EU compulsory patent licensing law proposals anticipate crises

The proposed new compulsory licensing regulation (35-page / 505KB PDF) forms part of a package of reforms to the EU’s intellectual property (IP) regime that are planned, which includes reforms to supplementary protection certificates and around the licensing of standard-essential patents.

The draft legislation also reflects a broader initiative the Commission has undertaken since the Covid-19 pandemic that aims to ensure that there remains “access to products needed to tackle a crisis” when such crises or emergencies arise.

During the pandemic, there was disruption to the supply of medicines and vital medical equipment. The Commission said in its proposal for a new compulsory licensing regulation that national rules are insufficient to ensuring cross-border product distribution in a crisis and stressed that, while the focus would remain on securing voluntary agreements with industry to address that issue, providing for EU-level compulsory licensing of patents and certain other intellectual property would be the most efficient and cost-effective way to enable the rapid manufacturing of protected products to tackle cross-border issues where voluntary agreements could not be secured.

Under the proposals, the Commission’s compulsory licensing powers would extend to patents, including published patent applications, utility models, and supplementary protection certificates in force in one or more EU member state.

The Commission would only be able to exercise its compulsory licensing powers if a crisis or emergency mode has been activated or declared in accordance with EU law.

In addition, before exercising its compulsory licensing powers, the Commission would be obliged to consult an advisory body, which would be required to offer a non-binding opinion on the matter without undue delay.

The Commission would further be obliged to give rights holders and licensees an opportunity to comment on its proposals. Those rights holders and licensees would be able to offer views on whether a voluntary licensing agreement could be reached with manufacturers on intellectual property rights for the purpose of manufacturing, using and distributing the crisis-relevant products, as well as on the need for a compulsory licence to be granted and on the conditions of such a licence.

The draft regulation also sets out general conditions for an EU compulsory licence. They include that the scope and duration of a compulsory licence is limited to the purpose for which it is granted and further limited to the scope and duration of the crisis or emergency mode in the legal framework of which it is granted.

Where compulsory licenses are granted, the licensees would be required to pay “adequate remuneration” to the rights holder at a rate set by the Commission. The remuneration payable would be capped at a maximum of 4% of the total gross revenue generated by the licensee through the relevant activities they undertake under the compulsory licence.

Factors the Commission would be required to consider when setting the remuneration rate include the economic value of the activities authorised under the compulsory licence, whether the rights holder received public support to develop their invention, the degree to which development costs have been amortised by the rights holder, and, where relevant, the humanitarian circumstances relating to the granting of the compulsory licence.

The proposed new legislation also seeks to govern what licensees can do when granted a compulsory licence. For example, the proposals make clear that licensees would be limited to manufacturing only the number of crisis-relevant products “necessary to meet the needs of the Union” in a crisis or emergency. In addition, the products manufactured under the compulsory licence would not be permitted to be exported.

Provision is made in the draft regulation for rights holders or licensees to make a “reasoned request” for the Commission to modify the specifications of the licence. The Commission would be obliged to review the licence upon receipt of such requests and update them “where needed”.

The proposals also address the termination of compulsory licences. The Commission would have powers to terminate such licences “where the circumstances which led to it cease to exist and are unlikely to recur or where the licensee fails to comply with the obligations laid down in this Regulation”. It would also be able to order licensees to dispose of goods when terminating the licences.

Licensees and rights holders could be fined up to 6% of their annual turnover for certain acts deemed to be intentional or negligent, under the proposals. These include if the licensee breaches their obligations under the regulation, or if rights holders breach their duties to cooperate in good faith.

The plans to provide for EU-level grant of compulsory licences would not interfere with existing powers individual EU member states may have to grant compulsory licences with effect in their own jurisdictions. However, under the proposed new regulation, member states would be obliged to notify the Commission where they grant such national compulsory licenses, and share details such as the purpose of granting such a licence, the products it applies to, the renumeration to be paid to the rights holder, and quantity of goods to be supplied under the terms of the licence.