Report. Life Sciences. May 2016

Transcription

1 Life Sciences May 2016 Report Appropriate Regulation Important for Pharmacy Customers Does an employee have the right to compensation for inventions made at work and, if so, what is reasonable compensation? E-cigarettes are not medicinal products in Sweden Sued for SEK 38 million for restricting other snus manufacturers promotion abuse of dominant position? Active Bacteria an Illegal Health Claim New legislative changes in trademark law how will this affect your registrations? How will the Swedish healthcare system and industry be affected by the new county division system? Should the terms of a licence agreement concerning a revoked patent be enforcable?

2 Facts and figures Setterwalls has a proud history spanning over 130 years. During that time we have always been cutting edge. That is as true today as it ever was. Setterwalls has undergone substantial expansion over the past 10 years, both in terms of the number of lawyers and practice areas. Setterwalls dynamic growth and the firm s participation in several high-profile cases and transactions have pushed the firm to its prominent position in the Swedish legal services market. We are now one of the largest law firms in Sweden, employing more than 190 lawyers at offices in Stockholm, Göteborg and Malmö. Setterwalls is organized into practice groups and trade and industry oriented teams but Setterwalls lawyers try not to think in compartments. Each problem will have unique features; each client individual goals. So the firm is committed to pulling together multidisciplinary teams from across the firm to find the best solutions in the areas where its clients businesses encounters the law. Setterwalls provides legal services to all the players in the international pharmaceutical sector as well as manufacturers of medical devices; public authorities and suppliers of health foods. Our clients also include companies within the innovative and speciality pharmaceutical industry. Setterwalls is frequently involved in IP litigation and related matters, competition law and public tenders, regulatory issues, commercial legal work and transactions. Setterwalls is known as a highly reputed firm with excellent capabilities in contenious matters, particularly relating to IP and patent disputes. Also handles transactional and regulatory issues on a national and cross-border level. Client base includes major international players in the pharmaceutical and biotech sector. Recent activity includes assisting with a number of cases involving new technology and data protection Chambers Europe 2016 With statements from clients The team was professional and structured in its approach, and always tried to understand what would do the trick for the business and the issue at hand. Setterwalls Life Sciences group is top ranked by Chambers Europe The Life Sciences group has substantial experience in dealing with authorities and has managed a number of important lawsuits in court for our pharma clients, not only concerning patents and trademarks, but also regulatory issues. Our team is a multi-disciplinary team bringing together the experience and expertise from all offices and with in-depth knowledge of the sector.

3 In this issue of Life Sciences Report you can read about employees right to compensation and the new agreement governing the area. It also provides an update on legislative changes to trademark law and how these will affect your registrations. We also summarise the statement issued by the Advocate General in the long-running dispute between Hoechst and Genentech regarding the obligation to pay royalties on a revoked patent. These are just some of the interesting articles in this latest edition of Life Sciences Report. Our guest contributors, Managing Director Mr. Johan Wallér and Chief Economist Mr. Johan Davidson from the Swedish Pharmacy Association, discuss the new Pharmacy Inquiry and the patient perspective. Please feel free to contact us at Setterwalls for a more in-depth look at these and other issues. Lennart Arvidson, partner and head of Setterwalls Life Sciences group together with Malin Albert, senior associate and Dag Fredlund, partner. lennart.arvidson@setterwalls.se malin.albert@setterwalls.se dag.fredlund@setterwalls.se

