Today, October 1st 2020, the updated anti-gift scheme in France enters into force. The anti-gift rules impose obligations on pharmaceutical, medical device and cosmetics companies when interacting with healthcare professionals (“HCPs”) and healthcare organizations (“HCOs”) in France. The updated framework was foreseen in the adoption of Ordinance 2017-49 of 19 January 2017 and Decree 2020-730 of 15 June 2020. This blog summarizes the new French rules.
German court extends legal redress options for pharma companies in the drug pricing and reimbursement system
On 10 September 2020, the German Federal Social Court (Bundessozialgericht – “BSG”) has issued an important decision with significant impact on the drug pricing and reimbursement system. It ruled that a pharmaceutical company can file a direct legal action against the early benefit assessment in the so-called AMNOG process. This was not possible so far. The decision therefore significantly broadens the legal redress possibilities of pharmaceutical companies under the German drug pricing and reimbursement regulation.
For drugs with new active substances, the pricing and reimbursement process has three steps: First, an early benefit assessment is performed by the Joint Federal Committee (Gemeinsamer Bundesausschuss – “GBA”) to assess the drug’s “additional benefit” against the relevant comparator therapy. Second, the drug company negotiates the reimbursement price with the health insurances association based on the outcome of the early benefit assessment. If they cannot agree to a price, the third step is an arbitration process. The applicable Social Code V (“SGB V”) allowed legal actions against the arbitration decision and excluded isolated legal actions against the early benefit assessment (Section 35a (8) SGB V).
In this lawsuit, a drug company had launched a prescription drug with an off-patent generic active substance for a skin disease based on own clinical trials. The GBA took the view that the drug has a new active substance and must undergo the early benefit assessment and the AMNOG process. However, the drug company took the position that the product does not have a new active substance and did not submit a product dossier for the early benefit assessment. The GBA nevertheless conducted the early benefit assessment and came to a negative benefit assessment decision. The company filed an action against this decision but during the lawsuit it agreed on a reimbursed price with the health insurance association in order to prevent disadvantages and enable the reimbursement of the drug.
The first instance court (Landessozialgericht Berlin Brandenburg – “LSG”) rejected the action of the company as “inadmissible” and referred to the above mentioned Section 35a (8) SGB V. In contrast, the BSG ruled that despite Section 35 (8) SGB V, a drug company must be allowed to file a legal action against the early benefit assessment even if the company has subsequently agreed to a reimbursement price. Therefore, the BSG annulled the earlier decision of the LSG and referred the matter back to the lower court. The LSG will now have to decide whether the drug indeed had a new active substance and was rightly subjected to the AMNOG process.
The BSG’s full decision has not been published yet but in its press release about the decision, the BSG has summarized its view by referring to the significant legal effects of this benefit assessment to the drug company and finds that Section 35a (8) SGB V does not generally exclude all legal redress options against early benefit assessments in each scenario.
For this particular case, the BSG also noted that it appears possible that the active substance of the drug is not a new active substance. Against this background, the BSG found that blocking all legal redress against an early benefit assessment in all scenarios would violate the constitutional rights of the pharmaceutical companies. In contrast to earlier decisions of German courts in other pricing and reimbursement disputes, this decision appears to put a lot more emphasis on the constitutional rights of the pharmaceutical companies.
Before this decision, a pharmaceutical company could not seek separate legal redress against the early benefit assessment even if it was already contested whether the drug has a new active substance or not. The GBA had the power to just make that assumption and to subject a medicine to the AMNOG process without facing the risk of being exposed to direct legal action. The system required the drug company to wait until the entire AMNOG process of benefit assessment, price negotiation and arbitration is completed before it could file a lawsuit against the arbitration decision. That caused the companies to lose significant time before it could seek legal redress. Further, a drug company had to tolerate that throughout this time and until it obtained a court decision, the negative benefit assessment was made public and harmed its product plus the product was only reimbursed at a low price level because of the negative benefit assessment.
