EUROPEAN COMMISSION

Brussels, 27.4.2023

SWD(2023) 121 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT REPORT

Accompanying the document

Proposal for a Regulation of the European Parliament and of the Council

on compulsory licensing for crisis management and amending Regulation (EC) 816/2006

{COM(2023) 224 final} - {SEC(2023) 173 final} - {SWD(2023) 120 final} - {SWD(2023) 122 final}

Table of contents

1Introduction: Political and legal context

1.1The political context

1.2The legal context

1.3Compulsory licence as an incentive or replacement of voluntary agreements

2Problem definition

2.1What is the problem?

2.2Drivers of the problem

2.2.1    Divergent national schemes on compulsory licensing    

2.2.2    Inadequate territorial reach of compulsory licensing    

2.2.3    No dedicated forums to deal with compulsory licensing that could bolster EU resilience in times of crisis    

2.3Consequences of the problem

2.4How likely is the problem to persist?

3Why should the EU act?

3.1Legal basis

3.2Subsidiarity: Necessity of EU action

3.3Subsidiarity: Added value of EU action

4Objectives: What is to be achieved?

4.1General objectives

4.2Specific objectives

5What are the available policy options?

5.1What is the baseline from which options are assessed?

5.2Description of the policy options

5.2.1    Option 1: Recommendation on compulsory licensing for crisis management    

5.2.2    Option 2: Harmonisation of national laws on compulsory licensing for crisis management    

5.2.3    Option 3: Harmonisation plus a binding EU-level measure on compulsory licensing for crisis management    

5.2.4    Option 4: EU-level compulsory licensing to complement existing EU crisis instruments    

5.3Discarded options

6What are the impacts of the policy options?

6.1Option 1 – Recommendation on compulsory licensing for crisis management

6.1.1    Improve the key features of compulsory licensing    

6.1.2    Territorial reach of compulsory licensing    

6.1.3    Support to EU resilience    

6.1.4    Impacts per stakeholder group    

6.2Option 2 – Harmonisation of national laws on compulsory licensing for crisis management

6.2.1    Improve the key features of compulsory licensing    

6.2.2    Territorial reach of compulsory licensing    

6.2.3    Support to EU resilience    

6.2.4    Impacts per stakeholder group    

6.3Option 3 – Harmonisation plus a binding EU-level measure on compulsory licensing

6.3.1    Improve the key features of compulsory licensing    

6.3.2    Territorial reach of compulsory licensing    

6.3.3    Support to EU resilience    

6.3.4    Impacts per stakeholder group    

6.4Option 4 – EU-level compulsory licensing to complement existing EU crisis instruments

6.4.1    Improve the key features of compulsory licensing    

6.4.2    Territorial reach of compulsory licensing    

6.4.3    Support to EU resilience    

6.4.4    Impacts per stakeholder group    

6.5Common impacts

6.5.1    Impacts on fundamental rights    

6.5.2    Social and environmental impacts    

6.5.3    Economic and competitiveness impacts    

6.5.4    Summary of cost and benefits specific to the compulsory licensing procedures    

7How do the options compare?

7.1Comparison of options against the effectiveness and efficiency criteria

7.2Comparison of impacts of options on stakeholders

7.3Coherence with other EU policies and proportionality

8Preferred option

8.1REFIT and the application of the ‘one in, one out’ approach

9How will actual impacts be monitored and evaluated?

Annex 1: Procedural information

Annex 2: Stakeholder consultation (Synopsis report)

Annex 3: Who is affected and how?

Annex 4: Analytical methods

Annex 5: Legal background and the key legal provisions

Annex 6: Supplementary evidence

Annex 7: Supplementary legal analysis: the principle of exhaustion in the Single Market

Annex 8: SME test

Glossary

Country codes used in the text:

AT - Austria

BE - Belgium

BG - Bulgaria

DE - Germany

DK - Denmark

CY - Cyprus

CZ - Czechia

EE – Estonia

FI - Finland

FR- France

EL - Greece

HR - Croatia

HU - Hungary

IE - Ireland

IT - Italy

LV - Latvia

LT - Lithuania

LU - Luxembourg

MT - Malta

NL – Netherlands, the

PL - Poland

PT - Portugal

RO - Romania

SK - Slovakia

SI – Slovenia

ES - Spain

SE - Sweden

1Introduction: Political and legal context

1.1The political context

Intellectual property (‘IP’) rights, and in particular patents, are powerful tools in support of EU innovation and the EU economic transition objectives. Patents are exclusive rights protecting inventions. They are an important asset for inventors as they can ensure investments and access to finance 1 .

The balance between IP rights and other rights and interests has continuously been discussed and reassessed amid societal changes, technological developments, and crises. It is therefore not surprising that the COVID-19 crisis brought this issue once more into the spotlight. On that occasion, the conflicting interests were on the one hand, access to health products, and on the other hand preserving innovation incentives that are key to the development of new health products, such as vaccines and therapeutics. However, the pandemics also added another element to the discussion, notably on the role IP rights could and should play in a crisis. In other words, the question was how we can preserve the balance and incentives for innovation while ensuring swift access to critical products 2 and technologies in crises. Replies differed among countries in the world.

In October 2020, several World Trade Organisation (‘WTO’) members submitted a proposal to waive WTO members’ obligation to protect and enforce some IP rights in relation to the prevention, containment or treatment of COVID-19. Waiving IP rights differs from compulsory licensing. A compulsory licence (‘CL’) is an authorisation granted by a government to a party other than the patent holder to use a patented invention without the consent of the patent holder. The Agreement on Trade-Related Aspects of Intellectual Property Rights (‘TRIPS Agreement’) explicitly allows compulsory licensing, provided that some conditions, such as a limited duration and the payment of an adequate remuneration, are met. There is no mechanism in the TRIPS Agreement or in domestic systems of the WTO members to waive IP rights 3 . The EU, among other WTO members, did not support waiving TRIPS obligations that could result in the suspension of IP rights in relation to COVID-19 products. There was no evidence that IP was a barrier in the production and distribution of these products. The EU also considered that, should voluntary agreements fail, the TRIPS Agreement already provides for solutions through the existing flexibilities and, in particular, compulsory licensing 4 .

In that context, the Commission IP Action Plan 5  of 2020 underlined ‘the need to ensure that effective systems for issuing compulsory licences are in place’. The Commission undertook to ‘explore with Member States the possibility of creating an emergency co-ordination mechanism, to be triggered at short notice when Member States consider issuing a compulsory licence’. Finally, the 2023 Commission Work Programme 6 provides that the Commission will establish clear rules for the compulsory licensing of patents.

In its resolution of November 2021 7 , the European Parliament called on the Commission ‘to analyse and explore possible options for ensuring effectiveness and better coordination of compulsory licensing in the EU. The Council 8  confirmed that the EU stood ready to discuss the flexibilities of compulsory licensing for the domestic market and export purposes to third (non-EU) countries 9 . It also confirmed the need to explore possible IP tools and options to better coordinate the management of cross-border crises. At the same time, the Commission announced its willingness to table proposals to ensure the EU’s resilience to crises and new mechanisms to guarantee well-functioning supply chains in the Single Market and abroad. In that respect, reference can be made to two key EU proposals: 

·Proposal for a regulation establishing a Single Market emergency instrument 10 (‘SMEI’);

·In the context of the setting-up of HERA, the regulation on serious cross-border threats to health 11 (‘SCBTH’) and the regulation on a framework of measures for ensuring the supply of crisis-relevant medical countermeasures in the event of a public health emergency at Union level (‘HERA’) 12 .

These proposals qualify as crisis instruments, setting-up emergency mechanisms to ensure the supply of and access to critical goods notably in the Single Market. Other instruments, such as the Chips Act 13 , also include crisis measures. None of the above instruments explicitly includes the use of compulsory licensing to address a crisis. The rationale was that IP rights apply across sectors in a uniform way. Yet, EU crisis instruments rarely apply to all sectors. For instance, despite a large material scope, the SMEI proposal does not apply to the health sector. Embedding compulsory licensing in (sector-specific) EU crisis instruments would run the risk of creating different rules on compulsory licensing across domains. Nevertheless, this initiative would be closely linked to crisis instruments as to ensure they are fully coherent and complementary.

Finally, this initiative complements the launch of the Unitary Patent system (expected in June 2023). The Unitary Patent is a major step towards the completion of the Single Market for patents and an EU-level compulsory licence is part of this harmonisation coordinated effort. Against this backdrop of the increasing completion of the Single Market for patents, the envisaged initiative on compulsory licensing is therefore at the crossroads between the different EU crisis instruments and the international obligations and discussions on IP rights and compulsory licensing.

1.2The legal context

A compulsory licence 14  refers to the possibility for a government to allow a third party to use a patent without the authorisation of the right holder, subject to certain conditions aiming at preserving the legitimate interests of the patent holders. The TRIPS Agreement sets the international legal obligations as regards compulsory licensing. It provides two types of compulsory licensing schemes: (i) compulsory licensing for the domestic market (article 31), which applies to all types of products and (ii) compulsory licensing for the export, which only applies to pharmaceutical products (article 31bis).

Article 31 allows the granting of a compulsory licence, for any type of product. In this context, the compulsory licence must be predominantly for the supply of the domestic market of the WTO Member authorising the use. The TRIPS Agreement does not list the grounds on which a compulsory licence can be granted but provides several conditions under which a compulsory licence can be authorised (see Annex 5D). As for the EU legal context, there is no harmonisation of compulsory licensing for the domestic market, including as regards European patents with a unitary effect 15 . EU countries have all implemented compulsory licensing schemes but for different grounds and following different procedures, in accordance with the flexibilities left at international level.

Under Article 31bis of the TRIPS Agreement, a country can grant a compulsory licence to the extent necessary for the purposes of production and the export of a pharmaceutical product. The EU implemented this new disposition in its legal order through the adoption of regulation (EC) No 816/2006 16 . The EU may only act as an exporter to the countries with no or limited manufacturing capacity. The mechanism under Article 31bis of the TRIPS Agreement was only used once, in the Canada-Rwanda case (see Annex 5F). In the context of Regulation (EC) No 816/2006, EU countries remain the main points of contacts for granting the compulsory licence, checking whether the conditions are respected and when it is terminated. The role of the Commission remains limited to the case where the export of the product under a compulsory licence would be directed to an importing country which is not a WTO member. In such case, the importing country must make a notification to the Commission instead of the WTO. Regulation (EC) No 816/2006 was never used nor evaluated.

Two other EU legislations provide for a compulsory licensing scheme. First, the Regulation on Community plant variety rights 17 provides for the possibility for the Community Plant Variety Office to grant a compulsory licence on a community plant variety right, on application by a Member State, by the Commission or by an organisation set up EU level 18 . Second, the Biotech Directive 19 provides for the possibility, where a plant breeder cannot use a plant variety without infringing a patent, to apply for a compulsory licence.

1.3Compulsory licence as an incentive or replacement of voluntary agreements

Compulsory licensing is often presented as a ‘last resort mechanism’ 20 . In the vast majority of cases, voluntary agreements are the most efficient solution to ensure the manufacturing and supply of critical products. Stakeholders generally highlight the importance of voluntary agreements to scale-up the manufacturing of critical products. A large majority of respondents to the public consultation (74%, N=55) also considered that compulsory licensing is a last-resort mechanism that should be available only where voluntary arrangements have failed or are unavailable 21 . However, when voluntary agreements are not available, be it because such agreements do not offer a viable solution to address a crisis in a timely 22 or adequate 23 manner or because the IP owner is not willing to voluntarily license its rights, compulsory licence can have an:

·incentive role: The threat of a compulsory licence can incentivise the IP owner to grant a voluntary agreement, in particular when the IP owner has refused the licensing or the proposed conditions;

·enabling role: Should voluntary agreements still not be available or adequate to address the crisis and should another manufacturer be able to produce and deliver the goods to tackle the crisis, the public authority could decide to grant to this manufacturer a compulsory licence allowing/ ramping up production capacity.

These roles can only be fulfilled where there is an efficient, credible, and flexible compulsory licensing scheme in place.

2Problem definition

2.1What is the problem?

When a crisis strikes and the solution lies in using a certain product or technology, this product or technology may be protected by IP rights, for example by patents 24 . As more than 100 000 new patents are granted by the European Patent Office (‘EPO’) alone every year 25 , there are high chances that an innovative technology needed in crisis could be patent protected. Public authorities willing to rely on such product and/or technology need to secure the IP rights by seeking an agreement with the patent holder 26 (e.g. in case of the European Patents (‘EP’) among roughly 103 000 companies 27 ). Yet, voluntary solutions may not always be available nor adequate, in particular in the context of a crisis, when patent-protected products should be accessible under tight time constraints.

The need to resort to a compulsory licence in a crisis is supported (82%, N=61) by stakeholders who participated in the open public consultation (‘OPC’) run within the context of this initiative (see Figure 1 ) 28 . 

Figure 1: Do you consider it important that public authorities are entitled to allow production of certain products and/or use of certain technologies necessary to tackle a crisis through a compulsory licence?

Source: OPC, N=74

However, the current settings of the compulsory licensing system in the EU make this legal instrument unfit to address cross-border crisis 29 , in a timely manner. This is because EU compulsory licensing schemes have territorial limitations and are based on a patchwork of national laws that makes a coordinated and timely implementation of compulsory licences practically impossible.

This can be illustrated by a crisis striking several Member States, but where manufacturing capacities for the critical product are in other Member States. In such case, each step of the manufacturing process where IP rights are involved, should be authorised by the patent owner, usually through a licensing agreement, or - in the absence of voluntary agreements – a compulsory license. However, such compulsory licence is needed for each Member State and for each IP relevant step (be it manufacturing, exporting or importing). In case of an EU cross-border crisis, the issuance of multiple national compulsory licences with e.g. different scope (e.g. covering different patents and/or different products), procedures and conditions 30 would be necessary. In addition, great uncertainties would remain as to whether it can be exported from one Member State to another Member State and in what quantities. Finally, depending on the national procedures and conditions, these compulsory licences could be granted and implemented at different times (see section 2.2.1 below).

In a hypothetical example under the current rules, if two Member States needed a product manufactured in another two Member States, four compulsory licences might be need to secure access to such product (i.e. two compulsory licences to export and two compulsory licences to import). As shown in Figure 2 , the number of compulsory licences needed for five countries in crisis with manufacturing capacities spread over five other countries, could reach ten 31 . 

Figure 2: Hypothetical number of compulsory licences needed for a patented product, depending on the number of manufacturing and importing Member States (up to 5 and 5 Member States only, respectively)

Source: own elaborations

The above example might seem excessive (up to ten compulsory licences needed for a single product), yet it is likely to occur in practice. The average number of Member States in which European Patents for COVID-related products 32  were active equals 5.18, whereas for all patents the intra-EU geographic spread was 4.35 (Member States) 33 . This means that licensing of patent rights for a given product in the EU might require a coordinated action among four to five Member States. 

The number of patents active in several countries are not the only element to be considered. Additionally, multi-step value chains are predominant nowadays across nearly all industries. The Single Market in particular is based on complex cross-border supply chains, as products are increasingly manufactured across several Member States 34 . For example, in 2021, the share of intra-EU exports for most Member States was between 50 % and 75 % - it exceeded 75 % in HU (78 %), SK, CZ (both 80 %) and LU (81 %). Only in CY (27 %), IE (38 %) and MT (49 %) was the share of intra-EU exports lower than 50 % 35 . In absolute terms, the value of exported goods by Member State to partners within the EU in 2021 ranged from EUR 751 billion for DE to EUR 0.9 billion for CY ( Figure 17 , Annex 6) 36 . In view of the multi-dimensional links governing the existing value chains, it is highly probable that national compulsory licences would be needed not only for the final patented product, but also for any patented component 37 of the final product that may need to be sourced from other country. For example, the share of parts and components accounts for 50% of global trade in electrical machinery and transport equipment and 46% of trade in machinery and electronics. Over time, it is also worth noting that the importance of the Single Market has increased as a source of value added (supply and demand) in the area of goods. On the supply side ( Figure 3 , left), the contribution of domestic flows (i.e. within a single Member State) as source of value added in EU production has been constantly decreasing, whereas the relative importance of cross-border trade flows of industrial goods within the Single Market has slightly increased. Today, Single Market flows account for more than 25% of the total value added of EU production. A similar picture can be seen on the demand side ( Figure 3 , right). The relative contribution of domestic flows in terms of final demand to absorb and pay for the total value added produced in the EU has been decreasing, while the importance of the Single Market has increased.

Figure 3: Relative shares of the Single Market as a Source of Value Added (left) and of Final Demand (right) (goods, 1995-2018)

Source: Chief Economist Team (DG Internal Market, Industry, Entrepreneurship and SMEs) based on OECD TiVA data. Note: data available only until 2018

Consequently, the already significant level of complexity in the compulsory licensing system due to its fragmentation increases even further in view of cross-border value chains should manufacturing capacities of patented components be also located across different Member States. The above problem concerns compulsory licensing that would be issued for domestic (the EU market or several Member States), as well as for export; although the latter to a more limited extent. As regards compulsory licensing for export of pharmaceutical products to non-EU countries facing a health crisis, the system put in place by Regulation (EC) No 816/2006 was never used and stakeholders’ views diverge on the reason therefore 38 . Since no report was made on its application, it is difficult to draw definitive conclusions on its effectiveness. Similarly, to what exists for the domestic market, the cross-border value chains of manufacturing capacities could affect compulsory licensing for export purposes to non-EU countries.

To conclude, EU compulsory licences rules are characterised by inadequate territorial architecture, uncoordinated national procedures and decision-making, which is especially problematic in view of cross-border value chains increasingly predominant in the EU. This altogether results in a system which is ill-suited to address a cross-border crisis in a timely manner.

2.2Drivers of the problem

The identified problem, its drivers, as well as consequences are presented in  Figure Figure 4 .

