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Date
Rule
802.50
Staff
Michael Verne
Response/Comments
Agree that this is a reasonable method of allocating the value of the transaction between the U.S. & Foreign assets.

Question

November 8, 2004

VIAEMAIL

Mr. Michael Verne
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580

Re: Request for Informal Interpretation Under Rule 802.50

Dear Mr. Verne:

Iwrite seeking clarification of how to determine when certain intangibleproperty is deemed to be "located outside the United States" within the meaning of Rule 802.50.

Werepresent Purchaser, the US subsidiary of a foreign person. Theultimate parent entity of the Seller is also a foreign person. Purchaser andSeller (together, the "Parties") are contemplating a transaction inwhich Purchaser would purchase from Seller certain assets related to a brandname product ("Product") manufactured and sold worldwide by Seller.The purchase price will be approximately $76 million for intellectual propertyrights and good will associated with the Product and an additionalapproximately $2.3 million worth of inventory. The intellectual property isregistered in multiple jurisdictions, including the United States. The Parties meet the size-of-persontest for transactions valued at not more than $200 million. Because thepurchase price will exceed the HSR $50million filing threshold, the proposed transaction will be reportable unlessone of the exemptions provided by Part 802 of the Rules applies.

Rule 802.50(a) provides:

The acquisition of assets located outside the United States shall be exempt from the requirements ofthe act unless the foreign assets the acquiring person would hold as a resultof the acquisition generated sales in or into the U.S. exceeding $50 million during the acquired person's mostrecent fiscal year.

ThePremerger Notification Office has provided informal guidance on severaloccasions regarding how to interpret the word "located" in Rule802.50 with respect to assets that have no fixed location. In determining wheremovable ships were located, the PNO hasadvised that it looks "not only to where the assets were generally locatedand who owned the assets, but also to the source of the revenues generated bythe movable assets." ABA Premerger Notification PracticeManual, Interpretation 269 (1991). In a later interpretation involving thelocation of patent rights and other intellectual property, the PNO agreed that "the portion of the license attributable to theforeign patents is `located outside the United States'because the source of the revenues generated is foreign intellectual property.The remaining portion of the license attribute to the U.S. patents is located in the United States." Informal Staff Opinion (File No. 9912003).

InSeller's most recent fiscal year, approximately 56 percent of total Productsales were of sales in or into the U.S. and approximately 45 percent of saleswere outside the U.S. Based on the above interpretations, it appears that theproper method of determining where the intangible assets to be purchased are"located" is to multiply the percentages reflecting sales inside andoutside the U.S. by the purchase price of the assets. Accordingly,approximately $33 million of the asset value was of assets located outside theUnited States ($76 million x .44) with no sales attributable to these assets as"in or into the U.S.," and the remaining approximately $43 millionworth of the assets ($76 million x .56) was of assets deemed to be"located" in the United States. Because the value of the assetslocated in the United States is below the HSR threshold (even if the value of all the inventory is attributedto the United States) and the foreign assets did not generatesales in or into the US exceeding $50 million, the transactionwill be exempt from HSR filing requirements.

TheParties further contemplate that the purchase agreement may contain a purchaseprice allocation based on tax and/or other business purposes. This allocationmay be same as or different from the above analysis based on most recent fiscalyear revenue. It is my understanding that the PNO doesnot consider an allocation of the purchase price for tax or other businesspurposes as relevant to the determination of where assets are located forpurposes of interpreting Rule 802.50.

Pleaseconfirm that this transaction will be exempt from reporting requirements underRule 802.50.

Email

From:(redacted)

Sent: Monday, November 08, 2004 2:19 PM

To: Verne, B. Michael

Subject: FW: HSR Letter

Mike,

Thank you for responding to my letter (copy attached) so quickly.This is to confirm your advice that: (1) my letter correctly states how the PNO interprets the word "located" within the meaning ofRule 802.50 for "movable assets"; (2) with respect to patents, the PNO considers patents that are registered outside the United Statesto be "located" outside the United States with no sales "in orinto the United States" attributable to those patents; and that (3) in thesituation where, as here, the patents are registered both in the US and abroadand where other intangible property, such as goodwill and know-how, are notregistered anywhere, it is reasonable to use the Seller's prior fiscal yearsales information as a basis to allocate the purchase price between US and non-US"located" assets.

If the foregoing does not accurately reflect your advice, pleasecontact me at your earliest convenience.

-----Original Message ----

From: (redacted)

Sent: Monday, November 08, 2004 2:02 PM

To: Michael Verne (E-mail)

Subject: FW: HSR Letter

I'm attaching a letter requesting advice on the interpretation ofRule 802.50. The facts are set out for your convenience in the letter. Pleasecall me at your earliest convenience after you have read the letter.

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

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