Showcasing a culture of bright ideas Our quarterly life ... · 2 Showcasing a culture of bright ideas Our quarterly life sciences newsletter December 2016 Precis In Fujifilm Kyowa

Showcasing a culture of bright ideasOur quarterly life sciences newsletter December 2016

2

Showcasing a culture of bright ideasOur quarterly life sciences newsletter

December 2016

Contents

Introduction 01

Clearing the path for biosimilar Humira™/ adalimumab market entry in the UK – the English Patents Court considers how its small molecule case law applies to the world’s highest selling biologic

02

Divestment of mature pharmaceutical products in the EU – implications for parallel imports

04

Royalties under patent licence agreements: can they remain payable even if the licensed patents(s) are revoked or not practised? Lessons from Genentech Inc v Hoechst GmbH & Sanofi-Aventis Deutschland GmbH

08

Belgium: Major public investment in pilot projects for mHealth developments 12

Switzerland: Corporate Tax Reform III - Patent Box 13

Belgium: Ruling of the Court of Justice of the European Union on the Belgian system for recovery of lawyer’s fees and costs of technical experts in IP litigation cases: To an enhanced recovery system for the successful party(Case C-57/15)?

14

New German law combating corruption in the health sector (June 2016) 16

Dutch Minister of Health, Welfare and Sport increases penalty of commercial license holders regarding culpable shortages of medicines

18

New Guidelines on collective procurement of prescription drugs 19

When do receivables for provided services arise for health care providers? 20

Compensation for mental distress extended? 22

The sale of medicines via the internet in Spain 23

Pensions Issues for Life Sciences Newsletter – September 2016 24

Would you be fined if your employee was burgled at home? 26

1


December 2016

Introduction

This life sciences newsletter is designed to help keep you up-to-date with legal changes in jurisdictions which may affect or interest your business.

This edition includes contributions from Eversheds’ international life sciences team, including contributions from our Belgian and Swiss team members on the Corporate Tax Reform III, the impact of Brexit on pension schemes and the new guidelines on the collective procurement of prescription drugs.

Please contact me, or any of the authors of the articles directly, if you would to discuss how any of the developments highlighted might affect your operations.

Kind regards

Simon CrossleyHead of Health and Life Sciences sector

Tel: +44 1223 443 [email protected]

2


December 2016

Precis

In Fujifilm Kyowa Biologics Co. Ltd v AbbVie Biotechnology Limited [2016] EWHC 425 (Pat) (1 March 2016), the English Patents Court refused to strike out FKB’s application for a declaration that its biosimilar Humira™/adalimumab product and associated dosage regime were obvious at the relevant priority date of certain Abbvie patents relating to Humira™. The willingness to contemplate awarding this form of relief should help FKB to clear the path of a large portfolio of pending European patent applications which otherwise would create significant commercial uncertainty for FKB’s UK launch plans. It could become a key patent litigation tactic for biosimilar manufacturers looking to enter the UK as the first generation of blockbuster biologic drug products moves towards expiry of the primary patents.

Background

AbbVie is the proprietor of European Patent (UK) No 0 929 579 (the “Basic Adalimumab Patent”) which protects the monoclonal antibody adalimumab, sold under the trade mark Humira™. The Basic Adalimumab Patent and its associated UK supplementary protection certificate (“SPC”) will expire on 15 October 2018.

Adalimumab is a monoclonal antibody specific for human tumour necrosis factor α. This is a cell signalling protein, misregulation of which is implicated in several human inflammatory diseases include rheumatoid arthritis, psoriatic arthritis and psoriasis. Humira™ has been approved for those indications, with a basic dosage regime of 40mg every other week as a single dose via subcutaneous injection (“40mg sc eow”). Humira™ is currently the highest selling prescription drug in the world, achieving net sales in 2014 of US$12.5 billion, and UK sales of £438.8 million (i.e. more than £1million per day).

AbbVie has filed applications for numerous secondary patents protecting dosing regimens, formulations and uses of adalimumab. FKB told the Court that, as of April 2016, it was aware of over 50 pending European divisional patent applications in 17 families filed by AbbVie for this subject matter (the “Secondary Applications”).

FKB characterises this as a “dense thicket of patents” around Humira™. AbbVie rejects this characterisation, pointing out that in a ground-breaking invention such as Humira™ it is unsurprising to find a portfolio of patents and patent applications directed to many different aspects of the invention.

FKB intends to launch a biosimilar adalimumab product (“FKB327”) in the UK after expiry of the Basic Adalimumab Patent and associated SPC on 15 October 2018.

What?

In order to avoid the risk of an interim injunction being granted to prevent this launch, FKB has explained that it would like to ‘clear the path’ of the Secondary Applications (which might proceed to grant at any point prior to launch).

Clearing the path in the UK normally involves bringing a revocation action or applying for a declaration of non-infringement (or both).

However, in relation to the Secondary Applications, FKB faced the difficulty that it is not possible in the UK to apply to revoke a patent until the patent has been granted (s72 of the UK Patents Act 1977).

So, relying on the well-known judgment of Kitchin J (as he then was) in Arrow Generics v Merck [2207] EWHC 1900, FKB applied instead for a declaration that its FKB327 product was obvious at the relevant priority dates(s) (specifically, that “products containing a biosimilar monoclonal antibody to the antibody adalimumab for the treatment of rheumatoid arthritis, psoriatic arthritis and/or psoriasis by the administration of 40mg every other week by subcutaneous injection” would have been obvious at the priority dates of the Secondary Applications). This unusual type of declaration is referred to as an Arrow declaration, after that case.

The purpose of the Arrow declaration sought by FKB in the present case is to prevent AbbVie from commencing infringement proceedings in the UK against FKB327 under any of the Secondary Applications once they have been granted. The logic is as follows: if it was obvious at the relevant priority date to treat the authorised indications by the 40mg sc eow dosage regime, then any allegation of patent infringement by Abbvie would necessarily mean that the patent in question was invalid as obvious.

Abbvie applied to strike out FKB’s request for an Arrow declaration. AbbVie argued that Arrow v Merck was wrongly decided. Its position was:

– the English Court in fact has no jurisdiction (in the sense of power) to grant Arrow declarations since they are an indirect attack on the validity of a patent. Section 74 of the UK Patents Act 1977 strictly limits the types of proceedings in which the validity of a patent may be put in issue, and declaratory actions are not included.

– If the Court does have the power to grant Arrow declarations, it can only exercise that power in unusual circumstances and FKB’s pleadings did not disclose any reasonable grounds for alleging that such unusual circumstances exist.

Clearing the path for biosimilar Humira™/adalimumab market entry in the UK – the English Patents Court considers how its small molecule case law applies to the world’s highest selling biologic

3


December 2016

In order to succeed on its first argument, AbbVie had to convince the English Patents Court (Henry Carr J) to depart from its earlier decision at first instance (Kitchin J) in the Arrow case. The English doctrine of precedent allows the Court to do so, but only where the second judge is convinced that the first decision was wrong.

In this case, the Court held that it was not convinced that Arrow was wrongly decided. It commented that, if the Court really has no power to grant Arrow declarations, a party wishing to clear the path would be unable to do so and would face years of commercial uncertainty posed by cascading divisional applications in the EPO.

In relation to AbbVie’s second argument, the Court accepted that this jurisdiction (in the sense of power) must be exercised with caution. The Court then considered whether FKB had pleaded facts which disclosed a reasonable prospect of the Court exercising its jurisdiction in favour of FKB.

FKB relied upon AbbVie’s abandonment of a European patent in the course of opposition proceedings in the EPO, five days after FKB brought revocation proceedings in the UK in respect of the UK designation of the European Patent. FKB also relied upon AbbVie’s filing of a divisional application claiming virtually the same subject matter as the abandoned patent, shortly before the abandonment. FKB alleged that this indicated that AbbVie was trying to delay scrutiny of its patent by the UK Court or by the EPO Opposition Division, and hence to prolong the commercial uncertainty for FKB for as long as possible. AbbVie denied this allegation, explain that there were separate, quite innocent reasons for the abandonment of the European patent. The Court found that the pleaded facts were sufficiency unusual for there to be a reasonable prospect of the Court exercising its discretion to grant the declaration. The Court therefore dismissed AbbVie’s strike out application, and has allowed FKB’s claim for an Arrow declaration to proceed to trial.

So what?

– This decision demonstrates the willingness of the English Patents Court to apply to biosimilars a novel form of relief which was developed to address market entry of small-molecule generic therapeutics. (The Arrow case concerned a European patent for the treatment of osteoporosis by Fosamax™/alendronate where the novelty lay in the dosage regime (70mg of alendronate per week rather than 10mg once per day)).

– It also demonstrates the flexibility of the Court’s declaratory jurisdiction to give relief where there is a real commercial need for clarity.

– Seven of the world’s top selling drugs in 2015 were biologics. As the primary patents and SPC protection for these products expire in the EU, market entry of biosimilars will become a key issue for both innovators and biosimilar manufacturers. Assuming similar patterns of patent filing for these blockbuster biologics, Arrow declarations may become a key weapon for biosimilar manufacturers.

– There has been much speculation amongst commentators about whether the English Patents Court will be as willing to grant interim injunctions to prevent the launch of biosimilars as has been the case for small-molecule generics. The dynamics of the biologic/biosimilar market are rather different to the market for small-molecule therapeutics/generics, including the difficulties of manufacturing biosimilar molecules and the requirements of the regulatory pathway. There has therefore been speculation that the consequences of biosimilar market entry would be less severe for the innovator than the consequences of generic entry for small-molecule therapeutics. This might tip the assessment of the balance of convenience on an application for an interim injunction in favour of the biosimilar manufacturer. In particular, the likelihood of attracting further market entrants (i.e. the snowball effect) and an ensuing irreversible price collapse may be less. This in turn might lead the English Courts more routinely to withhold interim injunctions against biosimilar entry. It is interesting to note that FKB believed that it should nevertheless take steps to clear the path – it was obviously not willing to rely solely on the Court taking a different approach to the assessment of balance of convenience.

The decision is under appeal. It is listed for hearing in the Court of Appeal on 29 and 30 November 2016. We will report the outcome of the appeal in a future edition of this newsletter.