Overall, this new judgment of the BSG clearly strengthens the position of pharmaceutical companies in the AMNOG process and offers a new opportunity to legally challenge the early benefit assessment. The court has particularly stressed the constitutional rights of the pharmaceutical company. It will be interesting how this particular case will continue and which claims the company could make if the lawsuit finds that the drug was unlawfully subjected to the AMNOG process. Further, and beyond this particular case, it appears possible that the principles and arguments of this BSG decision can also be invoked in other disputes in the German drug pricing and reimbursement system.
This BSG decision will have a significant impact to the German drug pricing and reimbursement system and the respective judicature of social courts. Pharmaceutical companies should carefully analyze the full reasoning of the BSG as soon as the complete judgment is available.
The Covington team in Frankfurt, Germany, will continue following and discussing these and other developments on the “Inside EU Life Sciences” blog.
Brexit: UK Guidance on Regulation of Medical Devices from 1 January 2021
The UK Medicines and Healthcare products Regulatory Agency (“MHRA”) has published Guidance on the regulation of medical devices from 1 January 2021 (the “Guidance”). It discusses the regulatory requirements that apply to medical devices after the end of the Brexit transitional period under the EU-UK Withdrawal Agreement. In summary:
- From 1 January 2021, different rules will apply to medical devices placed on the market in Great Britain (e., England, Wales and Scotland) and those placed on the market in Northern Ireland and elsewhere in the EEA.
- Manufacturers may continue to use the CE-mark and it will be recognised in Great Britain until 30 June 2023.
- Manufactures may continue to rely on EEA Notified Body certificates until 30 June 2023 for products placed on the market in Great Britain.
- There will be a new route for conformity assessment of medical devices placed on the market in Great Britain from 1 January 2021.
- All medical devices and in vitro diagnostic medical devices (“IVDs”) placed on the market in the UK have to be registered with the MHRA. There will be certain grace periods for registering existing devices.
- Manufacturers based outside the UK will need to appoint a UK Responsible Person.
Future Regulation of Medical Devices and IVDs in the UK
In the EU, Regulation 2017/745 on medical devices (“MDR”) will enter into force on 26 May 2021 and Regulation 2017/746 on in vitro diagnostic medical devices (“IVDR”) on 26 May 2022. Since both Regulations will enter into force after the end of the Brexit transitional period, they will not be automatically transposed into UK domestic law through the EU Withdrawal Agreement Act. Thus, the UK Government intends to hold a formal consultation process with stakeholders in autumn 2020 with the aim of delivering an attractive world-class regulatory system. The Medicines and Medical Devices Bill, which seeks to increase oversight over medical devices and improve patient safety, is also currently pending before Parliament.
- Great Britain
The Guidance explains the different rules that will apply to medical devices placed on the market in Great Britain (i.e., England, Wales and Scotland) from 1 January 2021. We summarize certain of the key changes below.
a. Registration Requirements
Manufacturers who intend to place medical devices on the market in the UK have to register with the MHRA. Manufacturers based outside the UK will need to appoint a UK Responsible Person, established in the UK, to register on its behalf.
From 1 January 2021, any medical device, IVD or custom-made device must be registered with the MHRA before being placed on the UK market. There will be certain grace periods for manufacturers to complete the registration process. The length of the grace period depends on the category of device:
- Registration by 30 April 2021:
- Active implantable medical devices
- Class III medical devices
- Class IIb implantable medical devices
- IVD List A
- Registration by 31 August 2021:
- Class IIb non-implantable medical devices
- Class IIa medical devices
- IVD List B
- Self-test IVDs
- Registration by 31 December 2021:
- Class I medical devices
- General IVDs
The MHRA has published separate registration guidance to assist manufacturers with the process.
b. UK Conformity Assessment and UKCA Mark
Until 30 June 2023, manufacturers may rely on conformity certificates issued by EEA Notified Bodies for Class II and Class III devices. Moreover, until that date, the CE mark will be recognised on the Great Britain market. CE-marked devices that have been assessed by an EEA Notified Body will be deemed to meet the requirements of the new (UK conformity assessed) UKCA mark. From 1 July 2023, all devices placed on the Great Britain market, will have to bear the UKCA mark.