4 Life Sciences Report May Guest contributors Mr. Johan Wallér and Mr. Johan Davidson Appropriate Regulation Important for Pharmacy Customers Just a few months ago, Sweden s New Pharmacy Inquiry began conducting a review of the country s pharmacy market. Åsa Kullgren has been appointed as the Inquiry s special investigator. Her commission includes analysing the availability of pharmacy services and medicinal products throughout Sweden. Another important aspect of the Inquiry concerns reviewing how pharmacies role in promoting better use of medicinal products can be developed. When the Inquiry was announced, the national media dubbed it Sweden s most pointless inquiry. In many respects, this criticism was easy to understand. A large number of the facts that the Inquiry has been tasked with analysing have already been compiled and are well-established. What s more, in addition to such data as the Swedish Pharmacy Association can provide, since its re-regulation in 2009, Sweden s pharmacy market has already been reviewed in no less than four major reports issued by the Pharmaceutical and Pharmacy Inquiry, and in a comprehensive evaluation by the Swedish Agency for Public Management. Moreover, a number of other public authorities have also analysed various aspects of the pharmacy market s re-regulation. The market is also subject to continuous oversight by three public authorities and by the Swedish Data Protection Authority. As such, the re-regulated pharmacy market is hardly lacking in scrutinizers. If you add to that the stable and very high level of satisfaction reported by Swedish pharmacies customers since such measurement began just after the re-regulation, it is understandable that yet another inquiry might seem unwarranted. Nonetheless, the Swedish Pharmacy Association has chosen to welcome this new inquiry nonetheless, given that we recognise that there are a number of areas where pharmacies service to their customers could be further improved, if the rules, regulations and other conditions governing pharmacies were amended. At the same time, we would like to emphasise that we see no need for a more comprehensive regulation of pharmacies activities overall. The prospective improvements that we envision can rather be achieved through a modest loosening of the current regulation, or through a better, more appropriate regulation. The concept of better regulation is discussed in legislative circles within the EU, meaning that laws and policies should be designed so as to achieve their objectives at minimum expense. At times, this is a matter of reducing the total number of regulations in force, although it is just as often a case of achieving the same aims through an improved or different regulation that is less costly from an economic standpoint. New or amended regulations must also be preceded by a thorough impact analysis and gain the support of interested parties through their involvement in the process. We hope that the New Pharmacy Inquiry will adopt this same approach to regulation. In Sweden, circumstances viewed as problematic

5 Life Sciences Report May have too often been resolved by adding yet more rules to an already unwieldy body of regulations. This type of solution is rarely helpful and most often creates new problems. One case in point where better regulation is needed concerns the 24-hour rule, which will be a particular focus of the Inquiry. In short, the rule entails that a pharmacy customer must be able to receive their medication within 24 hours, if it cannot be provided immediately. However, the possibility for a customer to have their ordered medication (customer reservation) delivered to a pharmacy within 24 hours is wholly beyond the pharmacies power to control. Ordering deadlines and delivery times to pharmacies are determined solely by the two pharmaceutical distributors ( wholesalers ). Consequently, the 24-hour rule, which formally imposes obligations on pharmacies, is subject to a host of distributor-related exceptions that, in reality, mean that if the distributors consider themselves unable to deliver within 24 hours, then no 24-hour limit applies. Obviously, this circumstance is difficult for pharmacy customers, who expect delivery within 24 hours, to understand: pharmacies must be able to deliver within 24 hours, but because their distributor is not bound by the same obligation, delivery time often exceeds 24 hours. Also from a regulatory standpoint, it is very peculiar that a duty to supply within 24 hours has been imposed on only one part of the pharmaceutical supply chain, namely on that part that has no power to influence the delivery of ordered medication to pharmacies. In this respect, pharmacy customers can hope that the regulation s practicality will be improved. The pharmacy market is subject to extensive and, at times, highly complex regulation. Any review or analysis of this regulation must take customers and the regulation s impact on them into account. Customers want to be able to obtain their medications in a safe and efficient way and, at the same time, receive reliable information on how to use them. Pharmacies have an important public function to fill in this respect, and thus, their ability to execute this function needs to be as well-supported as possible. In the end, it is pharmacy customers who provide a true indication of the health of the market. Johan Wallér CEO, Swedish Pharmacy Association johan.waller@sverigesapoteksforening.se Johan Davidson Chief Economist, Swedish Pharmacy Association johan.davidson@sverigesapoteksforening.se

6 Life Sciences Report May Does an employee have the right to compensation for inventions made at work and, if so, what is reasonable compensation? If an employee invents something as part of his/hers ordinary work, the employer own the rights to it is it not that simple? Well yes, unless the parties have agreed on to the contrary. This is the basic premise under Swedish law but what many might not know is that the employee also has the right to be reasonably compensated, and this cannot be agreed upon beforehand. Since December last year there are new guidelines to consider for what is considered to be reasonable.

