” standard, courts must

consider “whether the [agency’s] decision was based on a consideration of the relevant factors

and whether there has been a clear error of judgment.” Marsh v. Oregon Natural Res. Council,

490 U.S. 360, 378 (1989) (citation and internal quotation marks omitted); Citizens to Preserve

Overton Park v. Volpe, 401 U.S. 402, 416 (1971); Blue Ridge Envtl. Def. League v. Nuclear

Regulatory Comm’n, 716 F.3d 183, 195 (D.C. Cir. 2013). The scope of review under this

standard “is narrow and a court is not to substitute its judgment for that of the agency.” Motor

Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co. (State Farm), 463 U.S. 29, 30 (1983); see

also Verizon, 740 F.3d at 644 (citing Nat’l Tel. Coop. Ass’n v. FCC, 563 F.3d 536, 541 (D.C.

Cir. 2009)); Agape Church, Inc. v. FCC, 738 F.3d 397, 408 (D.C. Cir. 2013) (citing Cablevision

Sys. Corp. v. FCC, 597 F.3d 1306, 1311 (D.C. Cir. 2010)).

       “[T]he arbitrary and capricious standard is ‘highly deferential’ and ‘presumes agency

action to be valid[.]’” Am. Trucking Ass’ns, Inc. v. Fed. Motor Carrier Safety Admin., 724 F.3d
243, 245 (D.C. Cir. 2013) (quoting Am. Wildlands v. Kempthorne, 530 F.3d 991, 997 (D.C. Cir.

2008)); Envtl. Def. Fund, Inc. v. Costle, 657 F.2d 275, 283 (D.C. Cir. 1981). If an agency,

however, “failed to provide a reasoned explanation, or where the record belies the agency’s

conclusion, [the court] must undo its action.” Cnty. of Los Angeles v. Shalala, 192 F.3d 1005,

1021 (D.C. Cir. 1999). At the very least, the agency must have reviewed relevant data and

articulated a satisfactory explanation establishing a “rational connection between the facts found

and the choice made.” State Farm, 463 U.S. at 43 (internal quotation marks omitted); see also

                                                 27
Pub. Citizen, Inc. v. FAA, 988 F.2d 186, 197 (D.C. Cir. 1993) (“The requirement that agency

action not be arbitrary or capricious includes a requirement that the agency adequately explain its

result.”).

        “[A]n agency acts arbitrarily or capriciously if it ‘has relied on factors which Congress

has not intended it to consider, entirely failed to consider an important aspect of the problem,

offered an explanation for its decision that runs counter to the evidence before the agency, or is

so implausible that it could not be ascribed to a difference in view or the product of agency

expertise.’” Am. Wildlands, 530 F.3d at 997–98 (quoting State Farm, 463 U.S. at 43). While the

agency’s explanation cannot “run[ ] counter to the evidence,” State Farm, 463 U.S. at 43, courts

should “uphold a decision of less than ideal clarity if the agency’s path may reasonably be

discerned,” Bowman Transp., Inc. v. Arkansas–Best Freight Sys., Inc., 419 U.S. 281, 286 (1974).

Furthermore, when an agency has acted in an area in which it has “special expertise,” the court

must be particularly deferential to the agency’s determinations. Sara Lee Corp. v. Am. Bakers

Ass’n Ret. Plan, 512 F. Supp. 2d 32, 37 (D.D.C. 2007) (quoting Bldg. & Constr. Trades Dep’t,

AFL–CIO v. Brock, 838 F.2d 1258, 1266 (D.C. Cir. 1988)). “Deferring as appropriate to the

agency’s expertise and looking only for ‘a rational connection between the facts found and the

choice made,’” Am. Trucking Ass’ns, Inc., 724 F.3d at 249 (quoting State Farm, 463 U.S. at 43),

“we remain ever mindful that in performing ‘a searching and careful inquiry into the facts, we do

not look at the [agency’s] decision as would a scientist, but as a reviewing court exercising our

narrowly defined duty of holding agencies to certain minimal standards of rationality.’” Id.

(quoting Nat’l Envtl. Dev. Ass’ns Clean Air Project v. EPA, 686 F.3d 803, 810 (D.C. Cir. 2012)).

                                                 28
III.   DISCUSSION

       In challenging the Final Rule regulating the transfer of certain exclusive patent rights in

the pharmaceutical industry, PhRMA contends that the limited application of the Rule to the

pharmaceutical industry exceeds the FTC’s grant of statutory authority under the HSR Act,

Compl. ¶¶ 89–93 (Count I), in violation of 5 U.S.C. § 706(2)(C), and was arbitrary and

capricious, Compl. ¶¶ 94–100 (Count II), in violation of 5 U.S.C. § 706(2)(A). See Pl.’s Mem. at

1–2. PhRMA further argues that the Rule should be set aside because the FTC failed to include

in the rulemaking record the factual basis for its decision contrary to the procedure required by

law, Compl. ¶¶ 101–06 (Count III), in violation of 5 U.S.C. § 706(2)(D), by failing to include in

the rulemaking record the factual basis for its decision. See Pl.’s Mem. at 29–30. The FTC

cross-moves for summary judgment, contending: (1) the FTC is entitled to Chevron deference in

its interpretation of the HSR Act’s grant of authority to promulgate industry-specific rules, Def.’s

Mem. at 9–15; and (2) the FTC provided a reasoned basis for its promulgation of the Rule that

was supported by sufficient facts referenced in publicly available information, Def.’s Mem. at

15–28. For the reasons set out below, the Court agrees with the FTC.

       A.      FTC is Entitled to Deference on Scope of Statutory Authority

       PhRMA contends that the FTC has exceeded its grant of authority under the HSR Act by

promulgating a rule that applies only to the pharmaceutical industry because Congress has

directly spoken on the issue and expressed its intent to have the premerger notification

requirements apply uniformly across all industries. Pl.’s Mem. at 16–22. Thus, PhRMA asserts

that the Court’s analysis may stop at Chevron Step One because “Congress has directly

addressed the precise question at issue.” Mayo Found. for Med. Educ. & Research, 131 S. Ct. at

                                                29
706 (internal citations omitted). PhRMA supports this argument with four points: (1) the FTC’s

power to exempt certain industries from premerger notification requirements under section

18a(d)(2)(B) does not grant the FTC authority to expand selectively the scope of the pre-merger

reporting requirements on a piecemeal basis, Pl.’s Mem. at 16–17; (2) the legislative history of

the HSR Act “confirms that Congress did not intend to give the FTC authority to extend the

Act’s coverage on such selective terms,” id. at 17–18; (3) industry-specific notification

requirements, such as those promulgated in the Final Rule, contravene the purpose of the HSR

Act, id. at 18–19; and (4) the FTC’s rulemaking authority, including the discretion to define the

terms in the HSR Act under subsection (d)(2)(A), and prescribe other “necessary and

appropriate” rules to carry out the purpose of the HSR Act under subsection (d)(2)(C), do not

otherwise grant the FTC the authority to issue an industry-specific rule, id. at 19–22. The FTC

disputes that Congress has directly addressed the issue in the HSR Act and instead contends,

under Chevron Step Two, that the agency’s interpretation of the statute is entitled to deference.

See Def.’s Mem. at 11–14.

        The Court first addresses the parties’ arguments under Chevron Step One and concurs

with the FTC that the statute does not expressly address whether the HSR Act premerger

notification requirements may be applied selectively to a particular industry. Next, the Court

examines the parties’ arguments under Chevron Step Two, finding that the FTC’s interpretation

is entitled to deference.

                1.      HSR Act Does Not Directly Address Industry-Specific Rules

        Subsection (a) of the HSR Act states that “[e]xcept as exempted pursuant to subsection

(c) of this section, no person shall acquire, directly or indirectly, any . . . assets of any other

                                                   30
person, unless both persons file notification . . . .” 15 U.S.C. § 18a(a) (emphasis added).

PhRMA seizes upon the “broad, unqualified” “no person” words to conclude that the HSR Act

was intended to apply with equal force across all industries, subject only to the exceptions under

subsection (c). Pl.’s Mem. at 16; Pl.’s Reply at 4–5. PhRMA’s narrow focus on these two words

is too thin a reed to rest its conclusion given the broader language granting the FTC rulemaking

and exemption authority.

       To determine the plain meaning of a statute, the court must look not only to “the

particular statutory language at issue,” but also to “the language and design of the statute as a

whole.” K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988) (citations omitted); see also

United States v. Ali, 718 F.3d 929, 938 (D.C. Cir. 2013) (quoting FDA v. Brown & Williamson

Tobacco Corp., 529 U.S. 120, 133 (2000), for the proposition that “[i]t is a fundamental canon of

statutory construction that the words of a statute must be read in their context and with a view to

their place in the overall statutory scheme”). The court assumes “that the legislative purpose is

expressed by the ordinary meaning of the words used.” Sec. Indus. Ass’n v. Bd. of Governors,

468 U.S. 137, 149 (1984) (internal quotation and citations omitted). Here, the inclusion of the

“no person” words does not manifest Congress’s express intent to have the statute apply

uniformly because Congress also enumerated multiple broad exemptions, including a catch-all

exemption in subsection (c)(12), which the FTC is authorized to apply. Under subsection (c),

certain “classes of transactions” are expressly exempt from the HSR Act, including any

“acquisitions of goods or realty transferred in the ordinary course of business,” “acquisitions of

bonds, mortgages, deeds of trust, or other obligations which are not voting securities,” “transfers

to or from a Federal agency or a State or political subdivision,” and certain “acquisitions, solely

                                                 31
for the purpose of investment, by any bank, banking association, trust company, investment

company, or insurance company.” 15 U.S.C. § 18a(c)(1), (2), (4), (11). These exemptions

militate against finding that Congress intended uniform application of the reporting requirements

for three reasons. First, these statutory exemptions distinguish between industries. For example,

exemption (c)(11) exempts the banking industry from certain transactions that other industries

must report. This is an explicit recognition by Congress that crafting industry-specific rules may

be necessary to achieve the goals of the HSR Act. Second, while some exemptions are

circumscribed, Congress also included broad exemptions, such as transfers “in the ordinary

course of business.” id. § 18a(c)(1). Congress granted authority to the FTC to define the

transactions constituting transfers “in the ordinary course of business” and thereby limit the

otherwise potentially boundless scope of this exemption. See id. § 18a(d)(2)(A) (granting FTC

definitional authority). Third, the FTC was granted authority to exempt from the reporting

requirement “classes of persons, acquisitions, transfers, or transactions which are not likely to

violate the antitrust laws.” See 15 U.S.C. § 18a(d)(2)(B); see also id. § 18a(c)(12) (exempting

from reporting requirements “such other acquisitions, transfers, or transactions, as may be

exempted under subsection (d)(2)(B) of this section”). While the FTC is not permitted to exempt

a specific “person” from the reporting requirements, Section 18a(c)(12) and (d)(2)(B) authorize

the FTC to exempt general “classes” of persons or transactions. This plain language is

sufficiently broad to cover or exempt entire industries or certain classes of transactions within

industries. The broad scope of the exemptions provided in the HSR Act significantly

undermines PhRMA’s argument that the “no person” words reflect a Congressional intent for

uniform application of the reporting requirements, with only limited exemptions. To the

                                                 32
contrary, the nature of the statutory exemptions, combined with the express grants of authority to

the FTC to extend those exemptions even more broadly, make plain that the reporting

requirements were intended to be a scalpel, rather than a blunt sword, to target precisely those

transactions actually posing an antitrust threat.

