Law Society of England and Wales – written evidence (LSI0074)

1. The Law Society of England and Wales (The Law Society) is the independent professional body that works globally to support and represent its 170,000 solicitors, promoting the highest professional standards and the rule of law.

2. The Law Society’s response to House of Lords Science and Technology Select Committee inquiry focuses on the impact that Brexit could have on the life sciences sector (question 16), particularly around any changes to intellectual property law. Life sciences companies rely heavily on intellectual property rights particularly patent and trade mark rights, but also on other rights including quasi-intellectual property rights such as supplementary protection certificates and trade secrets.

Patents

3.              In November 2016 the UK Government re-affirmed its intention to proceed with preparations to ratify the Unified Patent Court Agreement (UPCA) which aims to establish a Unitary Patent regime across Europe, providing an alternative to nationally granted patents[1]. Following ratification of the UPCA, life sciences companies in the UK would be able to obtain a single patent valid in up to 26 member states and will have access to a single Unified Patent Court (UPC), which would hear and resolve patent disputes on a pan-European basis[2].

4.              A pan-European regime is appealing to life sciences companies who usually wish to register products across a whole market. The EU represents a single market for business purposes and companies therefore often wish to be able to access a single system of protection for their intellectual property. The need to register patents or trade marks under multiple systems increases the cost of doing business. The Unitary Patent / UPC regime therefore offers a consistent, efficient and cost effective approach for those seeking to acquire, exploit and protect patent rights across Europe. This can help to reduce business costs[3]. From application to enforcement, it is simpler to administer intellectual property law rights under a single system.

5.              A significant achievement of the UK Government at the time of the negotiation of the UPCA in 2014 was securing the life sciences division of the UPC to be set up in London. The UK was successful in its bid due to the prominence of pharmaceutical companies in the UK. Securing the division represented significant progress towards making London a global life sciences centre.

6.              The life sciences division would have the power to revoke patents covering most of Europe in one go or to declare that such patents are infringed by a defendant's activities. The proximity of the Court to leading intellectual property and life sciences advisory services would enable the life sciences sector to develop and thrive in the UK.

7.              Brexit risks the UK's participation in the Unitary Patent/ UPC regime and related benefits, and undermines the UK's aspirations of becoming and remaining an international leader in the life sciences. If the UK is not party to the UPC system, it will become considerably less appealing as an international hub for seeking patent advice and coordinating European patent protection and enforcement, meaning businesses may instead choose to centre their patent related legal work in a country within the EU. Additionally, if London were no longer to host a division of the UPC it could lead to significant economic loss to the UK.

8.              Under the UPCA, unitary patents will be assessed for patentability and granted by the European Patent Office (EPO) (not an EU institution). The establishment of the UPC aims to simplify the resolution of patent disputes in Europe. Currently, European patent disputes typically involve parallel sets of proceedings in each country where there is infringement. The UPC will have exclusive jurisdiction over all unitary patents and over existing and future EU patents granted by the EPO which have not been opted out of the jurisdiction of the UPC when it comes into operation. The UPC has no jurisdiction over national patents granted by national patent offices.

9.              A FTI Consulting report commissioned by the Law Society on the Economic Impact of Alternative Locations for the Central Division of the UPC estimated that the UK would enjoy an estimated £545 - £1936 million in business revenues per year arising from the life sciences division being hosted in London or, alternatively, a direct quantified loss to the UK economy if it was located outside the UK[4]. There is a risk that the UK will come under pressure to surrender the life sciences division in London.

10.              A significant consequence of Brexit for the life sciences sector in the UK is that English and Welsh solicitors would lose their right to represent clients, including pharmaceutical and life sciences companies, in the UPC despite being some of the most experienced and highly regarded patent litigators in Europe. This could cause a longer term migration of IP expertise overseas and result in a dilution of UK-based IP advisory capacity. UK based companies may also have to source advice from non-UK based advisers which could lead to increased costs in fees and travel expenses and a risk of receiving lower quality advice from a more limited pool of experts. This would be detrimental to the life sciences sector in the UK as well as the UK economy as a whole.