Adrian Toutoungi Partner, IP/Regulatory


4


December 2016

Precis

In the forty-three years since the UK acceded to the European Union, a large body of case law has developed in the Court of Justice of the EU and national courts dealing with parallel trade of pharmaceuticals within the EU. A recent decision in the English Courts, Flynn Pharma v Drugsrus Limited and Tenolol Limited [2015] EWHC 2759 (Ch), has added to that body of case law. It considers parallel imports in an commercially important context: the divestment in one member state of the EU by a research-based pharmaceutical company of its rights in a mature, off-patent, branded pharmaceutical product. The divesting company retained the rights to the product elsewhere in the EU, and continued to market the product there. The acquirer of the rights in the UK did not manufacture the product itself. Instead, it sourced its supplies for the UK market from the divesting party. A third party also began to import the products of the divesting party into the UK. The imported products were therefore identical to the products of the UK acquirer. Nevertheless, the acquiring party successfully blocked the parallel imports, on the basis of a trademark infringement claim at the High Court. Due to the nature of the particular drug in question, the case involved an unusual combination of regulatory and pricing/reimbursement issues which make it of particular interest.

Background – the basic facts

In 2012, a UK-based specialty pharmaceutical company, Flynn Pharma, acquired from Pfizer the rights in the UK to the hard capsule form of phenytoin sodium, an anti-epilepsy drug. Pfizer, the research-based pharmaceutical company, had originally developed the product. In particular, Flynn Pharma acquired from Pfizer the UK marketing authorisation for the product. Under EU medicinal product regulatory law, the marketing authorisation holder is responsible for the product, including quality, continuity of supply, provision of medical information and post-marketing pharmacovigilance.

Flynn Pharma did not operate as a research-based pharmaceutical company. Instead, its business model was to acquire rights in the UK in off-patent, tail-end branded products which were no longer core to the business of the originator.

Prior to the divestment, Pfizer had sold the product throughout the EU under the brand name EPANUTIN. Pfizer retained the rights to the product in the EU outside the UK. Pfizer also continued to sell other forms of the drug (chewable tablets, injections, oral suspension) in the UK under the EPANUTIN mark.

When Flynn Pharma acquired the rights to the product, its plan was to debrand it and sell it under its international non-proprietary name (”INN”), phenytoin sodium. After discussion with the UK Medicines and Healthcare Products Regulatory Agency (“MHRA”), it was instead instructed to call the product Phenytoin Sodium Flynn.

Upon receiving confirmation on the name change from the MHRA in August 2012, Flynn Pharma registered FLYNN as a UK trade in Class 5 (pharmaceutical preparations).

Since Flynn Pharma does not operate its own manufacturing facilities, it also proposed to continue to source its supplies of phenytoin sodium from Pfizer.

The pricing regime for Phenytoin Sodium

The UK allows free pricing of non-branded (i.e. generic) pharmaceutical products. Price controls, whether under the voluntary Pharmaceutical Price Regulatory Scheme or the statutory scheme (discussed in an earlier briefing here) apply only to branded products. At the time of the divestment by Pfizer, the price at which EPANUTIN capsules could be sold was controlled by the PPRS, and was very low.

By dropping the use of the EPANUTIN brand, Flynn Pharma was free to increase the price of the product.

The regulatory regime for Phenytoin Sodium

Phenytoin sodium has an unusually narrow therapeutic index. The therapeutic index of a drug is the dosage range within which a therapeutic response is induced without causing any significant adverse effect. Drugs with a narrow therapeutic index have a very small difference between a therapeutic dose and a toxic dose. Even tiny increases in the blood level of the drug required for therapeutic efficacy can trigger adverse reactions in patients and/or drug toxicity. Since variations in manufacturing process, or even a change of manufacturing line, can bring about such tiny increases, the MHRA advises doctors to ensure that patients prescribed phenytoin sodium are maintained on the product of a specific manufacturer. To facilitate this, the MHRA’s naming conventions requires the name of the manufacturer to be added as a suffix to the INN, and the MHRA requires the product to be prescribed by brand or, if an out-of-patent product, by reference to a particular manufacturer. (The UK does not permit dispensing pharmacists to substitute a generic product for a branded prescription, and hence continuity of manufacturer can be guaranteed.)

Thus, upon the acquisition in 2012, when Flynn applied to the MHRA to change the name from EPANUTIN to phenytoin sodium, it was instructed by the MHRA to call it PHENYTOIN SODIUM FLYNN.

Even though the product name incorporates a registered trade mark (i.e. FLYNN®), it is still deemed to be an unbranded product for the purposes of the UK pricing regime (as only product-specific brand names, rather than house brands, are taken into account for this purpose).

Thereafter, advisories were sent to doctors, pharmacies and epilepsy charities regarding the change in the market authorisation holder from Pfizer to Flynn Pharma, reassuring them that Flynn’s drug was “ identical to Epanutin” and that “the site of manufacture remains unchanged”.

Divestment of mature pharmaceutical products in the EU – implications for parallel imports

5


December 2016

What?

Parallel importers Drugsrus Limited and Tenelol Limited (‘Tenelol’) acquired supplies of EPANUTIN which had been put on the market in other EU member states by Pfizer and sought to import them into the UK to compete with Flynn’s rebranded version.

Tenelol was in a tricky situation. It knew that pharmacists could not fulfil prescriptions written for PHENYTOIN SODIUM FLYNN with their imported EPANUTIN. Tenelol also realised that doctors were also unlikely to write prescriptions by reference to the EPANUTIN brand without the assurance of a stable source of supply (which Tenelol was unable to guarantee).

Therefore, Tenelol decided that in order to obtain effective access to the market for its imported EPANUTIN, it would need to repackage it under the name PHENYTOIN SODIUM FLYNN.

This prompted Flynn Pharma to issue proceedings for trade mark infringement.

Flynn Pharma claimed that the proposed use of its registered mark was an infringement under section 10(1) of the Trade Mark Act 1994 because it constituted use of identical sign in relation to identical goods. Further, it argued that its trade mark rights had not been exhausted. It referred in this regard to the longstanding case law of the Court of Justice of the EU on repackaging of parallel imported pharmaceuticals, in particular Bristol-Myers Squibb v Paranova [1997] FSR 102 and Pharmacia & Upjohn v Paranova A/S [1999] ECR I-6927. These decisions established that a trade mark owner cannot legitimately enforce its trade mark to prevent parallel imports of packaged products from elsewhere in the EU if five conditions are met. The first such condition is that the owner of the trade mark in the Member State of importation must have put an identical pharmaceutical product on the market elsewhere in the EU in various forms of packaging (or consented to a third party doing so), and that repackaging carried out by the parallel importer is necessary in order to market the product in the Member State of importation.

Tenelol’s primary argument was that, even though that condition was not satisfied, a prohibition on import on the grounds of the protection of intellectual property would still be unlawful under the free movement of goods provisions of the Treaty on the Functioning of the EU (specifically, Article 36, second sentence) on the grounds that it would constitute a disguised restriction on trade to prevent the import of goods which are identical in every way to the goods marketed by the trade mark owner in the Member State of importation.

The Court rejected this bold submission, commenting that it would amount to abandoning the protection conferred by a trade mark in favour of some public health criterion dependent solely on the characteristics of the goods sold.

Tenelol’s secondary argument was that the contractual arrangement between Pfizer and Flynn meant that Flynn should be treated as having consented to the putting on the market of EPANUTIN elsewhere in the EU by Pfizer. The Court considered in detail those contractual arrangements, which included in the normal way an asset sale agreement, an exclusive supply agreement, a quality agreement, and a pharmacovigilance agreement.

Telenol argued that the effect of those agreements was closer to an exclusive distribution arrangement than a true assignment of the marketing authorisation coupled with a contracting manufacturing arrangement (as Flynn Pharma contended).

The Court held that the key issue was whether Flynn Pharma had the right to control the quality of EPANUTIN tablets sold by Pfizer in Member States outside the UK. On the true construction of those agreements, Flynn had no such control. The Court therefore held that there was no exhaustion of rights, and Telenol was liable for trade mark infringement. An injunction was granted preventing further parallel imports.

6


December 2016

So what?

The circumstances of this case were highly unusual. In particular:

– although patent protection for phenytoin sodium had long expired, the very low price of EPANUTIN meant that there were no competing generic alternatives on the market at the date of the divestment, and very few parallel imports;

– this market dynamic, together with the UK pricing regime, made a price increase for the unbranded product feasible following the divestment;

– the price increase following the divestment made parallel imports and generic entry more attractive. As such generic entry and parallel imports would normally have the effect of reducing price, the price increase strategy would only have had a transient benefit to the acquiring party.

– the price increase was only sustainable in this case due to MHRA’s insistence on branded prescribing (or prescribing by reference to a specific manufacturer) for this specific product. This made effective market entry for generic products difficult in practice. If the normal UK rule of prescribing by reference to the INN had applied, Flynn would not have been able to block generic entry or (debranded) parallel imports of EPANUTIN.

This decision is therefore unlikely to become a template for the pharmaceutical sector on how to structure a divestment of a mature, off-patent pharmaceutical product in the EU to avoid parallel imports. It is however an instructive case study.

We understand that the decision has been appealed, and the English Court of Appeal is due to hear the appeal at the end of October 2016. We will report on the outcome of the appeal in a future briefing.

Following Brexit, the law on exhaustion of trade mark rights is likely to change. If the UK adopts a model for Brexit which means the UK is no longer part of the European Economic Area, UK IP rights are



Nadia Gracias Associate - UK


likely to be able to be used to restrict all imports into the UK from elsewhere in the EEA and EEA IP rights could be used by their holders to do the same in respect of the EEA market. Business models based on parallel trade into the UK from other EEA member states would be undermined and may no longer be viable. The principle of exhaustion of rights has been implemented in UK law in various IP-related legislation. These provisions will require amendment or repeal.