       PhRMA acknowledges that subsection (d)(2)(B) grants the FTC exemption authority, but

contends that this authority is “narrowly drawn, authorizing the agency to relieve certain classes

of persons or transactions” but not “to impose[] new burdens selectively on a targeted class of

persons (i.e., those in the pharmaceutical industry only).” Pl.’s Mem. at 17 (emphasis in

original). In other words, PhRMA’s view is that the FTC has authority to exercise forbearance,

but not to subject selected industries to regulation. This argument rests on two inter-related

premises: first, that the FTC’s definitional and rulemaking authority, under 15 U.S.C. § 18a

(d)(1), (d)(2)(A), and (d)(2)(C), which it exercised in promulgating the Final Rule, may only be

exercised to promulgate rules of general applicability; and, second, that the FTC may only use

its exemption authority, under 15 U.S.C. § 18a (c)(12) and (d)(2)(B), narrowly to relieve from,

not subject to, reporting requirements a class of persons or transactions. Pl.’s Mem. at 16–17,

19. PhRMA’s interpretation of the manner in which the FTC may exercise its definitional,

rulemaking, and exemption authority under the HSR Act is not implausible, but that is simply

not enough. In order “to prevail under Chevron step one, the [plaintiff] must do more than offer

a reasonable or, even the best, interpretation; it must show that the statute unambiguously

forecloses the [agency]’s interpretation.” See Vill. of Barrington, Ill. v. Surface Transp. Bd., 636
F.3d 650, 661 (D.C. Cir. 2011) (citing Chevron, 467 U.S. at 843 n.11). With regards to the first

premise, the FTC’s rulemaking and definitional authority are not expressly limited by the

                                                    33
requirement that the FTC promulgate only general rules and not industry-specific rules. For

example, subsection (d)(1) authorizes the FTC to require reporting “in such form” with “such

documentary material and information relevant to a proposed acquisition as is necessary and

appropriate to enable” a determination “whether such acquisition may, if consummated, violate

the antitrust laws.” 15 U.S.C. § 18a(d)(1). Rather than directing all documentation for every

covered acquisition to be the same, this provision authorized the enforcement agencies to focus

on “necessary and appropriate” documentation for a specific “proposed acquisition.” Likewise,

the FTC’s definitional authority is not restricted to bar selective application of regulations, but

rather gives the agency a blank slate to “define the terms used in this section.” 15 U.S.C. § 18a

(d)(2)(A). Finally, the rulemaking authority granted to the FTC is broadly awarded to “prescribe

such other rules as may be necessary and appropriate to carry out the purposes of this section.”

15 U.S.C. § 18a (d)(2)(C). Nothing in this text restricts the FTC to generating only general rules

rather than industry specific rules. In short, the FTC’s issuance of an industry-specific rule is not

foreclosed by the use of the words “no person” in the general prohibition, as PhRMA contends,

when contextual examination of this provision reveals such varied and open-ended exemptions

also authorized by Congress.

        The D.C. Circuit’s decision in Environmental Defense Fund, Inc. v. EPA, 82 F.3d 451,

465 amended sub nom. Envtl. Def. Fund v. EPA, 92 F.3d 1209 (D.C. Cir. 1996), is illustrative of

this point, although not cited or discussed in the briefing on the pending cross-motions for

summary judgment. The plaintiff in that case made the same unsuccessful statutory

interpretation argument asserted by PhRMA here: namely, that a statute written with the

operative prohibition covering “[n]o department, agency or instrumentality” indicates Congress’s

                                                 34
intent that the regulations issued pursuant to that statute must apply uniformly. Id. At issue in

Environmental Defense Fund was a statutory provision providing that “[n]o department, agency,

or instrumentality of the Federal Government shall engage in . . . any activity” that does not

“conform” to an EPA implementation plan, which language, according to the plaintiff in that

case, “shows that the Congress intended the general conformity requirement to apply to every

activity of the federal government.” Id. The Circuit disagreed. It found that such language was

not “so rigid” that it must apply to all federal government activity, finding that, despite the

sweeping language, “nothing in the statute [] preclude[d]” the EPA from categorically exempting

certain federal government activities that produced de minimis emissions from conforming to the

EPA’s implementation plan. Id. at 466–67. Rather, the Circuit remarked that “it seems

eminently reasonable for the EPA to interpret this provision to refer to ‘any activity’ that is likely

to interfere with the attainment goals” in the statute rather than any activity undertaken by the

federal government. Id. In other words, the D.C. Circuit rejected the argument that the “no

department, agency, or instrumentality” language at issue there, similarly to the “no person”

language highlighted by PhRMA here, necessarily entails broad, uniform application, as PhRMA

contends. Furthermore, in that case, unlike the instant case, the EPA was not expressly granted

the authority to exempt any “department, agency, or instrumentality” from the provisions of the

statute, yet the Court still found the agency authorized to grant exemptions from the purportedly

“broad prohibition” without contravening the statute’s terms. Id. at 465–67; see also id. at 456

n.7. Here, not only does the FTC have exemption authority, the “no person” language is further

qualified by exemptions that Congress enumerated.

                                                 35
       The conclusion that PhRMA’s interpretation that the HSR Act requires uniform

application of reporting requirement to all “persons” is further undermined by a structural review

of the statute. The nature of the FTC’s rulemaking authority makes plain Congress’s intent for

the FTC to promulgate rules “necessary and appropriate to carry out the purposes of this

section.” 15 U.S.C. § 18a(d)(2)(C). Indeed, as another Judge on this Court found in American

Petroleum Institute v. SEC, 953 F. Supp. 2d 5, 20–23 (D.D.C. 2013), promulgating a rule of

general applicability may contravene Congress’s express intent that the FTC promulgate

“necessary and appropriate” rules. In American Petroleum, the Securities and Exchange

Commission (“SEC”)’s rulemaking was ruled arbitrary and capricious when the SEC

promulgated a rule of general applicability providing for no exemptions. Id. at 20, 23. The SEC

justified its general rule by stating that adopting exemptions “would be inconsistent with the

structure and language” of the statutory text and “would undermine Congress’ intent,” which the

SEC did not wish to “frustrate.” Id. at 21. Notably, the statute in that case contained language

similar to the HSR Act, granting the SEC discretion to “exempt in whole or in part any issuer or

class of issuers . . . upon such terms and conditions . . . as it deems necessary or appropriate” if

“not inconsistent with the public interest.” Id. The Court held that exercising this discretionary

exemption authority may “in some circumstances, be required by the Commission’s competing

statutory obligations,” such as a separate provision stating that the SEC “‘shall not adopt any . . .

rule or regulation which would impose a burden on competition not necessary or appropriate in

furtherance of the purposes of this chapter.” Id. (citing 15 U.S.C. § 78w(a)(2)) (emphasis

added). Similarly, here the FTC may be compelled by the terms of the HSR Act to issue a rule

that is not generally applicable when the FTC determines that it is not necessary or appropriate to

                                                  36
regulate similar transactions in other industries. This structural review of the Act lends further

support to the FTC’s interpretation that the agency’s authority is not limited to issuing only

generally applicable rules, as PhRMA contends, but rather that the statute requires otherwise in

some circumstances.

        With regards to PhRMA’s second premise—that the FTC’s exemption authority under 15

U.S.C. § 18a(c) and (d)(2)(B)—allows for enforcement forbearance but not selective application

of certain regulations, is of limited relevance since this is not the source of the authority relied

upon by the FTC to promulgate the Final Rule. In any event, the word “exempt,” which is

defined as “to free or release from a duty or liability to which others are held,” see BLACK’S LAW

DICTIONARY 653 (9th ed. 2009), does not, standing alone, indicate that the number of entities

subject to “a duty or liability” must outnumber those entities “free[d] or release[d]” from a duty.

In other words, broad applicability of an exemption does not run afoul of the plain meaning of

the word “exempt.”

        Nor is there any indication in the statute that Congress intended to foreclose the FTC’s

effective grant of such broad exemptions. The only limit on the FTC’s authority to exempt

“classes of persons” or transactions are that they “are not likely to violate the antitrust laws.” 15

U.S.C. § 18a(d)(2)(B). The D.C. Circuit has held that similar statutory language granting

exemption authority confers “very broad discretion” on the agency. See Nat’l Small Shipments

Traffic Conference, Inc. v. Civil Aeronautics Bd., 618 F.2d 819, 827 (D.C. Cir. 1980)

(interpreting plain meaning of agency’s authority to “exempt ‘any person or class of persons’

from ‘the requirements of this title or any provision thereof’ . . . if it finds that the exemption is

consistent with the public interest.”). Indeed, even when an agency is not expressly granted

                                                  37
exemption authority in the statute, the D.C. Circuit has held that “[c]ategorical exemptions from

the clear commands of a regulatory statute,” though disfavored, are permissible. Ala. Power Co.

v. Costle, 636 F.2d 323, 358–60 (D.C. Cir. 1979) (outlining situations where agency could

promulgate broad, categorical exemptions from statute even if “not explicitly provided in the

statute,” such as for the sake of administrative necessity or infeasibility, or if activity has de

minimis effect (citing Morton v. Ruiz, 415 U.S. 199 (1973); Nat’l Res. Def. Council, Inc. v.

