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B. Agreements to Acquire Intellectual Property and Merger Law

B. Agreements to Acquire Intellectual Property and Merger Law

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Agreements to Buy and Sell Intellectual Property as an Antitrust Violation 445



to lessen competition, or to tend to create a monopoly” in a relevant market.1 Both

the substance and the procedures of antitrust merger enforcement have changed

significantly in recent decades. These changes are to some extent interrelated.

Before 1976, antitrust challenges typically occurred after a merger already had

been consummated; such challenges sometimes took years to litigate. In cases where

a court ultimately ruled the merger illegal and ordered the merged firm to divest

the acquired assets, it was sometimes difficult to recreate a competitively viable

firm—that is, to “unscramble the eggs”—and effectively restore lost competition.

Passage of the Hart-Scott-Rodino Antitrust Improvements Act in 1976 (HSR

Act) changed this dynamic. The HSR Act requires firms that propose mergers or

acquisitions of a certain size to notify the antitrust agencies and to adhere to certain

waiting periods before consummating the proposed transaction. The HSR Act

enables the agencies to obtain documents and other information to assess whether

to challenge the proposed transaction. Either the agencies can sue to block the

entire transaction, or they can seek the divestiture of assets in order to resolve competitive concerns while allowing the overall transaction to proceed. In practice,

merging companies most often consent to relief sought by the agencies in order to

avoid time-consuming litigation that would delay closing the transaction and the

realization of related efficiencies.

As a result, there have been fewer litigated merger cases interpreting application of the antitrust laws to mergers and acquisitions and greater reliance on

agency enforcement guidelines and other guidance explaining how the agencies

assess mergers and exercise their prosecutorial discretion. This development has

made merger enforcement more predictable, due to the issuance of agency guidelines and other guidance and the fact that the enforcement agencies systematically

review a greater number of transactions than was the case prior to enactment of the

HSR Act. Such expanded review has led to the development of substantial expertise

within the agencies. Agency guidelines have served as both a source of guidance

to business and a mechanism through which advances in economic learning have

been integrated into substantive merger analysis. At the same time, the paucity of

litigated court cases has made the merger review process much more administrative in nature.

Over time, the antitrust agencies and courts have moved away from the stringent enforcement standards that prevailed during the 1950s and 1960s, when mergers resulting in a merged firm’s market share as small as 5 percent had sometimes

been found unlawful. ***

Federal antitrust merger enforcement has evolved significantly since enactment of the Clayton Act in 1914. It has shifted in emphasis from a litigation-based

system focused on judicial review of consummated deals to an administrative

regime in which two federal agencies, the Antitrust Division of the Department

of Justice (DOJ) and the Federal Trade Commission (FTC), review mergers above

a certain size prior to consummation. In recent years, the DOJ/FTC Horizontal

Merger Guidelines (Merger Guidelines or Guidelines) have described the analytical

framework used by the agencies for merger enforcement and guided the agencies’

enforcement approach.



446 Antitrust Law and Intellectual Property Rights

The Antitrust Division (under Assistant Attorney General Donald Turner)

issued its first set of merger enforcement guidelines in 1968.10 The DOJ explained

that its purpose in publishing the 1968 Merger Guidelines was to inform business,

counsel, and others of “the standards currently being applied by the Department

of Justice in determining whether to challenge corporate acquisitions and mergers.” The 1968 Merger Guidelines used concentration within the relevant market

as a guidepost for whether enforcement action should be taken, setting thresholds

by which merger challenges became more likely as market concentration and the

market shares of the merging firms increased.