Figure 4: Problem tree

2.2.1Divergent national schemes on compulsory licensing

There is no harmonisation of compulsory licensing for the EU domestic market. The international framework includes some requirements that are mainly procedural. Outside these requirements, WTO members (including EU countries) retain a large margin of manoeuvre when deciding on their national compulsory licensing scheme. In the EU this results in a fragmented landscape when it comes to compulsory licensing for crisis management, especially concerning the trigger, the scope, the procedure and conditions of national rules (see Table 21, Annex 6). On compulsory licensing for export purposes, Article 31bis of the TRIPS Agreement has a more limited scope covering only pharmaceutical products and provides for more stringent requirements. EU Regulation (EC) No 816/2006 harmonises national laws in the field and the margin of manoeuvre left to Member States is limited. However, its application can still slightly differ across Member States, and in particular when it comes to national practices and conditions.

Trigger

The international framework on compulsory licensing does not prescribe the reasons for which a compulsory licence can be granted for the domestic market 39 . Member States usually allow compulsory licence when the patent is not used on their territory, in case of dependency of patents 40 or for public interest reasons 41 . This latter category is relevant as regards compulsory licensing for crisis management. Most Member States have general provisions allowing compulsory licensing for “public interest” or “national emergency” 42 . With few examples of use across Member States, it is however difficult to assess how these national provisions are used in practice and how they apply to crises. In contrast to these general clauses, some Member States only allow compulsory licensing for specific crises, typically health crises (i.e. BE, HU and IT) 43 . IE is the only Member State not providing for the possibility to grant a compulsory licence for crisis management. In conclusion, not all Member States provide for compulsory licensing for crisis management, some do only for certain types of crises (i.e. health) while other provide for general basis, differently worded, for which uncertainty remains as to their concrete application to crisis (see Table 19 in Annex 6). 

Scope

The scope of a compulsory licence refers here to the type of IP rights it covers. This has an impact on the efficiency of the compulsory licence. For instance, ‘simple IP products’ such as water purification pills, valves for a respiratory device or masks can easily be replicated based on the patent. For complex products such as vaccines, access to trade secrets or secret know-how would be needed on top of patents. Finally, some crisis-relevant products are developed in such a short time span that the patent has not been granted yet. Only the patent application is available in such cases. Member States take a different approach as regards the scope of compulsory licences:

·Patents: All Member States’ compulsory licences law apply to patents, be it national or European patents. However, the same is not true for patent applications. A minority of Member States expressly include patent applications 44 . The Dutch national patent law expressly excludes it 45 . For the remaining Member States, their laws do not explicitly include nor exclude patent applications, leading to legal uncertainty. Yet, cutting-edge technologies to tackle a crisis are often new and still subject to a patent application. The procedure to grant a patent is also lengthy (between 3 to 5 years for the grant of a European patent). Excluding patent applications can therefore severely affect the effectiveness of a compulsory licence.

·Supplementary protection certificates (SPCs) 46 : Most national compulsory licensing laws do not explicitly refer to SPCs 47 . This leads to legal uncertainty and diverging interpretation of similarly worded provisions 48 . Where SPCs are not covered, a consequence is that a patented product which was the subject of a compulsory licence during the patent term may cease to be ‘exempted’ after the patent expiry, during the SPC term (if any). In contrast, Regulation (EC) No 816/2006 explicitly covers SPCs 49 . Where SPCs are not covered (neither explicitly nor implicitly) by the national compulsory licensing provisions in a certain Member State, its authorities are prevented from ‘lifting’ SPC protection. Consequently, despite an existing compulsory licence on the patent, the manufacturing of the SPC-protected product would still require an authorisation from the SPC holder. 

·Regulatory data protection (RDP): Regulatory data protection are rules enshrined in the EU pharmaceutical legislation. Today, generic manufacturers cannot refer to the results of pre-clinical tests and clinical trials of the originator until eight years have elapsed from the date of authorisation of the medicinal product. This period of data exclusivity granted to innovative companies is complemented by an overlapping 10-year market exclusivity which prevents a generic drug to be placed on the market during this ten-year period. RDP rules are based on harmonised EU legislation 50 with no margin of manoeuvre left to Member States. Where they apply, RDP rules slow down or may even block the availability of products manufactured under a compulsory licence as it would delay the granting of marketing authorisation for medicinal products. In other words, a compulsory licence granted on a patent may be defeated by RDP still in force, preventing a generic product from being placed on the market. This can constitute a solid obstacle to the effective use of a compulsory licence 51 .

·Other IP rights, trade secrets and know-how: compulsory licensing is already regulated at EU level as regards plant varieties (see supra, section 1.2). As regards other IP rights, from the available information it appears that Member States do not provide for a compulsory licence outside patent rights. Likewise, national laws generally do not address the issue of trade secrets and know-how (which might be needed for the manufacturing of complex products). The Spanish law is an exception as it imposes an obligation to act in good faith in the context of a compulsory licence, as well as a transfer of know-how to the beneficiary of a compulsory licence. 52  

In conclusion, the scope of a compulsory licence has a direct influence on its effectiveness to tackle crises. Many divergences exist across the EU in this respect.

Procedure

Member States also take different approaches as regards the granting authority and the granting procedure. The granting authority can be a court, an executive body (government or ministry), an IP office or even a competition authority 53 . Regulation (EC) No 816/2006 also maintains some margin of manoeuvre for Member States as regards the competent authority to grant a compulsory licence for export purposes to non-EU countries. 

Often, when it comes to compulsory licences for crisis management, a dedicated authority (typically an executive body) is competent and expedited procedures are in place. Advisory committees are also sometimes involved in the decision-making process 54 . Patent owners can be part of the procedure. This is the case for some national procedures 55 but also in the context of Regulation (EC) No 816/2006 where the patent holder is being notified of an application for a compulsory licence and can comment 56 . Member States also diverge regarding the availability of an expedited procedures for the issuance of a compulsory licence (e.g. by way of a preliminary relief 57 ). While some Member States provide for such procedures, others do not, or it is at least uncertain whether a compulsory licence based on a preliminary relief is possible because national law is silent on this matter and there are no precedents in national case law 58 . Therefore, procedures (covering e.g. the assessment, granting or refusal of the applications) and granting authorities vary across Member States, including as regards compulsory licensing for export purposes to non-EU countries even if to a lesser extent 59 . Review (appeal) procedures are provided in all Member States but with again different procedures and delays. In conclusion, differences between national granting authorities and procedures result in different delays applicable to grant a compulsory licence and to review the granting decision. 

Conditions

Member States apply different conditions as regards the conditions under which a compulsory licence can be granted. These conditions can impact the effectiveness of a compulsory licence:

·Identification of the patent(s) and/ or product: Most Member States’ laws provide for a compulsory licence for a “patent”, leaving room for interpretation as to whether this can refer to all patents covering a product or only to a single patent (meaning that for complex products covered by multiple patents, multiple compulsory licences would need to be issued). This is source of legal uncertainty 60 . A compulsory licence can currently be based on a product under Regulation (EC) No 816/2006 61 . 

·Embargos: Some Member States’ law provide for an ‘embargo’ during which a compulsory licence cannot be requested before a certain period after the patent application and/ or grant which can prove particularly problematic for a compulsory licence to tackle a crisis since such an embargo effectively blocks ‘access’ to recent technologies 62 .

·Calculation of the remuneration: The calculation of the adequate remuneration is determined following different criteria 63 and by different authorities across Member States 64 . The patent owner is sometimes invited to file observations on the level of remuneration 65 . 

In conclusion, Member States’ law considerably vary when it comes to conditions under which a compulsory licence can be granted. These divergences can lead to distorting consequences and further fragmentation, e.g. different procedures in the granting of a compulsory license, including the impossibility in the case of the embargos, to issue a compulsory licence before several years, different remunerations granted, etc. Those differences can significantly affect efforts across the EU to provide a uniform reply.

2.2.2Inadequate territorial reach of compulsory licensing

Cross-border supply of goods manufactured under a compulsory licence is complex under the current EU legal framework. Member States face obstacles when willing to both export and import within the EU goods manufactured under a compulsory licence. Consequently, there is simply no Single Market when it comes to compulsory licensing in the EU. Article 31 of the TRIPS Agreement provides for that a national compulsory licence must be used predominantly for the supply of the domestic market. The domestic market usually amounts to the national territory of the country having granted the compulsory licence. However, this is not necessarily always the case. Under the TRIPS Agreement, the Single Market can be considered a domestic market as the EU is a Member of the WTO and of the TRIPS Agreement in its own rights.

In contrast, all Member States’ laws are territorially limited, in the sense that the effects of a national compulsory licence are limited only to the national territory of the granting Member State 66 . Current national compulsory licensing schemes are indeed designed to meet the national needs of their own population and satisfy the public interest of the issuing Member State 67 . They do not reflect the EU as being one domestic market, as allowed under the TRIPS Agreement. Furthermore, uncertainty exists as regards import of goods manufactured under a compulsory licence from other Member States. The uncertainty results from the exhaustion principle (see Annex 7). Patents, like other IP rights, exhaust within the Single Market once the patented goods have been put on the EU market in one Member State by the patent owner or with consent of the patent owner 68 .

The question therefore was raised as to whether the putting onto the market of a good manufactured under a compulsory licence can be considered done with the patent owner’s consent 69 . In 1985, the ECJ replied in the negative to this question 70 . It indeed decided that where a compulsory licence is granted to a third party which allows to carry out manufacturing operations, the patent owner cannot be deemed to have consented to the operation of that third party. This means that the patent owner is allowed to stop the import of goods into a Member State in case the goods have been manufactured under a national compulsory licence in another Member State due to the exceptional lack of EU-wide exhaustion of the patent. A (voluntary or compulsory) licence is therefore also needed in the importing country to avoid the importation being stopped by the patent holder.

As regards compulsory licensing for export to non-EU countries, Article 31bis of the TRIPS Agreement explicitly allows for the export of the products to a third country 71 . There is no limitation as to the part that can be exported from an EU country to certain countries outside the EU, under Article 31bis of the TRIPS Agreement and Regulation (EC) No 816/2006. On the contrary, the compulsory licence granted under the Regulation covers the manufacturing of the product for export and distribution in the countrie(s) cited in the application 72 . There is therefore no problem as regards the possibility to export pharmaceutical goods to non-EU countries. However, a non-EU country could also face a situation within the EU where the supply and manufacturing chain of a product requires multiple compulsory licences in different Member States. In addition, the importing non-EU countries would have to issue a compulsory licence to import the products 73 , unless the products are not protected by a patent in the importing country. 

In conclusion, despite the flexibility that exists at international level, compulsory licensing in the EU is designed to exclusively supply national territories. In other words, there is currently no Single Market for products and no free movement of goods produced under a compulsory licence. 

2.2.3No dedicated forums to deal with compulsory licensing that could bolster EU resilience in times of crisis

The EU has faced numerous crises throughout its history and has gradually implemented policy and institutional changes to enhance its resilience to crises (see Annex 6, Table 22 ). This is still true today with the Union currently working on different instruments aiming at tackling crises (e.g. the SMEI proposal and the setting-up of HERA) or including crisis-specific provisions (e.g. the Chips Act). The COVID-19 crisis has indeed confirmed that action at EU level allows a better, faster, and more efficient response to crises. Yet, compulsory licensing schemes remain fragmented and purely territorial. 

There is currently no or very limited interplay between compulsory licensing schemes and existing and envisaged EU crisis instruments:

·EU crisis instruments may include a coordination mechanism providing for exchange of information, coordination and monitoring of national crisis countermeasures. The objective being to enable coordinated decision making in support of an EU response. Currently, it is uncertain whether and how these coordination mechanisms would apply to compulsory licensing.  

·EU crisis instruments usually allow the declaration or activation of a crisis mode, in the context of which emergency measures can be taken. Currently, there is no link between the EU possibility to activate a crisis mode and the trigger at national level to grant a compulsory licence.

·EU crisis instruments usually allow decision-making at EU level, as a means to more efficiently tackling EU crises. Yet, decision-making remains at national level as regards compulsory licensing, which can undermine efforts to build an EU-level crisis response mechanism.

·Regulation (EC) No 816/2006 harmonises the conditions and procedure for Member States to grant a compulsory licence for export purposes to non-EU countries. However, the Regulation does not provide for any coordination nor cooperation between Member States. The Commission also has a limited role. This uncoordinated and purely national process can hamper the use of the mechanism put in place by Regulation (EC) No 816/2006.

In conclusion, the current compulsory licensing system that could complement and support the EU’s ability to tackle crises appears disconnected from EU crisis instruments. In addition, there is no coordination at EU level should several Member States wish to coordinate their national actions as regards compulsory licensing. This is also not in line with the increased harmonisation of EU patent law, and in particular the upcoming launch of the unitary patent system 74 , which will make unitary patent protection much easier than before in a large portion of the EU 75 . In contrast, purely national compulsory licensing systems and their resulting divergences would conflict with the increasing European integration of patent law. 

2.3Consequences of the problem

A coherent compulsory licensing system for crisis management does not currently exist in the EU. Instead, a patchwork of national laws with different triggers, scope, conditions, and procedures on compulsory licensing makes it difficult for a Member State with manufacturing capacities in critical goods to help another Member State (without such manufacturing capacities). Likewise, in case of a manufacturing process spanning across several EU countries (e.g. components sourced from other countries), the current licensing scheme in the EU is unfit to match its complex cross-border nature. The above fragmented architecture leaves the EU more fragile in terms of resilience, as Member States cannot effectively cooperate in cross-border crises. Furthermore, Member States are not able to leverage their bargaining position based on an optimal compulsory licensing scheme. As a result, they may have no choice but to rely on voluntary agreements only. The fragmented system also results in administrative costs for public authorities granting the compulsory licence, potential licensees, and patent owners, in a sense that multiple procedures might be initiated across several jurisdictions.

The next link in the chain of consequences affects the citizens and/or firms that might have no access to critical goods in crisis, as products cannot be manufactured or supplied from another country. This consequence could aversively impact citizens’ well-being and/or firms’ economic standing, especially if a particular crisis is larger and lasts longer than what would have been otherwise (i.e. with a more efficient compulsory licensing scheme). In other words, today’s rulebook on compulsory licensing can lead to a situation when access to certain goods in crisis is not secured on time, which may generate broad negative socio-economic consequences.

Finally, non-EU countries also face a fragmented and complex legal landscape, which can be an important obstacle when seeking a CL for critical pharmaceutical goods. The compulsory licensing scheme for export to non-EU countries is also not suited to address cross-border supply chain in the EU and in that respect, third countries face similar problem as EU countries.

To conclude, the current system does not provide for an EU-wide compulsory licensing mechanism, as the national legislations are heterogeneous and would not allow a flexible use of production capacities across the EU. When it comes to compulsory licences there is simply no Single Market. And thus unlike EU main trading partners with unitary regime of compulsory licences 76 , the EU would not be able to respond in a timely and coherent manner to cross-border crises requiring such a compulsory licence (be it within the EU or outside the EU). Finally, the discussion on the scale of the identified problem and the likelihood that a more streamlined compulsory licencing rules could be needed in the event of a cross-border crisis are based on the assumption that there is a non-zero chance that such situation could materialise in the future in the EU (e.g. of a similar scale to COVID-19 pandemics). Irrespective of what the future threats might look like (infectious, environmental, affecting IT or energy networks, etc.), in can be assumed that any attempt to strengthen crisis-preparedness and ultimately speed up the response time should be encouraged or at least further investigated.

2.4How likely is the problem to persist?

The problem described under 2.1 is most likely to persist. Some Member States could decide to streamline their national compulsory licensing laws, as some already did in the aftermath of the COVID-19 crisis but the lack of coherence between national compulsory licences in the EU, the limited territorial effect of these licences, the burdensome and lengthy administrative procedures, and the lack of Single Market for products subject to compulsory licensing would remain. Furthermore, recently tabled EU crisis instruments, such as SMEI, SCBTH or HERA, do not provide for compulsory licensing within their framework. As a consequence, a gap concerning compulsory licencing as a crisis remedy tool is likely to remain. Even the forthcoming introduction of the unitary patent system enabling the possibility to obtain such protection in a large portion of the EU will not change the persistence of the problem. Within the legal framework creating the unitary effect it is foreseen that compulsory licences for European patents with unitary effect should be governed by the laws of the participating Member States as regards their respective territories (Recital 10 of Regulation (EU) No 1257/2012 77 ). This prevents - even in a cross-border crisis situations - that the recognition of an event triggering a compulsory licence in one participating Member State (for instance a specific public interest) can lead to the granting of a compulsory licence for the territory of all participating Member States. Consequently, it would mean that in the future, also under the new unitary patent system, the fragmented national regimes and practices for compulsory licensing would remain.

3Why should the EU act?

3.1Legal basis

The proposed initiative will be based on Articles 114 and 207 of the Treaty on the Functioning of the EU (‘TFEU’). Article 114 TFEU confers on the EU the power to adopt measures, which have as their object the establishment and functioning of the internal market and has provided legal basis for a wide range of EU instruments in the area of IP rights. Since the envisaged initiative aims at ensuring that compulsory licensing is fit for purposes as regards the Single Market, this initiative should be based on Article 114 TFEU. Article 207 TFEU confers on the EU competence in the field of common commercial policy, including as regards IP rights. Regulation (EC) No 816/2006, relating to the compulsory licensing of medicines for export purposes to non-EU countries, is based on Articles 95 and 133 of the TEC (i.e. Article 114 and 207 of the TFEU). Since the envisaged initiative would have an impact on Regulation (EC) No 816/2006, and on the possibility to export goods manufactured in the EU, the initiative should also take article 207 TFEU as a basis. Insofar as derogations from regulatory pharmaceutical protections are concerned, the latter are mainly regulated by Directive 2001/83, based on Article 95 TEC (i.e. Article 114 TFEU). Internationally, any new EU initiative should take place against the backdrop of, and in compliance with the TRIPS Agreement, and in particular its Articles 30, 31 and 31 bis.