Train, 510 F.2d 692 (1974)); and District of Columbia v. Orleans, 406 F.2d 957, 959 (1968))).

        Given the FTC’s broad exemption authority, the agency could have achieved the same

purpose reflected in the Final Rule by issuing a generally applicable rule that exempted all

industries other than the pharmaceutical industry on the basis that similar transactions in other

industries do not pose an antitrust threat. Under PhRMA’s reasoning, formulation of the rule in

this manner would have comported with the FTC’s statutory authority. Requiring the FTC to

promulgate rules according to this formulation, however, would have the same effect as an

industry-specific regulation and would “elevate form completely over substance.” See Simmons

v. ICC, 697 F.2d 326, 332–34 (D.C. Cir. 1982) (finding that, in order to grant a partial

exemption, agency was not required to “first have to grant a total exemption and then revoke that

exemption in part” in “a two-step process” of rulemaking). The more faithful reading of the

HSR Act is that the FTC’s authority to promulgate industry-specific rules is not foreclosed by

the “no person” language. Indeed, as the D.C. Circuit held after evaluating the scope of another

agency’s exemption authority, even if Congress “did not expect that the [agency] would use its

exemption authority in a particular fashion[, this] does not indicate that Congress did not

                                                  38
authorize the [agency] to act in this manner” based on the plain language of the statute. Nat’l

Small Shipments Traffic Conference, Inc., 618 F.2d at 828.

       Consequently, the plain language of the statutory text does not mandate that the FTC only

promulgate rules of general applicability and does not foreclose the FTC’s issuance of an

industry-specific rule. Given that Congress has not directly addressed the FTC’s authority in this

respect based on the plain text and structure of the HSR Act, the Court turns to legislative

history, which PhRMA insists supports its view that the FTC exceeded the agency’s statutory

authority.

               2.      The Legislative History Confirms That Congress Has Not Directly
                       Addressed the Issue

       PhRMA points to two changes made in the precursor bills to the HSR Act to support its

contention that Congress expressly intended for uniform application of the premerger

notification requirements. See Pl.’s Mem. at 17–18; Pl.’s Reply at 5–8. The Court disagrees

with PhRMA’s interpretation of the legislative history and instead concludes that the record of

changes to bill language prior to enactment does not resolve the ambiguity in the statutory

language, or otherwise suggest that Congress intended to bar the FTC from promulgating

industry-specific rules.

       First, PhRMA points out that the Senate’s version of the HSR Act, Senate Bill No. 1284,

included a provision, at section 7A(B)(2), which would have permitted the FTC to “impose

reporting burdens on certain ‘classes or categories’ of persons,” but the “House deliberately

removed that provision.” Pl.’s Mem. at 17–18 (emphasis in original). According to PhRMA,

this change “clear[ly]” reflects Congress’s intent “to impose pre-merger notification

requirements for like transactions only uniformly and even-handedly, not by selectively

                                                39
burdening some with reporting obligations while leaving others unaffected.” Id. at 18. In further

support of this claim, PhRMA points to a statement by Senator Hart describing the removed

provision as one that “require[d] pre-merger notifications from particular companies or industries

or from any class or category of persons,” id. at 17 (quoting 122 CONG. REC. 29,342 (1976)), and

a statement from Representative Rodino explaining that the provision was omitted because “the

coverage of this bill should be decided by Congress—not the FTC and the Justice Department,”

id. at 18 (quoting 122 CONG. REC. 30,877 (1976)).

       Contrary to PhRMA’s reading of the legislative history, the deletion of the Senate

provision cited by PhRMA does not reveal Congress’s intent to foreclose the FTC’s

promulgation of industry-specific rules. See Hart-Scott Antitrust Improvements Act of 1976, S.

1284, 94th Cong. § 7A(b)(2)(A)–(B) (1976). This deleted provision would have granted the FTC

the authority to require premerger notifications for any class of person or transaction,

“[n]otwithstanding any other provision of law or the applicability of subsection (a) of this

section,” which prescribes threshold size requirements to trigger the premerger reporting

requirements. Id. § 7A(b)(2). In other words, the removed Senate provision would have granted

the FTC discretion to compel parties to report any transaction, no matter how small. By

removing this provision, the House version made clear that the FTC could not compel reporting

of transactions falling below the size thresholds described in subsection (a). Nevertheless, as

Senator Hart explained, “[d]eletion of this provision is not intended to affect the authority of the

Federal Trade Commission to require such notification under existing provisions . . . .” 122

CONG. REC. 29,342 (1976) (statement of Sen. Hart). This clarifies that the FTC’s authority to

impose rules, create definitions, and exempt industries from the requirements of the section was

                                                 40
left intact for all transactions that meet the minimum size requirements.

         Further, PhRMA’s invocation of Representative Rodino’s statement that “the coverage of

this bill should be decided by Congress—not the FTC and the Justice Department,” 122 CONG.

REC. 30,877 (1976), is unpersuasive. The fuller context of his remarks makes clear that

Representative Rodino’s concern was to bar the FTC from reaching out to regulate small

transactions, consistent with the clarifying statement of Senator Hart. Specifically,

Representative Rodino was concerned that the removed Senate provision “permitted the FTC . . .

to promulgate rules subjecting ‘small’ mergers—involving companies with less than $100

million and $10 million in sales or assets—to the notification and waiting requirements provided

by this bill.” Id.11 His remark that Congress should set the scope of the bill referred to

Congress’s responsibility to determine the applicability of the HSR Act based on the size of the

transaction, rather than to detract from the FTC’s authority to require notification for transactions

that meet the size requirements set out in subsection (a). The statements of Senator Hart and

Representative Rodino, and the removal of the Senate bill’s provision on which PhRMA relies,

do not speak directly to Congress’s intent that the FTC promulgate rules that require premerger

notification uniformly for any transaction that meets or exceeds subsection (a)’s minimum size

requirements. The legislative history only demonstrates that Congress did not wish to burden

small companies, or parties engaging in small transactions, with the HSR Act’s reporting

requirements.

         Notably, after removing the disputed Senate provision from the bill, the House added

11
  In the hearing explaining the House’s revisions to the Senate’s version of the HSR Act, Rep. Rodino stated that
“[i]t may in future years appear that additional coverage is desirable; for example, in industries that are ‘highly
concentrated’ . . . or with respect to a large firm that makes a series of acquisitions of firms below this bill’s $10
million size limits.” 122 CONG. REC. 30,877 (1976) (emphasis added).
                                                           41
subsection (d)(2)(B), granting the FTC authority to “exempt classes of corporations and

acquisitions, transfers, or transactions which are not likely to violate Section 7 of this Act from

the requirements of this section.” H.R. REP. NO. 94-1373, at 3 (1976) (reprinting the

amendments to the Clayton Act in H.R. 14580). This grant of broad exemption authority is a

clear indication of Congress’s support for the FTC to determine categories of transactions and

persons exempt from the HSR Act and, also, undermines PhRMA’s claim that Congress intended

uniform application of the HSR Act’s reporting requirements. Clearly, if the House’s intent were

to prohibit “piecemeal coverage” authorization “for transactions above and below the

thresholds,” as PhRMA contends, see Pl.’s Reply at 6, the House would not have added this

provision explicitly permitting the FTC to exempt certain industries or transactions from

subsection (a)’s reporting requirements. Contrary to PhRMA’s view, a more comprehensive

review of the legislative history shows that Congress contemplated a stark difference in the

FTC’s authority with respect to small transactions falling below subsection (a)’s minimum size

thresholds, and those transactions meeting the requirements and subject to premerger reporting.

       Second, PhRMA points to the Senate’s removal of another provision from the version of

the Senate bill, S. 1284, that passed the Senate, as evidence of Congress’s “unwavering view that

the FTC was not authorized to target specific companies or industries for pre-merger coverage.”

Pl.’s Reply at 7–8. Specifically, an early version of the Senate bill gave the FTC authority “to

promulgate rules of general or special applicability as may be necessary or proper to the

administration of this section,” S. 1284, 94th Cong. § 7A(b)(4)(A) (1976), but this provision was

subsequently removed by its proponent because, as he explained, “it appeared to give the FTC

rulemaking authority ‘so broad and general as to undermine an otherwise carefully structured

                                                 42
statutory scheme.’” Pl.’s Reply at 8 (citing 122 CONG. REC. 15,812 (1976) (statement of Sen.

Hruska)). PhRMA selectively quotes from Senator Hruska’s statements on the matter. In full,

the Senator explained that the provision was removed because “[t]hese authorities are either

appropriately dealt with in other sections, or are so broad and general as to threaten to

undermine an otherwise carefully structured statutory scheme.” 122 CONG. REC. 15,812 (1976)

(emphasis added). The statement provides no further elaboration. This explanation is not

conclusive proof of “Congress’s unwavering view” that the FTC was not permitted “to fashion

rules of ‘special applicability’” as PhRMA contends. Pl.’s Reply at 8. At best, the statement is

ambiguous as to whether Congress intended to foreclose the FTC’s promulgation of industry-

specific rules. Moreover, the perfunctory statement of one Senator explaining the deletion of a

phrase in a draft version of a bill prior to the issuance of a new version of the bill ultimately

considered by the Senate does not indicate the “‘unambiguously expressed intent of Congress.’”

City of Arlington, Tex., 133 S. Ct. at 1868 (quoting Chevron, 467 U.S. at 842–43); see also N.

Haven Bd. of Ed. v. Bell, 456 U.S. 512, 526 (1982) (“[T]he statements of one legislator made

during debate may not be controlling (citing Chrysler Corp. v. Brown, 441 U.S. 281, 311

(1979))).

       Consequently, PhRMA has not demonstrated that Congress has clearly spoken on the

FTC’s ability to promulgate industry-specific rules based on the legislative history.