In 1982 the DOJ issued a revised set of merger guidelines, under the leadership of Assistant Attorney General William Baxter. To measure market concentration, the 1982 Merger Guidelines introduced use of the Herfindahl-Hirschman

Index (HHI)Φ1and established revised concentration thresholds, which are still in

Φ



[Editor:] The current Merger Guidelines explain the process of calculating an HHI—and its

significance in merger analysis as follows:

1.5 Concentration and Market Shares

Market concentration is a function of the number of firms in a market and their respective market shares. As

an aid to the interpretation of market data, the Agency will use the Herfindahl-Hirschman Index (“HHI”)

of market concentration. The HHI is calculated by summing the squares of the individual market shares

of all the participants. [Footnote 17: For example, a market consisting of four firms with market shares of

30 percent, 30 percent, 20 percent, and 20 percent has an HHI of 2600 (302 + 302 + 202 + 202 = 2600). The

HHI ranges from 10,000 (in the case of a pure monopoly) to a number approaching zero (in the case of an

atomistic market). Although it is desirable to include all firms in the calculation, lack of information about

small firms is not critical because such firms do not affect the HHI significantly.] ***

The Agency divides the spectrum of market concentration as measured by the HHI into three regions that

can be broadly characterized as unconcentrated (HHI below 1000), moderately concentrated (HHI between

1000 and 1800), and highly concentrated (HHI above 1800). Although the resulting regions provide a useful

framework for merger analysis, the numerical divisions suggest greater precision than is possible with the

available economic tools and information. Other things being equal, cases falling just above and just below a

threshold present comparable competitive issues.

1.51 General Standards

In evaluating horizontal mergers, the Agency will consider both the post-merger market concentration and

the increase in concentration resulting from the merger. Market concentration is a useful indicator of the

likely potential competitive effect of a merger. The general standards for horizontal mergers are as follows:

a) Post-Merger HHI Below 1000. The Agency regards markets in this region to be unconcentrated. Mergers

resulting in unconcentrated markets are unlikely to have adverse competitive effects and ordinarily require

no further analysis.

b) Post-Merger HHI Between 1000 and 1800. The Agency regards markets in this region to be moderately

concentrated. Mergers producing an increase in the HHI of less than 100 points in moderately concentrated

markets post-merger are unlikely to have adverse competitive consequences and ordinarily require no further

analysis. Mergers producing an increase in the HHI of more than 100 points in moderately concentrated

markets post-merger potentially raise significant competitive concerns depending on [other relevant]

factors ***.

c) Post-Merger HHI Above 1800. The Agency regards markets in this region to be highly concentrated.

Mergers producing an increase in the HHI of less than 50 points, even in highly concentrated markets

post-merger, are unlikely to have adverse competitive consequences and ordinarily require no further

analysis. Mergers producing an increase in the HHI of more than 50 points in highly concentrated markets

post-merger potentially raise significant competitive concerns, depending on [other relevant] factors. Where

the post-merger HHI exceeds 1800, it will be presumed that mergers producing an increase in the HHI of



Agreements to Buy and Sell Intellectual Property as an Antitrust Violation 447



use today. More important, the 1982 Merger Guidelines expanded merger analysis beyond concentration thresholds to explain how mergers may raise competitive concerns and to include an assessment of additional factors in the markets of

relevance to the merger.

The 1982 Merger Guidelines explained that antitrust law seeks to prevent mergers that could increase the likelihood of collusion, either tacit or explicit, in a postmerger market. Thus, merger enforcement is one of the ways in which antitrust

enforcers attempt to prevent tacit coordination in oligopolistic markets. Antitrust

law also seeks to prevent mergers that would enhance market power by creating or

strengthening a dominant firm, the 1982 Merger Guidelines explained.

To ground the analytical framework of merger analysis more firmly, the 1982

Merger Guidelines set forth a methodology for assessing market definition based

on the behavior that would be profitable post-merger for a hypothetical profitmaximizing monopolist. Market definition requires an assessment of substitutes to

which customers could turn if the merged firm attempted to raise price. The 1982

Merger Guidelines also introduced the concept that entry by other firms into the

relevant market might deter or counteract attempts by a merged firm to raise prices

post-merger, thus negating a merger’s potential anticompetitive effects.

Several factors, including ongoing economic research that questioned the

extent to which market concentration was correlated with reduced competition,

prompted these revisions to merger analysis. In 1984 the DOJ made modest revisions to update the 1982 Merger Guidelines with recent thinking and “to correct any

misperception that the Merger Guidelines are a set of rigid mathematical formulas

that ignore market realities, and rely solely on a static view of the marketplace.”

