Key takeaways

• The proposed Regulation aims to create a Union compulsory license which can be implemented during a crisis in order to facilitate access on a cross-border nature across the EU to "crisis-relevant products". The grant of a Union CL is stated to be intended to be a last-resort mechanism when reasonable voluntary agreement efforts have failed.
• It covers patents, patent applications, supplementary protection certificates and utility models. There is no explicit provision requiring disclosure of trade secrets by rights-holders; however the Proposals do require the right-holder and licensee to co-operate in good faith and "make their best efforts to fulfill the objective of the Union compulsory license, taking into account each other's interest".
• In conjunction with these proposals, provisions have been included in the EU Pharma legislation reform proposals to suspend regulatory exclusivities where a Union compulsory license has been granted to facilitate the authorization of generic products.
• Some protections for right-holders are built into the framework, including a right to comment on the license request, rights to remuneration (though only up to 4% of licensee revenue), and restrictions on the licensees' activities backed up by the Commission having the authority to issue fines if the terms of a Union CL are breached.
• The publication of the Commission’s proposal is only a first step in the legislative procedure. We anticipate it will take some years before the Proposals (perhaps in amended form) are adopted.
• Although the proposed Union CL will only be available in times of crisis and is intended as a last resort where voluntary licensing has failed, the proposal provides a platform for a more interventionist EU to exert a greater degree of control over the availability of technology to address a crisis.    Thus, the threat of a Union CL would provide the Commission with a powerful negotiating tool in the supply of relevant technology which is likely to impact owners of technology in certain areas such as vaccines, environmental clean-up and/or computer chip manufacture.

In more detail

Reasons for the EU Regulation

Currently, save in relation to the manufacture of pharmaceutical products for export to countries with public health problems, the compulsory licensing framework within the EU operates at a national level and without harmonization. While the national rules (and the new proposals) operate within the legal framework set out in the Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS Agreement") there is sufficient flexibility within the TRIPS Agreement provisions such that each member state has its own rules of procedure and conditions for grant of a compulsory license.

As explained in the IP Action Plan and subsequent consultations and studies on compulsory licensing conducted by the Commission in the meantime, the Covid-19 pandemic highlighted the difficulties faced by the EU in responding to global or EU-wide crises of a health, environmental, nuclear or industrial nature.  This was in part put down to the impact of the fragmented compulsory licensing framework and its operation at a national level, which meant the EU was unable to implement - or threaten - compulsory licensing at an EU level in order to support cross-border solutions ensuring supply across the Internal Market.

The Explanatory Memorandum for the Proposals for the new EU compulsory license highlights that compulsory licensing has a dual role in (1) incentivizing the conclusion of voluntary agreements and (2) enabling the manufacture of products needed to tackle a crisis in the absence of appropriate voluntary arrangements. And argues that "for compulsory licensing to fulfill this role, an efficient compulsory licensing scheme needs to be built in the EU, able to rely on the Single Market, complementing EU crisis instruments and in line with the EU’s international obligations". And this is what the new proposals seek to do.