               3.      The Purpose of the HSR Act Is Not Uniform Application, But Prophylactic
                       Prevention of Anticompetitive Mergers

       PhRMA contends that the FTC is required to “exercise its rulemaking authority only in a

manner ‘consistent with the purposes’” of 15 U.S.C. § 18a, and that the Final Rule is inconsistent

with “the HSR Act’s grant to the FTC of authority exercisable only uniformly and even-handedly

                                                  43
as to all similarly situated ‘persons’ or ‘classes of persons.’” Pl.’s Mem. at 18–19. The only

statutory language relied on by PhRMA for this proposition are the “no person” words in

subsection (a), stating that “[e]xcept as exempted . . . no person” meeting the size requirements

under subsection (a) shall engage in a transaction without satisfying the notification

requirements. 15 U.S.C. § 18a(a); see also Pl.’s Reply at 9 (“The statute’s explicit command

[states] that FTC rulemaking for coverage of over-threshold transactions excuse ‘no person’ not

otherwise exempted . . . .”). PhRMA’s reliance on the “no person” words in subsection (a) to

divine Congress’s purpose does not support its argument because, as noted, other statutory

provisions granting both express exemptions and authority to the FTC to devise additional

appropriate exemptions demonstrate that Congress did not anticipate uniform application of the

HSR Act. See 15 U.S.C. § 18a(a), (c)(12), (d)(2)(B).

       Indeed, the purpose of the HSR Act was not to ensure uniformity in the promulgation of

rules under the premerger notification requirements. To the contrary, the express statement of

purpose by the Senate and the House upon passage of the HSR Act was to combat illegal

acquisitions that violate antitrust laws. The Senate Report accompanying the Senate’s bill stated

that the purpose of the HSR Act “is to support and invigorate effective and expeditious

enforcement of the antitrust laws, to improve and modernize antitrust investigation and

enforcement mechanisms, to facilitate the restoration and maintenance of competition in the

marketplace, and to prevent and eliminate monopoly and oligopoly power in the economy.” S.

REP. NO. 94-803, at 1 (1976). The House report accompanying the House Bill, Antitrust

Premerger Notification Act, H.R. 14580, 94th Cong. (1976), stated that the purpose of the Act is

to “giv[e] the government antitrust agencies a fair and reasonable opportunity to detect and

                                                44
investigate large mergers of questionable legality before they are consummated.” H. R. REP. No.

94-1373, at 5 (1976), reprinted in 1976 U.S.C.C.A.N. 2637, 1976 WL 13988; see also H.R.

14580, 94th Cong. (1976).12 The House Report described the history and need for the premerger

notification provisions, stating that “the chief virtue of this bill is that its provisions will help to

eliminate endless post-merger proceedings . . . and replace them with far more expeditious and

effective premerger proceedings.” H. R. REP. No. 94-1373, at 10 (1976). The Report further

states that the premerger notifications “will help prevent the consummation of so-called

‘midnight’ mergers, which are designed to deny the government any opportunity to secure

preliminary injunctions. It will ease burdens on the courts by forestalling interminable post-

consummation divestiture trials, [a]nd it will advance the legitimate interests of the business

community in planning and predictability.” Id. at 11.

         Notably, nowhere do the Senate or House reports specify that the purpose of the HSR Act

is to ensure uniformity in the application of the premerger notification requirements. PhRMA

has not presented any evidence, other than the “no person” words, to support its contention that

the purpose of section 15 U.S.C. § 18a is to ensure application “only uniformly and even-

handedly,” Pl.’s Mem. at 19 (emphasis in original), particularly given the exemptions that

qualify subsection (a), including the FTC’s authority to exempt “classes of persons, acquisitions,

transfers, or transactions which are not likely to violate the antitrust laws.” 15 U.S.C. §

12
  Two additional House reports were drafted to accompany two alternate versions of the HSR Act, H.R. 8532, 94th
Cong. (1975); H.R. 13489, 94th Cong. (1976), that were simultaneously considered with the third version, H.R.
14580, 94th Cong. (1976), which was ultimately enacted. See Pub. L. No. 94-435. The purpose of the HSR Act
enumerated in all three House Reports consistently support the conclusion that the purpose of the HSR Act was to
strengthen law enforcement tools. See H.R. REP. NO. 94-499(I), at 3 (1975) (purpose of the HSR Act is “to prevent
antitrust violators from being unjustly enriched, and to deter future antitrust violations”); H.R. REP. NO. 94-1343, at
1–3 (1976) (purpose of HSR Act is to “provide the Justice Department’s Antitrust Division with all the basic
investigative tools necessary for effective and expeditious investigations into possible civil violations of the federal
antitrust laws”).
                                                           45
18a(d)(2)(B). As noted, the statutory language alone, and the “no person” words in particular,

are unpersuasive indications that Congress directly addressed the issue. See Envtl. Def. Fund,

Inc., 82 F.3d at 465. Consequently, PhRMA cannot sustain its claim that the purpose of the HSR

Act directly prohibits the FTC’s promulgation of an industry-specific rule.

       After review of the plain language, legislative history, and purpose of the HSR Act, the

Court concludes that Congress has not directly addressed the issue of whether the FTC may issue

industry-specific reporting requirements under the HSR Act. See Duncan, 533 U.S. at 174.

Consequently, the Court will proceed to Chevron Step Two to determine “whether the agency’s

answer is based on a permissible construction of the statute.” City of Arlington, Tex., 133 S. Ct.

at 1868.

               4.      Under Chevron Step Two, FTC’s Construction of the Statute is
                       Permissible

       Mindful of the Supreme Court’s recent admonition that agencies are entitled to Chevron

deference even if they are interpreting an ambiguous statutory provision that governs the scope

of the agency’s own authority, see id., 133 S. Ct. at 1870; Verizon, 740 F.3d at 635, the Court

turns to the FTC’s interpretation of the statute. The FTC is authorized to “define the terms used”

in the Act and to “prescribe such other rules as may be necessary and appropriate to carry out the

purposes” of the Act, which the FTC construes as enabling it to promulgate an industry-specific

rule. See 15 U.S.C. § 18a(d)(2)(A), (C); see also 78 Fed. Reg. at 68,706; JA at 8. In the Final

Rule, the FTC interpreted its grant of authority under the HSR Act as providing the FTC “broad

authority to issue rules to facilitate the review of large transactions,” reasoning that “[n]othing in

the HSR Act prevents the Commission from issuing such rules on an industry-specific basis.” 78

Fed. Reg. at 68,709; JA at 11. With respect to its exemption power, the FTC contends that this

                                                  46
“does not limit the broad and discretionary rulemaking authority granted in Sections

18a(d)(2)(A) and (C),” and that this authority “is not inconsistent with the authority to implement

these requirements on an industry-specific basis[.]” Id. The FTC also explained that the Final

Rule was not “expanding the HSR requirements to parties or transactions not covered by the

Act,” but “simply clarifying the types of transactions that constitute asset transfers for which the

Act requires prior notification.” Id.

        Such a rationale is a permissible construction of the authorities granted to the FTC under

the HSR Act. Although it may not be the best construction, or the construction this Court would

adopt, such alternative interpretations are immaterial to the Court’s inquiry because an agency’s

rule is entitled to deference “as long as it is a permissible construction of the statute, even if it

differs from how the court would have interpreted the statute in the absence of an agency

regulation.” Sebelius, 133 S. Ct. at 826; see also Nat’l Cable & Telecomms. Ass’n, 545 U.S. at

980 (“If a statute is ambiguous, and if the implementing agency’s construction is reasonable,

Chevron requires a federal court to accept the agency’s construction of the statute, even if the

agency’s reading differs from what the court believes is the best statutory interpretation.”

(citation omitted)).

        PhRMA responds that the FTC’s interpretation of the HSR Act is unreasonable for three

reasons. First, PhRMA reiterates that Congress’s clear intent was uniform application of

reporting requirements. Pl.’s Reply at 10–11. As discussed in Parts III.A.1–3, supra, it is not

clear from the plain language, legislative history, or purpose of the Act that Congress’s intent

was to apply reporting requirements uniformly. Instead, the inclusion of subsection (d)(2)(B),

granting the FTC authority to exempt classes of persons and transactions “not likely to violate

                                                   47
the antitrust laws” strongly indicates that Congress envisioned reporting requirements tailored to

transactions that actually posed an antitrust threat, which, as the FTC points out, is not a

restriction of its rulemaking authority under subsections (d)(2)(A) and (C).

        Second, PhRMA contends that the FTC has failed to point to any ambiguous statutory

text from which it could derive its implicit Congressional delegation of power. PhRMA relies on

Railway Labor Executives’ Association v. National Mediation Board, 29 F.3d 655, 664 n.5,

amended, 38 F.3d 1224 (D.C. Cir. 1994), for the contention that “statutory silence on the extent

of [an] agency’s power is ‘no ambiguity.’” Pl.’s Reply at 12. That case is distinguishable,

however, because the Court found “that Congress left no ambiguity” in the statute because the

agency action at issue directly contravened the text of the applicable statute. Id. at 664. No

statutory text directly forecloses the FTC’s authority to apply an industry-specific rule.

Moreover, in this argument, PhRMA misinterprets the deference owed to the FTC’s

interpretation under Chevron. PhRMA suggests that “the prerequisite to Chevron deference is

some indication that Congress chose to delegate a particular power,” and that the FTC has failed

to show “that Congress contemplated delegating the decision to discriminate against a particular

industry through increased coverage burdens.” Pl.’s Reply at 10 (emphasis in original). This is

simply not the FTC’s burden. As noted, once the Court has determined that Congress has not

directly addressed the issue, the agency is entitled to Chevron deference of its interpretation of

the scope of its authority. City of Arlington, Tex., 133 S. Ct. at 1870–71. Where, as here, the

statute is silent on the issue, the agency’s interpretation of its authority is due deference.

        Third, PhRMA criticizes the FTC’s interpretation for failure to articulate a reasonable

basis that these patent license transactions “now suddenly pose an antitrust threat, let alone that

                                                  48
they pose such a threat in the pharmaceutical industry but not in any other.” Pl.’s Reply at 16.