In 1992 the DOJ and the FTC jointly issued merger guidelines, the first time

both agencies set forth a unified approach to merger analysis. For market definition,

the 1992 Merger Guidelines continued to ask whether a hypothetical monopolist

could successfully impose a small but significant non-transitory increase in price.

The 1992 Merger Guidelines further deemphasized the HHI thresholds. Although

mergers that would increase concentration by a certain amount in a highly concentrated market remained subject to a presumption of anticompetitive effects,

the 1992 Merger Guidelines explained that “market share and concentration data

provide only the starting point for analyzing the competitive impact of a merger.”

Once past this starting point, the 1992 Merger Guidelines emphasized a need to

explain how the proposed transaction could harm competition and which factors

suggest the likelihood of such harm. The 1992 Merger Guidelines articulated more

fully two mechanisms of anticompetitive effects: (1) coordinated effects, that is

explicit or tacit collusion, and (2) unilateral effects resulting from the relaxation



more than 100 points are likely to create or enhance market power or facilitate its exercise. The presumption

may be overcome by a showing that [other relevant] factors *** make it unlikely that the merger will create or

enhance market power or facilitate its exercise, in light of market concentration and market shares.



U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines

(1992, as amended 1997).



448 Antitrust Law and Intellectual Property Rights

of competitive constraints on the combined firm due to the acquisition of a close

competitor. For each mechanism, the Guidelines outlined how particular factors

might be more or less conducive to a particular theory of anticompetitive effects.

In addition, the Guidelines refined the analysis of entry to focus on the potential

entrants’ need to sink costs in a relevant market as a key determinant of whether

entry would be “timely, likely, and sufficient” to deter or counteract anticompetitive

effects.

In 1997 the FTC and the DOJ revised the 1992 Merger Guidelines to elaborate on the treatment of merger-related efficiencies. The revisions recognized that

the main benefit of mergers to the economy is their potential to achieve efficiencies. The Guidelines explained that merging parties must show that the efficiencies

resulting from the merger “would be sufficient to reverse the merger’s potential to

harm consumers in the relevant market, e.g., by preventing price increases in the

market.”

Although the Merger Guidelines have not been altered since 1997, the FTC

and the DOJ issued a Commentary on the Horizontal Merger Guidelines in 2006.

The Commentary provides further explication of the Merger Guidelines, including

examples of how the agencies have applied them in particular matters. The Commentary does not change the standards of the Merger Guidelines, however. Rather,

the antitrust agencies issued the Commentary “to provide greater transparency

and foster deeper understanding regarding antitrust law enforcement.” ***

U.S. Merger Policy is Sufficiently Flexible to Address Industries in Which Innovation,

Intellectual Property, and Technological Change are Central Features

… [T]he common-law development of antitrust doctrine has permitted the

courts and the agencies to adapt the contours of the antitrust laws to new economic learning, changes in markets, shifting consumer and business behavior, and

numerous other factors. Innovation has driven the U.S. economy since before the

passage of the Sherman Act. In some respects, the challenges for antitrust analysis

presented by dynamic, innovation-driven industries today are analogous to those

presented in past years. Current merger policy has met this challenge. It is well

grounded in economics and is sufficiently flexible to provide a sound competitive

assessment in matters involving industries in which innovation, intellectual property, and technological change are central features.

As described above, merger analysis has moved away from structural presumptions, which presume increased concentration will likely lead to anticompetitive

outcomes, toward a more complex analysis that predicts competitive effects using

modern economic tools. Furthermore *** current merger analysis requires an

evaluation of procompetitive efficiencies that may result from transactions and an

assessment of whether these efficiencies offset the potential anticompetitive effects

of a merger. These changes have positioned U.S. merger policy so that it does not

currently need substantial change to account for innovation, intellectual property,

and technological change.

Merger law and policy—as it has developed through both agency guidelines and case law—has incorporated new or improved economic learning.



Agreements to Buy and Sell Intellectual Property as an Antitrust Violation 449



`Industries characterized by innovation, intellectual property, and technological

change will continue to evolve, and economic learning will progress. Guidelines

and case law provide flexible vehicles through which antitrust analysis can continue to develop. In contrast, efforts to adjust antitrust analysis though statutory

change would likely prove difficult, and would require continual amendment or

pose the risk of codifying economic learning at only one point in time.

