European alliance of plant breeders fails to halt the march of the Nagoya Protocol
[co-authors: Joel Smith, Rebekah Gay, Andrew Wells – Herbert Smith Freehills]
The CJEU has rejected two challenges to the EU Regulation implementing the Nagoya Protocol. This piece of international law has changed significantly the way that biological natural resources are accessed, researched and exploited across a number of sectors. The CJEU held that the applicants, two consortia of German and Dutch plant breeders, lacked sufficient standing to challenge the Regulation under EU law. In the absence of any further challenges, therefore, the Regulation will most likely be implemented in its current form. This is likely to have significant consequences for both industry and research more generally.
Among other grounds, the plant breeders had alleged that the Regulation was insufficiently clear and created disproportionate red tape and additional expenses for their businesses. By declaring their claims inadmissible, the CJEU declined the opportunity to address these concerns, which are shared by many others in a wide range of industries. Significant uncertainty therefore still remains regarding the scope and application of the Nagoya Protocol to organisations and researchers (both publicly and privately funded) throughout the EU.
- The Nagoya Protocol Regulation will impose new obligations on any business working with “genetic resources” to keep detailed records of this work and take steps to verify that all such resources were obtained with the prior informed consent of the country of origin and, where appropriate, indigenous peoples from whose “traditional knowledge” they were derived.
- Note, however, that where a genetic resource is not the subject of “traditional knowledge”, prior informed consent will only be required where the country in question has asserted sovereign rights over its genetic resources under the Nagoya Protocol.
- The definition of “genetic resources” is extremely broad, encompassing any “functional unit of heredity”. The Protocol therefore applies to everything from whole animals and plants, to bacteria and viruses, down to individual genes and, by extension, enzymes as “derivatives” of said genes. The Regulation will therefore affect clients across a very wide range of industries, far beyond the agribusiness, pharmaceutical and biotechnology companies which are typically affected by legislation in this area.
- The only genetic resources excluded are those which were accessed prior to one year after the date of entry into force of the Nagoya Protocol in the EU, 12 October 2015.
- The Regulation applies to anyone who is a “user” of genetic resources, which includes all research and development on such material and even biochemical derivatives from such material that do not themselves contain “functional units of heredity”.
- Any person or organisation who uses genetic resources will also have to take steps to ensure that the benefits of their research and development are “equitably” shared with the country and, where appropriate, indigenous community of origin, which may include but is not limited to a proportion of the profits, shared IP rights or technology transfer, the terms of which must be agreed in advance before the research is commenced.
- Users will also be obliged to keep detailed records of the manner in which they have obtained and used them, which must be maintained for 20 years after the use of those resources has ceased.
- In the UK, enforcement of the Regulation is to be implemented by virtue of the Nagoya Protocol (Compliance) Regulations 2015. The new duties on users of genetic resources will be enforced in the UK by a range of new civil penalties, from fines to injunctions on the use of the resources in question. Failure to comply with the record-keeping requirement, or failure to respect a civil penalty imposed on a user, will result in criminal sanctions within the UK.
- The additional compliance burden placed upon users in order to avoid liability is likely to be significant, and the numerous points on which the Regulation is unclear, such as its possible retrospective effect and unknown extent of its compatibility with other international law concerning plant varieties, are highly likely to result in further litigation.
- Longer term concerns include the potential emergence of “green trolls” (by analogy with conventional patent trolling) in which licensing companies (and possibly national governments) may attempt to exploit the lack of clarity in the Protocol to extract money from business allegedly using locally sourced genetic resources.
The Nagoya Protocol has the noble goal of protecting the world’s biodiversity by incentivising its preservation. However, its mechanism for doing so, and in particular its implementation in the EU, have raised concerns from both industry and legal practitioners.
The Nagoya Protocol obliges its signatory states to put measures in place to ensure that their citizens do not access or utilise “genetic resources” in another signatory state, without first gaining that state’s prior, informed consent. Further, if the resource in question is associated with the “traditional knowledge” of a particular indigenous group within that country, anyone wishing to access or use said resource will additionally have to gain the prior, informed consent of that group, having due regard to that group’s traditional laws and customs concerning ownership.
The Protocol also significantly changes the landscape of intellectual property rights, by creating a mechanism through which an “equitable” portion of any benefits (including money, intellectual property and new technology) acquired from exploiting genetic resources are shared with the country of origin and, where applicable, the indigenous group of origin. It cuts across the traditional model of rewarding innovation through the plant variety and patent systems, which grant proprietors exclusive rights to exploit the invention/variety and to seek a commercial return.
The intended effect of these new mechanisms is that signatory states and indigenous communities within those states will have a much stronger incentive to preserve their native biodiversity, as the Nagoya Protocol will (in theory) guarantee them a fair portion of any proceeds from its exploitation.
The contentious issues
Unsurprisingly, such a wide-ranging change to existing intellectual property practice and procedure has not been without its critics. It has been alleged that the Protocol amounts to a “nationalisation” of all organisms within the borders of states, and could be invoked to deny foreign researchers access even to research epidemic diseases. For instance, Indonesia has asserted the controversial principle of “viral sovereignty”. Proponents of the Protocol have responded that the natural genetic resources of a country are indeed that state’s property, no less than its mineral resources, and that unauthorised use of such resources should be seen as morally equivalent to theft.