PhRMA adds that the FTC’s caveat in its Final Rule that similar transactions occurring in other

industries “remain potentially reportable events under the Act” “cast[s] doubt on the Rule’s

‘necessity.’” Id. (quoting 78 Fed. Reg. at 68,706; JA at 8).13 To the extent PhRMA is arguing

that the FTC has exceeded its statutory grant of authority because it did not explain the necessity

of the promulgated rule, this argument overlaps with the challenge to the Final Rule for being

arbitrary and capricious, and will be addressed more fully in the next part of this Memorandum

Opinion. Briefly, the FTC stated in its Final Rule that the patent rights transfers covered by the

Final Rule “are functionally equivalent to patent transfers and are thus properly viewed as asset

acquisitions under the Act,” and “[a]llowing such transactions to go unreported would deprive

the Commission of an opportunity, consistent with the purpose of the Act, to review these

significant asset acquisitions that, like other reportable asset acquisitions, are potentially

anticompetitive.” 78 Fed. Reg. at 68,709; JA at 11. The FTC further explained that the rule was

necessarily limited to the pharmaceutical industry because “[w]hile the PNO’s experience . . .

has indicated a need for a rule for the pharmaceutical industry, at this time the Commission has

not yet determined that a specific rule is necessary with respect to other industries.” Id. Such

explanation is sufficient to show both a need for the “all commercially significant rights” concept

and the limitation of the rule to the pharmaceutical industry. See Nat’l Ass’n of Broadcasters v.

FCC, 740 F.2d 1190, 1210 (D.C. Cir. 1984) (finding that the Circuit has “recognized the

13
   PhRMA also argues that the FTC may not exercise its rulemaking authority to promulgate the industry-specific
Rule because, according to PhRMA, in a “blatant abuse of its delegated authority to define terms in the Act,” the
FTC has included three new terms—“all commercially significant rights,” “limited manufacturing rights” and “co-
rights”—in the “definitions” section of its regulations that “do not appear in the Act.” Pl.’s Mem. at 20 (emphasis in
original). As the FTC correctly explains, these terms are used to define the terms “asset” and “acquisition” which do
appear in the HSR Act, and the Commission “may of course use and define additional terms and concepts that do
not themselves appear in the Act.” Def.’s Mem. at 13–14. PhRMA does not dispute this explanation, see generally
Pl.’s Reply, and no further discussion is merited here.
                                                         49
reasonableness of [an agency’s] decision to engage in incremental rulemaking and to defer

resolution of issues raised in a rulemaking” given that “an agency would be paralyzed if all the

necessary answers had to be in before any action at all could be taken”).

       Accordingly, because Congress has not directly spoken on the issue and the FTC has set

forth a permissible construction of its authority to issue industry-specific rules under the HSR

Act, under Chevron, the FTC’s promulgation of the Final Rule does not exceed its statutory

jurisdiction under 5 U.S.C. § 706(2)(C) and, consequently, is entitled to deference.

       B.      FTC’s Rulemaking Was Not Arbitrary, Capricious, or an Abuse of
               Discretion

       PhRMA contends that the rulemaking was arbitrary and capricious for three reasons.

First, according to PhRMA, the Final Rule was not the product of reasoned decisionmaking

because it did not establish “a rational connection between the facts found and the choice made”

to explain, both, why the exclusive patent rights targeted by the Final Rule are potentially

anticompetitive, and to justify the selective targeting of the pharmaceutical industry. Pl.’s Mem.

at 28. Second, the FTC’s “vague and unembellished references to agency ‘experience’” is not

the sort of reasoned analysis required by the APA to justify the FTC’s conclusion that exclusive

patent license transfers in the pharmaceutical industry, and no other industry, poses a potential

anticompetitive threat. Pl.’s Mem. at 23–24; id. at 28–29. Finally, the FTC’s explanation ran

“counter to the evidence before the agency,” and failed to respond to “substantial problems

raised by commenters,” including the problems identified in the Varner Declaration attached to

PhRMA’s comment to the NPRM. Pl.’s Mem. at 24–27. The Court addresses each of these

arguments in turn.

                                                50
               1.      FTC Articulated a Rational Basis for Promulgating the Final Rule

       The FTC explained in its NPRM the impetus behind adopting the “all commercially

significant rights” concept in its Final Rule. The FTC stated that the transfer of patent rights was

considered a reportable asset under the HSR Act, but that the widely-adopted, uncodified “make,

use, and sell” approach was “no longer adequate in evaluating the reportability of exclusive

licenses in the pharmaceutical industry for HSR purposes.” 78 Fed. Reg. at 68,706; JA at 8. The

FTC explained that adopting and applying the “all commercially significant rights” concept for

the transfer of patent rights better “address[es] the evolving structure of exclusive patent licenses

in the pharmaceutical industry, providing the [FTC] with a more effective means of reviewing

exclusive patent licenses meeting the statutory requirements under the Act.” 78 Fed. Reg. at

68,707; JA at 9. The FTC explained that the “‘all commercially significant rights’ test in the rule

captures more completely what the ‘make, use, and sell’ approach was a proxy for, namely

whether the license has transferred the exclusive right to commercially use a patent or a part of a

patent.” Id. In other words, according to the FTC, the all commercially significant rights test is a

more accurate measure of whether the transfer of patent rights resembles the transfer of a patent

in the pharmaceutical industry, in order to determine whether the parties have transferred an

“asset” that is potentially reportable under the HSR Act.

       The FTC articulated the reasons for limiting the Rule to the pharmaceutical industry,

stating that the agency “has found that exclusive patent licensing agreements that transfer all of

the rights to commercially use a patent or part of a patent almost solely occur in the

pharmaceutical industry,” 78 Fed. Reg. at 68,708; JA at 10, and that these transfers have

“become more common for pharmaceutical companies.” 78 Fed. Reg. at 68,706; JA at 8. The

                                                 51
FTC further stated that it “typically does not see exclusive transfers of rights to a patent or part of

a patent outside the pharmaceutical context, and this is likely a result of the incentives that

characterize the industry.” 78 Fed. Reg. at 68,708; JA at 10. The FTC based this determination

“on HSR filings and requests for advice on the reportability of transactions,” id., adding that

“[p]ractitioners who represent clients in the pharmaceutical industry have often sought guidance

from the PNO about” the acquisitions covered by the Final Rule, 78 Fed. Reg. at 68,706; JA at 8.

According to the FTC, in the five years prior to promulgation of the Final Rule, the FTC

“received filings for 66 transactions involving exclusive patent licenses, and all were for

pharmaceutical patents.” 78 Fed. Reg. at 68,708; JA at 10. By contrast, “[t]he PNO has not

found other industries that rely on these types of arrangements . . . . [and] has not processed

filings related to these kinds of exclusive licenses in any other industry in the past five years.”

Id. Consequently, the FTC “has not found a need for a rule applicable to other industries.” Id.;

see also 78 Fed. Reg. at 68,709; JA at 11 (stating that “[w]hile the PNO’s experience . . . has

indicated a need for a rule for the pharmaceutical industry, at this time the Commission has not

yet determined that a specific rule is necessary with respect to other industries”). This analysis

provides cogent reasoning for the agency’s decision to promulgate the Final Rule and to restrict

the rule to the pharmaceutical industry.

       The FTC further justified limiting the rule by stating that, generally, agencies “need not

take an all-or-nothing approach . . . [but] may proceed incrementally” when rulemaking, 78 Fed.

Reg. at 68,710; JA at 12, and “may limit rules to those areas where they have observed a

problem to be addressed,” 78 Fed. Reg. at 68,709; JA at 11. The FTC nevertheless noted that

“[i]f the PNO finds that such arrangements occur in other industries, [it] can then assess the

                                                  52
appropriateness of a similar rule for those other industries.” Id. The D.C. Circuit recently

affirmed an agency’s decision to promulgate rules using such a “step-by-step approach.” In

WildEarth Guardians v. U.S. EPA, No. 13-1212, 2014 WL 1887372 (D.C. Cir. May 13, 2014),

the plaintiff challenged the Environmental Protection Agency (“EPA”)’s denial of its petition for

rulemaking to regulate coal mines under the Clean Air Act, where the EPA stated that due to

“limited resources and ongoing budget uncertainties,” the EPA would not “commit to conducting

the process to determine whether coal mines should be” regulated as requested, id. at *1 (quoting

Notice of Final Action on Petition From Earthjustice To List Coal Mines as a Source Category

and To Regulate Air Emissions From Coal Mines, 78 Fed. Reg. 26,739 (May 8, 2013)), and was

instead “taking a common-sense, step-by-step approach intended to obtain the most significant

greenhouse-gas-emissions reductions through using the most cost-effective measures first,” id. at

*3, and may address the issue in a future rulemaking, id. at *1. The D.C. Circuit held that the

EPA’s decision not to initiate rulemaking on this basis “was within the scope of its statutory

authority, consistent with the record, and supported by reasoned decisionmaking,” because the

agency had “good reasons for prioritizing its regulatory agenda,” which it explained and

supported on the record. Id. at *6.

       In the instant case, the FTC has similarly supported its incremental approach with a

sensible reason—the agency’s lack of experience with patent rights transfers outside the

pharmaceutical industry. The FTC need only provide a rational basis for its decision, see Am.

Trucking Ass’ns, Inc., 724 F.3d at 249 (quoting State Farm, 463 U.S. at 43) (finding that

reviewing courts “exercis[e] our narrowly defined duty [under the arbitrary and capricious

standard] of holding agencies to certain minimal standards of rationality.’”); State Farm, 463
53
U.S. at 43 (holding that agencies need only establish a “rational connection between the facts

found and the choice made,”); Pub. Citizen, Inc., 988 F.2d at 197 (holding that agency must

“adequately explain its result”), and it has done so, explaining the need for the rule, the need to

limit the rule to the pharmaceutical industry, for which the FTC has determined regulation is

“necessary and appropriate,” and further supported the rule on the basis of the FTC’s discretion

to address problems incrementally.

               2.      FTC’s Reliance on Its Expertise As Basis for Promulgating Rule is Not
                       Improper

       The FTC supported its promulgation of the Final Rule citing the following three factual

sources: (1) the agency’s expertise, informed by years of administering the HSR Act, 78 Fed.

Reg. at 68,708–09; JA at 10; (2) 66 HSR filings related to patent rights transfers occurring in the

pharmaceutical industry, with no comparable filings in other industries, 78 Fed. Reg. at 68,708;

JA at 10; and (3) informal requests for interpretation from practitioners in the pharmaceutical

industry that are available in the PNO’s searchable, online database, 78 Fed. Reg. at 68,706; JA

at 8. PhRMA contends that the FTC’s analysis cannot be rational where the agency relies on its

own experience, arguing that the FTC must produce physical records that have informed the

agency’s expertise, such as the informal requests for interpretation and any records of phone

calls the PNO received related to patent rights transfers. See Pl.’s Reply at 22. In addition,

PhRMA asserts that the FTC should have undertaken an independent investigation to elicit facts

in support of its rule. Pl.’s Mem. at 24. While PhRMA’s suggestion about an independent

investigation may be a good—and even a preferable—factual basis for promulgation of a rule,

this does not necessarily mean that the FTC’s three sources are insufficient.