7 Life Sciences Report May In Sweden, employees rights to inventions are regulated by Right to the Inventions of Employees Act, (SFS 1949:345). The legislation came into force in 1949 with the aim of eliminating the risk of conflict between employers and employee-inventors. Even though many years have passed since then, only a few of its provisions have been amended. What many people might not know, is that most provisions in the legislation are non-mandatory and can be deviated from with the exception of the employee s right to compensation. In short, the law states that the employer automatically acquires the right to utilise patentable inventions made by employees. The employee s right to compensation should be reasonable and cover costs incurred in connection with the invention. The only guidance given is that reasonable depends on the value of the invention, the extent to which the employer has acquired rights to the invention and the significance of the position might have had in terms of the development of the invention. Since last year, the definition of reasonable compensation has however been clarified in the new agreement entered into between Svenskt Näringsliv (the Confederation of Swedish Enterprise, which represents the employers) and PTK (the Council for Negotiation and Co-operation representing salaried employees in the private sector). Not only is this clarification longed for, the agreement itself is important since it includes many parties in the labour market. To summarise, the agreement divides inventions into three groups, depending on how closely the invention is linked with the employer s business: A type A invention is a result of work performed as part of the position and will automatically belong to the employer; A type B invention is not so closely connected to the position but will be reserved for the employer, which means that the employer may, within 8 months, choose whether or not they wish to acquire the rights; and A type C invention has no connection to the employer s business, meaning that the employer receives no rights to the invention. or less predetermined amount. For patentable inventions, the standard flat rate should be half a Swedish price basic amount (i.e. SEK 22,150 in 2016) or a higher amount as decided at the company level (for inventions of substantial value for the business, the agreement indicates a full price basic amount). In comparison, the previous standard rate according to the agreement was SEK 1,700 when the employer was informed of the invention and an additional SEK 2,800 14,000 if a patent was applied for and granted. Thus, the amount for what is reasonable compensation has been increased significantly. Not only has reasonable compensation been set at a higher amount, the agreement also mentions that royalties may be an appropriate form of remuneration in some cases, for example if the patent is licensed and the licensing has a direct link to the employee s invention. The previous agreement between the parties did not mention royaty or continuous remuneration at all. The new agreement is expected to clarify what is reasonable compensation by setting a standard flat rate and will most likely contribute to avoiding long, costly and time-consuming disputes but this remains to be seen. Jennie Espelund, associate and member of Setterwalls Life Sciences group. jennie.espelund@setterwalls.se Under the agreement an employee is obliged, without delay, to inform their employer when he/she suspects that he/she has come up with an invention of type A or B. The compensation for these inventions will, depend on the nature of the invention and be based on a standard flat rate, i.e. a more

8 Life Sciences Report May E-cigarettes are not medicinal products in Sweden The Swedish Supreme Administrative Court ruled in a judgment of 17 February 2016 (Case No ) that what are known as e-cigarettes containing nicotine are not considered medicinal products. The court is thereby making a different assessment than the lower Swedish courts. The Swedish Supreme Administrative Court made the same assessment regarding the classification of this kind of product as the German Supreme Court, the Bundesverwaltungsgericht, in three cases on 20 November Background In October 2013 the Swedish Medical Products Agency prohibited a company from selling e-cigarettes since, according to the Agency, they had such a feature as to be considered medicinal products by function. The Medical Products Agency set forth inter alia the following as grounds for its decision: The products have a relatively high content of nicotine, which is a pharmacologically active substance with a well-established medical use, particularly for smoking withdrawal. There are a number of approved medicinal products that contain nicotine in various pharmaceutical forms. The current products are medicinal products that are not authorised for sale and not covered by any recognition. They may therefore not be sold under the Medicinal Products Act. At the same time, the Medical Products Agency ruled that the decision should apply immediately and be subject to a periodic penalty of SEK 700,000. In Sweden what constitutes a drug is regulated in the Medicinal Products Act, which in turn is based on EU Directive 2001/83/EC. Assessment of the Supreme Administrative Court The Supreme Administrative Court starts by noting that a prerequisite for a product that contains a substance having a physiological effect to be designated as a medicinal product by function is that the competent authority, with due diligence, has made an assessment in the case of the individual product, taking into account inter alia the properties of the product according to current scientific knowledge (see Hecht-Pharma, C-140/07, EU:C:2009:5, paragraph 40). According to established case law of the CJEU, this assessment in each case shall take into account all the properties of the product, including in particular its composition, its pharmacological, immunological and metabolic properties according to current scientific knowledge, the manner in which it is used, its spread, how known it is to consumers and the risks that may be associated with use of the product (see e.g. Laboratoires Lyocentre, C-109/12, EU:C:2013:626, paragraph 42). It is further evident from case law that to be classified as a medicinal product by function, the product should have a composition that also includes the dosage of its active substances which in normal use is likely to significantly restore, correct or modify physiological functions in humans (see e.g. Chemische Fabrik Kreussler & Co., C-308/11, EU:C:2012:548, paragraph 35). The fact that a product contains a substance that affects the functions of the body is not sufficient for it to be included in the function-based definition of medicinal products. In addition, the product must have the function of preventing or treating disease (see the Commission v. Germany, paragraph 64, cf. Hecht-Pharma, paragraph 35). The term medicinal product thus does not cover substances which only restore, correct or modify physiological functions. It is also