The UK intends to roll over the designation of any existing UK Notified Bodies, which are currently designated under the Medical Devices Directive 93/42/EEC, the in vitro Diagnostics Medical Devices Directive 98/79/EC and the Active Implantable Medical Devices Directive 90/385/EEC. From 1 January 2021, these bodies will be called “Approved Bodies”. These Approved Bodies will be able to carry out certain conformity assessments under the UK Medical Devices Regulations 2002, as amended.
For self-certification devices (Class I medical devices and general IVDs), the manufacturer will be able to complete the UK conformity assessment procedure and affix the UKCA mark to their devices. Manufacturers of these devices may also continue to rely on the EU CE-mark until 30 June 2023 for products placed on the Great Britain market.
c. Labelling
From 1 January 2021, devices placed on the market in Great Britain will need to bear either the UKCA mark or the CE mark, as well as the number of the EEA Notified Body or UK Approved Body.
Products that bear the CE mark and the EEA Notified Body number do not have to be relabelled until 1 July 2023.
- Northern Ireland
Special rules will apply to devices placed on the market in Northern Ireland.
- Placing Devices on the EU Market
Any device placed on the EU market from 1 January 2021 must comply with the applicable EU legislation and the CE mark must be affixed to the device. The UKCA mark will not be recognised in the EU (including Northern Ireland), unless the device is also accompanied by the CE mark.
Manufacturers that are currently relying on a UK Notified Body need to bear in mind:
- Any devices placed on the EU market before 1 January 2021 in accordance with the EU-UK Withdrawal Agreement, may remain on the EU market.
- For any devices placed on the market after 1 January 2021, the manufacturer can no longer rely on the conformity assessment of a UK Notified Body. A conformity assessment by an EEA Notified Body will be required.
For self-certification devices, Great Britain-based manufacturers may continue to self-certify compliance with EU requirements. All Great Britain-based manufacturers intending to place CE-marked devices on the EU market will also need to appoint an Authorised Representative in the EEA.
Manufacturers based outside the EU may no longer rely on Great Britain-based Authorised Representatives for devices placed on the EU market. They will need to appoint an Authorised Representative in the EEA.
New Licensing Regulations to Import Agricultural Products into the EU: What Traders Should Know to Avoid Missing Quota Allocations in 2021
As of January 2021, many imports and exports of agricultural products covered by EU tariff quotas will be subject to the new licensing rules of Commission Delegated Regulation (EU) 2020/760 (“Delegated Regulation”) and Commission Implementing Regulation (EU) 2020/761 (“Implementing Regulation”) (together, “Licensing Regulations” or “Regulations”). The new Regulations introduce significant changes to – and are likely to disrupt – the trade of a wide variety of food and feed products, including beef, pork, poultry, sugar, cereals, rice, olive oil, garlic, mushrooms, milk, eggs, cheese and cat and dog food. Operators that do not comply with the rules in time (in some cases requiring action as early as of August 31, 2020), may not be able to import or export at least during the first quarters of 2021.
The new Licensing Regulations are intended to introduce common rules for the EU’s import licensing system for tariff rate quotas of agricultural products and to limit speculation and circumvention by operators with multiple shell companies applying for the same tariff rate quotas. The Regulations replace and repeal 39 EU Commission Regulations and Commission Implementing Regulations that separately regulated import and export licenses by product category and/or origin. They also establish new registration and declaration of independence requirements on license applicants that will force most operators to merge their shell companies. However, the lack of clarity and possible contradictions of the new requirements, and the fact that their effective timing of application depends on the starting date of the quota period of each tariff quota may result in a disruption of trade of some agricultural products.
The Licensing Regulations will start to apply at different times to different tariff quotas as both Regulations “apply to the tariff quota periods starting from 1 January 2021 onwards.” Such differences in the time of application may even occur with tariff quotas affecting identical products but with different origin. Below, we outline the main requirements that apply to applicants of import licenses and illustrate their timing with respect to quota periods that start in January 2021:
- Establishment and VAT Registration: Only operators that are VAT-registered in an EU Member State may apply for import and export licenses. The relevant national license issuing authority for each operator will be that of the Member State where the operator is registered.