       First, agencies may rely on their experience in administering statutes and promulgating

                                                 54
regulations so long as the agency identifies this and there is “an adequate opportunity to

respond.” See Nat’l Classification Comm. v. United States, 779 F.2d 687, 695 (D.C. Cir. 1985)

(“It is beyond dispute that an agency may provide the factual predicate for a finding by taking

‘official notice’ of matters of common knowledge . . . and of matters known to the agency

through its cumulative experience and consequent expertise” if there was “adequate opportunity

to respond” (citations omitted)); Nat’l Tour Brokers Ass’n v. ICC, 671 F.2d 528, 533 (D.C. Cir.

1982) (finding that agency’s rule was “not an unreasoned decision” because it “was based on the

[agency’s] long experience administering the existing licensing rules and its consequential

dissatisfaction with those procedures”); Thomas v. Lujan, 791 F. Supp. 321, 322–23 (D.D.C.

1992), aff’d, No. 92-5240, 1993 WL 32329 (D.C. Cir. Jan. 29, 1993) (“[T]he Court finds that the

agency’s own expertise, as well as the data presented to the agency during the course of the

rulemaking, justify the storage regulation.”) (internal citation omitted); Black Citizens for a Fair

Media v. FCC, 719 F.2d 407, 422 (D.C. Cir. 1983) (finding that proposed rulemaking justifying

rule change based on agency’s experience was not arbitrary and capricious); see also Nat’l Ass’n

of Pharm. Mfrs. v. Dep’t of Health & Human Servs., 586 F. Supp. 740, 756 (S.D.N.Y. 1984)

(finding that inclusion of “raw documents reflecting the [agency’s] day-to-day enforcement and

compliance activities” in inspection reports was unnecessary for effective judicial review where

the comments were open to public inspection and Freedom of Information Act requests and the

agency “carefully reviewed the comments received and explained [the] basis for adopting the

final version of the regulations”).

       PhRMA relies on Coburn v. McHugh, 679 F.3d 924, 926 (D.C. Cir. 2012), and Tripoli

Rocketry Ass’n, Inc. v. Bureau of Alcohol, Tobacco, Firearms, & Explosives, 437 F.3d 75, 77

                                                 55
(D.C. Cir. 2006), for the proposition that an agency’s invocation of its own expertise or

experience is owed no deference when founded upon “unsupported assertions.” Pl.’s Mem. at

23–24. Tripoli, which the Coburn opinion cites for this proposition, is distinguishable from the

instant case. In Tripoli, the agency designated a material as “deflagrating”14 without articulating

the standard used by the agency “for determining when a particular material deflagrates.” Id. at

83–84. The Court found that the agency’s definition of a deflagration reaction as “much faster”

than the reaction of burning material was insufficient because “[t]he agency never defined the

threshold for ‘much faster,’” and was thus not entitled to judicial deference because the agency’s

judgment was not reasoned. 437 F.3d at 79, 83. By contrast, in the instant case, the FTC’s

expertise is not being invoked to justify reaching a decision that is otherwise objectively or

scientifically determinable. Rather, the FTC has relied on its expertise to justify promulgating a

rule that is “necessary and appropriate.” The determination of whether a rule is “necessary and

appropriate” in the FTC’s view necessarily relies on the agency’s expertise, informed by years of

administering the premerger notification program, which differs from Tripoli, where the

determination at issue was the agency’s definition of a chemical reaction.15

14
  Deflagration is a rapid, sharp combustion, which term the Bureau of Alcohol, Tobacco, Firearms and Explosives
uses to classify explosives under the Organized Crime Control Act. Tripoli Rocketry Ass’n Inc., 437 F.3d at 332–33.
15
   PhRMA relies on three additional cases to support its contention that the FTC’s experience is an insufficient basis
to support its Final Rule under the APA. See Pl.’s Mem. at 23–29. All three cases are distinguishable. PhRMA
cites Am. Mining Cong. v. EPA, 907 F.2d 1179, 1189 (D.C. Cir. 1990), but that case is inapposite because there, as
in Tripoli, the agency supplied a summary statement to support a determination—whether “discarded” materials
constituted “solid wastes”—that was best supported through reasoned technical or scientific evidence. Id. at 1188–
89. PhRMA also cites for support Am. Equity Inv. Life Ins. Co. v. SEC, 613 F.3d 166, 177 (D.C. Cir. 2009), which
is distinguishable because the Court there determined that the agency had only made a general determination that
any rule, no matter the substance, was necessary to provide clarity in a previously unregulated area, but did not
provide reasoning to support the agency’s decision to adopt the specific rule at issue. Id. Here, as previously
discussed, the FTC has articulated the need for promulgation of the Final Rule. Third, Morall v. DEA, 412 F.3d 165,
167 (D.C. Cir. 2005), is distinguishable because in that case the Court found that the agency’s lapse of “reasonable
and fair decisionmaking” stemmed from the agency’s “stunningly one-sided” rationale, which “completely
ignore[d]” and “fail[ed] to acknowledge” contrary evidence. By contrast here, as discussed infra, Part III.B.3, the
                                                         56
        Nor is the FTC required to produce physical records of everything that has contributed to

its expertise over time, as PhRMA contends. Indeed, the Supreme Court has said as much in

NLRB v. Seven-Up Bottling Co. of Miami, 344 U.S. 344, 349 (1953). At issue in that case was an

employer’s challenge of a decision by the National Labor Relations Board (“NLRB”) to award

back pay to eleven discriminatorily discharged employees based on their earnings per quarter,

rather than calculating their back pay based on the “entire period during which an employee was

denied reemployment in violation of the Act.” Id. at 346–48. The employer argued that the

NLRB ordered quarterly payments based on a formulation it had adopted in a prior adjudication,

but that “no evidence in this record supports this back pay order; . . . and the reasons [the NLRB]

assigned for adopting [the formulation] do not rest on data which [it] has derived in the course of

the proceedings before” the NLRB in that case. Id. at 348–49 (emphasis added). The Supreme

Court found that the agency could rely on its cumulative experience (as it did in the earlier

adjudication and the adjudication at issue in the suit) and was “not confined to the record of a

particular proceeding.” Id. at 349. The Court found that, “[a]s is true of many comparable

judgments by those who are steeped in the actual workings of these specialized matters, the

Board’s conclusions may ‘express an intuition of experience which outruns analysis . . . .’” Id. at

348 (citing Chicago, Burlington & Quincy R. Co. v. Babcock, 204 U.S. 585, 598 (1907)). The

Court noted that “[i]t is not for us to . . . require the Board to make a quantitative appraisal of the

relevant factors, assuming the unlikely, that such an appraisal is feasible,” id., recognizing that

“‘[c]umulative experience’ begets understanding and insight by which judgments not objectively

demonstrable are validated or qualified or invalidated,” id. at 348–49. As the Supreme Court

FTC cited to, discussed, and adopted a reasoned basis rejecting the contrary evidence raised in PhRMA’s objections
to the NPRM.
                                                       57
made clear in that case, often agency experience is not quantifiable. Agency decisions are not

made by “a particular judge-like individual or group of individuals,” but often stem from

“[p]iecemeal decisions . . . [made] over time, across the desks of numerous members of agency

staff” that “gradually accumulate.” PETER L. STRAUSS, ADMINISTRATIVE JUSTICE IN THE UNITED

STATES 231 (2d ed. 2002). In some cases, as the Supreme Court recognized, it is “unlikely[] that

such an appraisal [of agency experience] is feasible,” Seven-Up Bottling Co. of Miami, 344 U.S.

at 348, because quantifying an agency’s “many unnamed and tangled impressions,” id., is

difficult when multiple agency staff members, over the course of years, “bring to bear whatever

they learn” and “[m]uch that has been relied upon [to make a decision] will not have been

collected,” STRAUSS, supra, at 231. Consequently, “[t]o speak of a ‘record’ in this context . . . is

highly artificial.” Id. In the instant case, for example, PhRMA asserts that the FTC’s decision is

arbitrary and capricious because it has not supported its experience with documentation,

suggesting that the FTC must provide, inter alia, a record of “the ‘thousands’ of calls the PNO

staff fields every year, what topics were discussed, with whom, and for what purpose,” so that

PhRMA may test the basis for the FTC’s expertise. Pl’s Reply at 22. Placing such a requirement

on the FTC would be unwieldy, particularly where there is no indication that the FTC transcribes

or records the many calls it receives at all, much less that it does so in the manner the FTC

desires.

       Moreover, the agency is not required, as PhRMA asserts, to undergo an independent

investigation in search of evidence to support its rationale for the Final Rule. The D.C. Circuit

addressed this issue in National Tour Brokers Association, 671 F.2d at 533. In that case, the

plaintiff challenged as arbitrary and capricious the ICC’s decision to change tour broker

                                                 58
licensing procedures on the basis that “the administrative record [was] devoid of evidence

supporting the decision to alter existing procedures” because the ICC did not undertake a study

of the tour broker industry that would have elicited all the relevant factors. Id. The Circuit

concluded that although the record was “devoid” of a systematic study, the decision was not

“unreasoned” but was “based on the Commission’s long experience administering the existing

licensing rules.” Id. The Circuit concluded that where the agency had “fully explained its

perception that existing rules . . . are without substantial value” and do not contribute to

achieving the goals of the relevant statute, such “explanation of its experience provide[d]

sufficient support under the arbitrary and capricious standard to sustain the rule change as a

rational decision,” and therefore the agency was not required to further supplement its finding

with additional investigatory evidence. Id. The Circuit found that the agency’s experience was

“made part of the record and susceptible to judicial review” by virtue of the agency’s

explanation, and was therefore sufficiently reasoned. Id. While PhRMA’s frustration with the

nature of the record support for the FTC’s Final Rule is palpable, there are practical limitations

on the extent to which any agency’s experience may be compiled on paper. In this context, the

FTC may rely on its own experience without providing documentation or statistics showing “the

nature, extent, or other particulars” of their experience or “how, under what circumstances, and

under the tutelage of which individuals that alleged ‘experience’ may have been derived.” Pl.’s