Overview of the proposals

• Creation of a Union CL for use in a crisis: The proposal foresees a new EU-wide CL ("Union CL") instrument that would complement other EU crisis instruments [article 5]; it would only be triggered as a last-resort mechanism when (reasonable) voluntary agreement efforts fail in a crisis situation.
  • The determination of the existence of a crisis or emergency is not defined by the proposed regulation; rather, a Union CL could be triggered by an EU-level emergency declaration under an existing EU crisis instrument (as detailed in the Annex to the proposal), or upon request by more than one Member State in the case of a cross-border crisis.
  • The crisis instruments include the Single Market Emergency Instrument (SMEI) under which the Commission may recognize a public health emergency at Union level, the "Chips Act" under which the Commission may activate a crisis stage in case of a significant shortage of semiconductors due to serious disruptions in their supply, and the Regulations concerning measures to safeguard the security of gas supply.
• A Union CL would have a broad scope of coverage: The scope of the Union CL will be broad and in addition to patents will cover published patent applications, supplementary protection certificates, and utility models [article 2].
  • Notably many national CL laws provide for an embargo during which a national CL cannot be requested (for example, within a period of time after the date of grant of a patent) - this will not be the case for the Union CL and instead even patent applications will be included.
  • The CL will be granted with reference to a ‘crisis-relevant product’. These are defined as products or processes that are indispensable for responding to a crisis or emergency or for addressing the impacts of a crisis or emergency in the Union.
  • The relevant rights and right-holders underpinning that product should be identified in the CL decision though if needed based on the urgency and difficulties in identifying the rights the license could initially only indicate the non-proprietary name of the product for which it is sought with the further details to be updated and the rights-holders notified as soon as possible after grant of the license.
• Regulatory exclusivities will be suspended for the duration of the Union CL grant: To support effective use of compulsory licenses with respect to medicinal products, the new EU Pharmaceutical Legislation reforms (released on 26 April 2023) include provisions to suspend regulatory data exclusivity and market protection over the relevant products during the duration of the Union CL grant and in respect of the recipient of the CL, thereby facilitating authorization of such generic medicinal products. The way in which existing data protection rules would be set aside remain unclear, though positively the proposed EU Pharma Regulations do require that confidential information remains protected.
• There is no explicit provision requiring disclosure of trade secrets by rights-holders; however the Proposals do require the right-holder and licensee to co-operate in good faith and "make their best efforts to fulfill the objective of the Union compulsory license, taking into account each other's interest." [article 13]
• Patentees and applicants will have an opportunity to comment: [article 7] the proposal sets out an obligation for the Commission to identify and notify relevant rights-holders with regards to the CL. Rights holders will have an opportunity to comment before a Union CL is granted, specifically on (a) the possibility to reach a voluntary licensing agreement; (b) the need to grant the Union CL; and (c) the conditions under which the Commission intends to grant the Union compulsory license, including the amount of the remuneration.
• Patentees and applicants can receive a remuneration: [article 9] Patentees and applicants may be entitled to remuneration calculated by the Commission - though this will not exceed 4% of total gross revenue generated by the licensee's actions covered by the Union CL. Remuneration will be determined by a number of factors, such as the economic value of the licensed activities, the costs of development of the licensed product (and the extent to which the public supported the development), and the humanitarian circumstances.
• Licensees will be bound by a number of obligations and restrictions on how they use, market and advertise the products licensed to them under the Union CL, including with respect to the territorial reach of the activities under the license. [article 10]
  • The Union CL would be limited to acts of making, using, offering for sale, selling or importing the "crisis-relevant products" covered by the CL during a crisis.
  • The export of IP covered by a Union CL would be prohibited in most cases [article 11], however the Commission would retain the option of granting a Union CL for manufacturing pharmaceutical products for export purposes to third countries facing public health problems.
  • The rights-holder will be able to challenge actions and uses of the rights covered by the Union CL which do not comply with the conditions of the CL as infringement of its IP rights.
• The Commission will have the authority to issue fines: the proposal gives the Commission the competences to review, complement and terminate the Union CL as granted and, if necessary, to impose coercive measures on either the patentee or licensee (such as fines and periodic penalty payments). [article 15 and 16]. If infringement is alleged, licensees may have an opportunity to be heard to challenge a proposed fine, and in some cases will be entitled to access the Commission's file under the terms of a negotiated disclosure. [article 19] Importantly, the Court of Justice of the European Union is entitled to review decisions by which the Commission has imposed fines or periodic penalty payments. [article 21]

 Commentary

The proposals have drawn mixed responses, in particular from stakeholders within the healthcare sector.  EFPIA, which represents R&D-based pharmaceutical companies in Europe, has raised concerns about the potential for the threat of compulsory licensing to stifle innovation during a time of crisis - and more broadly - by raising questions as to the stability of the EU's intellectual property framework. In their comments they highlight that even without EU-wide compulsory licensing the industry was able to provide an unprecedented response to the Covid-19 pandemic, launching vaccines within a year and with a rapid scale-up of manufacturing capacity, and note the benefit of allowing innovators to choose the most appropriate licensing partners to facilitate the response to a crisis.

By contrast Medicines for Europe has highlighted that the Union CL is intended to be a last resort where voluntary licensing has failed and has expressed support for the EU-wide compulsory licensing system. And other commentators have noted the limited scope given the Union CL can only be granted during times of crisis and have suggested it should be extended to non-crisis situations as well.

For our part, we note that the financial implications may be material for technology owners in certain areas that are pertinent to "crisis" situations such as vaccines, other medicines, environmental clean-up, nuclear containment, energy storage and distribution or even silicon chip manufacture.  Whereas prior initiatives at EU level and the COVID TRIPS waiver have been aimed at ensuring access to technologies, particularly medicines, in less developed geographies, the proposed Union CL would apply to more wealthy purchasers of technology (such as the EU itself) and to a broader range of technologies.  The constraints on patentee remuneration under a Union CL therefore provide a limit to the price that can be charged for a patented technology which is independent from the cost of R&D required, the value provided or the innovative nature of the technology.  Although there can be no debate that the COVID pandemic was an unprecedented global crisis, it also remains to be seen exactly where the bar will be set and whether "lesser" concerns (such as climate change or obesity) could in time trigger the regime.

1 Available here.