- LORI Registration: For many tariff quota order numbers, the Licensing Regulations require operators to register with the European Commission’s new License Operator Registration and Identification (“LORI”) electronic system prior to applying for import tariff quota licenses. This requirement of prior LORI registration and the declaration of independence that is needed for such registration are intended to prevent the practice of operators having hundreds of shell companies to apply for import licenses simultaneously.
- Declaration of Independence: Operators wishing to LORI register must declare that they are not linked to other legal or natural persons applying for the same tariff quota order number, or that, where such links exist, the different operators regularly perform substantial economic activities. Such “substantial economic activities” are defined as actions or activities carried out by an operator with the objective of ensuring production, distribution, or consumption of goods and services.
- Securities: Operators applying for any EU import license must submit a security to the license issuing authority before their application deadline. The amount of this security will vary depending on the quota order number for which the operator is applying. Securities will be proportionally forfeited where operators fail to effectively import and market the products within a prescribed period.
- Reference Quantity: The new Licensing Regulations introduce new rules on the amounts of quota for which operators may apply for. Where a tariff quota requires proof of “reference quantity,” applicants may not apply more than their reference quantity during the particular tariff quota period. An operator’s reference quantity must be calculated on the basis of two cumulative elements:
- First, the reference quantity must be based on the average annual quantity of products that the operator released for free circulation in the EU during two consecutive 12-month periods ending two months before the first application may be submitted for the tariff quota period. Moreover, the reference quantity can only be calculated based on products released for free circulation in the EU which fall within the same tariff quota order number and have the same origin.
- Second, the reference quantity of any operator must never be higher than 15% of the quantity available for the tariff quota concerned during the tariff quota period.
These new reference quantity rules may substantially disrupt previously common import flows where large importers may not LORI register in time or are constrained by the new limits.
- Proof of Trade: If the Commission decides to suspend the reference quantity requirement or where quota order numbers only require a “proof of trade,” operators must submit such proof of trade as part of their applications for import licenses. The Annexes to the Implementing Regulation define the minimum quantity of product (e., the proof of trade) that operators must have released for free circulation in the EU in each of the two consecutive 12-month periods ending two months before the first application may be submitted for the tariff quota period.
- Possible Suspension of Reference Quantity and/or LORI registration: To limit possible disruptions of trade, the Delegated Regulation provides for different exceptions from the reference quantity requirement. Possible exceptions include the following:
- The Commission must suspend the reference quantity requirement where by the end of the ninth month of a tariff quota period, the quantities applied for under a tariff quota are lower than the quantity available under the tariff quota for that tariff quota period.
- The Commission may suspend the reference quantity requirement for any tariff quota where “unforeseeable and exceptional circumstances threaten to cause underutilization of that tariff quota.” While unclear, suspension of the reference quantity should also entail suspension of the LORI registration requirement.
- During the first two tariff quota periods as of January 2021, license issuing authorities may allow operators to establish their reference quantities in accordance with the requirements of the old rules.
- Deadlines for license applications: To apply for import licenses under the new Regulations, operators must comply with a series of strict deadlines. For example, license applications for tariff quota order numbers with a tariff quota period starting on January 1, 2021 must be submitted between November 23 and November 30, 2020. Where LORI registration is required, operators wishing to apply during these dates must submit their LORI registrations by August 31, 2020. This is because LORI registrations must be submitted at least two months before the month in which the operator will submit its license application.
Traders, producers, as well as governments seeking to protect the value of their concessions under their trade agreements with the EU, should assess the impact of the Licensing Regulations on their trade and their supply chains. They should also consider engaging with the European Commission to try to agree on temporary exceptions.