3.2Subsidiarity: Necessity of EU action

Action at EU level is justified to ensure the smooth functioning of the Single Market in crises. Currently, Member States can only act nationally meaning that they can grant a compulsory licence for their own territory. This can be sufficient for purely national crises, where both the crisis and the manufacturing capacities are in the same Member State. However, this will not be sufficient when a crisis has a cross-border dimension – the latter is highly probable due to prevalence of cross-border supply chains. The incapacity of Member States to properly address a crisis with a cross-border dimension finds its origin in the territoriality of national compulsory licensing schemes and the divergent, sometimes sub-optimal, compulsory licensing schemes in place to tackle a crisis. The proposed EU action will act on these specific points by creating an EU-level compulsory licence with a streamlined procedure. Without action at EU level, Member States would remain vulnerable to crises with a cross-border dimension. In contrast, introducing an EU compulsory licensing scheme will contribute to building a more resilient EU by providing an additional collective tool in support of other crisis instruments such as SMEI or HERA.

3.3Subsidiarity: Added value of EU action

The objective of the initiative is to build an EU-level compulsory licensing scheme able to tackle crises with a cross-border dimension, in addition to the existing compulsory licensing national schemes for grounds other than crises. Any instrument that is to be considered in this impact assessment would be limited to what is necessary to tackle crisis with a cross-border dimension, only when such action cannot be implemented at national level or when such implementation would be inefficient. Ultimately, the proposed instrument would be also complementary to the other crisis instruments aimed at strengthening the resilience of the Single Market.

4Objectives: What is to be achieved?

To address problems discussed in section 2, the proposed initiative aims to create a compulsory licensing system that would be less fragmented and better-suited for EU-wide crises. Since compulsory licensing may have a significant impact on IP holders, this should remain an exceptional measure, applicable in case of unavailability or unsuitability of voluntary agreements. Working within the bounds of the TRIPS Agreement, the initiative should not lead to higher aggregate burdens or risks for patent holders relative to national regimes, but rather a more convergent, predictable, and workable regime in the exceptional cases where recourse to compulsory licensing at EU scale is necessary. Details of objectives to be achieved are presented below:

Figure 5: Objectives

4.1General objectives

Our general objective is to enable the EU to respond to crisis situations in a timely manner using the full potential of the Single Market and ensure that in time of crisis, critical products and components can be made available across EU countries and supplied without delays to EU citizens and firms or non-EU countries.

4.2Specific objectives

With a view of creating a convergent, predictable and workable compulsory licensing system in the EU for crisis management, both for the domestic market and for export purposes to non-EU countries, the specific objectives (‘SO’) would aim at:

·SO1: Improve the key features of compulsory licensing, such as the trigger, scope and conditions of compulsory licensing, as well as improve the coherence of compulsory licensing in the EU to improve its effectiveness and efficiency in a crisis. This objective would in other words aim at reducing the fragmentation. This would mainly concern the domestic market as Regulation (EC) 816/2006 already provides for harmonisation of compulsory licensing for export purposes to non-EU countries; 

·SO2: Ensure that the territorial reach of a compulsory licence, including for export purposes, can accommodate the reality of cross-border value chains operating in the Single Market. This objective does not aim at making compulsory licensing more frequent but rather ensuring that the territorial reach of a compulsory licence, including for export purposes to non-EU countries, is adequate to the reality of cross-border value chains operating in the Single Market; 

·SO3: Support EU resilience by improving the coordination, streamlining the decision making and allowing compulsory licences to better complement EU action in crises, including for export purposes to non-EU countries. This objective would also aim at ensuring adequate coherence between (national) compulsory licensing schemes and EU crisis instruments. 

5What are the available policy options?

5.1What is the baseline from which options are assessed?

Under the baseline scenario (status quo) the compulsory licensing system in the EU would continue to operate based on the existing national rules and Regulation (EC) No 816/2006. As a result, compulsory licensing schemes for crisis management would remain purely national, also for cross-border or EU-wide crises. There would be no coordination between Member States and compulsory licensing would remain mainly applicable to national territories (and subject to possible restrictions such as embargos). This would result in maintaining an inefficient tool for addressing crises in the Single Market, unfit for the cross-border nature of EU supply chains. This option may lead to a situation that voluntary agreement is the only viable option or where Member States could only rely on the goodwill of private economic operators and their willingness to enter into voluntary agreements, as public authorities will not be able to leverage their bargaining position based on an optimal compulsory licensing scheme. This option would neither support the EU’s efforts in building tools to foster its resilience when facing crises nor ensure a link between EU emergency instruments and compulsory licensing. Furthermore, the following factors would continue to affect stakeholders involved in a compulsory licensing procedure under the status quo (Table 1).

Table 1: Key factors affecting stakeholders involved in compulsory licensing procedure (relevant in a crisis situation) - the baseline

As compulsory licensing is very rare 79 , data on the actual costs of such procedures is scarce and accessing its economic impacts proves challenging. Nonetheless, the following characteristics can be attributed to selected entries indicated in the above Table:

·Currently, compulsory licensing procedure is complex and, based on the available examples, it may take a year or longer to complete, even if carried out only at national level (see Table 25 , Annex 6 – the duration lasting from at least ca. 1 year and 10 months 80 , to ca. 2 years and 2 months including the negotiation phase 81 , or ca. 2 years and 8 months 82 ). The only example where a compulsory licence for export was successfully issued (the Canada-Rwanda case) took roughly three years 83 to complete. For both, domestic and export markets, the length and complexity of procedure has direct influence on cost for all parties involved. The cross-country differences between compulsory licensing procedures are also source of legal uncertainty.

·Costs are borne separately in each jurisdiction – as indicated in the problem statement (section 2.1), the average number of Member States in which patents for COVID-related products were active was around 4 to 5. Using this as a proxy for products that can be subject to a CL during a crisis, it can be assumed that in the event of a cross-border crisis compulsory licensing procedures might need to be repeated at least four times for the same product (i.e. separately in each jurisdiction where the relevant patent should be lifted).

The policy options proposed in this impact assessment will be evaluated compared to the above factors, as identified for the baseline. The general economic and competitiveness impacts of compulsory licencing that are valid irrespective of a crisis incident occurrence are discussed in section 6.5.3.

5.2Description of the policy options 

Each option will consider the ensuing elements, in line with the specific objectives:

·Improve the key features of compulsory licensing (addressing SO1): Features of a compulsory licensing scheme play an important role to ensure the effectiveness and efficiency of a CL for crisis management purposes. As illustrated in the problem definition, shortcomings currently exist in the national systems. These shortcomings concern:

-The trigger (i.e. possibility to grant a compulsory licence for crisis management or only limited to certain types of crises): clarifying this aspect is broadly in line with stakeholders opinions as only few of them (5%) are against the use of compulsory licence for crisis management 84 . In addition, those having expressed an opinion are in favour of a compulsory licensing scheme covering a large range of crises. For this reason, the different options provide for the granting of a compulsory licence for crisis management, covering all types of crises.

-The scope (i.e. covering or not patent applications, SPCs, RDP and know-how): as illustrated in the problem definition, a limited scope can seriously limit the efficiency and effectiveness of a compulsory licence. Not covering patent applications could prevent the use of critical new products or technologies to tackle a crisis. Not covering SPC and RDP could maintain protection other than IP, making the compulsory licence useless. This is acknowledged by many categories of stakeholders, as far as patents 85 , SPC 86 , RDP 87 are concerned. In contrast only a third of stakeholders are in favour of including know-how 88 in the scope of compulsory licensing. However, good collaboration from the patent owner, including in some circumstances access to know-how, may be necessary to ensure the success of a compulsory licence 89 . In that context, all the options include a good cooperation obligation for patent owners. For this reason, all options include a scope covering patents (unitary and national patents), patent applications, (unitary) SPCs and RDP 90 as well as a good collaboration obligation. Other IP rights would not be covered (see discarded options).

-The procedure (i.e. absence of an accelerated procedure): as illustrated in the problem definition, the absence of an accelerated procedure can delay the granting of a compulsory licence. Yet, a large majority of respondents (74%, N= 55) consider the speed of ensuring access to the required products and/ or technologies as a high priority for compulsory licensing in crisis 91 . For this reason, all options include an accelerated procedure.

-The conditions (i.e. burdensome identification requirements, embargos and rules on remuneration): as illustrated in the problem definition, identification of a patent or imposing an embargo can undermine the efficiency of compulsory licensing for crisis management. Pre-defined rules on remuneration can to the contrary support a swift granting of a compulsory licence 92 . For this reason, all options include as conditions streamlined identification of patents/ product the prohibition of embargos and rules on remuneration.

Consequently, the legislative options allow for the granting of a compulsory licence to tackle all types of crises, providing a large scope (covering SPCs and RDP), subject to a streamlined procedure and with optimal conditions. The options differ as they propose different ways to implement these features. Each option therefore details how trigger, scope, conditions and procedure are clarified. Additionally, each option specifies who decides to issue a compulsory licence and the applicable procedure.

·Territorial reach of compulsory licensing (addressing SO2): Each option indicates the territorial coverage and the need – or absence thereof – to issue multiple compulsory licences, and therefore how it fits the inherently cross-border nature of supply chains in the Single Market. In this context it is worth noting that almost half of the respondents to the public consultation consider that a compulsory licence should enable the manufacturing of products across several EU countries (46%, N=34) or to be exported in another Member State than the one in which the product is manufactured (45%, N=33 replies) 93 .

·Support to EU resilience (addressing SO3): Each option specifies the role it plays in supporting the EU efforts to foster resilience to crises and the coherence with the different EU crisis instruments as well as the streamlining, transparency and coordination efforts on decision making. Because of the horizontal nature of IP rights, the envisaged initiative on compulsory licensing will build on these crisis instruments, by relying on the concepts and mechanisms already in place and complement them. Finally, all options envisage certain reporting obligations 94  imposed on Member States if a compulsory licence is considered to tackle a cross-border crisis. The scope of such obligation differs according to options, as it may range from exchanges of information during compulsory licensing negotiations, to post-factum reporting on the implementation of the CL. The reporting requirements would not necessitate any additional ICT infrastructure nor data collection, as they would refer to basic information included in the licence agreements.

95 The results of the public consultation show that a large majority (82%, N=61) of respondents consider that public authorities should be entitled to allow production of critical goods through a CL. Respondents are usually less in favour of a decision-making role of European institutions (28%, N= 21) than a coordinating role (36%, N=27). This can be explained by the fact that businesses and industry representatives expressed low support in this respect, whereas they were the dominant group of respondents to the OPC. That being said, the option of granting a CL at EU level is generally deemed more positive by stakeholders as regards the EU’s ability to tackle crises (35%, N=26) than the granting of a CL at national level (respectively, 11%, N=8). Stark contrast exists among stakeholders with again low support from industry representatives: a majority (around 50%) of companies and business associations considering that the impact would be negative. In contrast, no respondent in other categories considers the impact to be negative. A large majority (65%, N=22) considers it positive (4% considers the impact to be neutral and the rest did not reply).

5.2.1Option 1: Recommendation on compulsory licensing for crisis management

Under this non-legislative option, the Commission would propose a recommendation on compulsory licensing for crisis management with the objective of increasing the efficiency and effectiveness of national compulsory licensing schemes, including for export purposes to non-EU countries (i.e. cases covered by Regulation (EC) No 816/2006). In this recommendation, the Commission would clarify the international legal framework, both in terms of obligations and flexibilities. Based on that, the recommendation would identify good national practices as regards compulsory licensing for crisis management and good coordination practices with a view to foster their uptake in Member States.

·Improve the key features of compulsory licensing: In addition to identifying and listing national provisions for issuing a compulsory licence for crisis management, the recommendation would clarify, in collaboration with Member States, the optimal features of compulsory licensing for crisis management (including the trigger, scope and the conditions), as well as clarify the procedures to apply for and grant such CL. The recommendation would list remedies available to patent owners, including the competent judicial authorities, and provide concrete guidance on how patent owners can file an appeal against the granting decision. On compulsory licensing for export to non-EU countries, the recommendation would identify good practices among Member States as regards national formal or administrative requirements.

·Territorial reach of compulsory licensing: The recommendation would clarify the territorial scope of compulsory licensing granted at national level, and in particular the possibility to distribute part of the goods manufactured under a compulsory licence to another Member State. 

·Support to EU resilience: The recommendation would identify relevant EU crisis instruments and related transparency and coordination requirements. Against that background, the recommendation would clarify how to align national compulsory licensing schemes with EU crisis instruments. It would also outline and promote good practices in terms of cooperation, transparency and information sharing between Member States, including compulsory licences for export to non-EU countries. Finally, PO1 would propose good practices in information exchange concerning granted compulsory licenses and encourage Member States to share such info with the EC.

Figure 6: Simplified scheme for Option 1

5.2.2Option 2: Harmonisation of national laws on compulsory licensing for crisis management

Under this option, the Commission would propose a legislative initiative that would harmonise national laws as regards the ground, scope, procedure, and conditions for the granting of a compulsory licence for crisis management. The legislative initiative would ensure that all Member States have in their national laws a compulsory licensing scheme for crisis management. The compulsory licensing would remain in the remit of Member States and have predominantly a national effect. PO2 would not harmonise compulsory licensing schemes other than for crisis management. In line with the identified objectives, it would focus on three building blocks as described below:

·Improve the key features of compulsory licensing: PO2 would require all Member States to include in their national law a compulsory licensing scheme for crisis management. Although the definition of a crisis would be harmonised (using existing definitions at EU level), the granting decision, and the interpretation given to the notion of crisis, would be left to Member States. The harmonisation would cover the procedure, scope and conditions for granting a compulsory licence, along the lines of what was described in section 5.2. The issuance of a CL for crisis management would remain a national decision. PO2 would ensure that remedies available to patent owners, including the competent judicial authorities, are aligned in all Member States.

·Territorial reach of compulsory licensing: PO2 would require Member States to allow, in cross-border crises, the possibility to export manufactured under a compulsory licence to another Member State. There would be no exhaustion of patent rights under this option (i.e. importing Member States would still need to issue a licence to import the goods).

·Support to EU resilience: This option would clarify that national compulsory licences could be issued in the context of an EU decision activating or declaring a crisis mode or an emergency. The EC would have a coordination role in case of cross-border crises, as it would provide support to Member States and facilitate coordination of national compulsory licences (e.g. ensure the same subject-matter, duration, remuneration, etc.) to ensure coherence across the EU. PO2 would also include transparency and information exchange obligations for Member States as regards applications for and granting of compulsory licences for crisis management and in the context of Regulation (EC) No 816/2006. Member States would have to inform the EC when they are considering granting and/or have granted a compulsory licence for crisis management (i.e. transparency obligation) as well as provide information on the compulsory licence (the subject matter of the compulsory licence, companies involved such as patent holders and/or manufacturers, the conditions agreed, etc.).

Figure 7: Simplified scheme for Option 2

A detailed scheme describing the procedural steps foreseen under Option 2 is provided in Figure 19 (Annex 6).

5.2.3Option 3: Harmonisation plus a binding EU-level measure on compulsory licensing for crisis management

Under this option, the compulsory licence could be triggered in two scenarios. First, it could be triggered by an EU-level decision activating a crisis mode or declaring an emergency under an existing EU crisis instrument 96 (e.g. activation of the emergency mode under SMEI). Second, the compulsory licence could be triggered upon a request made to the Commission by more than one Member State in the event of a cross-border crisis 97 . In such case, the notion of crisis would be defined along the line of existing definitions in EU legislation 98 . It would cover all types of crises (e.g. not limited to health-related crisis) but would always require a cross-border aspect 99 . The Commission would adopt an activation measure 100 requiring one or several Member States to issue a compulsory licence for crisis management. The Commission would be assisted by an advisory committee composed of Member States representatives that should provide the Commission with a non-binding opinion. Its main tasks would include the assistance of the Commission in the determination of the necessity to rely on compulsory licensing at Union level, and under which conditions. In case there is an existing crisis instrument, the advisory body would be the one foreseen in the context of this crisis instrument (e.g. Advisory Group under SMEI). For cases falling outside existing crisis instruments or where there is no such advisory body, an ad hoc advisory body would be set up 101 . The advisory committee would also hear the patent owner(s) 102 . This should enable the Commission to make an assessment and consider the individual merits of the situation and determine on this basis the adequate conditions of the compulsory licence, in particular the adequate remuneration 103 for the rights-holder. It would lead to the issuance of several national compulsory licences, each being applicable to the territory of several EU countries or the whole EU. An appeal against the decision would be available 104 . PO3 would not harmonise national compulsory licensing schemes other than for cross-border crisis management. In line with the identified objectives, it would focus on the following building blocks: 

·Improve the key features of compulsory licensing: PO3 would require all Member States to include in their national law a compulsory licensing scheme for cross-border crisis management (i.e. triggered by an EU-level decision activating a crisis mode or declaring an emergency or upon request of Member State(s)). The option would require Member States to provide for an accelerated granting procedure (e.g. an executive order). Although the granting decision will be a national decision, its basis will be a Commission act defining the conditions strictly linked to the crisis, namely the purpose (e.g. production of this product protected by this(es) patent(s)), the duration, and the territorial scope of the compulsory licence. This option would provide harmonisation on other features 105 such as the scope and the conditions, but still leaving some margin of manoeuvre for Member States 106 . The licensee(s) could be identified by the Commission, Member States and/ or directly apply to benefit from a compulsory licence.

·Territorial reach of compulsory licensing: Under this option, the compulsory license could have an EU-wide effect. However, the activation measure and the national decision would specify the exact territorial scope, considering the crisis. The scope could be modified depending on the circumstances (e.g. crisis expanding to other countries, need for further manufacturing capacities).

·Support to EU resilience: This option would provide the possibility for the Commission, being assisted by the relevant advisory body 107 , to order the granting of national compulsory licences for cross-border crises management. The option would also include transparency and information exchange obligations for Member States 108 as regards applications for and granting of compulsory licences based on the Commission activation measure and in the context of Regulation (EC) No 816/2006. Yet, to the extent Member States are to be involved in the implementation of the compulsory licence, they would be also bound to report on the outcomes of the process to the Commission. Finally, under this option a single contact point 109 would be set-up so that non-EU countries 110 could submit a request for coordination to the Commission in case of cross-border supply and manufacturing, which would require the granting of several national compulsory licences. In order to process the request, the Commission would be assisted by an advisory committee composed of Member States representatives. This committee would, along the lines of what would exist for the EU domestic market under this option, ensure coordination and cooperation among Member States and the EC, with the aim to provide support to non-EU countries so that they can better plan their activities of manufacture and sale for export under Regulation (EC) No 816/2006.