Post-script: As this briefing went to press, the UK Competition and Markets Authority (‘CMA’) issued an infringement decision (on 8 December 2016) in respect of its investigation into the UK pricing of Epanutin. The CMA found that Pfizer and Flynn each abused their dominant positions in the UK by imposing excessive prices, in breach of competition law. The CMA imposed a fine of £84.2 million on Pfizer and £5.2 million on Flynn, while also directing both companies to reduce the price of the drug. The fine against Flynn was the maximum available to the CMA (10% of Flynn’s global turnover), and the fine against Pfizer was the largest ever levied by the CMA, in each case to indicate the seriousness with which the CMA viewed the conduct in question. Both Flynn and Pfizer have indicated that they will appeal the CMA’s ruling. We will report on the CMA’s ruling in more detail in our next Life Science quarterly briefing.

7


December 2016


December 2016

8


December 2016

Precis

In its recent decision in Genentech Inc v Hoechst GmbH & Sanofi-Aventis Deutschland GmbH (7 July 2016), the Court of Justice of the EU (“CJEU”) has ruled that an obligation on a licensee under a patent licence agreement to pay royalties on products which do not fall within the scope of the licensed patent claims, or where the obligation to pay royalties continues for the entire term of the agreement regardless of the earlier revocation of the licensed patents, does not in itself amount to a breach of EU anti-trust law (Article 101 Treaty on the Functioning of the EU) and hence is enforceable against the licensee, provided that the licensee can terminate the licence agreement on reasonable notice.

This decision largely confirms existing EU law. However, valuable lessons on the drafting of patent licences can be drawn from the context for the decision. We highlight these below.

Background

On 6 August 1992, Behringwerke AG (the predecessor of Hoechst GmbH) granted a worldwide non-exclusive licence to Genentech for the use of a human cytomegalovirus (“HCMV”) enhancer, with effect as of 1 January 1991 (the “Licence Agreement”). Enhancers are discrete segments of DNA capable of enhancing the expression of one or more functionally associated genes by upregulating transcription (the process of synthesizing RNA from a DNA template). They are used in the biotechnology sector to boost production efficiency for protein-based products. For example, by linking an enhancer to a gene encoding a biological drug, bioreactor yields of that drug from cells expressing that gene can be improved.

Genentech used the HCMV enhancer in this way in the production of its monoclonal antibody rituximab, which forms the active ingredient in its blockbuster biological medicinal product MabThera™. This is a cancer drug for the treatment of common forms of blood cancer, including non-Hodgkin’s lymphoma (NHL), follicular lymphoma and chronic lymphocytic leukaemia (CLL). It is also used to treat rheumatoid arthritis and certain types of vasculitis. MabThera™ is marketed as Rituxan™ outside Europe, and had global sales in 2015 of $7.2bn.

At the time of the Licence Agreement, the HCMV enhancer technology was the subject of European Patent EP 1,731,753 (“EP ‘753”), issued on 22 April 1992, as well pending US patent applications which later issued as US 5,849,522 (on 15 December 1998) and US 6,218,140 (on 17 April 2001). The patents claim methods of using the HCMV enhancer to increase expression of a gene in a mammalian cell, isolated HCMV enhancers, plasmid DNAs comprising an ECMV enhancer operatively linked to a heterologous gene, and eukarytoic host cells transformed with such plasmids.

EP ‘753 was subsequently revoked in its entirety by the European Patent Office in opposition proceedings on 12 January 1999, leaving only the US patents in force.

The Licence Agreement

Under the Licence Agreement, Genentech undertook to pay: a one-off upfront fee (20,000 Deutschmarks); a fixed annual research fee (20,000 Deutschmarks) and a running royalty of 0.5% on the net sales of ‘Finished Products.’

The Licence Agreement defined Finished Products as “commercially marketable goods incorporating a Licensed Product …”.

‘Licensed Product’ was in turn defined as “materials (including organisms) in respect of which the manufacture, use or sale would, in the absence of this agreement, infringe one or more unexpired claims included in the rights attached to the patents under licence”.

The Licence Agreement was terminable for convenience by Genentech on two months’ written notice, and was governed by German law.

The dispute

Genentech paid the one-off fee and the annual research fee, but never paid the running royalty.

In June 2008, 14 years after the Licence Agreement was signed, Sanofi-Aventis Deutschland GmbH, a subsidiary of Hoechst, asked Genentech for information about its sales of Finished Products. This prompted Genentech to give notice of termination of the Licence Agreement, which took effect from 28 October 2008. Hoechst subsequently initiated ICC arbitration proceedings, in accordance with the dispute resolution clause in the Licence Agreement, claiming unpaid running royalties on sales of Finished Products prior to the date of termination. The seat of the arbitration was specified as Paris, with a single arbitrator.

Shortly after Hoechst initiated the arbitration, it also brought, in parallel, an action for patent infringement against Genentech in the US in respect of alleged use of the HCMV enhancer technology after the date of termination of the Licence Agreement. On the same day as Hoechst commenced those proceedings, Genentech brought proceedings for revocation of Hoechst’s US patents (US ‘122 and US ‘644). The US Courts dismissed the claims of both Hoechst and Genentech, upholding the validity of the patents but finding no infringement. Amongst other reasons, they found that Genentech did not infringe the method claims as Genentech did not practise the required step of “inserting” the isolated HCMV enhancer in a mammalian cell. It was common ground that Genentech derived the cell lines used to produce rituximab by inserting the enhancer into mammalian cells, but had done so before the US patents issued in 1998, and so that act of insertion could not amount to patent infringement. Those existing cell lines were subsequently propagated by mitosis (cell division), but this did not amount to “insertion” of the enhancer into the daughter cells.

Royalties under patent licence agreements: can they remain payable even if the licensed patents(s) are revoked or not practised? Lessons from Genentech Inc v Hoechst GmbH & Sanofi-Aventis Deutschland GmbH

9


December 2016

Despite the finding of non-infringement of the US patents by the US Court, and the revocation of the European patent thirteen years earlier, the sole arbitrator hearing Hoechst’s claims in arbitration held Genentech liable to pay the unpaid running royalties up to the date of termination of the Licence Agreement, and assessed these at €108 million. He considered that Genentech’s position was based on a literal interpretation of the Licence Agreement, in particular the definition of “Licensed Product”, and he rejected this approach as a matter of German law (the governing law of the contract). He concluded instead that the commercial objectives of the parties had been to avoid the need in litigation for detailed consideration of whether the manufacture or sales of Rituxan™ in the patented territories amounted to infringement, and of whether the licensed patents were valid. He therefore concluded that the Licence Agreement should be interpreted as:

– Applying to all US sales of Rituxan™ between the date the earliest US licensed patent issued (1998) and the termination of the Licence Agreement (2008). The full text of the arbitral award is confidential and the extracts which have been made public do not make clear whether the running royalty was also held to be due on sales of Rituxan™ in the European jurisdictions covered by EP ‘753 until termination of the Licence Agreement, though the CJEU appears to have proceeded on this basis.

– Not requiring reimbursement of running royalties which have been paid, and not permitting the withholding of unpaid running loyalties, in the event that the licensed patents were revoked or found not to cover Rituxan™.

Genentech applied to the French courts (the supervising courts of the seat of the arbitration) to set aside the arbitral award. French arbitration law (as the law of the seat of the arbitration) contemplates such annulment applications, but only on very limited grounds – for example, breach of international public policy. Annulment proceedings do not, however, involve a review of the substantive legal issues in the award. Genentech argued that the sole arbitrator had interpreted the Licence Agreement in a way that made it incompatible with European Union anti-trust law (Article 101 TFEU), and this amounted to a breach of international public policy. The French courts asked the CJEU to rule on whether such a licence was incompatible with Article 101 TFEU; i.e., whether, for a licence agreement like that in issue, Article 101 precludes parties imposing an obligation to pay a royalty for the use of patented technology for the life of the agreement, even in the event of the revocation or non-infringement of patents protecting that technology.

As summarised above, the CJEU concluded that Article 101 TFEU did not have that effect, as long as the licensee was able to terminate the licence agreement on reasonable notice.

So what?

In light of the CJEU decision, the French annulment proceedings will almost inevitably be dismissed, leaving Genentech to satisfy the arbitral award (or possibly attempting to resist recognition and enforcement of the award in the US (or in any other jurisdictions in which they have assets), to the extent that there are arguable grounds for doing so under the New York Convention.)

Two brief observations can be made on the decision of the CJEU itself.

– First, the CJEU decision is consistent with the Opinion of Advocate-General Wathelet, which was handed down a few months earlier. However, the Advocate-General worded his approval more narrowly than the CJEU. He limited his judgement to licence agreements where:

(1) the licensee can terminate the license agreement by giving reasonable notice;

(2) the commercial purpose of the licence agreement is to avert patent litigation;

(3) the licensee can challenge the validity or infringement of the patent during the term; and

(4) the licensee retains his freedom of action after termination (i.e. is not subject to a contractual obligation to discontinue use of the licensed technology).

– Second, the position articulated by the CJEU is somewhat different to the position under US law, which views charging royalties under patents which have expired or been revoked as patent misuse (Brulotte v Thys Co, 379 U.S. 29 (1964), recently affirmed by the US Supreme Court in Kimble v. Marvel Entertainment, LLC, 576 U.S. __ (2015)). This is the basis for the common practice in well-drafted US-style patent & know-how licences of distinguishing between the royalty rate payable in respect of licensed products falling within a valid unexpired patent claim, and the royalty rate payable in respect of unpatented know-how. Given that the Licence Agreement covered the US territory, and in that sense the arbitral award (from a Paris-seated sole arbitrator) governs the charging of royalties within the US, it is interesting to speculate as to whether Genentech will rely on incompatibility with the US patent misuse doctrine in seeking to resist enforcement of the arbitral award in the US courts).

