Global M&A trends and risks
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Global | Publication | January 2023
The European Commission (EC) is expected to adopt a new legislative package making material changes to the “regulation of compulsory licensing of patents” and the “revision of the legislation on supplementary protection certificates (SPCs)”. While the draft package has not yet been published1, its impact on the life sciences sector is expected to be significant. The EC is expected to adopt the compulsory licensing and SPC package during the second quarter of 2023. In the same period, the UP framework will enter into force.
The package is expected to create an expedited process for compulsory licensing, and to provide for shared common grounds, scope, procedure, and criteria for the grant of such licences.
Additionally, the package will create an EU-wide unified SPC grant procedure and a unitary SPC to (i) strengthen the single market for pharmaceuticals and plant protection products, (ii) lower costs for companies and reduce the administrative burdens on both applicants and national administrations, and (iii) enhance legal certainty regarding the scope of SPC protection, to the benefit of both SPCs users and generic manufacturers.
The Unitary Patent (UP) system will offer broader and more aligned territorial protection within the EU. The European Patent Office (EPO) will act as a “one-stop shop” for UPs administration in the participating EU member states. The Unified Patent Court (UPC) will have exclusive jurisdiction over UPs and European Patents (EPs) designated in participating member states that have not been opted out. The UP system is intended to be more business-friendly, e.g. in terms of both renewal costs and procedures and associated costs. Ultimately, UPs are expected to enhance legal certainty from both the maintenance and litigation standpoints.
Compulsory licensing of patents
The compulsory licensing of patents2 enables a government or court to (i) authorise the use of a patented invention without the consent of the patent holder, or (ii) use the patent-protected invention itself3. Compulsory licences are granted to certain applicants on specific grounds.4 Today, each member state regulates compulsory licensing for its own territory, despite many value chains operating across the EU. This is a source of legal uncertainty and contributes to the fragmentation of compulsory licensing of patents within the EU (other than in the narrow circumstances addressed by Regulation 816/2006).5
In July 2022, the EC launched a public consultation to seek views and input on the compulsory licensing of patents,6 with a view to ensuring a more efficient and coordinated system, and to ensure that the EU is better equipped to address EU-wide crises. The consultation also sought views on the procedure for the grant of compulsory licences for the manufacture of pharmaceutical products for export to non-EU countries (currently regulated by Regulation 816/2006).
Following this consultation, the EC published a summary of stakeholders’ views7. The majority of them thought that current national laws are fit to tackle crises. However, a large number of respondents considered that a compulsory licence should enable (i) manufacturing of products across several EU countries or (ii) export to a member state other than the country in which products are manufactured. Almost all stakeholders believed compulsory licensing should be allowed in crises. A majority of those who considered that it should be allowed in specific crises only, thought that health-related crises are relevant such crises. Three-quarters of respondents agreed with compulsory licensing as a last resort (where voluntary agreements have failed or are unavailable).
Almost half of stakeholders were in favour of enhanced communication and information sharing between EU countries8. Others favoured (i) alignment of national rules, and (ii) issuance of non-binding guidelines9. Respondents also provided their views on applying uniform compulsory licences rules for crisis management, particularly aligning the rules addressing (i) grounds, (ii) scope, (iii) procedure, and (iv) conditions for the grant of a compulsory licence. Respondents also favoured decisions at (i) EU level for a crisis affecting more than one member state, and (ii) at national level for a national crisis.
Regarding compulsory licensing for export outside the EU, the vast majority of respondents believe that Regulation 816/2006 provides a speedy and efficient procedure, but that it needs to be more flexible.
Supplementary protection certificates
SPCs offset the loss of patent protection for pharmaceuticals that occurs as a result of the lengthy testing and clinical trial processes,10 compensating developers for their investments in R&D.
Currently, SPCs are regulated through regulations including (i) Regulation 469/200911 on the SPC for medicinal products, and (ii) Regulation 1610/9612 on the creation of an SPC for plant protection products (PPPs). The EC’s 2020 evaluation of these two regulations prepared the ground for the current legislative initiatives, identifying the main issues with the current regulatory framework.