Figure 8: Simplified scheme for Option 3

A detailed scheme describing the procedural steps foreseen under Option 3 is provided in Figure 20 and Figure 21 (Annex 6).

5.2.4Option 4: EU-level compulsory licensing to complement existing EU crisis instruments 

Under this option, the triggers would be the same as under PO3 (i.e. two possible triggers, namely either an EU level decision in the context of an existing EU crisis instrument 111 , or a request made to the EC by more than one Member State 112 ). The Commission would adopt an activation measure granting a compulsory licence for cross-border crisis management. The Commission would be assisted by an advisory committee composed of Member States representatives 113 . This option would lead to the issuance, by the Commission, of one compulsory licence, applicable to the territory of several EU countries or the whole EU, with its own procedure 114 and conditions. PO4 would leave unchanged national legislations on compulsory licensing 115 . The patent owner(s) would be able to share their views and provide information in the context of the discussions of the advisory body 116 . The Member States could initiate the procedure 117 and would participate in the advisory body 118 . An appeal procedure would be set-up 119 . In addition, the Commission would have the possibility to review, upon motivated request, whether the licence conditions are respected 120 . In line with the identified objectives, PO4 would focus on three building blocks as described below:

·Improve the key features of compulsory licensing: PO4 would allow the EC to directly grant, through an activation measure, a compulsory licence for crisis management. PO4 would specify the conditions of such EU-level compulsory licence, including the purpose (i.e. manufacturing of this product, protected by this(es) patent(s) to tackle a specific crisis), the duration (that will be limited to the purpose 121 ), the remuneration 122 , the territorial scope (including safeguards to avoid diversion of goods to unauthorised territories), and the good collaboration obligation 123 . These conditions should consider the EU decision activating a crisis mode or declaring an emergency, and the conditions therein (such as the duration and territorial coverage). The efficiency and timeliness of EU-level compulsory licence would be ensured by adequate governance design 124 . In compliance with the TRIPS Agreement, the EU-level compulsory licence would be non-exclusive and non-assignable. 

·Territorial reach of compulsory licensing: Under this option, the compulsory licence could have an EU-wide effect. However, the activation measure would specify the exact territorial scope, considering the crisis. The scope could be modified depending on the circumstances (e.g. crisis expanding to other countries, need for further manufacturing capacities). Under PO4, compulsory licences having a cross-border effect could also be granted by the Commission in the context of Regulation (EC) No 816/2006 should the manufacturing of the pharmaceutical product be spread across several Member States, subject to concerned Member States’ approval.

·Support to EU resilience: In the context of an EU decision activating a crisis mode or declaring an emergency, this option would provide the possibility for the Commission to grant EU-level compulsory licences for cross-border crises management. PO4 would provide full harmonisation as regards the granting of compulsory licence to tackle a cross-border crisis in the EU. It would build upon and complement existing EU crisis instruments by providing an additional tool to help tackle a crisis. Under this option, the Commission would have a consultative role, to ensure participation of relevant stakeholders. The licensee(s) could be identified by the Commission, Member States and/ or directly apply to benefit from a compulsory licence. Yet, to the extent Member States are to be involved in the implementation of the compulsory licence, they would be also bound to report on the outcomes of the process to the Commission. Finally, as in PO3, a single contact point would be set-up in the context of Regulation (EC) No 816/2006. However, under PO4 the function of the single contact point goes beyond a coordination role. PO4 would provide non-EU countries with the possibility to submit directly to the single contact point (Commission) an application for an EU-level compulsory licence in case of cross-border supply and manufacturing (see above, point on the territorial reach of compulsory licensing). Under this option, the Commission would retain its coordination role, assisted by the advisory body, as already provided under PO3.

Figure 9: Simplified scheme for Option 4

A detailed scheme describing the procedural steps foreseen under Option 4 is provided in Figure 22 and Figure 23 (Annex 6).

5.3Discarded options

The possibility for a compulsory licence to cover other IP rights, and in particular plant variety rights, design rights or copyright, was discarded. The possibility to grant a compulsory licence for a Community plant variety right already exists 125 . Designs protection 126 covers the appearance of a product and does not extend to the features of appearance of a product that are solely dictated by its technical function. Since the technical features of a design that could prove necessary to manufacture a critical good are free of design rights, a compulsory licence does not appear necessary in the field. The same reasoning applies to copyright which protects a specific expression of an idea or creation. These ideas or creations can be expressed in another way should it be necessary to use them in the context of the manufacturing of crisis goods. The same applies to computer programmes protected under copyright law 127 .

6What are the impacts of the policy options?

6.1Option 1 – Recommendation on compulsory licensing for crisis management  

6.1.1Improve the key features of compulsory licensing

Under Option 1, Member States would retain their margin of manoeuvre as regards the features of their national compulsory licensing schemes. The recommendation envisaged under PO1 could clarify and improve the features of national compulsory licensing schemes for crisis management and improve coherence across Member States. Although, the recommendation would raise awareness across Member States on the importance of an effective and efficient compulsory licensing for crisis management, the risk remains that not all Member States would fully implement it because of the non-binding nature of the recommendation. PO1 could therefore have only a limited harmonising effect. In addition, one deviation by a Member State (for instance an embargo period in the Member State with the manufacturing capacities) would already suffice to block or significantly impair the supply of crisis relevant goods produced under a compulsory licensing in certain cross border situations. Consequently, Option 1 is expected to lead to limited improvements, in terms of effectiveness and efficiency, of national compulsory licensing schemes for crisis management.

6.1.2Territorial reach of compulsory licensing 

Under Option 1 compulsory licensing would remain in the remit of Member States and their effect would be limited to the national territory. By clarifying the obligations and flexibilities under the TRIPS agreement, the recommendation would bring legal certainty as to the possible territorial reach of national compulsory licences, including on the possibility to export a part of the goods manufactured under a compulsory licence to another Member State. However, Member States would remain free to decide whether and how to take advantage of these flexibilities. In addition, the lack of EU-wide exhaustion would continue to limit the territorial reach of a compulsory licence. Multiple compulsory licences 128 would still be needed for distributing products produced under a compulsory licence within the Single Market. Coherence between the national compulsory licences would be subject to Member States’ willingness to carry out a joint harmonising effort of their national granting decisions and procedures. Consequently, the objective of giving national compulsory licences a more appropriate cross-border reach in crisis would be achieved to a very limited extent under Option 1.

6.1.3Support to EU resilience

By identifying the relevant EU crisis instruments and related transparency and coordination requirements, the recommendation would clarify the role compulsory licensing can play in the context of the different EU crisis instruments. In that respect, the recommendation could support the EU resilience by reinforcing coherence between national compulsory licences and EU crisis instruments. However, the decision to trigger the compulsory licence would remain in the Member Sates’ remit. A seamless embedding of national compulsory licensing schemes into EU crisis instruments is therefore not to be expected. The promotion of good practices in terms of cooperation, transparency and information sharing between Member States, including for compulsory licences for export purposes to non-EU countries would facilitate interaction among Member States and between Member States and the Commission. However, divergences regarding the granting authority of a compulsory licence would remain. National actors would remain diverse, which would frustrate the possibility of communication between authorities across borders and could ultimately create barriers against engaging in holistic and uniform crisis responses across the EU.

6.1.4Impacts per stakeholder group

As PO1 would be based on non-binding actions, the cost and benefits are to a large extent uncertain, as they depend on individual decisions of each Member State. First, the countries which decide to apply the recommendation on good practices would bear certain one-off cost of implementing them. Second, if the majority of Member States follows such approach, then it could be assumed that impact discussed in Table 2  below, can indeed materialise in the event of a cross-border crisis.

Table 2: Impacts on stakeholders in the event of a cross-border crisis - Option 1 compared to the baseline

Note: (0) neutral impact; (+) minor positive impact; (++) positive impact; (+++) significant positive impact; (-) minor negative impact; (- -) negative impact; (- - -) significant negative impact

The impacts on patent owners would stay broadly the same as in the baseline. The cost of participating in compulsory licensing negotiations would still be borne in each jurisdictions concerned, but they could be marginally lower if the compulsory licence features gain in coherence across the EU. Recommendations could improve legal certainty of patent holders, for example as regards the determination of remuneration (still, the remuneration to compensate the loss of income is likely be lower than the one to be received in voluntary agreements). Potential licensees would not experience much difference compared to the baseline scenario, except for a more streamlined approach of negotiations, and consequently marginally lower participating costs, should recommendations be implemented at national level. EU countries could entail costs should they decide to implement the recommendation as regards cooperation, transparency and information sharing. The costs of running compulsory licensing procedures could be decreased should all Member States adopt a more coherent approach to national compulsory licensing and share information thereon. Under the condition that the respective Member State makes use of the recommendation, citizens might profit from an improved welfare as their possibility of gaining access to critical products would be more effective. If Member States would implement EU-wide best practices on cooperation, transparency and information sharing for export purposes, non-EU countries might benefit of increased legal certainty and some administrative savings.

6.2Option 2 – Harmonisation of national laws on compulsory licensing for crisis management

6.2.1Improve the key features of compulsory licensing

Under PO2, a directive would be adopted to approximate national laws on the grounds, procedures, scope, and conditions of compulsory licensing for crisis management. This would create a certain degree of harmonisation on e.g. key aspects of the procedure, the competent granting authority and criteria for the calculation of the remuneration. This would improve and clarify the features of national compulsory licensing for crisis management across the EU. However, the Member States would remain competent to determine whether a crisis exists and whether to grant a compulsory licence. Hence, the risk would remain that the directive would not be implemented and applied in a uniform manner due to existing differences in national law proceedings and judicial traditions. Those minimum standards of harmonisation could result in incoherent national compulsory licences for crisis management.

6.2.2Territorial reach of compulsory licensing 

The harmonisation of national schemes envisaged under PO2 could facilitate the cross-border supply of goods as both, the compulsory licence granted in the manufacturing Member State and those granted in the importing Member States, would be based on similar rules. However, this would only slightly improve the situation if manufacturing capacities are located in multiple Member States. The lack of exhaustion would still require each importing Member States to issue a licence to import the critical goods.

6.2.3Support to EU resilience

Under PO2, clarification will be provided that national compulsory licences could also be issued in the context of an EU decision activating or declaring a crisis or emergency mode. Thereby, the risk of frictions and opposing decisions resulting from the two levels of decision making (at EU level and at national level) could be mitigated (e.g. the risk that a national authority denies the existence of a crisis in the context of its decision on a compulsory licence, despite a decision at EU level declaring a crisis and activating an emergency mode). Transparency and information sharing obligation would allow national compulsory licences to be better coordinated and therefore to provide a better support to EU crisis. As the granting authority of a compulsory licence is one of the aspects subject to harmonisation, Option 2 could facilitate cooperation and coordination among Member States and between Member States and the Commission.

6.2.4Impacts per stakeholder group

The impacts of PO2 per stakeholder group are summarized in Table 3 below.

Table 3: Impacts on stakeholders in the event of a cross-border crisis - Option 2 compared to the baseline

Note: (0) neutral impact; (+) minor positive impact; (++) positive impact; (+++) significant positive impact; (-) minor negative impact; (- -) negative impact; (- - -) significant negative impact

Patent owners and potential licensees would benefit from this option as increased clarity and more coherent rules would improve legal certainty and facilitate negotiations. This would reduce their costs in participating in such negotiations as well as providing patent owners with a better framework for determining the remuneration. However, they would still face costs in each Member State launching a compulsory licensing process. EU countries would face one-off adjustment costs in the context of the implementation of the directive through the adaptation of their national compulsory licensing schemes. While Member States would benefit of an improved information exchange and EC support (reducing the costs related to compulsory licence procedure), the obligation on information sharing and reporting would at the same time incur a minor recurring administrative cost for Member States, each time they (envisage) grant(ing) a compulsory licence. However, these costs would remain low because compulsory licensing is a last resort instrument, expected to be rarely used. In case of crisis, EU citizens would face a marginally lower risk of unavailability of critical products during crisis due to the reduction of fragmentation in national compulsory licensing schemes. As the directive would contain obligations regarding cooperation, transparency and information sharing in the context of compulsory licensing for export purposes, non-EU countries would benefit of increased legal certainty throughout the Union and administrative savings.

6.3Option 3 – Harmonisation plus a binding EU-level measure on compulsory licensing 

6.3.1Improve the key features of compulsory licensing

Under Option 3, all Member States would introduce in their national law a compulsory licensing scheme for cross-border crisis management triggered by an EU-level decision or initiated by concerned Member States. Albeit the co-existence of two triggering mechanisms may seem to add complexity to the system, yet it provides for more flexibility to address all possible types of cross-border crisis. The national compulsory licences granted under this scheme would be based on a Commission activation measure. This would provide full harmonisation on some of the key conditions (e.g. territorial scope, duration) and allow clarity and coherence of the different national compulsory licences. Under this option, Member States would be required to grant a compulsory licence in certain cases. This option would therefore result in improving the legal framework on compulsory licensing for cross-border crises. However, although PO3 would require Member States to set-up accelerated procedures, these procedures can differ nationally. In addition, some conditions such as remuneration would be decided at national level. Therefore, despite harmonised criteria for determining the remuneration, the actual assessment can greatly vary from one Member State to another. Consequently, despite the harmonisation provided under Option 3, coherence and clarity would not be optimal as regards all the features of the national compulsory licences.

6.3.2Territorial reach of compulsory licensing 

Option 3 would provide a dynamic and efficient solution as regards the territorial scope of the compulsory licence: the licence would cover all EU countries being affected by the crisis and its territorial scope could be modified depending on the evolution of the crisis. National granting decisions would still be needed for each Member State where the manufacturing of products will take place. However, importing Member States would no longer need to issue a compulsory licence, as national granting decisions would have a cross-border effect, coupled with an exhaustion for the EU market. Consequently, products manufactured under a national compulsory licence having its source in an EU activation measure could be exported to other EU countries without the need for the importing countries to issue a compulsory licence. This option would also solve the discrepancies that may currently exist between the compulsory licence to export and the one to import (cf. supra).

6.3.3Support to EU resilience

This option would complement other EU crisis instruments as the activation of a crisis mode under an EU crisis instrument, such as SMEI, can be the trigger leading to the granting of one or more compulsory licence(s). The reliance on the existing advisory body when the trigger originates in an EU crisis instrument, also ensures an optimal coherence with EU crisis instruments. The transparency and information exchange obligations for Member States as regards applications for and granting of compulsory licences based on the Commission activation measure and in the context of Regulation (EC) No 816/2006 would improve the coordination of compulsory licences in the EU. The support provided by the Commission to third countries would facilitate decision-making in the context of Regulation (EC) No 816/2006 in case multiple compulsory licences in different Member States are required to address the third country’s needs. Both, non-EU countries and Member States would benefit from improved cooperation at EU level. Non-EU countries would benefit from greater clarity as regards the manufacture and sale for export under Regulation (EC) No 816/2006. However, in the absence of a compulsory licence with an EU-wide effect for export to third countries, they would still need to apply for several compulsory licences if the cross-border manufacturing chain of the product concerned requires it and may face legal uncertainty in that respect (including as regards the possibility to allow cross-border manufacturing of the final product).

6.3.4Impacts per stakeholder group

The impacts of PO3 per stakeholder group are summarized in Table 4 below.

Table 4: Impacts on stakeholders in the event of a cross-border crisis - Option 3 compared to the baseline

Note: (0) neutral impact; (+) minor positive impact; (++) positive impact; (+++) significant positive impact; (-) minor negative impact; (- -) negative impact; (- - -) significant negative impact; (D) applies only in case of an EU-level compulsory licensing for domestic purposes, (E) applies only in case of compulsory licensing for export purposes (in the context of Regulation (EC) No 816/2006).

Under PO3, patent owners would benefit from a reduction of costs as regards the participation in the compulsory licensing process, since the process will be centralised to a large extent. This would streamline the negotiations on many aspects (e.g. duration, scope) as there will no longer be differences between the national compulsory licences granted on the basis on the activation measure. Nevertheless, patent owners would still face cost in each country issuing a compulsory licence, as they would need to negotiate not harmonised aspects (e.g. remuneration) and participate in the national procedures. They would however benefit from increased legal certainty through, on the one hand, the single EU binding decision and, on the other hand, harmonisation of aspects left for the national level (i.e. elements such as the national procedure or the remuneration). Under this option, patent owners may experience a more important loss of control on their patent rights as this option would give a broader effect to a national compulsory licence, allowing it to have a cross-border effect. Overall, the situation of potential licensees would improve under PO3. They would benefit from the centralised procedure as this would decrease their cost of participating in negotiations. In addition, the wider territorial scope of the licence would allow them to benefit from economies of scale (i.e. larger volumes of production) when manufacturing the required items (also in terms of lower cost for adapting the production facilities). EU countries would bear the adjustment costs resulting from the implementation of the directive into their national law. They would also face some minor administrative costs, linked to the transparency obligation (reporting). On enforcement costs, Member States would also bear the cost of participating in the advisory committee, but overall they would benefit from the centralised procedure. Costs of direct negotiations with the patent owners and the manufacturers would be replaced by the costs of participating in the EU level negotiations (the latter are expected to be lower than handling the entire negotiations process nationally i.e. fewer staff involved per case per Member State). The cost of granting the national compulsory licence based on the Commission’s activation measure would remain (i.e. the issuance of a government order granting a compulsory licence for Member States with manufacturing capacities on their territory). Member States with no manufacturing capacities would not have to bear any cost related to a national compulsory licence as a licence to import would no longer be needed. Member States would benefit from a more coherent approach at EU level when tackling crisis, and in particular as regards the use of compulsory licence in conjunction with another EU level crisis instrument. As regards the export to non-EU countries, Member States would benefit from an improved decision-making and cooperation due to the establishment of a single contact point (the Commission) assisted by an advisory committee. At the same time, the participation in the advisory committee could generate some minor costs for Member States, but only when such situation occurs. In case of a crisis, EU citizens would benefit from PO3 as it would improve the EU’s ability to conclude voluntary agreements and its ability to issue an effective and efficient compulsory licence for the whole EU, including in case of cross-border supply chain. Non-EU countries would benefit from administrative savings due to the increased coordination at EU level.