11.              A further significant achievement of the UK Government during the 2014 negotiations was the removal of provisions in the draft UPCA which would have given the European Court of Justice (CJEU) direct competence in determining issues of patent infringement. Whilst the possibility of referrals to the CJEU on matters relating to the application of European Union law to the work of the UPC remain, it is anticipated that the key decisions of the court, such as on questions of patent infringement and validity, will be made by the UPC’s Court of First Instance and the Court of Appeal, rather than the European Court of Justice. Whilst the UPCA gives precedence to European Union law, as a practical matter it is anticipated that the UPC’s decisions will be reached on the basis of patent law as set out in the UPCA, the European Patent Convention (EPC)[5], other international agreements relating to patents and national law.

12.              To ensure the success of the life sciences industry in the UK the Law Society recommends that the UK Government seek to ensure full UK participation in the Unitary Patent /UPC system without any change occurring as a result of Brexit.

Trade Marks and Designs

13.              Depending on the regime negotiated, upon Brexit unitary IP rights such as the EU trade mark and the registered Community design may cease to have effect in the UK resulting in life sciences and pharmaceutical companies with registered EU trade marks/registered Community designs potentially losing valuable protection in the UK. This might prove costly to companies who would then be required to obtain an equivalent UK national right. A dilution in, or uncertainty surrounding, protection would adversely affect and discourage owners from trading in the UK.

14.              Life sciences companies may be at risk of losing important protections if a registered EU trade mark has been used predominantly in the UK (rather than the rest of the EU). This means that the EU trade mark may be at risk of revocation for 'non-use' because use in the UK would not be recognised as use in the EU. Similarly, there are concerns around first disclosure of a design in the UK after Brexit, which could mean that it is ineligible for unregistered Community design protection in the EU.

15.              The Law Society therefore recommends that the UK negotiate to remain part of the EU trade mark and design system, or something equivalent, when it leaves the EU. Otherwise, domestic legislation should be adopted to protect the rights of unitary right owners and applicants in the UK post-Brexit.

16.              This could be negotiated as part of a 'European Intellectual Property Area' concept in conjunction with the UK accommodating the likely interest of other member states to see ongoing protection in the UK for the Geographical Indications ('GIs'), Protected Designs of origin ('PDOs') and Traditional Specialty Guaranteed ('TSGs') that protect their national industries.

17.              Otherwise, domestic legislation should be adopted to protect the rights of EU trade mark owners and applicants in the UK post-Brexit. Preferably this should involve transposition of the EU trade mark into a parallel UK right with the same priority and (unless a material fee is imposed) renewal date. We recommend that this should be automatic and not involve any active step by the owner, or re-examination by the UK Intellectual Property Office, or any fee ("Montenegro" approach).

Exhaustion of Rights

18.              Parallel imports are huge business in the life sciences sector, due to large disparities in price in markets worldwide. Currently, the UK operates on a regional exhaustion principle, due to its membership of the single market and the free movement of goods principle of the EU. Exhaustion refers to one of the limits of IP rights. Once a product protected by an IP right is sold by the IP owner or with the consent of the IP owner, the IP right can no longer be exercised by the IP owner, as the rights are 'exhausted'[6]. Currently only products placed on the market in the European Economic Area (EEA) are considered exhausted. If/when the UK leaves the single market of the EEA, the existing rules on exhaustion/parallel imports would no longer apply. The UK would have to choose either national or international exhaustion of rights.

19.              If it were to choose the former, life sciences companies doing business in the UK would be able to ring-fence the UK market and prohibit all parallel imports. This would benefit owners of intellectual property rights in the UK and allow them to more freely set national prices.

20.              If, instead, the UK were to choose to adopt international exhaustion, UK rights owners would not be entitled to prohibit the import into the UK of products placed by them on the market anywhere else in the world, subject to a material difference exception. Given the Government’s intention to be a leader in global trade post-Brexit, and the fact that the UK had adopted international exhaustion prior to harmonising EU rules, it is this latter approach which appears most likely. If so, it would signal a big change to the existing parallel import situation, to the detriment of UK right holders.

Medicines and Medical Device Regulation

21.              The life sciences sector is a highly regulated sector to protect the health and well being of patients and ensure that biological, pharmaceutical and medical products are safe through a regime of testing as well as ensuring the ethical use of biological materials.