10


December 2016

Some useful lessons for the drafting of patent licences can also be drawn from this salutary saga:

– The importance of the choice of law clause. Questions of contract interpretation are resolved by the application of the governing law of the contract.o In this case, the application of German law appears to have

allowed the sole arbitrator to put significant emphasis on the commercial purpose of the licence agreement, and to disregard the plain and ordinary meaning of the definition of “Licensed Product”. This definition was fairly standard in well drafted patent licence agreements, and clearly required a “Licensed Product” to be one that “infringe[d]… an unexpired claim”. It is questionable whether a tribunal applying English law or New York law would have felt able to depart from the plain and ordinary meaning of these words.

o The arbitrator did so as he determined that the commercial purpose of the Licence Agreement was to avoid litigation, and in particular the need for detailed consideration of validity and infringement. What the arbitrator meant by this, and the basis for this finding, is unclear (at least, from the public reports of the arbitral award). It could be said that the commercial purpose of virtually all patent licences is to avoid litigation, at least as regards the validity of the licensed patents. This would only not be the case where the validity of the patent has previously been established in a binding decision of a court of competent jurisdiction. As regards avoiding litigation over infringement, where this is the commercial purpose of the licence agreement it would be more normal to define the Licensed Products by reference to specific products (by name or product reference number, and avoid reference to the concept of infringement in the definition.

o Agreeing the choice of law clause is often left to the last minute in a contract negotiation. Time and budget constraints often do not allow the input of local counsel and the choice is often made ‘at the 11th hour’ or without appropriate advice. The choice of law clause is of fundamental importance. This case is a useful reminder that best practice for any material contract is always to allow time for review by local counsel before final agreement is reached.

– Draft expressly to specify the consequences of revocation of a licensed patent. Well drafted patent licences should stipulate what will happen to royalties which have been paid, or which fell due for payment but remain unpaid, prior to revocation of a licensed patent. Are those royalties refundable? Similarly, the licence agreement should provide expressly for whether royalties continue to accrue following revocation of a licensed patent, if the licensee continues to practise the (previously patented) invention and the licence agreement has not been terminated.

– The importance of an appropriate dispute resolution provision. The advantages of arbitration in international commercial contracts, including patent licences, are well known. They include confidentiality (subject to the choice of an appropriate seat and/or arbitral rules), the ability to appoint subject matter expert(s) as the tribunal, and, generally most importantly, ease of cross-border enforcement of arbitral awards. However, careful drafting of the arbitration clause is required. Two particular aspects are highlighted by this dispute.

o Choice of composition of the arbitral tribunal – one or three arbitrators? It seems that the Licence Agreement provided for a sole arbitrator. This reduces costs and can allow for a more expeditious timetable. On the other hand, it means that each side will not be able to appoint a representative to the Tribunal (as is typically the case in a three-arbitrator tribunals), which is seen by some parties as an important advantage of arbitration, or at least one member of the Tribunal, although neutral to the parties, will typically nonetheless seek to ensure that its appointing party’s arguments are understood by the Tribunal.

o The finality of arbitration is generally accepted internationally as a key policy aim, but is not always fully appreciated by contract drafters. The scope to challenge an arbitral award is strictly limited. This should be taken into account in deciding whether to provide that disputes should be resolved by arbitration. The choice of the seat of the arbitration determines the national courts which have supervisory jurisdiction over the arbitration. This in turn determines the national arbitration law which will apply to determine the grounds on which an arbitral award can be annulled by the local courts. The institutional rules stipulated by the parties as governing the arbitration are also relevant, as many (including, for example, both the ICC and LCIA Rules) expressly waive recourse which may be available under the supervisory law (for example, for arbitrations seated within the UK, under s69 of the Arbitration Act). Some countries are more liberal than others, allowing a wider range of grounds on which arbitral awards may be annulled or otherwise challenged. These factors should be prioritised when choosing the seat of the arbitration, rather than choosing solely on logistical grounds. Returning to Genentech Inc v Hoechst, French law is strict in this regard, only allowing annulment on very limited grounds. This promotes finality but, especially when combined with a sole arbitrator, leaves a losing party with few options if it believes that the sole arbitrator has made an error of law, even one which is obvious on the face of the award.

11


December 2016



Timeline of dispute

Date Event

January 1991 Effective Date of the Licence Agreement

April 1992 EP ‘573 granted by EPO. US patent applications pending

August 1992 Licence Agreement signed

November 1997 FDA grants biologics licence application for Rituxan™

June 1998 European Medicines Agency grants centralised marketing authorisation for MabThera™/Rituxan™

December 1998 US 5,849,522 issued by US Patent & Trade Mark Office

January 1999 EP ‘573 revoked by EPO in its entirety

April 2001 US 6,218,140 issued by US Patent & Trade Mark Office

June 2008 Licensor requests statement of account of royalties from Licensee

August 2008 Licensee gives notice to terminate the Licence Agreement

October 2008 – Licensor initiates arbitration proceedings

– Licensor brings patent infringement proceedings against Licensee in US Federal District Court for the Eastern District of Texas

– Licensee brings action for revocation of US Licensed Patents, and for declaration of non-infringement in the Northern District of California

March 2011 US District Court dismisses infringement action and revocation action

March 2012 US Court of Appeals for the Federal Circuit upholds the first-instance decision

September 2012 Sole arbitrator issues third partial award, holding Licensee liable for payment of the running royalty

December 2012 Licensee brings action before Cour d’Appel de Paris seeking annulment of third partial award

February 2013 Sole arbitrator issues final award and fourth partial award on quantum and on costs

September 2014 Cour d’Appel de Paris requests preliminary ruling from the Court of Justice of EU

July 2016 Court of Justice of EU hands down decision

Cameron Forsaith Senior Associate, L&DM


12


December 2016

In July 2016, the Belgian Federal Minister of Health issued a call for the submission of mHealth pilot projects (“mHealth Pilot Projects”) with a supporting budget of 3.25 million euros made available for the purpose. The call fits within ‘Action Point 19 - Mobile Health’ of the national eHealth plan that has been put in place in Belgium in order to strengthen and promote eHealth and mHealth by 2019. The key objective of Action Point 19 is to create a framework for integrating mHealth applications into the Belgian health system by taking into account different qualitative, legal, organisational and financial aspects. Five ‘use cases’ were identified as taking priority. These were: – diabetes;– cardiovascular care;– acute stroke care;– care for patients with chronic pain; and– mental health.

The aim of the mHealth Pilot Projects is to gain the expertise needed to create a legal framework for such applications.

Prior to the launch of the mHealth Pilot Projects, a baseline inventory of mHealth applications was generated and a market survey was sent to several mHealth app suppliers for completion. The survey focused on questions relate to the functioning, security, privacy, semantic interoperability, evidence based character, usability and functionality of their apps. The Minister of Health stressed that it was important that a mHealth app met the following criteria:

– provided sufficient guarantees in relation to privacy and security;– showed interoperability between different apps and other eHealth services (e.g.

an app registering the heart beat and blood pressure of a patient must be able to exchange this data with the electronic file of the patient kept by his/her personal healthcare professional (doctor));

– had obtained a CE-label;– provided scientifically based evidence to demonstrate the technology underlying the

functionality, i.e. how the app derived from a patient’s blood values that they were diabetic.

The call for the mHealth Pilot Project is addressed to all interested parties in the health care sector and runs until 30 September 2016. Applicants should provide a project proposal and a budget plan with an aim for the first mHealth Pilot Projects to be launched by the end of this year.

Belgium: Major public investment in pilot projects for mHealth developments

Gunther Meyer Partner, Belgium

Tel: +32 27 37 93 [email protected]

13


December 2016

The Corporate Tax Reform III has been approved by Swiss Parliament with the intention of securing Switzerland’s attractiveness in relation to taxation, and as a location for multinational companies. Due to potential referendums and implementation of the reform, entry into force is not expected before the beginning of 2019.

One of the Corporate Tax Reform’s key innovations is the so called “patent box regime”. It will provide for a lower tax rate on income stemming from intellectual property rights, namely patents, complementary protection certificates and royalties on patents.

The regime will apply at a cantonal and municipal level of corporate income taxation rather than at a federal level. Cantons may exempt up to 90% of the patent income, resulting in an effective tax rate of only 10% on qualifying patent income.

Who is subject to the preferential tax treatment?

Self-employed persons in possession of qualified IP as well as legal entities can benefit from the preferential tax treatment. Contribution to the actual research or development of the innovation is required to benefit from the tax relief on profits and as such, corporations holding acquired patents cannot benefit from the tax relief. However, the patent box regime will apply to those with the power to control research and development within a group.

Switzerland: Corporate Tax Reform III - Patent Box

Monika McQuillen Partner, Switzerland

Tel: +41 44 20 49 29 [email protected]

What is subject to the preferential tax treatment?

Patents and rights similar to patents can benefit from the preferential tax treatment, the details of which will need to be determined by the federal council, considering the requirements of the OECD. Income will only qualify if it stems from a patent registered or to be registered in Switzerland. Non-patentable IP such as trademarks will not qualify.

How does the calculation of the preferential tax treatment work?

The calculation follows a two-step approach: firstly, the residual method is used to determine the earnings on the total profit of the qualified IP and secondly, the remaining residual profit is adjusted by the OECD modified nexus approach, as provided under Action 5 of the OECD BEPS initiative.

14


December 2016

In our quarterly newsletter of June 2015, we reported on a preliminary ruling referred to the Court of Justice of the European Union (“CJEU”) by judgement of the Court of Appeal of Antwerp dated 26 January 2015. The referral addressed the compatibility of Belgian legal provisions concerning recovery of legal costs, on the one hand, and the Belgian case law on the recovery of expert fees, on the other hand, with Article 14 of the Directive 2004/48/EG of the European Parliament and the Council of 29 April 2004 on the enforcement of intellectual property rights (“Enforcement Directive”).

A brief recap of the Belgian recovery system

Article 1022 of the Judicial Code provides a scheme for the recovery of lawyers’ fees and costs by the successful party in civil and commercial litigation cases, including IP litigation cases (i.e. a flat-rate reimbursement system). According to this mechanism, the successful party is entitled to a fixed amount that is deemed to recover the lawyers’ fees and other legal costs of that party. The fixed amount will depend on the value of the case and might be increased or lowered under certain conditions (e.g. either by taking into account the complexity or the manifestly unreasonable nature of the case, or both).

In relation to the fees and costs of technical experts assisting parties in legal proceedings (e.g. patent attorneys), Belgian case law (including the case law of the Belgian Supreme Court), established that such fees and costs are only recoverable in the event the unsuccessful party has committed a (contractual or extra-contractual) fault (for example, by filing or continuing an infringement action) and the fees and costs paid to the expert are the inevitable consequence thereof.

The referred questions for a preliminary ruling by the CJEU

(1) Do the terms “reasonable and proportionate legal costs and other expenses” in Article 14 of Directive 2004/48 preclude the Belgian legislation which offers courts the possibility of taking into account certain well-defined features specific to the case and which provides for a system of varying flat rates in respect of costs for the assistance of a lawyer?