9 Life Sciences Report May necessary that they are likely to cause immediate or indirect beneficial effects on human health (see consolidated actions Markus D. and G., C-358/13 and C-181/14, EU:C:2014: 2060, paragraphs 36 38). When motivating its decision the Medical Products Agency stressed that the products contain nicotine, which is a pharmacologically active substance with a well-established medicinal use, particularly in medicinal products used in smoking withdrawal. The Medical Products Agency cited several studies that support the claim that e-cigarettes with nicotine concentrations comparable to those in the products in question have a pharmacological effect which may significantly affect bodily functions, and that such products can be used to treat tobacco dependence. The Supreme Administrative Court found that the studies cited did not permit any definite conclusions regarding the effects and significance of e-cigarettes in smoking withdrawal. In several of the studies it was also stressed that further research is needed in this field. The scientific findings that were reported in the case thus did not adequately prove that the use of the products had such a beneficial effect on human health as is required for them to be classified as medicinal products. Further the Court noted that the assessment shall also take into account inter alia how the product is used and spread. The Court studied a report from the European Commission, Special Eurobarometer 429, in which around 28,000 EU citizens were interviewed about the use of tobacco and e-cigarettes. The report shows inter alia that of the Swedish participants, only two percent had tried to quit smoking using e-cigarettes. At the same time, it was evident that for a majority of respondents, smoking withdrawal was the most common reason for why they started using e-cigarettes. A large percentage of them, however, felt that the product had no effect on their smoking in the long term. Further the Court found that the e-cigarettes at issue had been said to be designed as a stimulant healthier than tobacco cigarettes. They were thus designed to imitate regular tobacco cigarettes. The products were not provided with specific instructions on how they should be used for the user to reduce their smoking and addiction to nicotine. The Medical Products Agency thus had no grounds for its decision and marketing ban has therefore been lifted. Helena Nilsson, Specialist Counsel and member of Setterwalls Life Sciences Group. helena.nilsson@setterwalls.se

10 Life Sciences Report May Sued for SEK 38 million for restricting other snus manufacturers promotion abuse of dominant position? Snus manufacturers often provide specially designed snus coolers to the retailers at no cost to the retailer. When they do this, they enter into category management agreements with the retailers. In 2012 the leading snus manufacture Swedish Match made some adjustments to the agreement that they entered into with the retailers. This new agreement meant that the other snus manufacturers were restricted in the promotion of their products, but is it really legal? From a regulatory perspective, the snus market is very special. Snus is regulated as food in Sweden, but it is not something that you eat; it is more like a chewing gum that you spit out. Snus is a tobacco product that consists of finely ground tobacco which has been treated with different flavours in order to achieve its characteristic taste. It is either sold in small bags or loose to be placed under the lip. Snus is a perishable that only stays fresh for a couple of months; as a result snus is often sold from specially designed coolers in stores in order to maintain the freshness of the product. These specially designed coolers are provided by the snus manufacturers at no cost to the retailers. The fact that snus contains tobacco means that it is subject to Swedish tobacco legislation. This legislation strictly limits the promotion of such products, which is why many retailers are forced to place their snus coolers behind the counter and are not permitted to market these products other than to a very minor extent. Due to this strict legislation, consumers of snus have little opportunity to compare the different types and manufacturers of snus. It is estimated that a total of one million people in Sweden use snus on a daily basis. At the moment there is an interesting case within competition law at the District Court of Stockholm; the case is likely to come to a main hearing in late autumn this year. The case concerns abuse of dominant position. The Swedish Competition Authority (SCA) has sued the leading snus manufacturer Swedish Match. The SCA has requested the court to order Swedish Match to pay SEK 38 million in administrative fines. Swedish Match consistently has very high market shares for snus and as a result, it also controls the market of these specially designed coolers. Other manufacturers of snus are dependent on the coolers that Swedish Match provides; otherwise they will encounter major problems when selling their products. When Swedish Match provides these coolers, they enter a category management agreement with the retailer. This agreement contains various terms regarding the provision of the snus products, including terms that regulate the promotion of products provided by other manufacturers. In the spring of 2012 Swedish Match made some adjustments to the terms of its category management agreements; in particular they made a change in the regulation of small labels that are placed in the coolers to show the prices of the different manufacturers of snus. These labels are often the only way for the manufacturers to distinguish their products due to the strict regulation of tobacco product marketing. Before Swedish Match changed their terms, the other manufacturers were free to design their own labels but as a result of these new terms, the other manufacturers were restricted in this respect. Moreover the other manufacturers were forced to use a template provided by Swedish Match and there was no room to use their own designs.