While the EC considers the SPC system to be reasonably balanced in terms of efficiency13 and the SPC regulations to be internally coherent14, it is focused on ensuring that the system:
In fact, despite the EU common framework, SPCs are administered at national level. This is seen as the SPC system’s main shortcoming, generating fragmentation, which leads to extra costs for, and administrative burden.16 Further, differences in the scope of protection across the EU creates uncertainly, reducing the effectiveness of the SPC regime.
The lack of transparency in the SPC regime is another issue of concern.17 According to the EC, this suboptimal transparency creates difficulty in identifying what SPC protection exists, for which products, and in which member state.18
However, despite the fragmentation, the view is that the SPC system creates “added value” for the EU, given the broadly consistent incentives it creates. To improve the system, and to deal with these issues, the EC plans to create a unified SPC grant procedure and a unitary SPC (which would strengthen the single market for pharmaceuticals and PPPs).19
The creation of a unified SPC grant procedure and of a unitary SPC will enable patent owners to reduce the costs associated with that procedure, and the related administrative burden. It will also harmonise the scope of protection of these certificates, and increased transparency will enable innovators and generics manufacturers to know exactly what the SPC protection covers.
The 2012 UP system is expected to come into effect on 1 June 202320, as the regulations21 apply only after entry into force of the UPC agreement (UPCA.)22
Currently, if an inventor wants to patent an invention in the EU, she can apply for national patents or an EP. If she chooses the latter, the EPO will carry out a centralised examination of the application. However, EP applications passed to grant are recognised as national parts by EPC member states, such that the national parts need to be maintained individually in each EPC member state. This process can be complex and very expensive, if the patentee chooses many countries, and can lead to legal uncertainty. Litigation and competition concerns regarding (the validity of) patents in the pharmaceutical sector are not uncommon23.
In contrast, the UP system will offer comprehensive territorial protection24 together with a single renewal fee.25
The EPO will act as a “one-stop shop” for obtaining, maintaining and managing UPs, which means that a UP will enable inventors obtaining uniform and territorially broad protection in the participating member states. Finally, UP transfers, licences and other rights will be subject to a single registration entered in the EPO’s register for UP protection.
The UPC will accompany the UP system, operating as the forum for enforcing and challenging UPs. It is intended to enhance legal certainty through a harmonised body of case law, and to provide simpler, quicker and more efficient judicial procedures compared to member state courts.
However, because it will take years for the UPC case law to develop, many pharmaceutical companies are hesitant to subject crown jewel patents to an unproven new system. In addition, the centralized approach does also create the risk of a revocation of the UP or the EP (which has not been opted out from the UPC) in all member states in one stroke.
Innovators, therefore, need to develop a strategy to decide whether and which EPs they will introduce into the new system and whether they will chose unitary protection in the future. Strategies could include the filing of EP divisional applications or national patents in important countries alongside UPs.
The new framework will change how life sciences companies consider patenting their inventions and their European patent litigation strategies. When filing new patents, life sciences companies may consider applying for an UP, instead of or in addition to a conventional EP or national patents, weighing the risk of central revocation of the UP or not opted out EPs.
The authors wish to thank Julien Haverals and Luca Ghafelehbashi, International Trainees at Norton Rose Fulbright LLP (Brussels) for their contribution.
Nina Varumo is a freelance portrait and documentary photographer based in Stockholm. A recent project of hers Kvinnor till sjöss (‘Women at sea’) is on ongoing photo series highlighting the working life of female seafarers in order to change the stereotypical image of what and who is a seafarer.
Companies have been publicly reporting on their financial performance for over a hundred years. However, they are increasingly having to make public non-financial disclosures relating to sustainability and environmental, social and governance (ESG) matters as a result of rules, laws and regulations issued by stock exchanges, governments and regulators worldwide.
© Norton Rose Fulbright LLP 2023