(2) Do the terms “reasonable and proportionate legal costs” and “other expenses” in Article 14 of Directive 2004/48 preclude the case-law which states that the costs of a technical adviser are recoverable only in the event of fault (contractual or extra-contractual)?

Belgium: Ruling of the Court of Justice of the European Union on the Belgian system for recovery of lawyer’s fees and costs of technical experts in IP litigation cases: To an enhanced recovery system for the successful party (Case C-57/15)?

The judgement of the CJEU (Case C-57/15, 28 July 2016)

(1) Flat-rate reimbursement of lawyers’ feesAs to the first question, the CJEU first confirms that the concept “legal costs” in Article 14 of the Enforcement Directive includes, amongst others, lawyers’ fees, which constitute generally a substantial part of the costs incurred in IP enforcement proceedings.

• Reasonableness condition Based on the wording of Article 14 of the Enforcement Directive that Member States should ensure only the reimbursement of “reasonable costs” and Article 3(1) of the Enforcement Directive that the procedures laid down by the Member States must not be unnecessarily costly, the CJEU concludes that legislation providing for a flat-rate reimbursement of lawyers’ fees could in principle be justified, provided that it is the intent to ensure the reasonableness of the costs to be reimbursed, taken into account different factors, such as:

• the subject matter of the proceedings involved;

• the sum involved;

• the work carried out to represent the client.The CJEU gave the following examples of what could meet the condition of reasonableness: a flat-rate reimbursement of lawyers’ fees intending to exclude the reimbursement of excessive costs due to:

• unusually high fees agreed between the successful party and its lawyers; or

• the provision, by the lawyer, of services that are not considered necessary in order to ensure the enforcement of the IP rights at stake.The CJEU also provides an example of a flat-rate based system that would not meet the reasonableness condition, namely Member State legislation that imposes a flat-rate system significantly below the average rate actually charged for the services of a lawyer in that Member State. Such system would be incompatible with Article 3 (2) of the Enforcement Directive, providing all procedures and remedies must be dissuasive. The dissuasive effect would be seriously diminished if the infringer could be ordered only to reimburse a small part of the reasonable lawyers’ fees.

15


December 2016

• Proportionality condition Article 14 of the Enforcement Directive introduces also a proportionality condition, which cannot be assessed independently of the costs that the successful party incurred in respect of lawyers’ fees, provided they are reasonable.

According to the CJEU, the proportionality condition does not imply that there is an obligation on the Member States to provide reimbursement of the entirety of all costs incurred by the successful party. However, it does imply that the successful party should have the right to reimbursement of, at the very least, a “significant and appropriate” part of the reasonable costs actually incurred by that party.

The CJEU continued that a national legislation that lays down an absolute limit of fee recovery (such as the Belgian law), must ensure that:

• such limit reflects reality of the rates charged for the services of a lawyer in the field of IP; and

• at the very least, a significant and appropriate part of reasonable costs actually incurred by the successful party are borne by the unsuccessful party.The CJEU adds that it is not possible for a legislation that provides in a recovery system with an absolute limit, particularly in a situation in which the limit is too low, to prevent the amount of those costs vastly exceeding the provided limit, so that the reimbursement which the successful party may claim becomes disproportionate or even, where applicable, insignificant.

(2) Recovery of costs of a technical adviserArticle 14 of the Enforcement Directive also provides that not only legal costs but also “other expenses” incurred by the successful party should be reimbursed. The CJEU ruled that costs incurred for services of a technical adviser should be included in this concept (for example, the services of patent attorney assisting a lawyer in a patent litigation case). What about costs of identification and research of IP infringements? In most cases such services are also rendered by technical advisors. Referring to recital 26 of the Enforcement Directive, the CJEU ruled that such costs do not necessarily fall within the scope of Article 14 of the Enforcement Directive, but they may qualify under the damages provision of Article 13(1) of the Enforcement Directive. Therefore, the CJEU seems to leave this discussion open. In any event, the CJEU decided that a wide interpretation of the concept “other expenses” in Article 14 of the Enforcement Directive, without going into any detail about those costs, risks conferring excessive scope on Article 14 and thus depriving Article 13 of its practical effect. The CJEU therefore concludes that the concept of “other expenses” in Article 14 of the Enforcement Directive should be interpreted narrowly, i.e. only costs that are directly related to the judicial proceedings concerned fall under this concept. The CJEU further ruled that Article 14 of the Enforcement Directive does not contain any element from which it may be concluded that Member States may subject reimbursement of “other expenses” (legal costs in general) to a condition of fault on the part of the unsuccessful

party. As indicated above, the successful party will need to show a direct link between the costs and the judicial procedure concerned in order to fall under the scope of Article 14 of the Enforcement Directive. For example, a close direct link can be established in a situation where services of a technical advisor are essential in order for a legal action seeking to have such right upheld to be usefully brought.

On the other hand, the CJEU concluded that the following examples of costs of research and identification of IP infringement shall not fall under Article 14 of the Enforcement Directive, because they lack a close direct link: • a general observation of the market carried out by a technical

advisor; • the detection by a technical advisor of possible infringements of IP

law, attributable to unknown infringers at that stage.

Implications of the CJEU’s decision on Belgian IP proceedings

With its judgement of 28 July 2016 (C-57/15), the CJEU gives a clear message to the Belgian State that the flat-rate reimbursing system, as it presently exists, is not fully in line with what should be expected under the provisions of Article 14 of the Enforcement Directive. It is now for the Belgian legislator to examine how to deal the CJEU’s decision under Belgian national law.

In the meantime, the Belgian courts, who have the obligation to interpret and apply Belgian law in conformity with EU law, will have to give full effect to the CJEU’s decision when deciding on recovery of lawyers’ fees and costs of technical experts. In each IP enforcement case the Belgian courts will now have to examine whether the application of the existing flat-rate reimbursement system would result in an adequate reimbursement of legal costs. I.e. whether the amount that would normally be awarded under the applicable system is significantly below the average rate charged for services by lawyers in similar cases, so that such amount would not be able to provide the successful party with a significant and appropriate reimbursement of its legal costs. In the event the court concludes this is the case, it will have to set aside the applicable flat-rate and award a higher amount reflecting reimbursement of all legal costs.

The recovery of costs of technical advisors, including, but not limited to, costs of identification and research of IP infringements in IP enforcement cases will now be much more easily recoverable. In the event the successful party can show that such costs are directly related to the judicial proceedings, they will qualify as “other costs” in the sense of Article 14 of the Enforcement Directive and will be recoverable without proving any fault on the part of the unsuccessful party.

The CJEU’s judgement of 28 July 2016 will more than likely also effect decisions in other Member States that provide a capped or similar fee recovery system. It might be that, in IP enforcement cases, such systems could also be questioned on their compatibility with the Enforcement Directive and the criteria set out by the CJEU in this ruling.

Gunther Meyer Partner, Belgium


16


December 2016

New German law combating corruption in the health sector (June 2016)

Precis

In order to protect the healthcare system against bribery and corruption, Germany has recently introduced a new legislative approach which encompasses a more rigorous and stringent penalisation of all bribery acts in the healthcare industry. The German law combatting corruption in the health sector came into effect in June 2016

The newly introduced criminal offences regarding bribes and corruptive practices aimed at health care professionals, represent a crime punishable by a fine or imprisonment of up to three years not only for the professional, but also for the person attempting to bribe or engage in corrupt practices with a professional, regardless of the health care professional’s working status (employed by a public institution or self-employed).

Background

Bribery and corruption in the pharmaceutical and medical industries has become an important issue due to the significant monetary impact it can have on the public healthcare system. Any investigation regarding bribery and corruption attracts a large media presence and subsequently, negative press for the respective company.

In terms of bribery, there is a difference between bribery in public sector and in private business. In the public sector, the law prohibits both payment to and receipt of bribes by public officials (public bribery, sec. 331 et seqq. German Criminal Code, Strafgesetzbuch, StGB). In the private sector, an employee or agent of a business must not demand or allow himself to be promised consideration, or accept a benefit for himself or another person in a business transaction for affording an unfair preference in the competitive purchase of goods or services (commercial bribery, sec. 299 StGB). The same applies to anyone who offers, promises or grants such persons a benefit in this context.

This distinction between the public and private sector is significant, because in Germany, there are largely two kinds of health care professionals: independent physicians operating within Germany’s public health insurance system (Kassenärzte) and physicians employed in a certain employment with subordinate status, mostly in public owned medical institutions, the so-called public officials (Amtsträger). As such, until now only public officials were seen as legally capable of committing public bribery. There is no criminal penalisation of the Kassenärzte regarding bribery or corruption so far. In 2012, the German Federal Court of Justice (Bundesgerichtshof, BGH) constituted that independent health professionals do not qualify as an employee or an agent under the provisions outlawing commercial bribery (sec. 299 StGB), as they are primarily self-employed (neither being in subordination to an employer nor in an agency relationship) and, thus, cannot commit commercial bribery. Nor do they act as so-called public officials under the laws prohibiting public bribery (sec. 331 et seqq. StGB). Consequently Kassenärzte were not legally capable of committing a crime as a public official.

Following the German Federal Court of Justice‘s decision and in order to defend the healthcare system against bribery and corruption, a more rigorous and stringent penalisation of all bribery acts in the healthcare industry has been initiated and came into effect in June 2016.

What?

On 13 May 2016 the bill on combating corruption in the healthcare sector (Gesetz zur Bekämpfung von Korruption im Gesundheitswesen) passed the Federal Council of Germany. The new law came into effect on 4 June 2016. It contains new criminal offences in sec. 299a and sec. 299b StGB:

§ 299a Corruptibility in health careAny member of a health care profession requiring state-regulated qualification in order to practice or to hold a professional title who, in connection with the practice of their profession demands, allow himself to be promised, or directly accepts a benefit for themselves or a third person as compensation in return for:

1. the prescription of pharmaceutical products, remedies and adjuvants or medical devices,

2. the procurement of pharmaceutical products or remedies or of medical devices that are intended for direct use by the health care professional or one of his supporting staff, or

3. for the referral of patients or test materials,

For according an unfair preference to another in domestic or foreign competition shall be punished by up to three years’ imprisonment or a fine.