Reply at 23.16

        Second, with respect to the 66 HSR filings the FTC cited in support of its Final Rule, it is

likely that the FTC could not have provided PhRMA or the general public these documents to

16
  Although the FTC permissibly relied on its experience, as discussed below, the FTC did not rest solely on its own
experience but further supported the Final Rule with additional information: HSR filings and requests for
information.
                                                        59
facilitate comment on the NPRM because HSR filings are confidential. Under the HSR Act,

“[a]ny information or documentary material filed . . . pursuant to this section shall be exempt

from disclosure . . . and no such information or documentary material may be made public,

except as may be relevant to any administrative or judicial action or proceeding.” 15 U.S.C. §

18a(h). Although this little-analyzed provision contains an “exception” for “any administrative

or judicial action or proceeding,” no court has broached the question of whether HSR filings may

be disclosed when the HSR filing itself is not the subject of an “administrative or judicial action

or proceeding,” but is tangentially related to a separate proceeding. Indeed, few courts have

interpreted this provision of the HSR Act at all. The two cardinal cases discussing § 18a(h),

issued by the Fifth and Second Circuits, have interpreted this provision in the context of

disclosing HSR filings to state law enforcement officials, and both Circuits concluded that the

FTC shall not disclose the information, even on a “confidential” basis. See Mattox, 752 F.2d at

122; Lieberman v. FTC, 771 F.2d 32, 38 (2d Cir. 1985). The Fifth Circuit in Mattox examined

the “skimpy” legislative history behind this provision, and concluded that Congress “was

concern[ed] over the disclosure of materials . . . [and] may have been worried that such

disclosures would be a disincentive to prompt and complete compliance with the premerger

notification procedures by potential merger partners.” Mattox, 752 F.2d at 122–23. The Second

Circuit similarly concluded in Lieberman that “Congress wanted premerger information kept

confidential.” 771 F.2d at 38. The Mattox and Lieberman courts’ analyses suggest that the FTC

may not disclose the HSR filings for public comment where they are merely referenced in a

rulemaking.

       Even if disclosure is not prohibited by the HSR Act itself, as the FTC has noted in an

                                                 60
agency adjudication, given the confidential information contained in HSR filings, other

provisions of law may prevent the FTC from making HSR filings publicly available. See In the

Matter of Gen. Motors Corp., 103 F.T.C. 58, at *3 (1984). In this agency adjudication, the FTC

denied a petition by Chrysler Corporation to release documents that had informed the FTC’s

decision to accept a consent agreement permitting a joint venture by General Motors Corporation

(“GM”) and Toyota Corporation. Id. at *1. Chrysler argued that the FTC improperly redacted or

withheld key documents from public commenters during the comment period preceding the

FTC’s approval of the GM-Toyota joint venture, even though the “judicial or administrative

proceeding” exception under § 18a(h) applied, and the FTC was permitted to disclose the

underlying filings for public comment. Id. at *1–2. The FTC found that although a public

comment period on a proposed consent agreement “constitutes an administrative action or

proceeding,” id. at *6, the FTC “has historically refrained from making public in consent order

proceedings any trade secrets or confidential commercial or financial information obtained from

any person,” id. at *5, because the HSR Act’s exception does not override “other legal bars to

disclosure,” such as “in discovery rules (FED. R. CIV. P. 26(c)(7)), statutes (e.g., Sections 6(f) and

21(d)(1)(B) of the FTC Act and 18 U.S.C. 1905); the Freedom of Information Act, 5 U.S.C.

552(b)(4); and the common law (Restatement of Torts Section 759),” id. at *3.

       In the instant case, although the parties have not addressed whether the 66 HSR filings

the FTC relied on could have been disclosed for public comment given § 18a(h)’s exemption

from disclosure, it is apparent that, in light of the sensitive trade information contained in HSR

filings, and given longstanding FTC practice keeping similar information confidential, the FTC

likely is unable to share these filings with PhRMA. Notably, PhRMA does not contest that the

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66 HSR filings reporting exclusive patent rights transfers in the pharmaceutical industry

comprise the sum total of all such filings, not does PhRMA contend that the FTC has

manipulated or misread such information. See generally Pl.’s Mem. As noted, although PhRMA

would ideally wish to access these records to provide more robust comments on the FTC’s

proposed rule, the FTC is limited in the amount of information it may provide for the public’s

review.

          Third, with respect to the requests for interpretation submitted to the PNO, 78 Fed. Reg.

at 68,708; JA at 10, PhRMA contends that the agency should have provided these requests for

public comment, arguing that it is otherwise unable to test the FTC’s determinations based on

these requests. Pl.’s. Reply at 19. The informal interpretations the PNO produces in response to

requests for interpretation from practitioners are publicly available and searchable on the FTC’s

website. Def.’s Mem. at 27; 77 Fed. Reg. at 50,059; JA at 3. Indeed, PhRMA cited to an

informal interpretation in its comment to the NPRM. See PhRMA Comment at 11 & n.48; JA at

32 & n.48 (citing to a PNO Informal Staff Opinion and including a link to the FTC database in

footnote 48).      As the D.C. Circuit has noted, “[i]n some instances, ‘publicly available’

information . . . may be so obviously relevant that requiring it be specifically noticed and

included in the rulemaking record would advance none of the goals of the APA, such as

improving the quality of the information used by the agency, ensuring fairness to affected

parties, or enhancing the quality of judicial review.” Chamber of Commerce of U.S. v. SEC, 443
F.3d 890, 906 (D.C. Cir. 2006) (internal citations omitted). Moreover, “the public availability of

such information might fall into an implied exception to the general requirement that extra-

record data critical to support a legislative rule be subject to public comment.” Id. (citation

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omitted); see also U.S. Lines, Inc. v. Fed. Mar. Comm’n, 584 F.2d 519, 533–35 (D.C. Cir. 1978)

(collecting cases) (holding that an agency may “rely on data in its files, or on public information,

in reaching its decision . . . [so long as it] specif[ies] what is involved in sufficient detail to allow

for meaningful adversarial comment and judicial review.”). An agency “may rely on publicly

available information so long as it is referenced, thereby enabling ‘meaningful adversarial

comment and judicial review;’ such material need not be directly introduced into the record. A

footnote is enough.” See Wis. Power & Light Co. v. FERC, 363 F.3d 453, 462–63 (D.C. Cir.

2004) (citing U.S. Lines, Inc., 584 F.2d at 534–35 & 534 n.44).

        PhRMA cites Chamber of Commerce of U.S. v. SEC, 443 F.3d at 906, for the proposition

that reliance on publicly available documents not in the rulemaking record results in prejudice to

the affected party. See Pl.’s Reply at 20. This case is distinguishable. In Chamber of Commerce

of U.S., the agency’s Final Rule relied on an “extra-record summary of extra-record survey data”

that the agency did not warn commenters it would review in the notice of proposed rulemaking,

and the data was not of the sort “relied upon by the [agency] during the normal course of its

official business.” Id. at 895, 904–05. By contrast, in the instant case, commenters were

apprised that the FTC was relying on the PNO’s public informal interpretation database to

support the NPRM. See 77 Fed. Reg. at 50,059; JA at 3. Thus, reliance on this evidence in the

Final Rule came as no surprise to PhRMA, which cited to the database in its comment to the

NPRM. See JA at 32. In the NPRM, the FTC stated that “[w]hile each situation in the database

is factually unique, the questions from practitioners overwhelmingly focus on exclusive licenses

in the pharmaceutical industry where the licensor grants some rights but retains others. In those

situations, PNO staff was asked to analyze the retained rights to determine if an asset acquisition

                                                   63
was taking place.” 77 Fed. Reg. at 50,059; AR at 3.17 By so doing, the NPRM alerted

commenters that the FTC relied on requests for interpretation to inform the proposed rule and

PhRMA used the public database as a resource in its comment providing thorough, substantive

comments critiquing the proposed rule. Consequently, although the FTC did not collect the

requests for information and provide them for PhRMA’s inspection, the agency permissibly

relied on this information because it allowed PhRMA an opportunity “for meaningful adversarial

comment.” See Wisconsin Power & Light Co., 363 F.3d at 462–63 (citing U.S. Lines, Inc., 584
F.2d at 534–35 & 534 n.44).

        Consequently, the Final Rule is not arbitrary and capricious because the FTC relied on its

expertise, HSR filings, and publicly available data in support of its Final Rule.

                 3.       Objections Raised During the Comment Period Were Addressed

        PhRMA contends that the FTC “disregard[ed]” the record evidence and “fail[ed] to offer

a meaningful response to” the Varner Declaration or the purported “substantial problem” raised

in the declaration, namely, that similar transactions occur in other industries not similarly

covered by the Final Rule. Pl.’s Mem. at 25–26. The Court disagrees. First, the FTC did

consider the evidence in the record. The Final Rule mentions PhRMA’s comment twenty-three

times and engages in multi-paragraph discussions of each of the three separate objections raised

in that comment as supported by the Varner Declaration. See generally 78 Fed. Reg. at 68,705;

see also supra Part I.B.2.d; cf. Ass’n of Private Sector Colls. & Univs. v. Duncan, 681 F.3d 427,

441, 449 (D.C. Cir. 2012) (holding that agency action failed to address commenters’ concerns

17
  The parties dispute whether the requests for information made available on the FTC’s public database are
complete. Pl.’s Reply at 21–22; Def.’s Reply at 8. The Court need not delve into a comparison of the search terms
used and the documents retrieved by PhRMA and the FTC because, as noted, the agency’s reliance on its expertise
and the 66 HSR filings, which the FTC cannot produce for public inspection, provide sufficient support for the Final
Rule.
                                                        64
where agency “grouped together related comments” and “address[ed] them in a conclusory

manner” (internal quotation marks and citation omitted)). For example, the Final Rule noted the

objection raised by PhRMA that the pharmaceutical incentives, market structure, and regulatory

hurdles appearing in the pharmaceutical industry also appear in other industries, and gave a

reasoned explanation as to why the FTC disagreed with such claim and would not alter its

proposed rule on this basis. 78 Fed. Reg. at 68,708–09; JA at 10–11; see also 78 Fed. Reg. at

68,706; JA at 8 (adopting the Final Rule “as proposed”). The FTC stated that PhRMA’s

objection was distinguishable because the FTC was not justifying its decision on the basis of “the

uniqueness of the incentives” in the pharmaceutical industry, but was only using this to “help

explain” why transferring exclusive patent rights in the pharmaceutical industry “takes the form

of an exclusive license instead of an outright sale.” 78 Fed. Reg. at 68,708–09; JA at 10–11.