Germany Prepares New Law for Patient Data Protection and Increased Digitalisation in Healthcare and for “Data Donations” for Research Purposes
On 3 July 2020, the German parliament passed a draft bill (German language) for patient data protection and for more digitalisation in the German healthcare system (Patientendaten-Schutz-Gesetz). The draft bill is currently in the legislative procedure and is expected to enter into force in autumn 2020.
One of the main objectives of the bill is to make everyday life easier for patients and healthcare professionals by increasing use of innovative digital applications, while protecting sensitive health data. It is assumed that increased digitalisation in the healthcare sector will open up opportunities at all levels of healthcare, both for patients and healthcare providers. As such, it is expected that digitalisation will help to take care of the growing number of chronically ill patients, to relieve the burden on specialists, to make better use of resources and to prepare the healthcare system for the challenges of the future.
A series of documents that so far has only been provided and used in hardcopy, such as certain prescriptions or patient files, will now be made available in digital form. In addition, a special app shall be made available to enable patients to redeem digital prescriptions in pharmacies. Alternatively, patients may present a 2D barcode on paper. In this case, the prescription will also be transmitted to the pharmacy in digital format. Further, the law aims to enable patient referrals from one doctor to medical specialists to be made in digital form (currently this is done in writing and requires the referral to be collected from the doctor’s office).
From 2021, statutory health insurance providers will be obliged to offer their insured persons electronic patient files (ePA). To ensure that this is effectively used, patients may request that their doctor include their medical records in their personal ePA. In addition, from 2022, the ePA will also be able to display other information that is currently only documented in hardcopy, for example, maternity logs, paediatric health records and vaccination cards. To incentivise doctors, they will be paid to use ePAs. Patients will ultimately have control over their ePAs and be able to decide which data is stored there and who will have access. For example, patients may specify that a doctor may have access to the ePA, but that certain findings are not displayed. The protection of the processed patient data is ensured by a gapless regulation of the chain of responsibilities.
From 2023 onwards, patients will have the option of voluntarily making the data in their ePAs available to researchers as part of a “data donation”. The donation could become an important element to increasing the availability of real-world evidence on new treatments and medicines. Informed consent will be required from each of the patients, and it will be possible for that consent to be given digitally. Patients will be free to choose the scope of their data donation and can limit access to certain information. The data that is released will be restricted to certain research purposes, like research on improving the quality of healthcare.
This new law will have a significant impact on the digitalisation of the entire German healthcare system. It will also create a better infrastructure for research with patient data and for collecting real-world-evidence for scientific and regulatory purposes.
Healthcare companies, providers and payors as well as technology and research companies should closely follow the next steps of this legislative development in Germany.
Advocate General delivers Opinion on Novel Food Status of Insects
On 9 July 2020, Advocate General Bobek delivered his opinion on the status of edible insects (e.g., mealworms, locusts, and crickets) under the EU novel foods rules. While insects fall under the scope of the new EU Novel Food Regulation 2015/2283, the opinion recommends the Court of Justice to deny novel food status to such ingredients under the old legal regime of now repealed Regulation 258/97. Continue Reading
Manufacturers and Marketers Beware: The EU Adopts New Restrictions on Products Containing PFOAs
Since July 4, 2020 the manufacture, marketing and use of perfluorooctanoic acid (“PFOA”), its salts and PFOA-related compounds (collectively, “PFOAs”), and products containing them, is significantly restricted in the European Economic Area (“EU/EEA”). The restrictions were introduced by a Commission Delegated Regulation amending Annex I to the EU POPs Regulation, and are intended to implement a decision of the ninth meeting of the Conference of the Parties to the Stockholm Convention that was held from April 29 to May 10, 2019.