11 The case raises the question of abuse of dominant position, which is illegal under EU and Swedish competition law. Is it really competition on merit? Does it harm consumers through reduced price competition? What makes it even more interesting is the fact that snus is banned in the EU, but Sweden has received a permanent exemption from this ban. In conclusion snus is subject to a strict regulation and it will be interesting to follow this case in the District Court. Malin Albert, senior associate and member of Setterwalls Life Sciences group. malin.albert@setterwalls.se

12 Life Sciences Report May Active Bacteria an Illegal Health Claim Arla Foods marketed a range of dairy products and yoghurts under the name Arla Wellness in packaging bearing the term active bacteria. The Administrative Court in Stockholm has ruled that this term is to be considered a health claim, and an illegal one at that, according to EU Regulation No. 1924/2006. Description of the Case In its capacity as the supervisory authority, the City of Stockholm s Environment and Public Health Committee (the Committee) ordered Arla Foods to cease marketing bacteria as good or active in connection with the Arla Wellness product line. The key issue in the case has been whether or not the term active bacteria should be viewed as a health claim pursuant to EU Regulation (EC) No. 1924/2006 on nutrition and health claims made on foods (the Regulation). The court was subsequently called on to determine whether the claim is legal or not. The Parties Grounds and Arguments Among other things, Arla Foods claimed that the term active bacteria is nothing more than neutral and necessary consumer information and that, consequently, it does not constitute the type of health claim referred to in the Regulation. The company also cited a ruling by a German court concerning probiotics, and claimed that a stricter application of the Regulation in Sweden would constitute a barrier to trade. The Committee primarily asserted that the expression active bacteria gives consumers the impression that the product has a positive effect on health and that it is thereby subject to the Regulation s prohibition. In support of its claim, the Committee cited the Swedish National Food Agency s guidelines concerning the Regulation, which state that expressions like containing active bacteria cultures are used to describe the bacteria cultures included as providing health benefits. Based on this interpretation, the expression comprises a non-specific health claim that lacks a corresponding approved health claim, rendering it illegal. The Administrative Court s Judgement The Administrative Court agreed with the Committee and declared that, in accordance with the Swedish National Food Agency s guidelines, the term active bacteria describes that a bacteria culture included in the product has health benefits. Furthermore, the Wellness product name, in itself, implies that the product promotes health. This at least suggests to the average consumer that there is a link between the active bacteria in the products and good health. Thus, active bacteria is to be viewed as the kind of health claim referred to in the Regulation. Given that no approved health claim concerning active bacteria exists, the expression is illegal according to the Regulation and may not be used in marketing. Regarding the risk of imposing a barrier to trade, the Administrative Court pointed out that it is the duty of the courts to interpret and apply EU law and that the fact that a federal court in Germany found that a similar expression does not constitute a health claim does not discharge the Swedish court from this duty. Consequently, Arla must cease using the expression in its marketing of Arla Wellness products. The company has been allowed a transition period of six months from the date on which the judgement becomes final.