The FTC also noted PhRMA’s concern that the FTC was basing its restriction of the rule to the

pharmaceutical industry on the assumption that manufacturing is less important than the right to

commercialize in this industry, as compared to others. 78 Fed. Reg. at 68,708; JA at 10. The

FTC reiterated in the Final Rule that the statement about manufacturing rights in the NPRM did

not form the basis of its decision but was only described to “provide a possible explanation as to

why the PNO sees exclusive patent licenses in the pharmaceutical industry structured the way

they are structured, namely more and more frequently without the transfer of manufacturing

rights.” Id.

       Second, with respect to the “substantial problem” raised by the Varner Declaration, the

Final Rule recognized “that there are agreements in other industries that involve the retention of

manufacturing rights,” and, in fact, cited examples provided in the Varner Declaration. 78 Fed.

                                                65
Reg. at 68,708 & n.19; JA at 10 & n.19 (citing Varner Decl. at 9–11). The FTC explained,

however, its view that these “are exclusive distribution agreements, which convey to the licenses

only the exclusive rights to distribute the patented product . . . [and] the licensor retains not just

the right to manufacture but all commercially significant rights to the patent,” which was not the

type of transaction the FTC sought to regulate. 78 Fed. Reg. at 68,708 & n.16; JA at 10 & n.16

(citing Varner Decl. at 11–14); see also 78 Fed. Reg. at 68,709; JA at 11 (PhRMA’s comment

“has not identified any other industry in which exclusive patent licenses, as opposed to exclusive

distribution agreements, are common”). The Final Rule acknowledged that “[a]lthough it is

possible for other industries to engage in the kind of exclusive licensing that typifies the

pharmaceutical industry, the PNO has not processed” or even seen such filings in other industries

in the past five years. 78 Fed. Reg. at 68,708; JA at 10.

        The FTC also justified promulgation of an industry-specific rule on separate grounds, that

the FTC intended to “proceed incrementally” and to implement the rule where the FTC believed

it was necessary. 78 Fed. Reg. at 68,709–10; JA at 11–12. The FTC explained that even if such

transactions exist in other industries, the FTC has not encountered these and therefore the FTC

“has not found a need for a rule applicable to other industries.” 78 Fed. Reg. at 68,708; JA at 10.

Given that the FTC’s grant of authority under the HSR Act is to promulgate rules “as may be

necessary and appropriate to carry out the purposes of this section,” 15 U.S.C. § 18a(d)(2)(C)

(emphasis added), applying such a rule across industries where there is no demonstrated need to

do so might have rendered such rule vulnerable to a separate challenge that the FTC had

exceeded its statutory authority on these grounds. See, e.g., Am. Petroleum Inst., 953 F. Supp. 2d

at 20–23 (holding that agency’s rule of general applicability across companies was “arbitrary and

                                                  66
capricious” for failing to provide for exemptions). Consequently, the FTC understandably

decided to “limit [the Final Rule] to those areas where [the FTC has] observed a problem to be

addressed.” 78 Fed. Reg. at 68,709; JA at 11; see also City of Las Vegas v. Lujan, 891 F.2d 927,

935 (D.C. Cir. 1989) (explaining that “[s]ince agencies have great discretion to treat a problem

partially, we [sh]ould not strike down [a regulation] if it [is] a first step toward a complete

solution.”); Nat’l Ass’n of Broadcasters, 740 F.2d at 1210–11; Inv. Co. Inst. v. U.S. Commodity

Futures Trading Comm’n, 891 F. Supp. 2d 162, 187–88 (D.D.C. 2012), as amended (Jan. 2,

2013), aff’d sub nom. Inv. Co. Inst. v. Commodity Futures Trading Comm’n, 720 F.3d 370 (D.C.

Cir. 2013) (“[I]n promulgating regulations, agencies may proceed incrementally . . . .”). This

discussion, which summarized and distinguished the Varner Declaration, demonstrates that the

FTC considered the points raised in the Varner Declaration and simply arrived at a different

conclusion. This does not, as PhRMA asserts, demonstrate that the FTC “entirely failed to

consider an important aspect of the problem, [or] offered an explanation for its decision that runs

counter to the evidence before the agency.” Am. Wildlands, 530 F.3d at 997–98 (quoting State

Farm, 463 U.S. at 43).

       An agency’s duty to respond to “significant comments raised during the rulemaking . . . is

not ‘particularly demanding.’” Ass’n of Private Sector Colls. & Univs., 681 F.3d at 441 (citing

PPL Wallingford Energy LLC v. FERC, 419 F.3d 1194, 1198 (D.C. Cir. 2005)). Moreover, “the

arbitrary and capricious standard is ‘highly deferential’ and ‘presumes agency action to be

valid.’” Am. Trucking Ass’ns., Inc., 724 F.3d at 245 (quoting Am. Wildlands, 530 F.3d at 997–

98); Envtl. Def. Fund, Inc., 657 F.2d at 283. The Court must “look only for ‘a rational

connection between the facts found and the choice made.’” Am. Trucking Ass’ns., Inc., 724 F.3d
67
at 245 (quoting State Farm, 463 U.S. at 43). In light of the FTC’s explanation of its rule and its

response to PhRMA’s comments, the Court finds that the FTC has established such rational

connection.

       Accordingly, this Court concludes that the Final Rule promulgated by the FTC is not

arbitrary and capricious.

       C.      FTC’s Rulemaking Record Included Sufficient Factual Material In Support
               of Its Decision

       Count III of PhRMA’s complaint claims that the FTC did not observe the procedure

required by law under 5 U.S.C. § 706(2)(D) because the FTC did not include the factual basis for

its decision in the rulemaking record. See Compl. ¶¶ 101–06; Pl.’s Mem. at 29–30. PhRMA

objects that the FTC violated the rulemaking process by failing to provide for public comment

the specific records of the informal interpretation requests and any other information which the

FTC relied on to inform its decision. See Pl.’s Mem. at 30. This argument essentially restates

PhRMA’s contention that the Final Rule is arbitrary and capricious for failing to provide record

support informing its expertise. See supra Part III.B.2. The FTC stated in the Final Rule that the

agency determined the rule was necessary based on informal requests for information and 66

HSR filings received from the pharmaceutical industry, and no other industry, with regards to

exclusive patent rights transfers. 77 Fed. Reg. at 50,059; JA at 3; 78 Fed. Reg. at 68,708; JA at

10.

       “The APA requires an agency to publish ‘notice’ of ‘either the terms or substance of the

proposed rule or a description of the subjects and issues involved,’ in order to ‘give interested

persons an opportunity to participate in the rulemaking through submission of written data,

views, or arguments.’” Am. Radio Relay League, Inc. v. FCC, 524 F.3d 227, 236 (D.C. Cir.

                                                 68
2008) (citing 5 U.S.C. § 553(b)-(c)). Under the APA, the court shall “hold unlawful and set

aside agency action, findings, and conclusions found to be . . . without observance of procedure

required by law.” 5 U.S.C. § 706(2)(D). “Longstanding precedent instructs that “[n]otice is

sufficient ‘if it affords interested parties a reasonable opportunity to participate in the rulemaking

process,’ and if the parties have not been ‘deprived of the opportunity to present relevant

information by lack of notice that the issue was there.’” Am. Radio Relay League, Inc., 524 F.3d

at 237 (quoting WJG Tel. Co., Inc. v. FCC, 675 F.2d 386, 389 (D.C. Cir. 1982) (citations

omitted)). The Court’s inquiry focuses on whether “the interested parties could not reasonably

have ‘anticipated the final rulemaking from the draft [rule],’” and “whether the notice given

affords ‘exposure to diverse public comment,’ ‘fairness to affected parties,’ and ‘an opportunity

to develop evidence in the record.” Nat’l Mining Ass’n v. Mine Safety & Health Admin., 116
F.3d 520, 530–31 (D.C. Cir. 1997) (internal citations omitted).

         The Final Rule was adopted as proposed, and interested parties were apprised of the

basis and rationale for the FTC’s proposed rule in the NPRM and provided an opportunity to

comment. As previously discussed, with respect to the 66 HSR filings the FTC relied upon, such

information is confidential and likely could not have been made public. See 15 U.S.C. § 18a(h);

see also Mattox, 752 F.2d at 122; Lieberman, 771 F.2d at 38; In the Matter of Gen. Motors

Corp., 103 F.T.C. at *3. The requests for interpretation were available on the PNO’s public

database recording informal requests for interpretation, and PhRMA accessed this database to

support its comment to the proposed rule. See JA at 32; see also Wis. Power & Light Co., 363
F.3d at 462–63 (citing U.S. Lines, Inc., 584 F.2d at 534–35 & 534 n.44). Moreover, PhRMA

representatives met with FTC Commissioners and staff members on four occasions after the

                                                 69
close of the comment period and were provided the opportunity to submit additional material for

the FTC’s consideration, providing them ample opportunity to comment on the proposed rule.

See JA at 70–77. As a result, PhRMA was given “the opportunity to present relevant

information” and “a reasonable opportunity to participate in the rulemaking process.” Am. Radio

Relay League, Inc., 524 F.3d at 236 (quoting WJG Tel. Co., Inc., 675 F.2d at 389 (citations and

internal quotation marks omitted)). Consequently, the FTC’s rulemaking process thus did not

fail to observe the procedure required by law under 5 U.S.C. § 706(2)(D).

IV.    CONCLUSION

       For the aforementioned reasons, PhRMA’s Motion for Summary Judgment is denied and

the FTC’s Motion for Summary Judgment is granted. An appropriate order accompanies this

Memorandum Opinion.

                                                                   Digitally signed by Hon. Beryl A.
                                                                   Howell

       Date: May 30, 2014                                          DN: cn=Hon. Beryl A. Howell,
                                                                   o=District of Columbia, ou=U.S.
                                                                   District Court for the,
                                                                   email=Howell_Chambers@dcd.us
                                                                   courts.gov, c=US
                                                                   Date: 2014.05.30 20:19:43 -04'00'
                                                    __________________________
                                                    BERYL A. HOWELL
                                                    United States District Judge

                                               70