A Note on Technology and Innovation Markets

Traditional merger analysis deals with product markets where the firms in a properly

defined market each has a quantifiable market share that can be used to measure

market concentration (such as by calculating the Herfindahl-Hirschman Index or

“HHI”). In established product markets, the conventional analysis is relatively static.

However, in dynamic markets, a proposed merger may affect competition for products that do not yet exist. In their Antitrust Guidelines for the Licensing of Intellectual

Property, the federal antitrust agencies’ recognize this and delineate three types of

markets that may exist in industries that rely heavily on intellectual property.

DOJ-FTC Antitrust Guidelines for the Licensing of

Intellectual Property §3.2



3.2.1 Goods markets

A number of different goods markets may be relevant to evaluating the effects of a

licensing arrangement. A restraint in a licensing arrangement may have competitive effects in markets for final or intermediate goods made using the intellectual

property, or it may have effects upstream, in markets for goods that are used as

inputs, along with the intellectual property, to the production of other goods. In

general, for goods markets affected by a licensing arrangement, the Agencies will

approach the delineation of relevant market and the measurement of market share

in the intellectual property area as in section 1 of the U.S. Department of Justice

and Federal Trade Commission Horizontal Merger Guidelines.

3.2.2 Technology markets

Technology markets consist of the intellectual property that is licensed (the “licensed

technology”) and its close substitutes—that is, the technologies or goods that are close

enough substitutes significantly to constrain the exercise of market power with respect

to the intellectual property that is licensed. When rights to intellectual property are

marketed separately from the products in which they are used, the Agencies may rely on

technology markets to analyze the competitive effects of a licensing arrangement. ***

3.2.3 Research and development: innovation markets

If a licensing arrangement may adversely affect competition to develop new or

improved goods or processes, the Agencies will analyze such an impact either

as a separate competitive effect in relevant goods or technology markets, or as



450 Antitrust Law and Intellectual Property Rights

a competitive effect in a separate innovation market. A licensing arrangement

may have competitive effects on innovation that cannot be adequately addressed

through the analysis of goods or technology markets. For example, the arrangement may affect the development of goods that do not yet exist. Alternatively, the

arrangement may affect the development of new or improved goods or processes

in geographic markets where there is no actual or likely potential competition in

the relevant goods.

An innovation market consists of the research and development directed

to particular new or improved goods or processes, and the close substitutes for

that research and development. The close substitutes are research and development efforts, technologies, and goods that significantly constrain the exercise of

market power with respect to the relevant research and development, for example

by limiting the ability and incentive of a hypothetical monopolist to retard the pace

of research and development. The Agencies will delineate an innovation market

only when the capabilities to engage in the relevant research and development can

be associated with specialized assets or characteristics of specific firms.

In assessing the competitive significance of current and likely potential participants in an innovation market, the Agencies will take into account all relevant

evidence. When market share data are available and accurately reflect the competitive significance of market participants, the Agencies will include market share

data in this assessment. The Agencies also will seek evidence of buyers’ and market participants’ assessments of the competitive significance of innovation market

participants. Such evidence is particularly important when market share data are

unavailable or do not accurately represent the competitive significance of market

participants. The Agencies may base the market shares of participants in an innovation market on their shares of identifiable assets or characteristics upon which

innovation depends, on shares of research and development expenditures, or on

shares of a related product. When entities have comparable capabilities and incentives to pursue research and development that is a close substitute for the research

and development activities of the parties to a licensing arrangement, the Agencies

may assign equal market shares to such entities.

The precise contours of innovation markets—and their use in antitrust

analysis—remain controversial. The concept of technology markets has, to date,

received greater acceptance by courts. But the theory underlying these alternative

markets informs agency decision-making, including mergers between firms with

extensive intellectual property portfolios.



Federal Trade Commission In the Matter of Ciba-Geigy Ltd., et al.