22.              The European Medicines Agency (EMA) is based in London and will need to be relocated in due course with significant impact to the workload of the Medicines and Healthcare products Regulatory (MHRA). This disruption could be minimised by transferring some of the examining experts to the MHRA, however, the MHRA will need to recruit and train additional staff to handle the UK national applications which it will receive, which would have previously been handled by EMA. The MHRA will also need to negotiate its own cooperation agreements with the other leading international regulators to replace those agreed by the EMA with the US, Canada and Japan.

23.              A fundamental obligation related to the marketing of medicinal products in the EU is the requirement of a valid marketing authorisation. Only entities established within the EU, most commonly within the EU, may apply for and hold a valid marketing authorisation. Brexit would mean that entities in the UK could no longer either apply for or hold EU marketing authorizations for medicinal products.

24.              For marketing authorizations granted to UK entities through the centralized, decentralized, or mutual recognition procedures prior to Brexit to remain valid these would need to be transferred to entities established in one of the remaining EU member states. Applicants for authorisation of multi-jurisdictional clinical trials in the EU will, in part, benefit from a centralized approval procedure. Following Brexit, UK sponsors of clinical trials would not have an automatic right to benefit from this procedure. They would be obliged to appoint a legal representative in an EU member state through which application for authorization in accordance with the new rules would be submitted. Legislation to validate existing centralised authorisations (which are valid only in the EU) will be required, and all future marketing authorisations will need to be the subject of separate free-standing applications to MHRA.

25.              Brexit would mean that automatic approval for UK medical device manufacturers to market medical devices throughout the EU would no longer be available using the conformity assessment process set out in EU rules to affix CE marks to devices[7]. Non-EU manufacturers have to appoint a European Authorised Representative established within an EU member state in order to market their products within the EU. UK notified bodies would no longer be entitled to conduct a conformity assessment on the basis of the EU directives, therefore, medical device manufacturers working with UK notified bodies in relation to the conformity assessment of their devices would be required to appoint new notified bodies established in an EU member state.

Data exclusivity

26.              Regulatory data exclusivity in Europe is separate from a product’s patent position and gives additional periods of market exclusivity depending on the date a product is first approved, the type of product, and whether any new indications have been approved during the original period of data exclusivity. This is governed by a specific Regulatory Data Protection Regulationand a Directive[8].

27.              In brief summary, a party submitting data on a product’s safety and efficacy is protected from competitors relying on that data for a defined period. Brexit triggers a need for innovative life sciences companies to reconsider their market exclusivity strategies alongside their wider regulatory and patent strategies, as they may not be able to rely automatically on the provisions currently built into EU law relating to additional data exclusivity periods.

28.              The UK could simply adopt current EU law on data exclusivity including the 8+2+1 period of exclusivity, the territorial scope of exhaustion of rights and the details of transparency and the publication of clinical trials. The 8+2+1 time frame refers to:

• a period of 8 years true data exclusivity, running from first marketing approval in the EU, during which period the EMA may not progress an abridged marketing application which references an originator’s regulatory data (preclinical and clinical trial data);
• a further period of 2 years market exclusivity during which a generic product cannot be placed on the market;
• and a further one year marketing exclusivity may be obtained where the originator is granted a further marketing authorisation for a significant new indication, within the original ten year exclusivity period.

Orphan drug status

29.              The EU Regulation on orphan drugs provides incentives and rewards for developing medicines to treat rare diseases that would otherwise not be financially viable targets for the pharmaceutical industry. It permits ten years market exclusivity with respect to similar medicines for similar indications, and therefore has a broader scope than regulatory data exclusivity.

30.              The concept of ‘similarity’ is currently under review by the Commission and the UK can still influence this process until Brexit is complete. At present, orphan drugs are defined by reference to the prevalence of the disease in the EU. If, after Brexit, the UK neither continues to participate in the EU regime, nor introduces its own version of orphan drug status, the UK may be placed at a competitive disadvantage and the development of treatments for rare conditions may be prejudiced.

Disease control and prevention

31.              The European Centre for Disease Control and Prevention coordinates a network of EU and EU member states’ public health functions to monitor, communicate and assist in response to the threat of communicable disease. It acts as an early warning and response system for prevention and control.

32.              Following Brexit, the UK will be on the outside of this network which could impact, for example, procurement of pandemic vaccines where the EU’s greater purchasing power might push the UK down the queue and lead to shortages of supply. The MHRA should be fully engaged with the activities of the European Centre for Disease Control and Prevention.

15 September 2017