§ 299b Bribery in health careWhoever offers, promises or grants a member of a health profession in terms of § 299a or a third person in connection with the practice of their profession a benefit as compensation for:

1. the prescription of pharmaceutical products, remedies and adjuvants or medical devices, or

2. the procurement of pharmaceutical products or remedies or of medical devices that are intended for direct use by the health care professional or one of his supporting staff, or for the

3. the referral of patients or test materials,

for the health care professional according an unfair preference to another in domestic or foreign competition shall be punished by up to three years’ imprisonment or a fine.”

In this context and to fight bribery and corruption, some State Chambers of Physicians (Landesärztekammer) have also taken a more stringent approach with regard to benefits given to healthcare professionals by implementing respective provisions into the state professional codes for physicians.

17


December 2016

So what?

As consequence of the new legislation, bribes and corruptive practices aimed at healthcare professionals represent a crime punishable by a fine or imprisonment of up to three years not only for the professional (sec. 229a StGB - corruptibility in health care), but also for the person attempting to bribe or engage in corrupt practices with the professional (sec. 229b StGB - bribery in health care). Both provisions refer to members of healthcare professions including both academic health professions (physicians, dentists, veterinarians, pharmacists, non-medical psychotherapists and child and adolescent psychotherapists) and paramedical professions (Gesundheitsfachberufe, e.g. speech therapists, nurses, physiotherapist, physician’s assistant). Further, there is no longer a distinction between self-employed physicians and those employed by public institutions with regards to bribery and corruption penalisation. The underlying reason being that the principles of fair competition and the integrity of medical decisions should not be tainted by criminal acts of bribery and corruption.

The new law will ensure companies in the pharmaceutical and medical sector are more diligent in their relationships with physicians, given that a breach of the new provisions has consequences under criminal law. Companies are advised to check whether their agreements, internal guidelines and policies on relationships with health care professionals have to be revised and amended.

Given the above, it is best for any company to avoid the impression that it may influence a healthcare professional in their professional independence in any prescribing, therapeutic and procurement decisions. Therefore, companies must not offer, give, or receive money or any other item of value either as an inducement to make or as a reward for making any decision that is favourable to one’s personal interest or to the company’s corporate interest. Additionally, all fee-for-service agreements must be in writing, approved in advance through the appropriate channels and documented. Agreements (e.g. healthcare professional agreements regarding consultation or other services, agreements regarding external training events, sponsoring agreements) and internal guidelines dated before the changes of the German Criminal Code shall be revised and, if necessary, amended according to the new statutory regulations.

Dr Tobias MaierPartner, Germany


Magdalena Anna KotyrbaAssociate, Germany



December 2016

18


December 2016

The Dutch Minister of Health, Welfare and Sport (in Dutch: Minister van Volksgezondheid, Welzijn en Sport) (“Minister”) announced in a letter to Parliament dated 23 June 2016 that the penalty in respect of culpable shortages of medicines will be increased.

The Minister will do this in two steps:

1. The penalty will be increased from 45,000 euros to 150,000 euros, since this is currently the maximum penalty within the Dutch Medicines Act (in Dutch: Geneesmiddelenwet). Such penalties and violations have been laid down in the Policy Rules administrative penalty (in Dutch: Beleidsregels bestuurlijke boete Minister VWS 2016). The Minster is working on an amendment to the Policy Rules administrative penalty and expects to finish the aforementioned amendment this summer.

2. Afterwards, the maximum possible penalty under the Dutch Medicines Act will be increased to 820,000 euros through a change in the Dutch law, which is also the level of the Commodities Act (in Dutch: Warenwet).

What?

The Dutch Medicines Act contains a best efforts obligation in which a commercial licence holder is responsible for ensuring that medicines in accordance with the commercial licence need to be sufficiently available for wholesalers and pharmacists to fulfill the needs of patients. The legal basis for this obligation is found in article 49 paragraph 9 of the Dutch Medicine Act. Further, the Medicines Act contains a best efforts obligation for wholesalers under article 36 paragraph 2. Those articles are based on article 81 of the Directive 2004/27/EC of the European Parliament and the Council of 31 March 2004 amending Directive 2001/83/EC on the Community code relating to medicinal products for human use.

Dutch Minister of Health, Welfare and Sport increases penalty of commercial license holders regarding culpable shortages of medicines

So what?

Following a recent shortage of medicines, the Minister increased penalties for culpable shortages of medicines. An investigation is still pending to decide whether or not a pharmaceutical company operating in the Netherlands was liable for not having certain medicines sufficiently available for patients, the shortage of which had a significant impact on some patients. The event also drew a lot of attention in the Dutch media. Consequently, the Minister wrote a letter to Parliament that possible shortages should be notified on time by commercial licence holders. Commercial licence holders and wholesalers now risk a penalty of 150,000 euros after the amendment of the Policy Rules and 450,000 euros after the Dutch Medicine Act is amended if they do not have medicines sufficiently available.

At the moment, two points of contact havebeen established for the notification of shortages. Foreseeable shortages should be notified tothe Medicines Evaluation Board (in Dutch:College ter Beoordeling van Geneesmiddelen, “MEB”) and unforeseeable shortages to the Healthcare Inspectorate (in Dutch: Inspectievoor de Gezondheidszorg, “HI”). Before the end of this year, a single point of contact should beset up by the MEB and HI jointly which shouldallow for an efficient process which enables notification of anticipated shortages to be received as soon as possible.

Tom van WijngaardenPartner, Netherlands


19


December 2016

Under the microscope Our quarterly life sciences newsletter

May 2016

Précis

On 23 June 2016 the Netherlands Authority for Consumers and Markets (“the ACM”) published the definitive version of the “Guidelines on collective procurement of prescription drugs” (“the Guidelines”). The Guidelines inform hospitals and health insurers about the possibility of procuring prescription drugs collectively in light of competition law. The ACM expects that the Guidelines will ensure that lower drug prices and better conditions can be negotiated.

What?

In April 2016, the ACM published a draft version of the Guidelines. Stakeholders were given the opportunity to comment on the draft version. In addition, the ACM organised several roundtable discussions with health insurers and hospitals to determine whether the Guidelines were sufficiently clear. In the final version of the Guidelines several parts of the draft version have been clarified.

The Guidelines explain what opportunities the competition rules offer, and what limits they set if hospitals or health insurers purchase drugs collectively. The ACM lists three rules in the Guidelines. The ACM anticipates that if purchasing agents follow these rules, they will not fall a foul of competition law and collective procurement will be considered to be a permitted arrangement. The rules are:

1. The total costs of the drugs purchased collectively cannot comprise more than a limited proportion of the hospital’s costs;

2. Other buyers must be able to join any group purchasing organisation (or joint purchasing organisation);

3. It must be easy to leave a group purchasing organisation (or joint purchasing organisation).

New Guidelines on collective procurement of prescription drugs

In addition, it must be noted that the exchange of information between the participants of the collaboration cannot go beyond what is necessary in order to collectively procure prescription drugs. This must prevent the exchange of competitive-sensitive information between the participants of the collaboration.

So what?

The ACM expects that the new Guidelines will provide hospitals and health insurers the ability to negotiate lower drug prices and better conditions. Although the Guidelines do not provide a new understanding of the relevant legislation, the Guidelines provide for a very efficient mechanism to opening up new possibilities for the collective procurement of prescription drugs.

It should be noted that also outside the rules laid down in the Guidelines, cooperation between purchasing agents continues to be possible. In order to determine whether a specific collaboration complies with general competition law rules, a more extensive analysis of the collaboration in question may be necessary

Michel ChatelinPartner, Netherlands


20


December 2016

The Court, and subsequently the Court of Appeal in Amsterdam have rendered judgements with regard to the question as to when receivables against either patients or health insurers, or both, arise for services that have been provided by healthcare providers.

Should a pledger enter into insolvency (and thus lose the power to dispose of its assets), it is important that a pledgee can determine whether a receivable that was pledged to him (in advance), existed and whether it was thus possible for the pledger to grant a valid right of pledge over the receivables. If the receivable did not already exist at the moment that the pledger entered into bankruptcy, the receivable cannot be pledged.

In the Netherlands, both the Treatment Contract and the Billing Contract (with health insurers) and the now repealed Billing Regulation influence the moment when a receivable arises for a healthcare provider against a health insurer (in this case).

When do receivables for provided services arise for health care providers?

Background

Better Life B.V. (“Better Life”) was a healthcare provider who offered treatment processes which consisted of multiple consultations. Better Life was financed by Famed B.V. (“Famed”). Better Life gave Famed a valid right of pledge over all current and future receivables which Better Life had or would acquire against health insurers in relation to the consultations that Better Life provided.

Several agreements played a part in this case. Next to the factoring agreement between Famed and Better Life, there were treatment contracts between Better Life and its patients (“Treatment Contracts”) and contracts between Better Life and several health insurers with regard to the manner in which, and the moment that, Better Life could bill it’s fees for consultations it provided under a Treatment Contract (“Billing Contracts”). Pursuant to such Billing Contract, healthcare providers can directly bill their fees from the health insurer, rather than from the patient.

The (repealed) Regulation Expenses scheme in the curative Mental Healthcare (“the Billing Regulation”) was applicable to the contractual relationship between Better Life and the health care providers by operation of law. According to the Billing Regulation, Better Life could only invoice it’s fees from the health insurers after finishing the entire treatment process.

Better Life went bankrupt and a substantial part of the treatment processes was not yet finished. Therefore, the question was if Better Life receivables had arisen against the health insurers with respect to the consultations that Better Life already performed during the process, but for which they had not yet submitted their invoice to the health insurers in accordance with the Billing Contract and the Billing Regulation.

The bankruptcy trustee was of the opinion that for consultations that Better Life had already provided, but for which the entire treatment was not yet finished (and therefore not yet billed), no receivables against the health insurers had arisen for Better Life. Therefore, these receivables did not yet exist and could therefore not have been pledged in advance to Famed. Of course, Famed was of the opinion that the receivables arose directly after Better Life had provided the consultation, regardless of the fact that they hadn’t been billed yet.