123 F.T.C. 842 (1997)



This consent order requires, among other things, the licensing of specified gene

therapy technology and patent rights to Rhone-Poulene Rorer, Inc., to put



Agreements to Buy and Sell Intellectual Property as an Antitrust Violation 451



Rhone-Poulene in a position to compete against the combined firm. The consent

order also requires divestiture of the Sandoz U.S. and Canadian corn herbicide

assets to BASF *** or another Commission-approved buyer:

*** Complaint

Pursuant to the provisions of the Federal Trade Commission Act and of the Clayton Act, and by virtue of the authority vested in it by said Acts, the Federal Trade

Commission ***, having reason to believe that respondents Ciba-Geigy Ltd. ***

and Sandoz Ltd. *** have agreed to merge into Novartis Ltd. (“Novartis”), a corporation, in violation of Section 7 of the Clayton Act [citation omitted], and Section

5 of the Federal Trade Commission Act [citation omitted], and it appearing to the

Commission that a proceeding in respect thereof would be in the public interest,

hereby issues, its complaint, stating its charges as follows:

I. Respondents

1. Respondent Ciba-Geigy Limited is a corporation *** engaged in the discovery, development, manufacture and sale of agricultural crop protection chemicals,

proprietary and generic pharmaceutical products, and animal health products.

Ciba participates in the field of gene therapy in the United States through the

Chiron Corporation. ***

3. Respondent Sandoz Ltd. is a corporation *** engaged in the discovery, development, manufacture and sale of agricultural crop protection chemicals, proprietary and generic pharmaceutical products, and animal health products. Sandoz

participates in the field of gene therapy ***

5. Respondent Chiron Corporation (“Chiron”) is a corporation organized,

existing, and doing business under and by virtue of the laws of Delaware ***. CibaGeigy Limited, together with its subsidiaries, is the largest shareholder of Chiron,

holding, not solely for investment, approximately 46.5% of the Chiron capital

stock as of September 30, 1996. Chiron is engaged in the discovery, development,

manufacture and sale of proprietary and generic pharmaceutical products, including gene therapy products. Ciba has agreed to fund research at Chiron and guarantee its debt, and has the right to appoint members of its board of directors and to

veto specified actions of the company. ***

III. The Proposed Merger

8. On or about March 6, 1996, Ciba and Sandoz signed a merger agreement

providing that both companies will merge with Novartis Ltd., a Swiss company

jointly formed by Ciba and Sandoz to effectuate the merger of their businesses.

The total value of the stock involved in the transaction is in excess of $63 billion.

The merged entity, Novartis, will control worldwide assets valued at approximately

$80 billion.



452 Antitrust Law and Intellectual Property Rights

IV. The Relevant Markets

9. One relevant line of commerce in which to analyze the effects of the proposed merger

is gene therapy technology and research and development of gene therapies ***.

Specific gene therapy product markets, in which the effects of the proposed merger

may be analyzed include the research, development, manufacture and sale of:

(a) Herpes simplex virus-thymidine kinase (“HSV-tk”) gene therapy for the

treatment of cancer;

(b) HSV-tk gene therapy for the treatment of graft versus host disease;

(c) Gene therapy for the treatment of hemophilia; and

(d) Chemoresistance gene therapy.

Gene therapy is a therapeutic intervention in humans based on modification of

the genetic material of living cells. ***

10. While no gene therapy product has yet been approved by the FDA, gene

therapy treatments now in clinical trials offer patients the prospect of significant

medical improvements or cures for diseases, particularly in oncology, transplantation and central nervous system diseases. The first regulatory approvals for commercial sales of gene therapy products, expected by the year 2000, will most likely

be in the area of oncology. These oncology gene therapy products are anticipated to

have sales exceeding $600 million by 2002 and will likely use the HSV-tk gene with

viral vectors, the means of delivering the gene. Sales of all gene therapy products

are projected to reach $45 billion by 2010, resulting from approvals for additional

gene therapies using the HSV-tk gene and other gene therapies. *** There are no

economic substitutes for gene therapy products. ***

13. The United States is a relevant geographic area in which to analyze the

effects of the merger. U.S. Environmental Protection Agency (“EPA”) and Food

and Drug Administration (“FDA”) regulations impose substantial barriers on the

introduction of products which do not meet those agencies’ regulations.