6.4Option 4 – EU-level compulsory licensing to complement existing EU crisis instruments

6.4.1Improve the key features of compulsory licensing

Under PO4 the Commission would directly grant a compulsory licence and specify the conditions under which this licence is granted. The granting decision would specify all the conditions of the compulsory licence, including the remuneration. These conditions would be the same for all territories where the compulsory licence applies. This would ensure an optimal clarity and coherence as regards the conditions of the compulsory licence. Since there would only be one procedure – at EU level – there would not be divergences due to national decisions and/ or implementation. Consequently, by relying on a fully harmonised scheme, Option 4 provides an optimal coherence and clarity as regards all the features of compulsory licensing for crisis management.

6.4.2Territorial reach of compulsory licensing 

PO4 would provide an optimal solution as regards the territorial scope of the compulsory licence: one single compulsory licence would cover all EU countries being affected by the crisis and all EU countries having the relevant manufacturing capacities. By creating an EU-level system, this option would guarantee a solution that is fully coherent and equally applicable in all Member States. A unique compulsory licence offers an efficient compulsory licensing scheme, which avoids national divergences likely to slow down an EU reply to a cross-border crisis. The cross-border effect guarantees an effective compulsory licensing scheme as it matches the reality of the Single Market and its inherently cross-border supply chains and can supply the whole EU market (instead of one country). A CL applicable on a wider territory can serve as an incentive for licensees to change their production line to accommodate the need for critical goods.

6.4.3Support to EU resilience

Just like in PO3, this option would complement other EU crisis instruments as the activation of a crisis mode under an EU crisis instrument, such as SMEI, can be the trigger leading to the granting of a compulsory licence. The reliance on the existing advisory body when the trigger originates in an EU crisis instrument, also ensures an optimal coherence with EU crisis instruments. In addition, such EU-level system would provide the EU and its Member States with an efficient and credible compulsory licensing system. This would give more bargaining power to the EU when negotiating voluntary agreements, hence supporting other EU crisis instruments. Should voluntary agreements fail, the EU would still have the possibility to rely on compulsory licence to start manufacturing of critical goods in the EU and provide an EU response, complementing other crisis measures. As in PO3, the coordination at EU level for third countries would facilitate decision-making in the context of Regulation (EC) No 816/2006, should different compulsory licences be required to address the third country’s needs. Non-EU countries would benefit from the possibility to only have one compulsory licence covering multiple EU countries, in case of cross-border manufacturing.

6.4.4Impacts per stakeholder group

The impacts of PO4 per stakeholder group are summarized in Table 5 below.

Table 5: Impacts on stakeholders in the event of a cross-border crisis - Option 4 compared to the baseline

Note: (0) neutral impact; (+) minor positive impact; (++) positive impact; (+++) significant positive impact; (-) minor negative impact; (- -) negative impact; (- - -) significant negative impact; (D) applies only in case of an EU-level compulsory licensing for domestic purposes, (E) applies only in case of compulsory licensing for export purposes (in the context of Regulation (EC) No 816/2006).

Under PO4, patent owners would benefit from a reduction of costs and legal uncertainty since, in the absence of national procedures, negotiations would be limited to participation in one EU-level procedure. In addition, they would gain legal clarity as the remuneration will be set at EU-level, no longer at national level. However, patent owners would still face an important loss of control on their patent rights since the impact of compulsory licensing would no longer be limited to a given Member State. Under PO4, the greater territorial reach would also extend to compulsory licences for export to a non-EU country. Overall, the situation of potential licensees would improve under PO4. They would benefit from the centralised procedure and the wide territorial scope of the licence that can bring economies of scale. EU countries would need to bear limited adjustments costs as PO4 would provide an EU-level compulsory licence, through a regulation, on top of existing national legislation. They would face some monitoring costs in the event of a crisis, linked to the transparency obligation. However, better sharing of information would also allow a reduction of costs for Member States as it could help identifying best practices. On enforcement costs, Member States would also bear the cost of participating in the advisory committee, but overall they would benefit from the centralised procedure, as costs linked to the negotiations with the patent owners and the manufacturers would be incurred solely at EU level (i.e. although the costs of participating in the EU level negotiations would remain, they are expected to be lower as tasks would be shared among many countries). The new compulsory licensing rules would also strengthen EU bargaining position as 27 countries would run negotiations together and at once. In case of crisis, EU citizens would greatly benefit from this option as it would improve the EU’s ability to issue an effective and efficient compulsory licence for the whole EU, including in case of cross-border supply chain disruptions. Non-EU countries would also benefit from this option as this would provide the possibility to rely on a compulsory licence covering a cross-border supply chain.

6.5Common impacts

6.5.1Impacts on fundamental rights

This initiative will have a clear impact on fundamental rights as it would provide an additional tool to face crises, including health-related (right to health care – article 35 of the Charter) or environmental crises (right to environmental protection – article 37 of the Charter). Through the increased probability of supply of critical goods and services the most fundamental needs and rights of EU citizens such as safety and health, in a crisis setting, would be more swiftly and efficiently catered to.

Collective licensing, of course, also concerns the right to intellectual property of patent owners (article 17(2) of the EU Charter of fundamental rights – the ‘Charter’), as compulsory licensing partially deprives patent owners of the control of their rights. The extent to which this initiative impacts these rights – as compared to the baseline – is discussed in section 6.5.3 below. IP rights are not absolute rights and limitation to the exercise of these rights are allowed under the Charter, provided that the proportionality principle is respected. In that respect, this initiative provides for that compulsory licensing would remain an exceptional mechanism, with a scope limited to cross-border crises. In addition, compulsory licence would always be granted on a non-exclusive basis and subject to a definite duration. Finally, patent owners would have the possibility to share their position as regards the granting of a compulsory licence and the conditions surrounding it. An important aspect of the conditions concerns the ability for patent owners to receive a fair compensation for the limitation of their right. In that respect, the present initiative provides for that patent owners would always be entitled to receive an adequate remuneration in respect of each compulsory licence granted under this initiative. This remuneration would be determined, following clear criteria set in the EU legislation. In addition, patent owners would be entitled to share their position as regards this remuneration, in the context of discussions within the advisory body. As explained in the next title, this initiative may have a positive impact on other fundamental rights as it would provide an additional tool to face crises, including health-related (right to health care – article 35 of the Charter) or environmental crises (right to environmental protection – article 37 of the Charter).

6.5.2Social and environmental impacts

Improved EU readiness to tackle a major crisis would bring positive social impacts, as it could help limit various disruptions to everyday societal processes by curbing the crisis or eliminating it altogether. Notwithstanding that societal disruption can be caused by a crisis in any domain (e.g. threats to the environment, national security, etc.), the recent COVID-19 pandemic provided multiple examples of disruptions that could have been avoided with a more effective resilience tool. They included challenges to socio-economic activities underpinning people’s lives (e.g. the loss in GDP due to restrictive measures, limited access to education, businesses closed due to lock-downs, unemployment) affecting health and wellbeing (COVID-19 death toll, implications related to mental health, etc.). The exact amount of potential indirect economic impacts that can be avoided is impossible to quantify 129 , whereas the cost of major crisis can be paramount to any economy 130 .

As far as the environmental impacts are concerned, they will predominantly depend on the type of crisis that the EU may face in the future, assuming that it would be targeted by the new initiative (i.e. addressing such crisis would require access to patent protected products). If the crisis concerns environmental threats, the positive impacts of the initiative could be decisive in increasing access to products and technologies able to tackle the crisis. Finally, since no environmental legislation is affected by this proposal and its principal objective is to streamline and harmonise compulsory licensing procedures in cross-border crises, no significant harm to the environment is expected under any of the options analysed. Potential impacts on relevant SDGs are discussed in Annex 3.

6.5.3Economic and competitiveness impacts

This initiative rests on a precautionary principle regarding unforeseeable future crisis events, with a small probability but immense economic aftermath. For this reason, the economic and competitiveness impacts strictly hinge on a balance of probabilities. It is fair to assume that the probability of crises events remains unaffected by this initiative. At the same time, the likelihood that any given crisis requires a Single Market response would normally be higher over time, as EU value chains increasingly interweave.

This initiative is intended to increase the likelihood of supply and decrease the lead time of such supply of patent protected critical goods, should a cross-border crisis happen. In a situation of a health or an environmental crisis, any improvement in the expected supply of such critical products – however marginal – generates economic and competitiveness benefits of macro-economic proportions. That in itself trumps all other economic and competitiveness effects.

Regarding the potential trade-off between keeping the incentives for innovation through IP protection 131 and ensuring at the same time access to critical products in cross-border crisis situations through compulsory licensing, it is possible that frequent recourse to compulsory licencing could in the long term carry the risk of dis-incentivising research and development 132 (i.e. compulsory licensing might have a chilling effect on innovation and investment by IP holders concerned, as it marginally reduces the overall revenues from innovation). However the likelihood of using a compulsory licence for crisis management is extremely low and its duration limited. Consequently, the potential revenue loss is expected to be negligible compared to the overall revenue from the patented product and the proposed initiative is not expected to impact long-term innovation investments of the patent holder. Furthermore, of import here is assessing solely the incremental impact of this initiative, as compared to the status quo – namely the existence of national compulsory licences. This counterfactual boils down to the change in the frequency of compulsory licensing events and their size (volume of critical goods). On the one hand, the intended streamlined and unitary EU compulsory licensing procedures lower the compliance and enforcement cost of their launch. On the other hand, this weakens the case for dis-coordinated national compulsory licences and increases the incentive for voluntary solutions (deterrence effect). When it comes to the volume of goods produced under a compulsory licence, the demand for critical goods is fairly fixed, by the number of EU citizens in need in a crisis situation. Yet, given the scope of proposed alignment (depending on the option) compulsory licences could cover wider geographic scope, as compared to the baseline, because some previously existing differences in national rules would be removed (e.g. embargos, exemptions in material scope or sectorial coverage, etc.). This may imply that a greater volume of goods may be ultimately affected. Still, the new compulsory licensing rules would become more orderly and predictable, which – if anything – should make the business climate more amendable to innovation and investment.

Last but not least, an orderly and modern regime for an EU compulsory licence should provide comfort to the civil society that in case of need critical goods will be effectively and swiftly supplied. This also allows a predictable and TRIPS compliant compulsory licensing scheme in the EU, which should prove beneficial to EU competitiveness and licensors alike.

6.5.4Summary of cost and benefits specific to the compulsory licensing procedures

The costs and benefits specific to compulsory licensing procedures and identified across all four options, can be grouped into the following main categories: one-off and recurrent costs/benefits (see Figure 24, Annex 6).

The one-off implications consist of cost that would be borne shortly after the proposed instrument enters into force (e.g. the legislation is enacted). They would mainly focus on direct compliance costs for the authorities (Member States and the EU institutions), linked with the need to adjust the existing legal provisions on CL. It mainly affects PO2 to PO4, as PO1 is voluntary so the extent of such actions is unknown. As far as the Commission is concerned, we assume that the activity of developing new recommendations or legislation forms part of its normal activities. There will be no one-off direct adjustment cost for firms. There will be no one-off direct benefits of the proposal either.

As for the second category of cost/benefits, namely the recurrent ones, they would occur only if a cross-border crisis hits the EU and they would consist of the following:

·Direct compliance and enforcement costs/benefits for authorities in charge of the negotiations and implementation of the terms of the compulsory licence, as well as the provision of information (i.e. the monitoring costs due to the reporting obligation), see Figure 10  below.

Figure 10: Task division between the Options, as compared to the baseline (PO0)

Most of these costs would materialise anyway, if - in the absence of the proposed changes - the same compulsory licensing negotiations and implementation were to be conducted at national level. In other words, the cost of compulsory licensing negotiations and implementation at national level would stay unchanged, when compared to the status quo. If national negotiations were to be replaced by the EU-level negotiations, the cost for Member States might stay unchanged or actually decrease as the same effort would be shared among several countries.

The collection of basic information on compulsory licensing for the reporting obligations would be carried out by Member States 133  as part of the normal documentation of any compulsory licensing procedure - the additional cost of such task is therefore judged to be very low. Concretely, in PO2 the reporting obligation would generate some additional small cost of sharing information with the EC, but it would affect only the Member State where a compulsory license is to be granted in the event of a cross-border crisis. In PO3 and PO4 the EC would be directly involved in the compulsory licensing negotiations, so no additional information sharing by Member States would be needed in this respect. Yet, under PO2, PO3 and to a lesser extent under PO4, Member States would still need to report on the implementation of the CL, for which the existing administrative procedures should be used. As the reporting requirements would apply only in the event of a cross-border crisis, hence such costs would be rare. Finally, the reporting should not require any additional infrastructure nor data collection, therefore the digital impacts are judged to be not relevant in the context of this initiative 134 .

·Direct compliance costs/benefits for firms (i.e. patent holders, as well as the manufacturers or potential licensees): the costs of participating in compulsory licensing procedures would stay broadly the same as long as they remain at the national level (i.e. PO2 or partially PO3), with some potential marginal benefits due to increased coherence (lower legal uncertainty). However, whenever the compulsory licensing negotiations take place at EU-level instead of fragmented and overlapping processes carried out in several Member States they would be the source of cost savings for firms. The central procedure is estimated to replace roughly 4-5 procedures in each jurisdiction 135 . In such case, the savings for companies would be estimated at 75% to 80% of resources that would be needed otherwise, such as in-house staff or costs of external services, legal assistance, etc.

·Indirect wider socio-economic benefits for the EU citizens (general public) stemming from the timely availability of products needed in crisis and the fact that the crisis could be marginally shorter and/or constricted (e.g. affects less sectors than otherwise would be the case) and that severe economic repercussions are avoided.

Additionally, the European institutions can also bear certain direct costs linked with this initiative. In case of a cross-border crisis the Commission services would need to ensure good governance of the overall process and run the central compulsory licensing negotiations (PO3 and PO4), or grant and implement the CL. As for the EU-level CL, such additional costs would appear mainly if none of the existing emergency bodies or instruments (e.g. SMEI or HERA coordination committees) can be re-used to take up this role. If a new sector-specific body needs to be set up 136 , then the Commission would bear the relevant costs, but given their ad hoc character - predominantly by drawing on resources and expertise already available in the Commission services 137 . As a cross-border crisis requiring the granting of a compulsory licence is assumed to be rare, these tasks should be undertaken by the available commission staff, also assuming certain flexibility and cooperation between Directorates General, especially when the crisis concerns their policy area.

The direct and indirect benefits of a well-functioning compulsory licensing system for crisis management are assumed to greatly outweigh the above mentioned minor direct compliance and enforcement costs, especially when compared with the indirect wider socio-economic impacts of a timely access to essential products needed to combat a crisis. Given the exceptional character of compulsory licencing, no significant administrative costs are expected as a result of the proposed initiative.

7How do the options compare?

As discussed in the objectives, a compulsory licensing system should be able to efficiently tackle EU cross-border crisis in a timely manner and guarantee the supply of critical goods and technologies across the Single Market, even in the absence of voluntary agreements. It should also protect investment in innovation by adequately safeguarding the interests of IP owners. Lastly, it should offer a coherent and coordinated approach, in line with other EU crisis instruments in order to reinforce EU resilience.

7.1Comparison of options against the effectiveness and efficiency criteria

Compulsory licensing for crisis management requires specific features that would ensure compulsory licences to be effectively granted to tackle the crisis (i.e. adequate ground and scope) and allow the efficient granting of a compulsory licence, in a swift manner. Clarification of these features – and their actual implementation – is therefore necessary to fulfil effectively and efficiently the general objective of having a compulsory licensing scheme that enables the EU to timely tackle crises. In that respect, PO1 is the least efficient option as it does not require Member States to implement these features in their national law. PO2 and PO3 would increase the clarity and coherence since they require Member States to harmonise some features. However, the harmonisation does not cover all features, such as the remuneration (PO3) or the trigger (PO2). In addition, divergences could still exist across Member States at the implementation phase. Granting would also remain national, opening the door for divergent practices and timing, when executing the national decisions. This would result in less coherence between national compulsory licences. In contrast, PO4 provides clarity as regards the features of the compulsory licence, as well as coherence, since there would be one single EU-level compulsory licence.

A compulsory licence to tackle cross-border crises could only be effective if it applies to the countries manufacturing the critical goods, as well as those facing the crises. The ability to export goods manufactured under a compulsory licence from one Member State to the other is therefore a key element. PO1 and PO2 prove insufficient in that respect since they allow at best the export of goods. Such solution is impracticable in case of cross-border supply chain. In addition, the lack of exhaustion would still require importing Member States to issue a licence. PO3 and PO4 provide a better solution as they both provide for an EU-wide effect to the compulsory licences (i.e. both are effective in guaranteeing a territorial scope that fits cross-border crises), whereas PO4 is the most efficient as regards compulsory licensing for export, as it also allows a cross-border effect in this case.

All options can support other EU crisis instruments by ensuring that compulsory licences can be used in that context, albeit with different degree of effectiveness and efficacy. PO1 scores low on this objective as it solely provides for the possibility for national compulsory licence to be granted in the context of EU crisis instruments. PO2 provides a better solution as this option would explicitly make the link between national compulsory licences and EU crisis instruments, mitigating the risk that a Member State denies the granting of a compulsory licence in the context of an EU decision activating a crisis mode. PO3 and PO4 go a step further by embedding compulsory licences in the EU crisis instruments (i.e. by using them as a trigger to grant a compulsory licence and by relying on the existing crisis bodies). The last two options would also strengthen EU bargaining position as 27 countries would run negotiations together and at once. As far as the information exchange and transparency is concerned, PO1 provides no obligation and has therefore limited added-value compared to the baseline. All the other options score better in this respect, although the exchange of information and coordination between Member States and the Commission may generate some minor administrative costs (yet, under PO4 such costs are the lowest, as where there would only be one compulsory licence granted centrally). Finally, PO3 and PO4 also score high in terms of transparency in decision making concerning export as they both allow the Commission, assisted by an advisory body, to provide support – through increased coordination – to non-EU countries.

