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FTC Approves 'Merger to Monopoly' in Innovation Market

By Charles Reichmann and Scott Sher
February 10, 2004

The intersection of intellectual property and antitrust has been the subject of much fanfare over the past decade. The antitrust agencies have held numerous workshops where enforcement officials and practitioners have debated the scope and limitations of antitrust when such principles intersect with IP rights. The most notable work product generated as a result of this focus has been the 1995 Guidelines setting forth antitrust policy for the Licensing of Intellectual Property issued by the Department of Justice (DOJ) and the Federal Trade Commission (FTC).

Relying on the 1995 Guidelines rubric, the FTC in particular, under the leadership of Chairman Timothy Muris over the last 3 years, has made significant policy statements regarding the proper limitations of antitrust in the IP context. The FTC has, for example, brought lawsuits against Rambus for improperly withholding its patents from others, brought suit against Bristol-Myers Squibb for improper Orange Book listings (the mechanism to extend the life of a patent in the pharmaceutical industry to block generic drug entry) of its name-branded pharmaceuticals, and sued Schering Plough, Upsher Smith and American Home Products for improperly allocating markets for certain drugs.

Perhaps one of the most important decisions relating to the intersection of IP and antitrust came on Jan. 13, 2004. In an important — and split — decision that could have far-reaching consequences for transactions involving so-called “innovation markets,” the FTC announced that it would close its investigation of Genzyme's acquisition of Novazyme, two pharmaceutical companies engaged in research and development of Pompe disease, a rare and often fatal condition affecting children. In so doing, the FTC took the unusual step of approving a merger of the only two participants in a research market (a “merger to monopoly”). The FTC's approval of the merger signals that U.S. antitrust enforcement agencies may be prepared to give less rigorous scrutiny to mergers, joint ventures, and license agreements involving “innovation markets.”

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