European Parliament and Council reach provisional agreement on compulsory patent licensing for crisis management

A compulsory licence allows use of a patent right without authorisation of the rightsholder in specified circumstances, often crisis-type situations. In these crisis situations, such as a pandemic or a natural disaster, compulsory licensing can help provide access to key products and technologies – for example, because the rightsholder does not have the capacity to produce the necessary amounts of the product or voluntary agreements are not available or feasible.

At present in the EU, compulsory licensing mechanisms are dealt with at the national level, which leads to a fragmented approach – something which proved problematic during the Covid-19 pandemic. To address this, the Commission proposed a regulation setting out an EU-wide compulsory licensing framework as part of its Patent Package. During the trilogue process, the European Parliament and Council have reached a provisional agreement on the substance of the framework, which the Commission has welcomed.

The negotiating parties have emphasised that voluntary agreements should be prioritised and compulsory licensing only used as the final option. Items such as gas, chips and defence have been excluded from the framework's parameters and rightsholders will not be forced to disclose trade secrets relating to the inventions the patents protect. Once the framework is formally adopted, it will boost the EU's preparedness for further crises.

Provisional agreement

The European Parliament and Council have moved one step closer to bringing into effect an EU-wide compulsory licensing mechanism by reaching a provisional agreement. The provisional agreement emphasises the last-resort nature of compulsory licensing and gives priority to voluntary agreements between rightsholders and potential licensees. However, they have made clear that voluntary agreements would have to be concluded in a reasonable timeframe, otherwise compulsory licensing would be activated.

Trade secrets

The Parliament and Council have also made clear that there will be no obligation on rightsholders to disclose their trade secrets. The issue of disclosure of trade secrets was a contentious sticking point throughout the Covid-19 pandemic because of rightsholders' concerns of losing such valuable protection of often their most business-critical technologies and information.

Arguably, this could undermine the aim of the compulsory licensing system in cases where, for example, critical manufacturing information is held by a business as a trade secret rather than disclosed in a patent. This could make manufacturing of scarce products where the rightsholder does not have enough capacity itself difficult or impossible.

Compensation and obligations

The provisional agreement also stipulates that rightsholders will be entitled to appropriate remuneration. The amount and timeframe for payment will be decided by the Commission.

Licensees will also have obligations, for example not to produce more than the quantity of product specified in the licence and to label the product as produced under a compulsory licence. If these terms are breached, the Commission can impose fines of up to €300,000 (or €50,000 for small or medium-sized enterprises).

Transparency

The agreement also makes it clear that a competent advisory body will issue a non-binding opinion on the need to grant an EU compulsory licence. To ensure transparency, rightsholders and licensees will be consulted during the compulsory licensing process and will be notified of the termination or expiry of the compulsory licence.

Osborne Clarke comment

This provisional agreement is good advancement towards enacting a EU-level compulsory licensing framework. The compulsory licensing regulation forms part of the Commission's Patent Package, completion of which was particularly highlighted as a goal in the EU's latest Single Market Strategy.

However, as the agreement is only a provisional at this stage, it will need to be formally approved by both the European Council and Parliament. Once adopted, the regulation will be published in the EU Official Journal and enter into force on the day of publication.

The provisional agreement shows that the negotiating parties have tried to strike a balance between patentees' monopoly rights, the potential need for a compulsory licensing framework in times of crisis, and the rights any potential licensees would have.

The parties are clear that compulsory licensing should be used as a last resort and voluntary agreements should always be given priority. Furthermore, the exclusion of trade secrets from the framework will provide a measure of comfort to patent rightsholders.