Table 6: Comparison of policy options against the effectiveness and efficiency criteria

Note: (0) neutral impact; (+) minor positive impact; (++) positive impact; (+++) significant positive impact; (-) minor negative impact; (- -) negative impact; (- - -) significant negative impact

As far as the subsidiarity/ proportionality is concerned none of the options go beyond what is necessary to achieve the identified problems/objectives. Their respective scope is limited to aspects that Member States cannot achieve satisfactorily on their own and where the Union action can produce better results (for example, in terms of faster decision making in times of crisis) or is necessary (for example issuing an EU-level compulsory licence to solve the exhaustion problem). As explained in section 2, Member States could not solve the problem due to insufficient scale of legal instruments at their disposal. Options considered provide a mix of Member States and EU level actions with gradual increase of the EU level intervention. Possible instruments for implementing policy options are in case of PO1 a set of recommendations; in case of PO2-PO3, a harmonisation through a directive and in PO4, the introduction of a new layer through an EU regulation establishing an EU-level compulsory licence. Intervention of the Member States is guaranteed through the use of existing EU crisis instruments or through the initiative power given to Member States to start the process leading to EU-level compulsory licence. The initiative is limited to compulsory licensing to tackle cross-border crises. Member States retain their full competence as regards compulsory licensing on other grounds.

7.2Comparison of impacts of options on stakeholders 

Under PO1, the impacts on patent holders would stay broadly the same as in the baseline: patent holders would still face a fragmented system but could benefit from more legal certainty as regards compulsory licensing across the Member States that apply the recommendation. This increased legal certainty would improve even more under the remaining options (PO2 to PO4) due to less divergences in the compulsory licensing rules. However, under PO3 and PO4 patent holders may face certain loss of control on their patent rights since the scope of compulsory licensing would no longer be limited to a given Member State. In addition, as negotiations would be run at EU level, it could reduce their negotiation power. This would be mitigated to a limited extent by cost savings whenever patent owners would participate in one procedure only.

The situation of potential licensees would barely improve under PO1 as their situation in terms of increased legal certainty will depend on the uptake of the recommendation by Member States. PO2 would provide them with more coherent rules, which would positively impact the legal certainty and reduce costs. However, their situation would significantly improve only under PO3 and PO4. Under PO3 and PO4, they would benefit from the centralised procedure that would be the source of administrative savings (although PO3 would maintain negotiations on some aspects at national level). If the streamlined compulsory licensing procedure results in wider territorial scope of the licence, this could translate into economies of scale when manufacturing the critical items.

EU countries could entail some costs under PO1 but only to the extent that they decide to implement the recommendation. Under PO2 and PO3, costs for Member States would be higher as they would face one-off costs linked to the implementation of the directive into their national laws. In both case they would also face recurring costs linked to transparency obligations in the event of a crisis (hence with a very low frequency). As granting procedures would remain national under PO2-PO3, this would entail enforcement costs for Member States. These costs would disappear under PO4, as the granting of the compulsory licence would be implemented at EU level.

The risk of unavailability of critical products during crises decreases as compulsory licensing schemes become more effective and efficient. For this reason, EU citizens would suffer the lowest risk under PO4. Such option would indeed allow a fully coherent and cross-border compulsory licence, which is not the case under any other option. As regards the non-EU countries, PO1 and PO2 only provide soft measures, likely to support to non-EU countries to a limited extent. PO3 brings an added-value as it foresees the possibility for non-EU countries to benefit from the support of the Commission, assisted by an advisory body, when facing a cross-border manufacturing process. This benefit would remain under PO4. In addition, PO4 ensures that products being manufactured across several EU countries could also be the subject of a compulsory licence for export purposes to non-EU countries. This option appears therefore highly beneficial to non-EU countries.

Table 7: Comparison of the impacts of policy options on stakeholders (in the event of a crisis)

Note: PO 1 is conditional on the implementation of recommendations by majority of MS.

To complement the outline of impact on stakeholders, see also the SME test (Annex 8).

7.3Coherence with other EU policies and proportionality

This initiative is fully coherent with other EU initiatives, especially those aiming at improving the EU’s resilience to crises (HERA, SMEI, etc.). Coherence with EU crisis instrument is above all ensured by making such instrument the trigger of an EU-level compulsory licence. In addition, this initiative provides that consultation of Member States and stakeholders must be carried out within the relevant (advisory) bodies, as provided for by the relevant EU crisis instrument.

As far as the proportionality is concerned, under PO1 Member States retain freedom to introduce or not the recommendation. Under PO2, harmonisation would be proportionate and limited to provisions essential to tackle a crisis. Member States would retain competence for compulsory licensing other than crisis management. The same would apply to PO3. Under PO4, Member States’ empowerment would be limited, but only in exceptional circumstances. The EU-level compulsory licensing rules would be proportionate and limited to provisions essential to tackle a cross-border crisis, while Member States will be consulted in the relevant (advisory) bodies throughout the process.

8Preferred option

All the options considered in the impact assessment are expected to improve on the status quo, but to a varying extent. However, when considering the specific objectives, it appears that Option 4 would be the most effective and efficient to achieve the objectives of this initiative. The preferred option would create a single procedure to grant an EU-level compulsory licence with adequate features to tackle a crisis. The Commission activation measure would ensure that conditions are the same across the EU and would avoid national discrepancies likely to slow down or prevent a compulsory licensing from tackling cross-border crises. This single compulsory licence would be applicable in all relevant territories, therefore covering any cross-border situation (i.e. would also cover smaller-scale crises, not affecting the whole EU). This would be the case for both the EU market and for export purposes to non-EU countries. Coherence with EU crisis instruments would be ensured by the possibility to refer to a common trigger, as well as to the (advisory) bodies set-up by the EU crisis instruments. Alternatively, the procedure could be initiated by Member States affected by a crisis. Negotiations and coordination would be carried out at EU-level to ensure coherent approach across the EU. To prevent and stop any misuse of the compulsory licence 140 , safeguards should be in place to allow the Commission to take appropriate measures including, if need be, the reduction of the remuneration and the termination of the compulsory licence to ensure that the conditions of the compulsory licence are respected. The measures taken by the Commission should be effective, proportionate and dissuasive. The implementation of the preferred option would require adopting a new regulation establishing an EU-level compulsory licence for crisis management. PO4 is the most balanced and proportionate approach, which also takes account of the views and concerns of stakeholders. The preferred option would address the identified problem (i.e. “EU compulsory licensing rules not well suited to address cross-border crisis in a timely manner, due to uncoordinated procedures and decision-making, as well as inadequate territorial reach”).

Table 8: How the preferred option achieves the policy objectives?

The impacts of the preferred option on stakeholders were discussed in section 6.4.4. They can be summarized as follows: the preferred option (PO4) is more effective as it (i) removes fragmentation and provides more clarity and coherence on the features of compulsory licensing for crisis management; (ii) provides an adequate territorial reach able to cover cross-border crises and supply chains; (iii) provides alignment with EU-crisis instruments. The impact on EU countries would be positive as it would increase their ability to tackle cross-border crises in a coherent and efficient way. Member States would benefit from a reduction of enforcement cost as negotiation would be centralised at EU level. EU citizens would also benefit from this initiative as it improves the ability of the EU to take full advantage of the Single Market and to provide access to critical goods in crises. For patent owners, this initiative would indeed remove compulsory licensing fragmentation in the EU and costs associated with the participation in multiple national procedures. However, in the event of a broader geographical scope of a CL, wider loss of control over patent rights. This impact is however limited as compulsory licensing is an exceptional measure. In addition, patent owners would still benefit from a remuneration and the limitation of their right would be for a definite period. In addition, this solution would generally only apply once voluntary agreements were not available. Potential licensees would benefit from administrative savings due to the centralised procedure and economies of scale if its results in wider territorial scope of the CL. Non-EU countries would also benefit from this initiative as it should facilitate access to a compulsory licence covering a cross-border supply chain. 

Finally, the EU-level compulsory licensing rules would be proportionate and limited to provisions essential to tackle a cross-border crisis. The EU level compulsory licensing decision would limit Member States empowerment only in exceptional circumstances. Member States retain competence for compulsory licensing other than cross-border crisis management and will be consulted in the relevant (advisory) bodies throughout the process.

8.1REFIT and the application of the ‘one in, one out’ approach

This preferred PO4 foresees the establishment of a new legal instrument where an EU-level compulsory licensing could be granted in a cross-border crisis using a single procedure instead of several national procedures.

Table 9: REFIT – cost savings related to the preferred option (PO4)

In the event of an unforeseen future crisis, PO4 would lower the costs of participation in compulsory licensing negotiations incurred by patent holders, manufacturers and Member States (notwithstanding the identification of some minor administrative costs of reporting, which may be incurred by Member States and thus do not fall under the ‘one-in one-out’ approach). As far as the firms are concerned, such costs could be lower by roughly 75% to 80% when compared to the status quo scenario (i.e. based on a hypothetical situation where a single compulsory licensing procedure would replace 4-5 procedures in each jurisdiction). For Member States, if national compulsory licensing negotiations were to be replaced by the EU-level negotiations, the compliance and enforcement cost might stay unchanged or actually drop as the same effort would be shared among several countries. The exact monetary value of cost savings for stakeholders is not possible to provide due to scarcity of such events and also because the type of future potential crisis and its scale is unknown. Additionally, as the new instrument should be used only during major crisis affecting the EU and as the last resort measure, hence its expected frequency is also very low.

9How will actual impacts be monitored and evaluated?

The legislation to be proposed would include a provision requiring an evaluation report five years after the granting of the first EU-level compulsory licence. The preferred option obliges Member States to inform the Commission when they are considering granting and when they have granted a compulsory licence for crisis management, as well as providing information on the compulsory licence (i.e. transparency obligation on the subject matter of the compulsory licence, the manufacturer, the conditions, etc.). As discussed in section 1.3., the recourse to compulsory licensing is expected to be rare as it will be triggered by exceptional circumstances. As a consequence, the overall number of compulsory licences issued on the basis of the proposed instrument is expected to be low 141 , which subsequently means that monitoring of the basic descriptive indicators would not require setting up of additional systems for data collection and monitoring (the collection and processing of information can be done manually).

Table 10: Monitoring indicators

Annex 1: Procedural information

1.Lead DG, Decide Planning/CWP references

Lead DG:

·DG for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW).

Other Services involved:

·SG, SJ, COMP, ENER, SANTE, HERA, TRADE, RTD, INTPA, JRC

Agenda Planning Reference:

·Ref. PLAN/2021/11425

·The initiative is included in the Intellectual Property (IP) Action Plan that the Commission adopted on 25 November 2020 and in the Commission work programme 2023.

2.Organisation and timing

The Call for Evidence was published on 1 April 2022. It was followed by a feedback period that lasted until 29 April 2022. 57 stakeholders submitted feedback. The Commission held a public consultation from 7 July 2022 to 29 September 2022. This consultation was available on the Better Regulation Portal of the Commission and open to anyone who wished to reply. The public consultation received 74 replies through the EU survey.

The work on the Impact Assessment was carried out from April 2022 to January 2023, during which an Interservice Steering Group (ISSG) met three times to give an update on the ongoing work and discuss preliminary versions of the Impact assessment report, together with all the supporting documents.

The following Commission services participated: SG, SJ, COMP, ENER, SANTE, HERA, TRADE, RTD, INTPA and JRC.

The deadline for adoption of a proposal by the Commission is April 2023.

3.Consultation of the RSB

The Regulatory Scrutiny Board (RSB) was consulted in an upfront meeting on 15 July 2022. The present impact assessment report was submitted to the RSB on 06.01.2023. The Impact Assessment was discussed with the RSB on 01.02.2023. On 03.02.2023 the RSB delivered a positive opinion. The table below shows RSB comments and how they were addressed in the revised text.

Table 11: RSB comments to the initial version of the impact assessment

4.Evidence, sources and quality

Analysis presented in this impact assessment is based on the following key sources:

·Feedback to the Call for Evidence on Compulsory Licensing in the EU that the Commission published on 1 April 2022 ( https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13357-Intellectual-property-revised-framework-for-compulsory-licensing-of-patents_en ).

·Replies to the Open Public Consultation on Compulsory Licensing in the EU that was open until 29 September 2022 ( https://single-market-economy.ec.europa.eu/news/commission-seeks-views-and-input-compulsory-licensing-patents-2022-07-07_en ), referred to as ‘OPC’.

·“Compulsory licensing of intellectual property rights”, Center for International Intellectual Property Studies (CEIPI), Université de Strasbourg (UNISTRA), Impact Licensing Initiative (ILI), Ecorys Nederland BV (Ecorys), Brussels 2023 ([link available once published]), referred to as ‘CEIPI(2023)’.

·“Compulsory licensing in Europe, A country-by-country overview”, European Patent Office, 2018 ( https://www.epo.org/learning/materials/compulsory-licensing-in-europe.html ), referred to as ‘EPO(2018)’.

Additionally, the following data sources were used in order to perform an in-house analysis:

·PatentSight® database (https://go.patentsight.com/login.html).

The remaining sources are provided in the footnotes, whenever they are referred to in the text.

Annex 2: Stakeholder consultation (Synopsis report)

Introduction

As underlined in the Commission’s intellectual property action plan (2020), the Commission sees a need to ensure that effective systems for issuing compulsory licences are in place. Against that background the Commission started in 2022 consulting stakeholders on compulsory licensing of patents in the EU, especially in a cross-border crisis. Consultation of stakeholders also covered the efficiency of the EU procedure on compulsory licensing of patents for pharmaceutical products for export to countries with public health problems (Regulation (EC) No 816/2006).

Consultation activities

The European Commission published a Call for evidence 142  on 1 April 2022. The feedback period to this call for evidence lasted 4 weeks and ended on 29 April 2022. The objective of this call for evidence was to gather views, opinions and evidence from all public and private sector stakeholders, such as IP right holders, users of IP-protected technologies and products, the health sector (including generic manufacturers, start-ups and patient associations), public authorities, national IP offices, non-profit organisations, civil society representatives, consumer associations, research centres, the European Medicines Agency and IP lawyers. It gathered views on the different grounds and procedures for issuing compulsory licences in a crisis and aimed to discover bottlenecks and to assess the impact of compulsory licensing on stakeholders. In total, 57 feedbacks were received, of which one third came from business associations and 23% from non-governmental organisations (NGOs). Most of the feedback was received from respondents from BE (21%), DE (19%) and FR (11%).

In March 2022, the Commission launched the study ‘Compulsory licensing of intellectual property rights’ [CEIPI(2023)]. The objective of the study was to assist the Commission in defining potential problems as regards compulsory licensing in the EU as well as identifying and assessing policy options to improve coherence and effectiveness in the field. To this end, the study aimed at collecting data through desk research, case studies, interviews with stakeholders as well as organising two workshops. The study was conducted by the Center for International Intellectual Property Studies (CEIPI), the Université de Strasbourg (UNISTRA), the Impact Licensing Initiative (ILI) and Ecorys Nederland BV (ECORYS).

In the context of the Study, Member States experts were contacted to complete a questionnaire. The questions focused on the national experiences with compulsory licensing, the scope of application of compulsory licences and procedural aspects. In addition, a series of 25 semi-structured interviews of national experts, academia, policy representatives and industry experts were conducted. These interviews focused on gathering ‘non-published’ data on national procedures and legal requirements of compulsory licensing. 

Two workshops were held:

·A first workshop on ‘Information collection on specific compulsory licence cases with exchange of views and experiences in the field of IPRs’ was held in Brussels on 28/29 April 2022;

·A second workshop on ‘Policy options for compulsory licensing in Europe in case of a crisis’ was held in Brussels on 9/10 June 2022.

A total of 24 participants attended both workshops, representing patent attorneys from multiple Member States, policy officials and representatives from different industries.

The European Commission also held an Open Public Consultation from 7 July 2022 to 29 September 2022. This public consultation aimed to collect views from all stakeholders on how to build the most efficient compulsory licensing scheme in the European Union as well as to ensure that it is fit to tackle EU-wide and global crises. This consultation was available on the Better Regulation Portal of the Commission and open to everybody. The public consultation received 74 replies. More than half of the answers came from business associations (30%) and company/business organisation (24%), mostly from the health sector (34%). The largest number of replies were from Germany (15), Belgium (11) and FRFR (10). See for more statistics about the respondents and the key findings, the Factual Summary Report, published on the Better Regulation Portal of the Commission.

Table 12: Number of replies received in the open public consultation by stakeholder type

Source: OPC

Analysis of responses

Compulsory licensing as a crisis instrument

In the context of the consultation activities, stakeholders were asked about the relevance of compulsory licence as a crisis management instrument. In that respect, a large majority of all groups of respondents 143 (82%, N= 61) consider it important for public authorities to allow production of certain products and/or use of certain technologies necessary to tackle a crisis through a compulsory licence. This is also true for respondents likely to be subject to a compulsory licensing decision (N=12), with 75% of them agreeing with the importance for public authorities to rely on compulsory licensing for crisis management purposes. In particular, in view of recent crises, such as the Covid-19 pandemic and the war in Ukraine, respondents consider compulsory licensing as a crisis management tool generally as positive (43%, N=20), even though it has been also pointed out that existing mechanisms of compulsory licensing under the TRIPS Agreement and national IP laws revealed not to be sufficient to solve the problem of urgent access to life-saving medical tools during critical situations such as an ongoing war, a pandemic or situations of severe medicines shortage and instead rather voluntary licensing agreements played a pivotal role, increasing production and supply for the needed medicines.

When asked about the fitness of current rules on compulsory licensing for crisis management, stakeholders’ views are contrasted. Many respondents consider that current national laws on compulsory licensing are fit to tackle national crises (58%, N=43), EU-wide crises (51%, N=38), and global crises (50%, N=37). However, stark disparities exist between stakeholders. All NGOs considered that current compulsory licensing rules are unfit to tackle EU-wide crises. In contrast, all business associations and companies considered that compulsory licensing rules are fit to tackle EU-wide crises. Generally, compulsory licensing rules are considered less fit to tackle EU-wide crises than national and global ones 144 . 