V. Structure of the Markets

Gene Therapy

14. The market for the research and development of gene therapy is highly concentrated. Ciba and Chiron together, and Sandoz, are two of only a few entities

capable of commercially developing gene therapy products. Only Ciba together

with Chiron, and Sandoz control the substantial proprietary rights necessary to

commercialize gene therapy products and possess the technological, manufacturing, clinical, regulatory expertise and manufacturing capability to commercially

develop gene therapy products. Each is either in clinical development or near clinical development for the treatment of human diseases for which there are large

unmet medical needs.

15. Ciba and Chiron together, and Sandoz are the two leading commercial

developers of gene therapy technologies and control critical gene therapy proprietary portfolios, including patents, patent applications, and know-how.



Agreements to Buy and Sell Intellectual Property as an Antitrust Violation 453



16. The market for the research and development of HSV-tk gene therapy for

the treatment of cancer is highly concentrated. Only two companies are capable of

commercially developing HSV-tk gene therapy products with viral vectors and are

either in clinical development or near clinical development to treat cancer. Sandoz

and Chiron are the leading commercial developers of these gene therapy technologies and control critical proprietary intellectual property portfolios, including

patents, patent applications, and know-how. [The FTC made similar findings for

other gene therapies] ***

VI. Entry Conditions

25. Entry into the relevant markets would not be timely, likely, or sufficient in its

magnitude, character, and scope to deter or counteract anticompetitive effects of

the merger. Regulations by the Food and Drug Administration (“FDA”) covering

gene therapy products *** create long lead times for the introduction of new products. Additionally, patents and other intellectual property create large and potentially insurmountable barriers to entry.

Gene Therapy

26. Entry into the gene therapy markets requires lengthy clinical trials, data collection and analysis, and expenditures of significant resources over many years to

qualify manufacturing facilities with the FDA. Entry into each gene therapy market

can extend up to and beyond 10 to 12 years. The most significant barriers to entry

include technical, regulatory, patent, clinical and production barriers. The FDA

must approve all phases of gene therapy development, including extensive preclinical and clinical work. No company may reach advanced stages of development

in the relevant gene therapy markets without: (1) clinical gene therapy expertise;

(2) scientific research that requires years to complete; (3) patent rights to all the

necessary proprietary inputs into the gene therapy product sufficient to provide

the company with reasonable assurances of freedom to operate; and (4) clinical

grade product manufacturing expertise, regulatory approvals and capacity to complete clinical development. The necessary proprietary inputs include genes, vectors

and vector manufacturing technology, and cytokines, proteins necessary for many

gene therapy applications. ***

VII. Effects of the Proposed Merger

31. The effects of the merger, if consummated, may be substantially to lessen competition or tend to create a monopoly in the relevant markets in violation of Section 7 of the Clayton Act [citation omitted], and Section 5 of the FTC Act [citation

omitted]. Specifically the merger will:

a. Eliminate Ciba and Sandoz as substantial, independent competitors; eliminate

actual, direct, and substantial competition between Ciba and Sandoz, including the reduction in, delay of or redirection of research and development

projects; and increase the level of concentration in the relevant markets;



454 Antitrust Law and Intellectual Property Rights

b. Eliminate actual potential and perceived potential competition in the relevant markets;

c. Increase barriers to entry into the relevant markets;

Gene Therapy

d. Combine alternative technologies, and reduce innovation competition among

researchers and developers of gene therapy products, including reduction in,

delay of or redirection of research and development tracks;

e. Increase the merged firm’s ability to exercise market power, either unilaterally or through coordinated interaction with Chiron, in the gene therapy

markets, because the merged firm will have both complete ownership of the

Sandoz gene therapy research and development and a 46.5% stock ownership interest in Chiron, the only other firm in a position to commercialize

work in gene therapy;

f. Heighten barriers to entry by combining portfolios of patents and patent

applications of uncertain breadth and validity, requiring potential entrants

to invent around or declare invalid a greater array of patents;

g. Create a disincentive in the merged firm to license intellectual property

rights to or collaborate with other companies as compared to premerger

incentives ***

VIII. Violations Charged

*** 33. The merger, if consummated, would constitute a violation of Section 5 of

the FTC Act, 15 U.S.C. 45, and Section 7 of the Clayton Act, 15 U.S.C. 18.