13 Concluding Remarks We previously reported in an Update on a decision handed down by the Swedish Market Court concerning illegal statements made in connection with the dietary supplement VitaePro. These two judgements demonstrate the importance of carefully assessing what can be considered a health claim, which health claims have been evaluated and approved and how they may be used. The European Commission keeps a register of all evaluated health claims. In addition, non-specific claims may also be considered as health claims, or as contributing to how another term used in marketing is understood. Thereby, they are subject to examination in accordance with the Regulation. As in this case, this may concern a name or brand that implies health benefits. If uncertain, you should seek advice prior to launching a new brand or an advertising campaign. By way of conclusion, and from a practical standpoint, it may be noted that, in terms of the value of the exposure gained, the attention that Arla Foods has received as a result of the case likely more than compensates for the cost of the ordered adjustment. Helena Nilsson Specialist Counsel and Per Lidman, partner and members of Setterwalls Life Sciences Group. helena.nilsson@setterwalls.se per.lidman@setterwalls.se

14 Life Sciences Report May New legislative changes in trademark law how will this affect your registrations? At the beginning of 2016 a new trademark directive and a new trademark regulation entered into force. The major issue which could potentially affect all rights holders, including both research and development companies and parallel import companies, is a new classification practice whereby rights holders risk losing existing protection if no action is taken. Below we have summarised some of the new rules and the actions that are necessary. To apply for a trademark, you need to identify the goods and services for which protection is wanted. All goods and services are divided into 45 classes, depending on their material and field of use. Each class has a so called class heading, which indicates the major goods and services belonging to that specific class. In the past, the general understanding within the EU was that by using the class heading, you automatically obtained protection for all goods and services belonging to the specific class. For example, if your registration covered the class 10 heading, namely surgical, medical, dental and veterinary apparatus and instruments; artificial limbs, eyes and teeth; orthopaedic articles; suture materials, this would automatically cover all goods belonging to the class including contraceptives, ear protection devices, feeding bottles etc. Following a judgement by the European Court of Justice ( ECJ ) of 19 June 2012 (C-307/10, IP TRANSLATOR ), the earlier practice was changed. The ECJ clarified that by using a class heading, protection would only be provided for the goods and services covered by the natural and literal meaning of a class heading. The result was that the scope of protection for class headings was interpreted differently depending on whether an EU application was filed before or after 20 June 2012.

15 Life Sciences Report May As a result of the new trademark regulation, the scope of protection will be interpreted consistently for all trademark applications and registrations, irrespective of when an application was filed. The scope of protection for class headings for existing trademark registrations will therefore no longer automatically be interpreted to cover all goods and services belonging to a specific class, as this was thought to excessively restrict the market for other potential trademark holders. Referring to our example above, the trademark holder whose registration covers the class 10 heading therefore risks losing protection for goods covered by the earlier interpre-tation such as contraceptives, ear protection devices, feeding bottles etc. if no action is taken. To not lose protection, trademark holders who filed an application before 20 June 2012 may file a declaration stating that a trademark should cover goods and services other than those covered by a class heading s natural and literal meaning. Such a declaration must be filed before 24 September It is therefore recommended that all trademark holders review their existing trademarks to ensure that the trademark s scope of protection corresponds to the trademark holder s current and future needs. We can of course help you with this review of your trademark portfolio. When filing trademark applications going forward, trademark applicants must also take care to define the list of goods and services for which the applicant wants protection in a sufficiently clear and precise manner to avoid the application being rejected. goods are intended for a third country in which the trademark holder has no relevant protection. Trademark holders will also be able to take action against preparatory acts, such as labels using the trademark, even if the specific label has not been attached to any products. As a result of the new trademark directive, a new trademark law will enter into force in Sweden, but this is likely to take some time. The EU Member States have three years to implement the changes and, for some procedural changes, the Member States will have as long as seven years to implement them. We will continue to monitor and report on these major changes. Lovisa Nelson and Sara Söderling, associates and members och Setterwalls Life Sciences Group. lovisa.nelson@setterwalls.se sara.soderling@setterwalls.se It may also be worth noting that the new regulation additionally includes more effective rules to prevent counterfeit. With the new rules, the trademark holders will be able to take action against counterfeit goods in transit in the EU, provided that the holder of the goods cannot prove that the

