European Commission proposals for new regulation of compulsory licensing

The package of regulations—what the Commission is calling its “patent package”—covers reforms relating to Supplementary Protection Certificates (SPCs), Standard Essential Patents (SEPs), and the EU compulsory licensing (CL) regime.

The following is a brief overview of the regulatory framework governing EU compulsory licensing for crisis management (the “Proposal”), along with an impact assessment.^[1] Our overview of the proposed regulation for SEPs is available here.

Background and scope of the Proposal

Compulsory licensing allows a government to authorize the use of a patented invention without the consent of the patent holder under specific conditions, for example, during emergencies, as occurred with medical products during the COVID-19 pandemic. While in general voluntary licensing agreements with manufacturers are the preferred tool for increasing production, if voluntary agreements are not available or suitable, compulsory licensing can provide access to key products and technologies needed in a crisis as a last resort.

Currently there are 27 different national regimes for compulsory licenses among the Member States. This fragmentation can result in legal uncertainty, especially during times of crisis. In fact, as noted in the Proposal’s explanatory memorandum, national rules have different requirements and scopes. They also have limited territorial coverage, resulting in restrictions on the supply of products manufactured under a compulsory license in one Member State to other Member States. Furthermore, national procedures differ from one another, and the decision-making process is not coordinated at the EU level, which can impede reliance on the internal market to ensure supplies are available EU-wide in times of crisis.

The Proposal is designed to introduce a consistent, solid, and effective legal framework for EU CL that will implement territorial reach to cover cross-border supply chains. It will be a last-resort mechanism, to be used when reasonable voluntary agreement efforts have failed.

The European Commission stated, “Member States have implemented different compulsory licensing schemes in national legislation, only applicable to their national territory. The proposal leaves these national compulsory licensing systems untouched. The Union compulsory licensing system introduced by this proposal does not aim at addressing purely national crises. The proposal instead aims to address crises that have a cross-border dimension within the EU, which do not fall within the scope of national compulsory licensing schemes.”

Proposal content

According to the Proposal, in addition to patents and patent applications, CL covers utility models and supplementary protection certificates. In conjunction with the Proposal, provisions have been included in the EU pharma legislation reform proposals to suspend regulatory exclusivity when CL has been granted to facilitate authorization of generic products.

With regard to the main requirements for granting a CL, the Proposal provides that the Commission is entitled to grant CL when a crisis mode or emergency mode is activated or declared at the EU level. This should complement established and in-progress EU crisis mechanisms, as CL may then be used as part of such mechanisms.

According to the Proposal, a CL license will be a non-exclusive and non-assignable license. The scope of the license shall be limited to purpose for which CL is granted and for the duration of the crisis. It is also limited to the territories of the EU.

CL is granted by the Commission by means of an implementing act. The Proposal also calls for the rights-holder to participate sufficiently to guarantee their right to be informed and to provide comments.

Rights-holders are entitled to remuneration calculated by the Commission, though only up to 4% of licensee revenue. Remuneration will be determined by a number of factors, such as the economic value of the licensed activities, licensed product development costs (and the extent to which public funds supported development), and the humanitarian circumstances.

Licensees are bounded by obligations and restrictions on how they use, market, and advertise the products licensed to them under CL. Further, the Commission has the authority to fine licensees if the CL terms are breached.

Implementing acts are subject to judicial review by the Court of Justice of the European Union (though there are no specific provision in the Proposal in this regard).

Reactions

The proposed CL regulation has elicited a range of reactions, particularly in the healthcare sector.

The European Federation of Pharmaceutical Industries and Associations (EFPIA) expressed concern about the Proposal. The EFPIA stated, “The EC’s proposal for an EU-level compulsory license, which could be used to broadly abrogate the IP rights of innovators, provokes concerns for the stability of the IP regime in Europe and appears to disregard lessons learned from the COVID pandemic response.”^[2]

The group added that even without EU-wide CL, the industry was able to provide an unprecedented response to the COVID-19 pandemic, launching vaccines within a year and rapidly scaling up manufacturing capacity. It went on to argue that the proposed CL will prevent the innovators themselves—who best understand the technology—from choosing the best-positioned, most trusted partners to bring a given product to market within the shortest possible timeframe, in the interest of patients.

On the flip side, some commentators expressed support for the CL system, observing that it is intended as a last resort when voluntary licensing has failed, has limited scope, and can only be granted during times of healthcare crisis.

The debate is still raging. In any case, before the Proposal takes effect, it and the other regulation proposals published by the European Commission will have to be discussed, possibly amended, and then approved by the European Parliament and the Council of the European Union.

[1] The text of the proposal for a regulation of the European Parliament and the European Council on compulsory licensing for crisis management and amending Regulation (EC) 816/2006 is available here: https://single-market-economy.ec.europa.eu/publications/com2023224-proposal-regulation-compulsory-licensing-crisis-management_en.

[2] The EFPIA response to the European Commission’s patent package proposal is available here: https://www.efpia.eu/news-events/the-efpia-view/statements-press-releases/efpia-response-to-the-european-commission-s-patent-package-proposal.