Decision and Order

*** The respondents, their attorneys, and counsel for the Commission *** thereafter

executed an agreement containing a consent order ***

Order ***

IX.

It is further ordered, That:

A.1. On or before September 1, 1997, each respondent shall (i) grant a nonexclusive license to RPR [Rhone-Poulene Rorer] to make, use and sell HSV-tk

Licensed Products under such respondent’s HSV-tk Patent Rights, in a manner

that has received prior Commission approval ***; or (ii) grant a nonexclusive

license to make, use and sell HSV-tk Licensed Products under such respondent’s

HSV-tk Patent Rights to an HSV-tk Licensee that receives the prior approval of the

Commission and in a manner that receives the prior approval of the Commission,

in perpetuity and in good faith, at no minimum price. In consideration for the

HSV-tk License, each respondent may request from the HSV-tk Licensee compensation in the form of royalties and/or an equivalent cross-license.



Agreements to Buy and Sell Intellectual Property as an Antitrust Violation 455



2. At the option of RPR or the HSV-tk Licensee, Novartis shall, in good faith,

within one (1) year of execution of said HSV-tk License, or within one (1) year of

the execution of any sublicense to the HSV-tk Patent Rights by RPR or the HSV-tk

Licensee, provide to RPR or the HSV-tk Licensee, or the HSV-tk Sublicensee(s),

technical information, know-how or material owned or controlled by Novartis as

of the date on which this order become final, as is necessary to develop the HSV-tk

Licensed Products. Such technical assistance may include reasonable consultation

with knowledgeable employees of Novartis and training at RPR or the HSV-tk

Licensee’s facilities, or the HSV-tk Sublicensee’s facilities, or at such other place as

is mutually satisfactory to Novartis and RPR or the HSV-tk Licensee or the HSV-tk

Sublicensee(s), such consultation to be for a period of time within the one-year

period reasonably sufficient to satisfy RPR or the HSV-tk Licensee or the HSV-tk

Sublicensee(s).

3. RPR or the HSV-tk Licensee may sublicense, to any HSV-tk Sublicensee,

fields that are not being developed by RPR or said HSV-tk Licensee.

4. The purpose for the HSV-tk License is to ensure the continuation of HSV-tk

gene therapy research and development for an HSV-tk Gene Therapy product to

be approved by the FDA for sale in the United States and to remedy the lessening of

competition resulting from the Merger as alleged in the Commission’s complaint.

5. Pending licensing of the HSV-tk Patent Rights, each respondent shall take such

action as is necessary to maintain the viability and marketability of the HSV-tk Patent

Rights and the HSV-tk Licensed Products, including, but not limited to, maintaining

in the ordinary course the research and development of HSV-tk products. ***

Any violation of the Consent Order *** may subject Ciba, Sandoz and Novartis

to civil penalties and other relief as provided by law.

Statement of Commissioner Mary L. Azcuenaga, Concurring

in Part and Dissenting in Part

The order in this matter seeks to remedy the alleged anticompetitive effects of the

merger of Ciba-Geigy Limited and Sandoz Ltd. in several product markets ***. I do

not concur with the order in the gene therapy markets, in which the Commission

has bypassed the obvious, simple and effective remedy of divestiture in favor of a

complex regulatory concoction that promises to be less effective and more costly.

Given the allegations of the complaint, the obvious remedy in the gene therapy markets is to require the divestiture of the gene therapy business of either

Ciba-Geigy or Sandoz. A divestiture of GTI or of Ciba-Geigy’s interest in Chiron

would eliminate the alleged anticompetitive overlaps in the gene therapy markets

and preserve the competition that existed before the merger. It is a remedy that

would be simple, complete, and easily reviewable. Normally, divestiture would be

the remedy of choice, and no persuasive reason for a different remedy has been

presented in this case.

The order of the Commission instead imposes licensing requirements that

do not necessarily preserve the competition that existed before the merger. ***



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