16 Life Sciences Report May How will the Swedish healthcare system and industry be affected by the new county division system? It is a well-known fact that many countries have an ageing population. Sweden is no exception, and consequently the national healthcare system is being faced with new challenges. Today s county division system in Sweden derives from the 17th century and its review and modification have long been under discussion. Finally, last summer, the government gave a committee the task of presenting a proposal for a new county division system, with the aim of reducing the number of counties to fewer than the current twenty-one. The committee s main consideration has been the citizens need of healthcare and thus an appropriate division with an efficient organization. The committee s proposal was presented on 9 March 2016 and involves a new division system made up of only six counties. This new system is so far merely an initial proposal, and in 2017 the government will submit a bill to the parliament with the aim of the new county division system becoming effective as of 1 January However; concerns have already been raised about how the proposal will affect the quality of the healthcare system and how the industry will be affected. In the proposal the new counties, known as great regions, have been created based on equal population sizes to enable a tax base high enough in each county to offer specialist care of high quality. According to the proposal, efficient healthcare requires a higher volume of patients than many counties have today. The Minister for Public Administration Ardalan Shekarabi (Social Democrats) has said that the counties today do not have enough patients to be able to make efficient investments or to offer research and healthcare of the highest quality, and thus the recruitment of expertise is suffering. Furthermore, the committee considers that the large variation in county populations may lead to unequal conditions for good, secure healthcare and therefore the proposal aims to reduce administrative borders. From a healthcare perspective the committee can only see positive effects; the risk is instead that the new counties will be considerably larger geographically, which may be challenging from a democratic viewpoint since the politicians will be further away from the citizens. The advantage is considered to be that the counties will be responsible for their own healthcare system, and that the healthcare regions of today can be abolished. The new division system is also expected to reduce bureaucracy and thus lead to better healthcare, mainly since healthcare will continue to be one of the counties main responsibilities. An issue which, however, has not been discussed is how the proposal will affect the healthcare industry, especially since not all affected parties have commented on the proposal yet. The government nevertheless considers the proposal to be characterised by dialogue, humility and transparency. Many healthcare partnerships across county boundaries are already in place, and several coincide with the proposed new boundaries. Another fear is that citizens will not feel any connection to the new counties due to their previous regional identity. Doubts have also been raised that a centralised organization will lead to deterioration in healthcare, and some even pose the question whether it is not better to

17 Life Sciences Report May nationalise healthcare. Another concern is that the regional hospitals will lose their customers from other counties. The county of Uppsala can be used as an example. If the new division system is implemented, Uppsala could lose SEK 130 million annually since this is the income generated from specialist care in the county of Värmland each year. After the division Värmland will be transferred to a great region in the western part of Sweden, with Sahlgrenska University Hospital in Gothenburg as its regional hospital. What also might be problematic is the fact that some labour market regions will be divided in order to achieve an equal tax base between the counties for example, Stockholm and Uppsala. a democratic deficit whereby elected representatives become distanced from citizens. The proposal will most likely be revised before it is adopted, and Setterwalls will continue to follow how the healthcare system and industry will be affected by such a new proposal. Malin Albert, senior associate and Jennie Espelund, associate and members of Setterwalls Life Sciences Group. malin.albert@setterwalls.se jennie.espelund@setterwalls.se To summarize, the new county division raises many questions about how patients will be affected, and some fear that the government is rushing forward with the proposal and that the proposal could be an ineffective measure that will not improve the quality of healthcare but rather create