The judgement

The court of first instanceAccording to the judgement of the Court, the receivables of Better Life against the various health insurers arose in three phases. The first phase was the entering into of the Billing Contract. The second phase was the entering into of Treatment Contracts with patients. According to the court, the entering into of a Treatment Contract lays down the foundation of payment obligations. The third phase was the actual treatment of a patient. According to the court, after each consultation a payment obligation arises for the patient and thus, pursuant to the Billing Contract, a receivable arises against the relevant health insurer for Better Life.

The Court ruled that in respect to the Treatment Contracts which were entered into before the bankruptcy and for which treatments have actually been performed before bankruptcy, receivables arose against the health insurers. These receivables may not have been due and payable in accordance with the Expenses Contract, but nevertheless existed and could therefore be made subject to a right of pledge to Famed (whether or not in advance).

21


December 2016

Court of AppealThe Court of Appeal did not share the judgement of the court of first instance. In their view, the receivables do not arise pursuant to the Treatment Contracts, but pursuant to the Billing Regulation and therefore they only existed from the point in time that the entire treatment could be invoiced to the relevant health insurer. The receivables of Better Life against the health insurers arose from the moment that all requirements of the Billing Contract and the Billing Regulation were met. As long as this was not the case, Better Life could not invoice their fees for the separate consultations and therefore did not have any receivables against the health insurers that could be validly encumbered with a right of pledge.

So what?

The factual issue in this case was that nothing was specifically agreed with regard to the moment when receivables would arise against either the health insurers or the patients, or both. The only point that was agreed, was the moment that the fees for the consultations could be billed. It follows that because there was no agreement when the receivables would arise, Better Life was dependent on the interpretation of the different contracts.

Given the significance of this case for the financing of health providers, we expect that this case will be submitted to the Supreme Court. Until then, financers of healthcare providers are advised to demand clear agreements from their clients with their patients and health insurers with respect to the moment that receivables arise for either consultations or treatments, or both, as well as ensuring that it is clear for all parties when these receivables are due and payable.

Please use the following link for the full decision of the court of appeal in Amsterdam (only available in Dutch): http://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:GHAMS:2016:1143

Lucas LustermanSenior Associate, Netherlands


Casper RooijakkersAssociate, Netherlands


22


December 2016

Compensation for mental distress extended?

Precis

The Austrian Supreme Court recently awarded damages for mental distress to a patient because a piece of broken scissors remained in his body after heart surgery. The claimant suffered no physical pain due to this foreign object in his body.

What?

During the claimant’s heart surgery, the tip of the dissecting scissors broke and slipped into the left pulmonary vein. The broken tip was approximately 1 centimetre in length. An attempt to retrieve the tip failed and so it remained in the claimant’s body. Post-surgery, the risk of inflammation or sepsis due to the remaining piece of scissors was increased, but did not occur. The foreign body was integrated into the body and did not cause any pain or affect the health of the claimant in any other way physically or mentally. Although the claimant was informed that complications or further migration of the foreign object were highly unlikely, the claimant was concerned and distressed about such migration or any other negative impact. From a medical point of view the removal of the scissor tip was not recommended as this would most likely require the removal of part of the left lung. The claimant sued the hospital and the manufacturer of the scissors for future damages as well as for compensation for pain and suffering in the sum of 9,500 euros.

Both claims against the hospital were dismissed on the grounds of the correct performance of the surgery. Based on product liability law, the liability of the manufacturer of the scissors for future damages caused by the foreign object in the claimant’s body was ascertained and damages for mental pain awarded in the amount of 5,000 euros, despite the fact that the claimant had no physical pain and had not suffered mental injury.

The Supreme Court expressly held that the permanently remaining scissor tip qualified as physical injury, especially because later consequences could not be excluded. The claimant’s distress and uncertainty were seen as rather understandable mental consequences of a physical injury and not only as mental impairment that would not qualify as equal to a physical injury by itself.

So what?

So far, Austrian courts have been rather reluctant to award damages for pain and suffering. In general such damages were only granted in small amounts in addition to compensation for physical injuries. Given the claimant suffered no physical pain in this instance, the awarded amount is quite generous. It remains to be seen if this new approach will be maintained or even extended.

Teresa BogensbergerPartner, Austria


23


December 2016

The sale of medicines via the internet in Spain

In Spain, the sale of medicines via the internet is dealt with by Law no. 34/2002 on Information Society Services and E-commerce, which transposed the Directive 2000/31/EC and which envisaged the use of internet to commercialise medicines and medical devices, although this law referred to potential “specific legislation” on those topics.

More recently, Law 29/2006 was enacted in relation to the guarantees and rational use of medicines and healthcare products. The Law is limited to non-prescription drugs, although it provides that “the implementing regulation shall specify the exact requirements needed for selling non-prescription medicines”. E-commerce of prescription medicines was expressly forbidden.

Thus, for many years the pharmaceutical wholesalers have seen how the Law of 2006 allowed them to sell non-prescription medicines via the internet in theory, but in the absence of an implementing regulation, selling medicines online was not in fact possible in practice.

The situation changed with the entry into force of the Royal Decree 870/2013, which aimed to regulate distance selling to the general public, via websites, of non-prescription medicines for human use. The principal aim of which was to grant legal certainty for the sale of medicines via the internet, as well as to prevent the acquisition of counterfeit medicines. The Royal Decree excludes from its scope other healthcare products as personal care products, cosmetics or infant food preparations.

In respect of the requirements for dispensing medicines via the internet, the Royal Decree provides that:

i) Only duly authorized pharmacies open to the public are entitled to carry out this type of sale;

ii) All sales have to be made by a qualified chemist with personalised advice and from an open pharmacy (this is to say, that only the dispensing chemists are able to sell medicines via the internet);

iii) The pharmacies which intend to sell medicines online have to have communicated that decision in advance to the competent authority;

iv) Pharmacy websites have to meet the specific legal requirements; and

v) The medicines offered to the public must provide the legally requested information.

Finally, in order to ensure that the final consumer can ensure they are purchasing from a trusted website and avoid counterfeit medicine, it is mandatory that any legal website in Spain shows the official EU logo for the lawful online sale of medicines, as designed and imposed by Regulation (EU) 699/2014.

Other legal obligations

The Royal Decree does not allow the final consumer to order any medicine anonymously because the pharmacist is obliged to make contact with the consumers before shipment and advise them on the proper use of the medicine. However, the pharmacist’s obligation may be replaced by a link to a website containing information related to the ordered medicines.

In respect of the return of purchased medicines, the general rule is that returning the delivered medicines is not possible. As an exception, the pharmacist shall be obliged to accept the return of medicines and to destroy them if the medicines are incorrectly supplied, the medicines delivered do not correspond to what was ordered or if the medicines have been damaged during transport. Additionally, the consumer shall be entitled to a full reimbursement when the delivery time exceeds over 50% of the time specified for the purchase.

Finally, pharmacists should create extensive records of all shipments, maintaining these records for at least two years.

Conclusion

In conclusion, selling prescription medicines via the internet remains expressly prohibited in Spain. It is expected that this scenario will not change, as dispensing prescription medicines requires tight regulation in order to control the flow of medicines, ensure the correct and appropriate use of them and to allow for the protection of the patient and a legal certainty.

As for the sale of non-prescription medicines, even if for some time there was “some legal uncertainty” because the implementing regulation required had not been developed, the current situation has changed and Spanish Law now allows the sale of non-prescription medicines under strict regulations, which guarantees that proper advice is given to consumers by healthcare professionals.

Finally, despite a background of extensive EU regulation regarding medicine for human use, harmonization between EU member states on this issue is incomplete and many differences still exist between member states. In light of the above, it would be desirable to develop greater harmonisation, particularly in respect of sales to the final consumer and including those purchased online.

Eduardo BuitronLawyer, Spain


24


December 2016

Pensions Issues for Life Sciences Newsletter – September 2016

The UK Pensions landscape continues to change at a pace, both as a result of new legislation and regulation and recent events. In this article, we look at the impact of Brexit on pension schemes and some key developments affecting trustees and sponsoring employers of defined contribution (i.e. money purchase) pension schemes.

Recent developments

Brexit and pensions Following the EU referendum result, it is likely to be some time before the terms of the UK’s future relationship with the EU are known.

In the short term, there is likely to be considerable investment volatility in light of the Brexit vote. The position will need to be monitored carefully. Trustees of occupational pension schemes, in particular, will need to consider quickly whether their scheme’s investment portfolio remains appropriate for a post-Brexit world. Scheme investments governed by the laws of another Member State or contingent assets based in the EU will need particularly close attention to ensure they remain appropriate and enforceable.

Also in the short term, Brexit is unlikely to have a significant impact on the legal and regulatory framework for UK pension schemes. However, it does open the door for UK legislation to deviate from EU requirements in the future (for example, in relation to the funding of defined benefit (“DB”) schemes, investment and scheme governance). Also, without the influence of the ECJ in the background, UK case law on matters previously the preserve of the EU, such as equal treatment and TUPE, may start to take its own domestic direction.

The macro-economic impact of Brexit and its impact on individual businesses is difficult to predict with certainty. It is likely to be determined, to a large extent, by the nature of the UK’s ongoing relationship with the EU as well as any trade deals that the UK enters into with countries outside of the EU (such as the US and China). Trustees of DB schemes need to be alive to any deterioration in the financial strength of the business standing behind their schemes and corporate sponsors need to be prepared to address trustees’ concerns in this regard.

The most pressing action points for corporate sponsoring employers and trustees as a result of the Brexit vote are likely to be as follows:• Corporate sponsors should assess the potential impact of Brexit

on their business and on their pension scheme and prepare appropriate contingency plans for this.

• Trustees should consider the suitability of their investment portfolio post-Brexit and what steps they can take to mitigate the impact of continued volatility on investment markets on their scheme.

• Trustees should reassess the strength of the financial covenant standing behind their scheme in light of Brexit (including any contingent security granted to the scheme) and take steps to mitigate the risk of any material weakening in this.

• Trustees and corporate sponsors should consider the need to send a communication to scheme members to reassure them about the steps that they are taking to mitigate any risks to the scheme arising as a result of Brexit.

Further information about Brexit can be found on our Brexit hub (http://www.eversheds.com/global/en/what/publications/brexit/index.page?&utm_source=website&utm_medium=homepage-promo-image&utm_campaign=brexit).