Aside from these essentially moral questions over sovereignty and freedom of inquiry, many critics of the Nagoya Protocol have questioned its practicality. Many, if not most, “genetic resources” do not neatly respect the borders of countries. What, for instance, is to be done if a drug is developed from a substance found in the body of a migratory bird, which travels through many jurisdictions, some of which have ratified the Protocol and others have not? And what about even more complex cases involving animal or plant varieties whose lineage contains genetic components originating in ancestors from all over the world? Although the text of the Nagoya Protocol in theory lays the foundation for global regulatory mechanisms to resolve such difficulties, these are to date untested and legally unprecedented, creating significant new uncertainties.
Regulation 511/2014, which implements the Nagoya Protocol in the European Union, has been subjected to further criticism for its perceived lack of clarity and the onerous new duties it will impose on businesses and both privately and publicly funded researchers. Although initial plans by the European Parliament to impose criminal sanctions for breach of the Protocol and make it retrospective were abandoned at the insistence of the European Commission, the new burden of regulatory compliance for industries and laboratories is expected to be significant, including onerous new record keeping requirements and novel due diligence procedures for ascertaining the origins of genetic resources. Further, it has been argued that the final compromise lacks legal clarity, making the scope of the Regulation and the new standards for compliance difficult to determine. Unsurprisingly, this has made the Regulation the subject of the current legal challenges.
The European legal challenges
The EU Regulation implementing the Nagoya Protocol was challenged in cases T-559/14 and T560/14 by two consortia of plant breeders from Germany and Holland respectively, both of which were concerned about the Regulation’s impact upon their members. Plant breeding relies almost exclusively upon genetic resources to develop new varieties of plants, and as a result the members of the two consortia believed that their industry would be uniquely hard hit by the implementation of the Regulation.
Grounds of the challenges
The German consortium pleaded that the Regulation would severely limit the “Plant Breeders’ Exemption” under the Regulation on Community Plant Variety Rights 2100/94 and European Unified Patent Court Agreement. This important carve-out has historically allowed the development of an “open source” approach to plant breeding in Europe, in which the use of protected plants for the development of new plant varieties is exempted from the monopolies afforded by EU plant variety rights. The German breeders argued that this exemption was key to the success of the European plant breeding industry, which itself played an important role in maintaining biodiversity. Therefore, the argument ran, that the erosion of this exemption by the Regulation would both prejudice their interests and conflict with the EU’s other obligations under its own and international law.
Further, the German consortium alleged that the new compliance burdens created by the Regulation were disproportionate, in particular because the requirement to keep records for 20 years following the cessation of use of a genetic resource would, de facto, impose a never-ending and onerous obligation upon all plant breeders in the EU to keep detailed records of all genetic resources in their possession.
Finally, the German consortium argued that the Regulation created legal uncertainty in three key areas. First, by being insufficiently clear on the definition of a “user” of genetic resources, it was alleged to be susceptible to open-ended interpretation which made it impossible to ascertain whether or not a given resource was being “utilised”. Second, despite the European Commission’s intent to remove retrospective effect from the Regulation, the plant breeders argued that even the compromise text was still vague enough to potentially allow for retrospective effect. Third, under the Regulation even adopting industry best practice only “may reduce” the risk of non-compliance, leaving unclear the steps necessary to avoid non-compliance altogether.
The Dutch plant breeder consortium indicated that it objected to the Regulation on exactly the same grounds as the Germans. Accordingly, the CJEU gave a single ruling on the admissibility of both these challenges.
Standing of the applicants
Unfortunately for those hoping for clarification from the CJEU on the scope of the Regulation, the Court restricted its ruling to the narrow procedural question of whether the applicants had sufficient standing to bring the action. Despite the consortia’s claims that they were especially prejudiced by the Regulation’s obligations, the Court held that they did not form part of a distinct class by the standards of EU administrative law and thus lacked sufficient standing to mount a legal challenge to the Regulation.
On 18 May 2015 the CJEU held both applications to be inadmissible. At present, it remains unclear whether there is scope to appeal against the decision. This deals a significant blow to any further attempts to challenge the Regulation. If an industry which depends almost exclusively on genetic resources for its business did not have sufficient standing, it seems unlikely that any other industry in which such use plays a lesser role could succeed where they have failed. At the very least, the bar for a successful challenge has been set very high, and it is more likely than not at this stage that the Regulation will come into force without amendment. This will have wide implications for industries far beyond the agribusiness sector which was the immediate source of the legal challenge.
Regarding other avenues for plant breeders specifically, Article 2(2) of the Regulation in principle allows an exemption for genetic resources for which alternative “access and benefit-sharing” mechanisms are governed by “specialised international instruments”. Some commentators have argued that this could in theory allow at least some plant breeders to evade the Nagoya Protocol using the benefit-sharing procedures of the International Treaty on Plant Genetic Resources for Food and Agriculture, as some industry leaders have also suggested. However, it remains untested, whether such an exemption would be upheld in practice.
Global perspective – Australia
The outcome in Europe has potentially broader implications, given that other countries who have ratified the Protocol are likely to be looking to the EU Regulation as a potential model. The Australia Federal Government, for example, has foreshadowed that the European model will highly likely “set the standard for other industrialised users of genetic resources”. While Australia, a “mega-diverse” country with enormous biodiversity of significant commercial interest, already has legislation in place that the Government considers meets the requirement for a “provider” country, it must now look to implement legislation that meets its obligations as a “user” country. The CJEU’s decision is therefore likely to have a significant impact on the implementation of the Protocol in countries such as Australia.