18 Life Sciences Report May Should the terms of a licence agreement concerning a revoked patent be enforcable? The long-running dispute between Hoechst and Genentech regarding the latter s obligation to pay royalties on a revoked patent has elicited a statement from the Advocate General that has led to animated discussions regarding the potential clash between Article 101 of the Treaty of the Functioning of the European Union (TFEU) and patent licences. The question is whether or not a licence agreement based on a revoked patent places the company at a competitive disadvantage vis-a-vis its competitors. According to the Advocate General, the short answer is no. The issue at hand concerns a non-exclusive worldwide licence agreement from 1992 which allowed Genentech to use so called enhancers. The underlying European patent was revoked in 1999 due to lack of novelty. However, Genentech did not terminate the licence agreement until 2008 (the right to terminate the agreement on the grounds of convenience was an expressed right provided in the licence agreement, on the condition that two months notice was given). Up until the termination, Genentech paid the annual fees in accordance with the licence agreement. However, the 0.5-per-cent running royalty, payable on product sales, was never paid. The ICC arbitrator concluded that, according to the licencing agreement, Genentech was required to pay royalties for products made until the agreement was terminated. The arbitrator s decision has been contested by Genentech in the Paris Court of Appeal. The company claims that an obligation to pay royalties on a retroactively-revoked European patent contradicts the interpretation of Article 101 TFEU, since Genentech would be placed at a disadvantage compared to its competitors, who are now able to use the enhancers without paying remuneration. The Paris Court of Appeal referred the question below to the Court of Justice for a preliminary ruling: Must the provisions of Article 101 TFEU be interpreted as precluding effect being given, where patents are revoked, to a license agreement which requires the licensee to pay royalties for the sole use of the rights attached to the licensed patent?

19 Life Sciences Report May As stated above, Advocate General Wathelet s short answer to this question is no. A more detailed explanation of his opinion concluded that, if the commercial purpose of the licence agreement is to avert (patent-)litigation, and the licensee can: terminate the licence agreement by giving reasonable notice; challenge the validity or infringement of the patents; and retain his freedom of action after termination, an international arbitral award that obligates the licensee to pay royalties owed in accordance with the agreement and for the entire duration of the agreement, does not violate Article 101 TFEU, despite the revocation of the patent protecting the technology in question. The Advocate General based parts of his statement on the CJEU s judgement in Ottung (320/87, EU:C:1989:195), in which it was established that an obligation to pay royalties in accordance with a licence agreement after the patent in question had expired: may infringe Article 101(1) TFEU where the license agreement either does not grant the licensee the right to terminate the agreement by giving reasonable notice, or seeks to restrict the licensee s freedom of action after termination. While acknowledging the differences between Ottung and the circumstances of the case at hand, the Advocate General concluded that the approach taken in the former can be applied to the latter. Thus, since the licence agreement contained terms favourable to Genentech regarding termination and the subsequent time period, the Advocate General held that obliging Genentech to pay the royalties owed would not invoke Article 101(1) TFEU. Which of these approaches is correct? The issue can be divided into two parts, based on the point in time when the patent was revoked. During the period in which the patent was valid, Genentech had access to a technology that others were excluded from, giving it a head start in that particular market. As far back as in the Nordic Committees statement published in NU 1963:6 p. 320, it was held that the revocation of a patent should be ex tunc (as though it never existed) with regards to infringement, and ex nunc (from this day forward) as concerns agreements. However, applicability is to be determined on a case-by-case basis and it is the terms of the licence agreement in question that will prove decisive. Since licence fees already paid can never be recovered, arguably, Genentech should not be able to avoid payment, given that it did not pay on time. Thus, it is reasonable that Genentech be obliged to pay the royalties in accordance with its agreement with Hoechst. The complexity arises because the agreement was not terminated until nine years after the patent was revoked. In the interim, all Genentech s competitors were able to use the technology without cost. According to the US approach, a former patent holder is not permitted to charge for the use of a technology that should never have been protected by a patent in the first place. The second approach is the one taken by Advocate General Wathelet, in which the freedom of contract is strong, and as long as it is possible for the licensee to terminate the contract easily and on reasonable terms, he is bound by its terms until such occurs. We are still awaiting the CJEU s preliminary ruling on the matter. The statement made by the Advocate General follows the view expressed in the Technology Transfer Guidelines, Paragraph 184, which concludes that, concerning technology licence agreements, royalty arrangements are to be viewed as part of commercial negotiations, and thus, as falling outside of the scope of Article 101 TFEU. In this context, it is interesting to note that the US Supreme Court established an opposite rule when ruling in Brulotte v Thys Co., The Court stated that a royalty payment cannot be charged beyond the life of the patent. This view has been criticized excessively in the patent sphere and academic circles, which is why, to some degree, it came as a surprise when the Supreme Court upheld the rule by its ruling in Kimble v Marvel Enterprises, LLC in June Lennart Arvidson, partner and head of Setterwalls Life Sciences group and Sofia Sjöö, trainee and member of Setterwalls Life Sciences group. lennart.arvidson@setterwalls.se sofia.sjoo@setterwalls.se

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