Regulator’s DC Code of Practice and “how to” guidesThe Pensions Regulator has issued a revised Code of Practice 13, relating to money purchase pension benefits, which came into effect on 28 July 2016. The new Code applies to trustees of all occupational trust-based pension schemes with two or more members which offer money purchase benefits, including:• defined contribution (“DC”) (i.e. money purchase) schemes;• DC sections within schemes that offer mixed benefits (e.g. a

scheme with both a DB and DC section); and • money purchase benefits resulting from additional voluntary

contributions.

The new Code sets out the Regulator’s expectations of trustees and what is required of them to comply with legislation, including the most recent changes in law. The new Code is shorter than the previous version, and it has been simplified, with an increased focus on legislative requirements.

The Code covers issues such as assessing value for members, designing and monitoring DC investment strategies and the need for diversity on trustee boards.

The Regulator has also issued six “how to” guides to help trustees implement the new Code and meet the new governance standards in practice. Much of the material that might otherwise have been included in the new Code is set out in these guides. Aside from the obvious challenge of navigating around this guidance, one of the key issues is that the line between practical suggestions and minimum regulatory expectations is not always clear.

The Regulator also produced a “self-assessment template” tool to help trustees assess their scheme against the standards in the new Code. The Regulator has also issued a final updated compliance and enforcement policy for occupational DC schemes, describing its expectations for compliance with legislation and how it will enforce the law.

It is clear that the standards expected of trustees of schemes with money purchase benefits are rising, and trustees of such schemes need to engage with the new Code and, where relevant, make any required changes.

25


December 2016

The new Code can be found on the Regulator’s website (http://www.thepensionsregulator.gov.uk/codes/code-governance-administration-occupational-dc-trust-based-schemes.aspx). Links to the “how to guides” are in the section of the Code headed “The purpose of this code of practice”. Chair’s annual governance statementTrustees of occupational pension schemes that provide money purchase benefits must (except where the only such benefits are Additional Voluntary Contribution benefits) produce an annual governance statement signed by the chair of trustees, as part of their scheme’s annual report and accounts. Broadly, this statement needs to describe and explain how the trustees have discharged the new DC governance requirements. The statement must be published within seven months of the end of the scheme year.

The Pensions Regulator has already demonstrated that it is prepared to fine trustees who do not comply with this requirement. In June 2016, the Regulator reported that it issued its first fine against trustees for failing to produce a chair’s governance statement. The trustees received the minimum mandatory £500 fine after they notified the Regulator of the breach and quickly took action to prepare the required statement.

More recently, in August of this year, a professional trustee company was ordered to pay three £2,000 fines for failing to prepare annual governance statements in respect of three separate schemes. The maximum fine was imposed because the schemes had a professional trustee and there were no mitigating factors.

Automatic re-enrolmentIt is nearly four years since the automatic enrolment requirements were introduced, and more employers are now approaching their first automatic re-enrolment date.

The process for automatic re-enrolment is broadly the same as the automatic enrolment process. However, there are some subtle but significant differences that employers need to be aware of (for example, employers cannot use postponement in connection with re-enrolment).

There are a number of actions that employers need to take in connection with their first re-enrolment date, including • selecting the re-enrolment date;• assessing who is eligible to be automatically re-enroled; • deciding whether to apply new exemptions from auto-enrolment;• testing payroll software; • preparing re-enrolment communications; and • submitting a declaration of compliance to the Pensions

Regulator.

For more information, please visit (http://www.eversheds.com/documents/e-briefs/Pensions_speedbrief_Auto_enrolment_update_10_June_2015.pdf).

On the horizon

Capping DC early exit charges The UK Department of Work and Pensions (“DWP”) and the UK’s Financial Conduct Authority (“FCA”) each issued proposals at the end of May 2016 to introduce a cap (from April 2017) on early exit charges imposed by providers of DC pension arrangements.

The proposed level of the cap is 1% for existing pension arrangements, and nil for any new pension arrangements entered into after the new provisions come into effect.

In relation to contract-based, personal pension schemes, the obligation to comply with the cap is placed on the pension provider. For trust-based schemes, the obligation will rest either on the scheme’s trustees / managers or on service providers, depending on whether the cap derives from the scheme’s rules or from contractual arrangements entered into with third parties.

The DWP warns that trustees / managers must be vigilant to ensure that excessive charges are genuinely capped, rather than simply displaced.

More generally, the DWP invited interested parties to provide further evidence (by 16 August 2016) on the application of such exit charges in relation to occupational pension schemes, including how common such charges are, how they are calculated and how they are imposed.

For further information, please visit (http://www.eversheds.com/global/en/what/articles/index.page?ArticleID=en/Pensions/UK_Pensions-Speedbrief-Freedom-and-choice-capping-exit-charges-for-DC-savers).

If you have any questions about what any of the above developments may mean for you and your pension arrangements, or if you would like any further information about them, please contact:

Richard SheltonOffice Location Head


Jon WaltersPartner


26


December 2016

Would you be fined if your employee was burgled at home?

You may be surprised to know that the answer may be yes. Whitehead Nursing Home in Northern Ireland found this out to its cost, when the Information Commissioner’s Office (“ICO”) fined them £15,000 as a result of a security breach.

So why does this matter?

The ICO emphasised that the size of this fine reflects the small size of the nursing home business involved. “A bigger organisation experiencing a similarly serious breach should expect to receive a much larger fine.” Currently the maximum potential ICO fine is £500,000. From 25 May 2018, when data protection laws are updated, it is expected that enforcement action will increase and potential fines may be as large as the higher of 20 million euros, or 4% annual global turnover.

So what happened?

An employee took a work laptop home containing personal information about fellow staff and their employer’s nursing home residents. The laptop was then stolen during a burglary later that evening. The details in the laptop did not relate to thousands of individuals and only concerned 46 staff and 29 residents. The data was not hacked, nor left on a train.

Despite this the Nursing Home who employed the staff member affected and who had provided the laptop to them was found liable for a serious breach of their data security obligations due to the break in and theft.

So how can this be possible?

The details stolen with the laptop included data about staff sickness absence and disciplinary matters, together with private information about nursing home residents, such as date of birth, their mental, and physical health and even their “do not resuscitate” status.

This health related detail is sensitive personal data and carries more onerous care and security obligations than everyday personal information. Similarly, the distress likely from extremely private information, such as on disciplinary matters, falling into the wrong hands should not be underestimated and would have been taken into account by the ICO.

The real issue here was not that the laptop was stolen, nor that the employee took it home, nor that it contained work personal data. The key problem was that the device was unencrypted, facilitating unauthorised access to the personal data. This despite the ICO’s continual messaging over several years that mobile devices containing sensitive personal data must be encrypted.

The ICO also found that the nursing home did not have any relevant policies in place regarding homeworking, encryption use and the storage of mobile devices - nor did it offer adequate training to its employees regarding safeguarding personal information.

The Head of ICO Regions, Ken Macdonald said that the “nursing home put its employees and residents at risk by failing to follow basic procedures to properly manage and look after the personal information in its care… Today’s fine shows we can and will act against any organisation we feel is not taking seriously its duty to look after the personal details it has been entrusted with. In a world where personal information is increasingly valuable, it is even more important to ensure the security of data is not overlooked.”

The ICO has previously taken enforcement action against organisations to compel them to roll out a mandatory data protection training programme for all staff; and to ensure policies and procedures relating to data protection and information governance are brought to the attention of all staff. Despite that, Mr Macdonald further noted that, “…Our investigation revealed major flaws in the nursing home’s approach to data protection. ... Whitehead Nursing Home had totally inadequate provisions for IT security and procedure and poor data protection training.”

So what next?

The ICO will expect all those in the sector to sit up take note and make any necessary adjustments to avoid a repeat. More is expected of the sector due to its trusted position handling the sensitive health and medical related details of millions of individuals.

What else has happened?

The sector has continued to make headlines with another fine, this time to a GP surgery in Hertfordshire. In this case, there was no theft of personal data. Instead, the surgery was fined as a result of complying with their data protection obligations responding to a subject access request.

27


December 2016

So why fine an organisation for responding to a subject access request?

Unfortunately, when disclosing personal data in response to the subject access request, the surgery also released third party personal information to which the data subject was not entitled.

A patient’s ex-partner made a subject access request for the medical records of the former couple’s son. The staff at the GP’s practice responded with 62 pages of information, but these included the woman’s contact details, as well as those of her parents and an older child the man was not related to. The woman had asked the GP practice to take particular precautions to safeguard her personal information.

As a result of this breach, the ICO fined the GP practice £40,000. The ICO found that the breach arose because the GP practice had insufficient systems in place to protect the personal information that it held and further, its staff had not received adequate training, supervision, nor guidance about what could be disclosed or should be withheld.

The ICO’s Head of Enforcement said, “there is no doubt that releasing this information would have caused great distress to the woman, her children and the rest of her family… In failing to ensure staff were properly equipped to safeguard against unauthorised disclosures, this medical practice placed a member of its team in the firing line… It was unfair to expect this person to deal with the potentially devastating fall-out created by sharing personal data wrongly. GPs could have protected staff by providing proper support, training and guidance. They did not do this.”

Liz FitzsimonsPartner


Candice O’BrienAssociate

Tel: +44 1223 44 3639candiceo’[email protected]

What should you be aware of?

Individual data subjects are now able to bring compensation claims for data protection breaches even where no financial loss has occurred. The nature of personal information used in the sector and its extremely personal and private nature, increases the likelihood of distress arising from any breach and thus of claims being made. Similarly, the regulator implying breach of employer responsibility in this case, may lead to employment related claims by affected staff.

With a new Commissioner, the ICO is likely to take a fresh look at compliance and enforcement from summer 2017 and, with the direction of travel being enhanced data protection obligations and fines, organisations should increasingly expect tougher and more robust enforcement.

5 September 2016

28


December 2016

eversheds.com©Eversheds LLP 2016 © Eversheds International 2016. All rights are reserved to their respective owners. Eversheds International is an international legal practice, the members of which are separate and distinct legal entities.DT06140_05/16

Documents

Showcasing a culture of bright ideas Our quarterly life ... · 2 Showcasing a culture of bright ideas Our quarterly life sciences newsletter December 2016 Precis In Fujifilm Kyowa