When asked about the types of crises for which compulsory licensing should be possible, almost half of the respondents (45%, N=33) considered that compulsory licensing should be allowed only for specific crises. Interestingly, three quarters of the respondents likely to be subject to a compulsory licensing decision were of the same opinion. Another quarter considered that compulsory licensing should be allowed whenever a situation is determined to be a crisis by relevant authorities. Only few respondents considered that compulsory licensing should never be used (55%, N=4). When asked about the types of specific crisis, respondents first mentioned health-related crises (34%, N=25), then war and/ or large-scale attack (28%, N=21), and finally energy-related crises and natural disasters (each 26%, N=19).

On priority aspects of compulsory licensing for crisis management, a large majority of stakeholders (74%, N=55) consider the speed of ensuring access to products/ technologies as a high priority. However, only a third of stakeholders (34%, N=25) considered that putting a time limit on negotiations could speed up the granting of a compulsory licence for crisis management. Views diverged on the need to provide a clear time limit, some considering that a defined time period (e.g. 1 month) would be necessary to avoid lengthy negotiations, others considering that this would not provide a flexible solution. In contrast, pre-defined rules on essential terms of the licence are quoted as an efficient way to speed-up the granting of a compulsory licence. Pre-defined rules on remuneration appear particularly important with 42% of respondents (N=31) considering that it would speed up the granting of a compulsory licence. This is in line with the finding that protection of right holders (including an adequate remuneration) was considered a high priority for 64% of respondents (N=47) to the public consultation.

A final aspect concerned the importance of voluntary agreements on intellectual property rights, including in crises. Stakeholders generally highlight the importance of voluntary agreements to scale-up the manufacturing of critical products. This view was often reflected in the feedback to the call for evidence as well as in the replies to the public consultation. According to many stakeholders, the COVID-19 pandemic has showed that voluntary agreements offer a viable solution for the manufacturing of critical goods in crises. Along these lines, three quarters of the respondents to the public consultation (74%, N=55) agreed that compulsory licensing is a last-resort mechanism that should be available only where voluntary arrangements have failed or are unavailable.

However, views are contrasted on this issue: although almost all companies and business association (97%) agree with the last resort approach, two-thirds of NGOs disagree. In addition, several respondents to the public consultation highlighted that Article 31(b) of the TRIPS Agreement does not require seeking the authorisation of the patent owner (i.e. a voluntary agreement) in cases of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use.

As regards aspects to determine whether voluntary agreements have failed, the majority of respondents favour whether reasonable efforts have been made by the licence seeker to obtain an agreement with the IP owner and the time period allowed for concluding a voluntary agreement over the types of voluntary agreements that have proven to be unsuccessful or unavailable, such as agreements with suppliers or agreements between competitors.

Almost half of the respondents mentioned other aspects to be considered. These aspects included the scope of the licence (whether it is strictly limited to what is necessary), the protection of trade secrets and commercial interests of the IP owner and the guarantees given by the licensee.

As regards the impact of compulsory licensing on the various players, opinions are divided between stakeholders. While companies and business associations point to the negative impact of compulsory licensing to IP rights holders, lowering the value of their investments in IP rights, impairing the IP system and harming society in the long run, NGOs are emphasizing the positive impact on citizens and the entire society by ensuring affordable and sustainable access to essential health products, when needed, at reasonable prices, in adequate quantity and good quality, while guaranteeing a balance with the innovation and IPR system.

Policy options as regards compulsory licensing for the domestic market – Article 31 of the TRIPS Agreement

Different consultation activities 145 have examined experiences of stakeholders and national experts with compulsory licensing at Member State level, in particular regarding possible policy options to ensure an effective compulsory licensing system for crisis management.

When presented with three main policy options to speed-up the compulsory licensing process for crisis management, stakeholders favoured the option consisting of facilitating communication on the request/ granting of compulsory licences and the sharing of information between EU countries (42%, N=31). The second preferred option referred to the possibility of aligning rules on compulsory licences (28%, N=21). The least preferred option concerned the adoption of non-binding guidelines (22%, N=16). Three out of four of the public authorities having replied to the public consultation are in favour of an alignment of rules. This is in stark contrast with NGOs and consumer organisations, of which only one NGO would welcome an alignment of rules. This reluctance towards an alignment of rules could be explained by the willingness to preserve the ability of Member States to trigger compulsory licences at national level, as this appears from discussions with stakeholders.

The public consultation further investigated the option, and in particular the relevant features of uniform rules on compulsory licences for crisis management. In general, respondents to the public consultation consider that the three main features to be aligned should be the grounds on which a compulsory licence can be granted (43%,N=32), the scope (42%, N=31) and the procedure (32%, N=24). Divergences exist between the different categories of stakeholders. Companies and business associations are less likely to consider that alignment is needed on the different features. They are only a bit more than a fifth to consider necessary to align the grounds and the scope and only 17% in favour of aligning the procedure. In contrast, more NGOs, public authorities, and academia are in favour of aligning the scope (73%), the grounds (67%) and the procedure (53%).

The public consultation further examined the different features of a compulsory licence for crisis management purposes, which can be summarised as follows:

Grounds for granting a compulsory licence – Around one third of the respondents to the public consultation consider that the following grounds for granting a compulsory licence should be aligned: the territorial scope of crises (the possibility to declare a national, multinational or pan-European-crisis), the types of crises for granting a compulsory licence (e.g. health) as well as the definition of crises that allow a compulsory licence to be granted should be the same. Divergences exist between the different categories of stakeholders, with companies and business associations being less in favour of an alignment of the grounds for granting a compulsory licence than academia, public authorities and NGOs having replied to the public consultation.

Scope of the compulsory licence – More than a third (35%, N=26) of the respondents to the public consultation consider it necessary that the alignment of the scope of what a compulsory licence covers should extent to all aspects deemed necessary to allow the manufacturing of complex products.

In particular, the Public Consultation reveals that 65% of the respondents (N=48) are of the opinion that compulsory licences should also apply to supplementary protection certificates. In this sense, responses of national experts to the questionnaire sent in the context of the Study, show that the lack of explicit reference to supplementary protection certificates in national compulsory licensing provisions gives rise to legal uncertainty and different interpretation of similarly worded provisions 146 . Half of the respondents of the Public Consultation, i.e. 50% (N=37), favour compulsory licences that apply to patents as well as published patent applications.

36% of respondents (N=27) welcome if compulsory licences also included the know-how. Views are extremely contrasted on this point with only 5% of companies and business associations being in favour (in contrast, considering academia and NGOs and public authorities, all but one are in favour of including know-how in the scope of a compulsory licence).

Moreover, stakeholders having participated in the context of the study generally agree that regulatory data protections for medicinal products should not be an obstacle to the effective implementation of a compulsory licence. 147 In contrast, only 35% of respondents (N=27) (and only 12% of the companies and business associations) consider it useful when compulsory licences also apply to regulatory data protections for medicinal products. Finally, a third of the respondents are of the opinion that a compulsory licence should also apply to other IP rights but did not elaborate much further on the types of other IP rights.

Conditions for granting a compulsory licence – Consultation activities have identified that alignment of the conditions for granting a compulsory licence should encompass the duration of the licence (38%, N=28), the content of an application for a compulsory licence (e.g. indicate the patent, the owner of the patent, the concerned products, etc.) (35%, N=26), remuneration (34%, N=25) and the framework and duration of the negotiations (31%, N=23). During the consultation activities, stakeholders explained that patent holders which are subjected to a compulsory licence run risks that may not adequately be dealt with by the enforcement of patent and compulsory licence-relevant laws alone. 148 Insofar safeguards are needed in the form of complementary contractual control mechanisms which can help to reduce the negative consequences of the compulsory licence. In this sense, protection for rights holders, such as a reasonable period of time to allow negotiations between the licence seeker and the rights holder, a clear limitation of the duration of the compulsory licence and an adequate remuneration for rights holders is considered of high priority by the majority of respondents of the Public Consultation (69%).

Procedure for granting a compulsory licence – As regards the procedure for granting a compulsory licence, 43% of the respondents to the public consultation (N=32) would welcome an alignment of the type of procedure (administrative or judicial procedure). When it comes to NGOs and academia, 8 out of the 11 respondents are in favour of such alignment. Only 27% of the respondents to the public consultation (N=20) would like to see an alignment on whether or not the manufacturing should be subject to a final decision on all aspects of the compulsory licence.

Procedures on compulsory licences for crisis management should, according to stakeholders, rather be initiated by a competent authority (28%, N=21) than on request of the licence seeker (4%, N=3), or alternatively, providing both possibilities (23%, N=17).

As regards an alignment of the recourse procedure for granting a compulsory licence, a majority of respondents to the public consultation would agree with an alignment of the time limit within which the application of an appeal is admissible (42%, N=31) and an accelerated appeal procedure (38%, N=28). 35% of the respondents (N=26) are in favour of the suspensive effect of an appeal.

Competence to administer compulsory licences – Even though at national level, as demonstrated in the questionnaires sent to national experts and as confirmed by stakeholders across all categories, various types of authorities are empowered to issue a compulsory licence for different purposes 149 , a strong preference was expressed by stakeholders during interviews and workshops for allocating responsibilities for administering compulsory licences to ‘specialised’ or expert authorities: authorities which hold the requisite knowledge of a product and relevant expertise in order to properly evaluate applications for compulsory licences and make key assessments regarding the necessary scope of a compulsory licence. 150  

As to the role of the European institutions, the Public Consultation revealed that a slight majority of respondents favour a consultative role on the request of EU countries, public authorities, rights holders, licence seekers, etc., asking for advice (39%, N=29) or a coordinating role (e.g. by setting up channels/forums and methods for information sharing among EU countries and steering mutual assistance between EU countries) (36%, N=27) over a decision-making role of European institutions (e.g. by declaring a crisis, possibly triggering the granting of a compulsory licence (28%, N=21).

Compulsory licensing for exports

Regulation (EC) No 816/2006 regulating compulsory licensing of patents for pharmaceutical products for export purposes had never been used. It was therefore important to collect views from stakeholders on how they consider this regulation, and in particular the fact that it was never used.

41% of the respondents to the public consultation (N=30) considered that Regulation (EC) No 816/2006 allows for speedy and efficient procedures for granting compulsory licences to export pharmaceutical products to non-EU countries.

Views are however extremely contrasted on this issue: among companies and business associations, 95% agree with this view. In contrast, all NGOs having participated in the public consultation consider that this is not the case.

On aspects of the Regulation that could be streamlined, we witness a lot of respondents having no opinion (around a third) or having not replied (around 15%). Replies appear again contrasted between companies and business associations, on the one hand, and NGOs, on the other hand. In the first group, only one respondent considered that elements of the regulation should be streamlined (i.e. conditions to submit an application, calculation of the remuneration and the simplified and accelerated procedure). In contrast, all but one NGOs considered that conditions to submit an application and the calculation of the remuneration should be streamlined. All NGOs considered that the simplified and accelerated procedure should be streamlined.

Stakeholders generally disagree that the procedure set by Regulation (EC) No 816/2006 should be made more flexible to adapt to the needs of the importing country (25 respondents disagreed, 17 agreed and 32 did not reply or had no opinion). On whether the Regulation provides for sufficient guarantee against trade diversion, the majority of respondents (38%, N=28) agreed, while a minority of 6 respondents (8%) disagreed (the largest majority – 40 respondents – did no reply or had no opinion on the issue).

Impacts of the different options

Several questions on the impact of possible options were part of the public consultation. These impacts are summarised below, with a particular focus on the impacts on EU businesses, IP owner, the ability of the EU to tackle crisis and the access to critical goods in crises.

The majority of the respondents of the Public Consultation are seeing the introduction of a uniform compulsory licensing scheme for crisis management rather negative for EU businesses (38%, N=28) and EU IP owners (43%, N=32). However, it is generally perceived more positive as regards the EU’s ability to tackle crises (38%, N=28) and the provision of access to critical goods (36%, N=27).

Stakeholders favour the option of allowing a compulsory licence to be granted at EU level in the event of an EU-wide crisis compared to nationally granted compulsory licences for EU-wide crises. In that respect, the responses to the Public Consultation show that the option of granting a compulsory licence at EU level is generally deemed more positive by stakeholders as regards the EU’s ability to tackle crises (35%, N=26) and for providing access to critical goods (34%, N=25) than the granting of a compulsory licence at national level (respectively, 11%, N=8 and 12%, N=9). There is again a stark contrast between stakeholders. All NGOs consider that the granting of a compulsory licence at EU level for EU-wide crises would have a positive effect on the ability to tackle crises and the access to critical goods. However, a majority (around 50%) of companies and business associations consider that the impact would be negative. A larger majority of companies and business associations considers that such option would have a negative effect on EU businesses (87%) and IP owners (90%).

As regards the impact of introducing a mechanism for coordinating compulsory licensing among EU countries, it is seen positive for the EU Single Market by 35% of the respondents (N=26). For the impact on EU businesses (28%, N=21), EU IP owners (25%, N=26) and the EU patent system (35%, N=26), negative responses predominate, especially by companies, business organisations and business associations, whereas, again, respondents are more positive about the impact on the EU’s ability to tackle crises (35%, N=26) and the impact on the access to critical goods for the public (28%, N=21). This is the case, above all, for NGOs. Moreover, the impact of introducing a mechanism for coordinating compulsory licensing among EU countries on the public authorities’ decision-making processes is viewed positively by the majority of the respondents (29%, N=22).

The questions on the impact of creating an EU single contact point and coordination mechanism between Member States and of an EU-level centralised procedure to grant compulsory licences on export of pharmaceutical products to non-EU countries received only few evaluable answers. Most of the respondents either had no opinion, answered in a neutral way, or did not submit any answer. However, of the responses on the impact of creating an EU single contact point and coordination mechanism between Member States for compulsory licences for export of pharmaceutical products to non-EU countries, positive answers on the impact on the EU Single Market predominate (19%, N=14 vs negative answers: 3%, N=4), even by companies, business organisations and business associations. As to the impact on EU businesses and EU IP owners, companies, business organisations and business associations see it rather negative (53%, N=21 and 55%, N=22), whereas NGOs have a rather positive view. The majority of the respondents also saw the creation of an EU single contact point and coordination mechanism between Member States for compulsory licences for export of pharmaceutical products to non-EU countries more positively as regards the impact on the EU patent system (18%, N=13), the EU’s ability to tackle crises (18%, N=13), access to critical pharmaceutical products for non-EU countries (19%, N=15) and on the public authorities’ decision-making process (19%, N=15).

Of the answers received on the impact of an EU-level centralised procedure to grant compulsory licensing on export of pharmaceutical products to non-EU countries, negative answers predominate on the questions about the impact on EU businesses and EU IP owners, mostly stemming from companies, business organisations and business associations, whereas more positive answers were received on the impact on the EU patent system, on EU’s ability to tackle crises, access to critical pharmaceutical products for non-EU countries and on the public authorities’ decision-making process.

How the results of consultation activities were used?

The results of the various consultations presented above underpin the whole evaluation of the currently fragmented framework of national compulsory licensing systems of patents for domestic purposes as well as of the efficiency of the EU procedure on compulsory licensing of patents for export to countries with public health problems (Regulation (EC) No 816/2006). They were used to judge the effectiveness and efficiency of compulsory licensing in the EU to tackle cross-border crises and helped in formulating policy options for the future.

Annex 3: Who is affected and how?

1.Practical implications of the initiative

The new instrument is intended to make the issuing of CLs in crisis situations more coherent and streamlined, especially in terms of timing. This would reduce the multiplicity of authorities involved in such procedures and therefore increase legal certainty that is crucial for patent holders/companies that may be concerned by a CL. The proposed changes will also improve the transparency of the process, which is especially important for stakeholders. The key stakeholders that may be affected by the new provisions are the current patent holders, followed by any company that may take the role of a future manufacturer (licensee). As far as patent holders are concerned, the majority of such companies are large enterprises - a breakdown of patent applications originating from European countries shows that 75% of them were filed by large companies, 20% by individual inventors and SMEs, and 5% by universities and public research organisations.

Figure 11: Patent applications originating from European countries by applicant type [%]

Source: Patent Index 2021 – At a glance, EPO, status: 1.2.2022

2.Summary of costs and benefits

3.Relevant sustainable development goals

Figure 12: Relevance to UN Sustainable Development Goals – example of European Patents active in Germany

Source: PatentSight®, search executed on 11/12/2022.

Annex 4: Analytical methods

The analysis contained in this impact assessment predominantly builds on input from stakeholder collected via the open public consultation, a dedicated study “Compulsory licensing of intellectual property rights” (see Annex 1, point 4) and data collected from desk research (e.g. academic studies, existing impact assessment reports such as SMEI proposals, etc.). Whenever possible, a quantitative information is provided and analysed. For example, a small in-house analysis concerning the geographical coverage of European patents was carried out and then used in the problem definition – the methodology applied for this task is discussed below.

Nonetheless, as compulsory licensing is the “last resort instrument” it is used only in exceptional circumstances therefore the available data on the subject is extremely scarce. In view of the absence of granular data on the subject, this assessment discusses the plausible magnitude of potential impacts of each policy option, rather than its exact quantification in monetary terms. As a consequence, the cost/benefit analysis is not developed to the level that otherwise is expected in an impact assessment. As a fall-back strategy, the main evidence base of the report comes from the consultations with stakeholders (see Annex 2).

Geographical coverage

The objective of this task was to identify the average number of Member States in which patents needed in a crisis situation are active. In order to build such hypothetical case, the recent COVID pandemics was used as a proxy for a possible crisis. A list of patents that could be needed in such situation was established based on PatentScope COVID-19 INDEX 154 where the following areas were identified as pertinent to a global health crisis caused by coronavirus:

·Artificial respiration,

·Diagnostics,

·Disinfection,

·Informatics,

·Medical Equipment,

·Medical Facilities and Transport,

·Medical Treatment,

·Medical treatment/Prophylactic,

·Medical treatment/Therapeutic,

·Personal protective equipment.

The PatentScope COVID-19 INDEX defines the exact scope of relevant patents by using International patent classification (ICP) 155 codes listed in Table 13, below.

