On 26 June 2024, just days before the end of the Belgian presidency, the Council of the EU adopted its position on a proposed regulation concerning compulsory licensing for crisis management (Compulsory Licensing Regulation). The draft for a Compulsory Licensing Regulation proposed by the European Commission in April 2023 is one of three key elements of the Commission’s patent package aimed to boost innovation, investment and competitiveness through harmonized patent rules. With the European Parliament having voted on its position in mid-March 2024, the draft for a Compulsory Licensing Regulation is the most advanced part of that package that will reshape important parts of European patent law.
But what is next for the new regime on compulsory licences now that all three relevant European institutions have defined their position and when can stakeholders in Europe expect the new regime to take effect? With the summer break in Brussels coming to an end, we take a look at the key issues that the new European Parliament, the Council and the new European Commission will have to address in interinstitutional negotiations and the next steps for the draft regulation.
1. Key issues for trilogues
The Commission’s proposal for a Compulsory Licensing Regulation will introduce a legal regime for EU-wide compulsory licences available in times of crises (the Union compulsory licence). In light of existing EU Member State laws and the recent experience from the Covid-19 pandemic, critics have questioned whether there is even a need for EU-wide legislation. However, both the European Parliament and the Council have endorsed the Commission's principal idea to establish an additional legal regime for compulsory licences that are not limited territorially to individual EU Member States but will cover the entire territory of the European Union and will be subject to one set of uniform rules.
Contrary to compulsory licences under national laws, Union compulsory licences will be granted not by courts, but by the European Commission. This has raised questions and criticism, e.g. by the European Economic and Social Committee pointing to potential conflicts of interests. Both the European Parliament and the Council, however, have shown no intention to challenge the Commission’s role and competence under the draft in principle. Suggested amendments by the Council and the European Parliament to Art. 4 – 7 merely seek to highlight the exceptional nature of a Union compulsory licence and its ultima ratio character: the European Parliament as well as the Council suggest that voluntary licences should take greater priority, with the European Parliament even advocating for a four-week deadline for right holders to reach an amicable agreement before the Commission can grant any Union compulsory licence. As both the European Parliament and the Council agree that the competence to grant Union compulsory licences should lie with the Commission, both also agree that the role of the advisory body, as the name suggests, will be purely advisory and that its opinions will be non-binding. The Council suggests, though, that the Commission at least must provide a reasoned decision whenever it will deviate from the opinion of the competent advisory body and grant a Union compulsory licence contrary to the expert’s opinion.
When it comes to the scope of the Compulsory Licensing Regulation, there is agreement that patents, published patent applications, utility models and supplementary protection certificates should be covered. The Council suggested to include published applications of utility models, while critics have questioned whether it makes sense at all to include applications whose claims might differ from granted rights. What will likely be more controversial is the role of trade secrets. The Commission's draft did not specify how to deal with trade secrets. Whether they must be disclosed when a Union compulsory licence is granted and knowledge of the respective trade secrets is required to manufacture crisis-relevant products was one of the big open questions under the Commission’s proposal. The European Parliament suggests giving the Commission the competence to require right holders to disclose trade secrets or know-how if this is “strictly necessary” by including a new provision into the draft governing compensation and confidentiality measures (Art. 13a). The Council, in contrast, aims to exclude trade secrets from the Compulsory Licensing Regulation entirely (Article 2 no. 3 of the Council’s compromise proposal). This will likely be one of the more contested issues in upcoming trilogues.
What will likely be equally contested, will be the question of remuneration and fines. The Commission proposed that compensation for right holders that are forced to grant a Union compulsory licence should be capped at 4% of the licensee's gross income from the relevant activities (Article 9 para. 2). Both the Council and the European Parliament seek to delete any cap given the severe interference with IP rights that any compulsory licence brings about. Instead, the Council advocates for a more open appropriateness-clause that asks the Commission to determine the appropriate remuneration taking into account the economic value of relevant activities, the circumstances of each case as well as the opinion of the competent advisory body and any comments the Commission may have received from right holders and licensees. When it comes to fines, the positions are somewhat reversed. The Commission’s proposal included a provision for hefty fines of up to 6% of a right-holder’s total turnover in case the right-holder fails to comply with its obligations. The Council seeks to reduce that upper limit for fines significantly advocating for a cap of EUR 300.000.
2. Next steps: Political turnaround through new elections of rapporteurs?
While there seems to be agreement between Commission, Council and Parliament on the need for an EU-wide compulsory licence regime and the general setup with the European Commission being the one to grant such licences with the assistance of advisory bodies, there are sufficient issues that will require compromise. The interinstitutional negotiations between Commission, Council and Parliament (also referred to as “trilogues”), in which this compromise must be found, will take place behind closed doors and will not be accessible for industry stakeholders.
Before these negotiations among the three main EU institutions kick off, the Parliament will need to re-appoint its negotiating team given that some of the key stakeholders have either not been re-elected or have changed political groups following the EU elections that took place in June 2024.
In fact, in the past mandate, the rapporteurship of the file was allocated to the liberal (Renew Europe) group and Spanish Member of the European Parliament (MEP) Adrián Vázquez Lázara, who was leading the MEP drafting and coordinating the Parliament’s position. However, in the current mandate, he has moved to the Christian-Democrat (EPP) group. Given that the past mandate’s leading EPP MEP on compulsory licensing and shadow rapporteur for the file French MEP Geoffroy Didier has not been re-elected, we expect MEP Adrián Vázquez Lázara to naturally take on his position. The question remains on whether the Renew Europe group will still hold the rapporteurship – in which case a new leader of the negotiating team would need to be appointed ahead of trilogues – or whether MEP Adrián Vázquez Lázara would ask for the EPP to take the lead so that he can represent the Parliament’s position in trilogues.
Since we expect the Parliament to take a final decision about its negotiating team by the end of September, trilogues will only start in October at the earliest. It is still too early to predict when a final agreement could be reached as there is no fixed timeline for interinstitutional negotiations, which normally take on average between three and six months. As we find ourselves at a very particular moment of the European legislative cycle, it is fair to expect that a final text could be approved and published in the EU Official Journal in the first half of 2025.