Cooley M&A Team News - January 2014

FTC/DOJ DEVELOPMENTS
Revised 2014 Hart-Scott-Rodino Antitrust Thresholds—Effective February 24, 2014

The Federal Trade Commission has completed its annual adjustments to the filing thresholds under the Hart-Scott-Rodino (HSR) Act. The new, higher thresholds will take effect on February 24, 2014 and apply to all transactions which close on or after this date but before the next round of adjustments takes effect in early 2015.

With these adjustments, many transactions valued at over $75.9 million (instead of the current $70.9 million level) and closing on or after the effective date will trigger an HSR filing. Parties entering transactions which would satisfy the current HSR thresholds but not trigger a filing based on the adjusted figures should keep in mind that it is the closing date—not the date of the agreement—which governs which set of thresholds will apply. Although parties are allowed to submit a filing if their transaction satisfies the current thresholds, regardless of when their transaction is set to close, those for whom the new thresholds put them outside the reach of HSR have the option of simply waiting until February 24, and then closing without a filing.

The threshold adjustments have modified in other key ways, including with respect to the size-of-person test ($151.7 million/$15.2 million instead of $141.8 million/$14.2 million with respect to the parties' revenues or total assets), the increase to $303.4 million of the "larger" part of the size-of-transaction threshold—which renders the size-of-person inapplicable—and the resetting of dollar thresholds setting the filing fee tiers and the levels tied to numerous exemptions such as the one relating to acquisitions of the voting securities of foreign issuers.

The thresholds remain just one part of the, often complex, filing analysis but the adjustments will soon provide a small amount of additional room before transactions risk triggering filing requirements.

FTC/DOJ DEVELOPMENTS
FTC Expands HSR Reporting Obligations—Targeting Pharmaceutical Licensing Deals

A new Federal Trade Commission ("FTC") rule, which became effective December 16, 2013, targets the pharmaceutical industry and requires Hart-Scott-Rodino Act (HSR) notices for a broader array of licensing transactions, expanding the types of deals that have to be notified to the government to allow antitrust enforcement agencies to scrutinize whether those deals may violate antitrust law before the licenses become effective.

HSR filings are generally required for transactions valued over about $70 million (increased threshold of $75.9 million will become effective on February 24, 2014). The FTC has long required notification of exclusive licenses to patents that transfer the right to "make, use and sell" a product, such as a drug, to another firm. Previously, if the licensor retained rights to manufacture or use the product, the license was considered non-exclusive and no HSR filing was required. However, the new rule requires notification of licenses that transfer "all commercially significant rights" to "any therapeutic area (or specific indication within a therapeutic area)," even if the licensor retains manufacturing or other rights.

Importantly, these rules are only applicable to the pharmaceutical industry, underscoring the Commission's intense scrutiny of the industry. The new notification requirements provide the Commission with the authority to review and potentially challenge additional transactions in the industry—including transactions by innovators that grant rights to larger firms to develop and commercialize a product.

The new rule is a significant development for pharmaceutical companies because it sets up hurdles to the use of common business arrangements that have immense importance to the industry. Any contemplated exclusive pharmaceutical license agreement that meets the HSR thresholds must be notified, and the parties must observe the mandatory HSR waiting period, before the license becomes effective. Companies must take the delay of HSR review into their plans when considering license agreements.

Increased burdens and transaction costs that parties to exclusive pharmaceutical licenses should consider include: (i) determining if a transaction's value exceeds the HSR thresholds; (ii) negotiating appropriate risk-shifting contractual provisions in connection with the license; (iii) preparing any necessary HSR filings; and (iv) defending the substantive merits if the FTC staff decides to investigate the potential competitive effects of a transaction.

PRACTICE POINTERS
Lengthening the Indemnification Claims Period

Delaware law limits parties' ability to contractually agree to lengthen the time period for making claims beyond the statute of limitations that would otherwise apply to the underlying claims. A line of Delaware cases (the most well known of which is GRT, Inc. v. Marathon GTF Technology, Ltd.) have held that the public policy behind statutes of limitations overrides contract language that states that representations and warranties survive "indefinitely". In such cases, Delaware courts will hold that the underlying statute of limitations governs the time period in which actions for breach may be brought.

While not a new issue, this limitation under Delaware law is currently receiving attention among M&A lawyers because of the practical issues it creates for drafting agreements that implement the parties' intent. For example, claims based upon inaccurate representations would usually be based upon a breach of contract claim, for which the statute of limitations in Delaware is three years from the time of breach. As a result, a business agreement that the time period for making claims based upon "fundamental representations" shall be longer than three years presents issues for the M&A lawyers seeking to draft enforceable contract language that implements the parties' intent.

Because of the potentially disastrous consequences of improperly addressing this issue in the contract, all M&A lawyers should understand the law in this area and have strategies for addressing the issues it creates.

COOLEY NEWS
Cooley Bolsters East Coast M&A Capability

On January 1, Cooley combined with Dow Lohnes PLLC's Washington, DC office. Through the transaction, Cooley added more than 50 attorneys and many other non-lawyer professionals and industry specialists. Among those additions, we have added three partners to our M&A practice with significant deal experience, particularly in the communications, media and higher education sectors.

John Byrnes has 30 years of experience as a transactional lawyer. He has broad experience working with clients in the cable television, broadcast, newspaper and technology industries. He has handled large and complex mergers, acquisitions and dispositions for cable operators, cable network owners, broadcast and newspaper owners, and technology companies. He has also assisted clients in the structuring and operations of joint ventures, strategic alliances and partnerships. He has also spent considerable time providing strategic counseling to substantial family owned businesses.

Kevin Mills has nearly 20 years of experience focused on the media and communications industries as a transactional and business lawyer. He advises early and late-stage companies, private equity firms and entrepreneurs in the cable, broadband, broadcast, print, entertainment, telecom, technology, online and sports-related sectors. He has negotiated and closed numerous corporate buyouts, mergers and acquisitions, joint ventures, investments, and strategic partnerships.

Ed O'Connell's practice covers a wide variety of M&A, transactional, corporate, financing and securities law matters, with a special focus on higher education institutions and media, communications and entertainment companies, as well as joint ventures between non-profit and for-profit entities in the post-secondary education sector. He has represented many media and cable companies and many of the largest investment banks in the United States. He also represents private equity and venture capital firms in connection with fund transactions and investments in the education, media, communications and Internet industries.