Table 13: List of IPC codes used in PatentScope COVID-19 Index

The IPC creates a hierarchical system for the classification of patents (and utility models) according to the different technical fields to which they belong. The classification system contains about 70 000 entries, i.e. classification symbols or codes that can be allotted to patent documents. Symbols are arranged in a hierarchical, tree-like structure:

·at the highest level are the eight sections corresponding to very broad technical fields (e.g., Section C deals with chemistry and metallurgy);

·sections are further subdivided into classes (e.g., Class C21 deals with the metallurgy of iron);

·classes are divided into more than 600 subclasses (e.g., Subclass A21B contains bakers' ovens and machines or equipment for baking). 156

·subclass is divided into groups (e.g., “A23F 3: Tea; Tea substitutes […]”). Groups are either main groups (e.g., “A23F 3/00: Tea; Tea substitutes […] (Not otherwise classified)”) or subgroups (e.g., “A23F 3/16: Tea extraction […]”). The symbols of the main groups end with “/00”.

At this point it is important to note that the list of IPC codes selected for the PatentScope COVID-19 INDEX contains many subclasses (e.g. C07D HETEROCYCLIC COMPOUNDS), as well as even a class (i.e. C07 ORGANIC CHEMISTRY). Yet, such high level definitions seemed too broad for the intended analysis 157 , as they may contain a significant share of patents that were only indirectly related to fighting the pandemics. As a consequence, these high level codes were not taken into account in the analysis (marked with caps lock in Table 13). Nonetheless, all the remaining codes from the Table, with the level of granularity of groups or subgroups, were used as a basis in the search of active patents and later used to come up with the final estimate.

Once the crisis-related patents were identified according to PatentScope list of IPC, PatentSight® 158 database was used to extract the information on the number and geographical coverage of such patents within the EU. The query resulted in 216 381 patent families in which at least one member was currently active 159 in EU-27 Member States. The dataset reporting date (i.e. last server update) was 12/08/2022. The variables extracted were the following: Patent Family, Active Authorities Today, IPC Subclasses (Symbol) 160 .

First, the observations were identified by their granting patent office – the basic tabulation for the main dataset is provided below (Table 14), showing that the European Patents accounted for 87.5% of all patents in the dataset.

Table 14: Origin of patents in the retained dataset – frequency and percentage by patent office.

Second, information contained in the Active Authorities variable was processed in order to remove all other jurisdictions were the members of each patent family were active, except for EU-27 countries. This step makes this exercise different from the usual approach to counting the patent family size 161 as defined in the literature, because it will capture only the “EU subset” of a patent family (i.e. the patent family size would normally include a validation in for example the US, whereas here information on non-EU validations is ignored).

Annex 5: Legal background and the key legal provisions

5A.    The international legal context

The Paris Convention 162 of 1883 already enabled countries to take legislative measures providing for the grant of compulsory licences to prevent abuses resulting from the exercise of patent exclusive rights 163 . This explains why, at the time the TRIPS Agreement was negotiated, most countries in the world already had in place compulsory licensing schemes. The TRIPS Agreement leaves untouched the principles on compulsory licensing laid down in the Paris Convention. However, it provides several conditions for the granting of compulsory licences.

As indicated in the introduction, a compulsory licence 164 refers to the possibility for a government to allow a third party to use a patent without the authorisation of the right holder, subject to certain conditions aiming at preserving the legitimate interests of the patent holders. The TRIPS Agreement sets the international legal obligations as regards compulsory licensing. It provides two types of compulsory licensing schemes: (i) compulsory licensing for the domestic market (Article 31), which applies to all types of products and (ii) compulsory licensing for the export, which only applies to pharmaceutical products (article 31bis).

Article 31 allows the granting of a compulsory licence, for any type of product. In this context, the compulsory licence must be predominantly for the supply of the domestic market of the WTO Member authorising the use. This condition limits in practice the export of goods made under a compulsory licence.

The TRIPS Agreement does not list the grounds on which a compulsory licence can be granted. The WTO members retain their margin of manoeuvre in this respect, as explicitly confirmed by the Doha Declaration 165 . Nor does the TRIPS Agreement limit the purposes of a compulsory licence, which can be to import or locally manufacture products. In contrast, the TRIPS agreement provides several conditions under which a compulsory licence can be authorised (see Annex 5). These conditions constitute the frame for any TRIPS-compliant compulsory licensing scheme for the domestic market.

Among other conditions, Article 31 of the TRIPS Agreement does not allow compulsory licensing to supply foreign markets (or at least not predominantly). This condition was the result of negotiations on the TRIPS Agreement but it left a gap in the compulsory licensing system whereby countries with no or limited manufacturing capacity were not able to make us of this system. The link between the TRIPS Agreement and public health was clarified in 2001 Doha Declaration (Annex 5) which also mandated further work on the issue of the members with no or limited manufacturing capacity. This resulted in implementation of the so-called Paragraph 6 system which in turn led to the adoption of Article 31bis of the TRIPS Agreement.

Under Article 31bis of the TRIPS Agreement, a country can grant a compulsory licence to the extent necessary for the purposes of production and the export of a pharmaceutical product. It establishes a specific mechanism of mainly procedural requirements (e.g. transparency, packaging) that would allow to address the circumstances of two sides – the exporting country and the importing country. Depending on where the product is protected by a patent, either only the exporting or both the exporting and the importing country may need to issue relevant compulsory licences. The European Union implemented this new disposition in its legal order through the adoption of regulation (EC) No 816/2006 166 . The EU may only act as an exporter to the countries with no or limited manufacturing capacity.

5B.    The EU legal context and practice

There is no EU harmonisation as regards compulsory licensing for the domestic market, including as regards European patents with a unitary effect 167 . EU countries have all implemented compulsory licensing schemes but for different grounds and following different procedures, in accordance with the flexibilities left at international level.

In contrast, compulsory licensing for export purposes of pharmaceutical products is regulated by Regulation (EC) No 816/2006. In the context of Regulation (EC) No 816/2006, EU countries remain the main points of contacts for granting the compulsory licence, checking whether the conditions are respected and when it is terminated. The role of the Commission remains limited to the case where the export of the product under a compulsory licence would be directed to an importing country which is not a WTO member. In such case, the importing country must make a notification to the Commission instead of the WTO.

The mechanism under Article 31bis of the TRIPS Agreement was only used once, in the Canada-Rwanda case (see Annex 5d). In 2021 Bolivia and Antigua and Barbuda notified the WTO of their intention to use Article 31bis of the TRIPS Agreement for the production of COVID-19 vaccines, but this has not resulted in a compulsory licence under the system. For the system to function, a manufacturer of these products must be identified and the exporting country where that manufacturer is located must be ready to issue a compulsory licence for that purpose. Regulation (EC) No 816/2006 was never used nor evaluated 168 .

Two other EU legislations provide for a compulsory licensing scheme. First, the Regulation on Community plant variety rights 169 provides for the possibility for the Plant Variety Office to grant a compulsory licence on a community plant variety right, on application by a Member State, by the Commission or by an organisation set up EU level 170 . Second, the Biotech Directive 171 provides for the possibility, where a plant breeder cannot use a plant variety without infringing a patent, to apply for a compulsory licence. 

As discussed in section1.3, compulsory licensing is often presented as a ‘last resort mechanism’ 172 . In the vast majority of cases, voluntary agreements are the most efficient solution to ensure the manufacturing and supply of critical products. Voluntary cooperation ensures not only the licensing of necessary IP, but is likely to provide the crucial tools needed to manufacture the product, including know-how, technical expertise, qualified personnel for training and even access to raw materials. For instance, in the context of the COVID-19 crisis, hundreds of voluntary agreements were concluded to ensure the scaling up of the COVID-19 related products across the globe. There were several tries to increase the production of certain products through compulsory licences, e.g. in Israel, Hungary and Russia, but it does not appear that they have brought major results in terms of access to these products. Likewise, to this date, no compulsory licence was granted to produce COVID-19 vaccines based on the WTO Decision on the TRIPS Agreement.

5C.    Compulsory licensing and the TRIPS waiver

On 2 October 2020, several WTO members submitted a proposal for a decision by the WTO General Council that would waive WTO members’ obligation to protect and enforce some IP rights in relation to the prevention, containment or treatment of COVID-19. The assumption was that IP rights were an impediment to a swift scaling-up of manufacturing capacities and that access to vaccines in developing countries could not be found by operating within the IP system. The proposal was then made to waive IP rights. The EU submitted an alternative proposal on 18 June 2021, insisting on the need to make full use of the flexibilities of the TRIPS Agreement, especially as regards compulsory licensing.

Waiving IP rights differs from compulsory licensing. A compulsory licence is an authorisation granted by a government to a party other than the patent holder to use a patented invention without the consent of the patent holder. The TRIPS Agreement explicitly allows compulsory licensing, provided that some conditions, such as a limited duration and the payment of an adequate remuneration, are met. The TRIPS Agreement does not provide for a mechanism to waive IP rights. Waiving IP rights consists of depriving the patent owner of its rights, including of the possibility to ask for a remuneration.

This explains why the EU, among other WTO members, were not in favour of waiving IP rights. The EU considered that the TRIPS Agreement already provides for a solution, namely compulsory licensing. Compulsory licensing is a legitimate tool to scale up the production of critical goods. For compulsory licensing to be an efficient tool, it is however necessary to ensure proper implementation at national level, taking full advantage of the flexibilities of the TRIPS Agreement.

Discussions at WTO level pursued and led to a consensus during the 12th Ministerial Conference of June 2022. The agreement mainly provides clarifications of existing flexibilities (i.e. the calculation of the remuneration can take into account the humanitarian and not-for-profit purpose of vaccine distribution programme, there is no need to make efforts to obtain the authorisation from the right holder in case of an emergency, and a compulsory licence can be based on any instrument available in the law). In addition, the agreement waived the “predominantly for the domestic market” condition, meaning that products manufactured under a compulsory licence can more easily be exported to other countries.

This agreement, valid for 5 years, is applicable to developing countries and limited to COVID-19 vaccines, with the possibility of an extension to cover the production and supply of COVID-19 diagnostics and therapeutics. Discussions are still ongoing as regards the extension of the agreement.

5D. Conditions under which a compulsory licence can be granted under Article 31 of the TRIPS Agreement

Article 31 of the TRIPS agreement provides several conditions under which a compulsory licence can be authorised which can be summarised as follows:

·The compulsory licence shall be considered on its individual merits. This condition aims at preventing blanket authorisations not taking into account the circumstances of each authorisation.

·Prior to the compulsory licence, the user shall made efforts to obtain authorisation from the right holder on reasonable terms and conditions. This requirement may be waived in the case of a national emergency or other circumstances of extreme urgency 173 or in cases of public non-commercial use.

·The scope and duration of the compulsory licence shall be limited to the purpose for which it was authorised.

·The compulsory licence shall be non-exclusive and non-assignable.

·The compulsory licence shall be authorised predominantly for the supply of the domestic market.

·The compulsory licence shall be terminated if and when the circumstances which led to it cease to exist and are unlikely to recur. This condition is subject to the legitimate interests of the licensee.

·The right holder shall be paid adequate remuneration.

·The legal validity of any decision relating to the authorisation of a compulsory licence and any decision relating to the remuneration shall be subject to judicial review.

5E. Article 31bis of the TRIPS Agreement and its implementation in EU law

Article 31 of the TRIPS Agreement does not allow compulsory licensing to supply foreign markets (or at least not predominantly). At the height of the AIDS epidemic this quickly proved controversial. Once bound by the TRIPS Agreement, countries with manufacturing capacities could no longer export goods manufactured under a compulsory licensing to foreign markets. Some countries, facing grave public health problems, consider that the system implemented by the TRIPS Agreement severely affected their access to medicines 174 . This led in 2001 to the Doha Declaration which in turn led to the adoption of Article 31bis of the TRIPS Agreement.

The Doha Declaration first recognised the “gravity of the public health problems affecting many developing and least-developed countries, especially those resulting from HIV/ AIDS, tuberculosis, malaria and other epidemics.” With that background, the Doha Declaration reaffirmed the right of WTO members to ‘use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose’. These flexibilities include:

·the right for each Member to grant compulsory licences, to freely determine the grounds for such licences, and to freely establish its own exhaustion regime;

·the right for each Member to determine what constitutes a national emergency or other circumstances of extreme urgency.

Importantly, paragraph 6 of the Doha Declaration stated that “WTO Members with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS Agreement. We instruct the Council for TRIPS to find an expeditious solution to this problem”.

Based on that, the WTO Decision of 30 August 2003 was adopted. It introduced Article 31bis into the TRIPS Agreement, whose main feature can be summarised as follows:

·This mechanism only concerns pharmaceutical products which are defined in the 2003 Decision as any patented product, or product manufactured through a patented process, of the pharmaceutical sector needed to address the public health problems 175 .

·Export is only possible to eligible importing Members. The 2003 Decision specifies that eligible importing Members include any least-developed country Member and any other Member that has made a notification to the Council for TRIPS of its intention to use the system as an importer 176 . EU countries have opted out of using the system as importers.

·The importing country must make a notification to the Council of TRIPS on (i) the names and expected quantities of the expected products, (ii) its insufficient or lack of manufacturing capacities 177 and (iii) its intention to grant a compulsory licence in accordance with article 31 of the TRIPS Agreement.

·The compulsory licence issued by the exporting country must respect the following conditions: (i) only the amount necessary to meet the needs of the eligible importing Member(s) may be manufactured under the licence and the entirety of this production shall be exported; (ii) the products produced under the licence shall be clearly identified through specific labelling or marking and (iii) before shipment begins, the licensee shall post on a website information on the quantities being supplied to each destination and the distinguishing features of the product(s). The exporting country must also notify to the Council of TRIPS the grant of the licence.

·Adequate remuneration must be paid in the exporting country but not in the importing country if the compulsory licence to import was granted for the same products already covered by the compulsory licence to export.

·Importing countries must take reasonable anti-diversion measures to prevent re-exportation of products made under the compulsory licence (best efforts obligation).

The European Union implemented this new disposition in its legal order through the adoption of Regulation (EC) 816/2006 which relevant features can be summarised as follows:

·The regulation covers compulsory licensing 178 for the manufacture and sale of pharmaceutical products 179 intended for export to eligible importing countries in need of such products. 

·In terms of procedure, Member States can provide a compulsory licence to any person making an application 180 to the competent authority 181 of the Member State(s) where the patents and supplementary protection certificates have effect and cover the manufacture and sale for exports. A person can apply for a compulsory licence to authorities in more than one country. In accordance with the TRIPS Agreement, importing country(ies) must make a notification to the WTO or, in case of a non-WTO member, to the Commission.

·The application for a compulsory licence must include evidence of a specific request from (i) authorised representatives of the importing country(ies), (ii) a non-governmental organisation acting with the formal authorisation of the importing country(ies), or (iii) UN bodies or other international health organisations with the formal authorisation of the importing country(ies).

·The compulsory licence must be limited to the purpose of manufacturing the product for export and distribution in the country(ies) cited in the application. Products made or imported under the compulsory licence cannot be put on the market of another country 182 . To this end, the regulation provides for specific labelling obligations as well as the setting-up of a website with relevant information on the quantities and features of products made under the compulsory licence.

·Adequate remuneration must be paid by the licensee to the right-holders as determined by the competent authority.

5F. The Rwanda – Canada case under Article 31bis of the TRIPS Agreement

The mechanism under Article 31bis of the TRIPS Agreement was only used once, in the context of the Canada-Rwanda case. Médecins Sans Frontières (Doctors without Borders) had identified five urgently needed drugs for its field projects, one of them being a treatment for HIV/ AIDS. Rwanda was the importing country in need of access to HIV medicine 183 . A Canadian privately held generic manufacturer, Apotex, agreed to produce the drugs. The chronology of the process of exporting Apo-TriAvir went as follows 184 :

Figure 13: Chronology of the process of exporting Apo-TriAvir

Source: CEIPI(2023), p. 65.

The first shipment of the Apotex drug was sent to Rwanda in September 2008 185 . However, it appears that, by the time the first shipment of Apo-TriAvir arrived to Rwanda, a generic product made by a Chinese manufacturer was already on the market.

Although the export of Apo-TriAvir is the first and only fully executed case of compulsory licensing under Art. 31bis, all parties involved in the procedure criticized the Canadian compulsory licensing law and deemed it “unworkable” 186 . In their review of the Canadian compulsory licensing law submitted to the Government of Canada, Médecins Sans Frontières criticized the process provided for in the Canadian compulsory licensing law as being onerous and unnecessarily hindered by Health Canada’s approval for eligibility under the regime 187 . A key criticized element is the timeframe in the Rwandan case expanding over four and a half years before the first shipment was ever made. Upon completion of the application, the manufacturing company in Canada declared that they would not go through the Canadian compulsory licensing law process again unless it were simplified 188 . The delay could be explained by the implication of Health Canada and the Canadian Intellectual Property Office as evidenced by the process map below ( Figure 14 ).

Figure 14: Access to Medicine Process - Health Canada and the Canadian Intellectual Property Office

Source: CEIPI(2023), page 66.

The Canadian compulsory licensing law has been amended several times since the Médecins Sans Frontières initiative, but it appears it has not been used since the Rwandan case, as demonstrated by Health Canada’s 189 most recent reports as well as the WHO, WIPO and WTO 2020 study on “Promoting Access to Medical Technologies and Innovation” 190 .

Annex 6: Supplementary evidence

Illustration of the need for several national compulsory licences in case of EU cross-border crisis

Figure 15 and Figure 16 below are provided to illustrate the need for several national compulsory licences in case of EU cross-border crisis affecting the Single Market, especially with regards to the need of issuing corresponding licences for all partners involved in the manufacturing process, as well as in the final use. In addition, national compulsory licences remain applicable to the national territory, meaning that the goods produced under a compulsory licence cannot be exported to another Member State, or only in small quantities

Figure 15: National compulsory licensing systems in practice in case of a patented product with cross-border value chains – example

Source: own elaborations.

Figure 16: EU compulsory licensing system in practice in case of Member States with export limitations – example

Source: own elaborations.

Figure 17: Export of goods to other Member States, 2021, [EUR billion]

Source: Eurostat - Comext DS-018995, https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Intra-EU_trade_in_goods_-_main_features

Table 15: Are current national laws on compulsory licensing fit to tackle: national crisis?