The new PFOA restrictions will have significant impact on a wide variety of products marketed, and businesses operating, in the EU/EEA, including semiconductors, textiles, firefighting products, pharmaceuticals, medical devices, and materials used in the life sciences industry. In effect, the new restrictions implementing the Stockholm Convention are significantly broader than the restrictions on PFOAs that were introduced under the EU REACH Regulation in 2017, and which the Commission now intends to repeal. Continue Reading
The European Commission Announces a Sustainable Food Strategy for Europe
The COVID-19 pandemic has focused attention on the need for resilient supply chains, including perhaps most importantly, the critical need for sustainable supplies of healthy food. In line with this, the European Commission (the “Commission) has published a Communication on a Farm to Fork Strategy (the “Strategy”) where it announces a series of legislative and policy initiatives intended to place sustainability at the center of EU food law and policy by ensuring fair, healthy and environmentally-friendly food systems. The Strategy is one of the main pillars of the European Green Deal that, in December 2019, the European Commission announced as its policy flagship for the next five years.
Commission Publishes Further Guidance on Clinical Trial Conduct During COVID-19 Pandemic
On 28 April 2020, the European Commission published further Guidance on the Management of Clinical Trials during the COVID-19 (Coronavirus) Pandemic (the “Guidance”), supported by the European Medicines Agency (EMA) and the national Heads of Medicines Agency (HMA). The Guidance is an update to the previous version published in late March (see InsideEULifeSciences blog post here).
As outlined in the Commission’s press release, the Guidance’s objective is to mitigate clinical trial disruption in Europe during the COVID-19 pandemic. The Guidance introduces pragmatic and harmonizing measures that facilitate changes to trials
“…to ensure the necessary flexibility and procedural simplifications needed to maintain the integrity of the trials, to ensure the rights, safety and wellbeing of trial participants and the safety of clinical trial staff…”
As clinical trials in the EU are authorized at the national level, the Guidance encourages Member States to implement its recommendations “to the maximum possible extent” and to add to the Guidance where clarity on national legislation and derogations is needed. The Guidance does not supersede any current national legislation and derogations and the measures introduced will be revoked once the COVID-19 pandemic has passed.
The Guidance’s recommended measures include, amongst others, the following:
- Initiating new trials: Sponsors must assess the “feasibility and immediate necessity” of starting a new clinical trial. Sponsors should submit any large, multinational trial protocols for the investigation of new treatments for COVID-19 via the accelerated ‘Voluntary Harmonisation Procedure’. Further, developers of medicines or vaccines against COVID-19 are invited to e-mail the EMA via 2019-ncov@ema.europa.eu.
- Changes to ongoing trials: The Guidance recommends possible changes to restrict site visits to those “strictly necessary”, e.g., temporarily halting trials or closing trial sites, slowing down the recruitment of new trial participants, converting physical site visits into phone or video visits, or even, in exceptional cases, running routine diagnostic tests at a relevant local, authorized clinical facility rather than the trial site itself.
- Changes to safety reporting: Investigators may collect adverse events from the trial participant through alternative means, e.g., by phone calls or telemedicine visits, as appropriate.
- Changes to informed consent: Where written consent by the trial participant is not possible, consent mat be given orally by the trial participant in the presence of an impartial witness. The witness must sign and date the informed consent form. Further, where re-consent for changes to trial conduct is necessary, a site visit should be replaced with oral consent, where possible.
- Changes in the distribution of the investigational medicinal products (“IMP”): The Guidance recommends measures to limit site visits and pre-empt possible supply chain failures, e.g., by storing larger amounts of IMP at the site, making larger amounts of IMP available to trial participants, delivering IMP to trial participants’ homes directly, and even, in exceptional cases, permitting distributors to deliver to trial participants directly in order to alleviate the sponsors’ increased burden of IMP shipments.
- Changes in the distribution of in vitro diagnostic and medical devices: The Guidance recommends measures to pre-empt possible supply chain failures, e.g., by maintaining appropriate stock of devices. Any such stockpiling must not pose a risk to the treatment of patients outside the trial.
- Changes to monitoring: There should be a risk-based approach to any changes to monitoring. The Guidance recommends measures to replace or reduce on-site monitoring where it cannot be cancelled or postponed by conducting monitoring by, e.g., phone calls, video visits, and centralized monitoring of data acquired by electronic data capture systems, or, in exceptional cases and bearing in mind trial participants’ data protection rights, remote Source Data Verification (“SDV”) of medical records. Annex I of the Guidance outlines certain controls to protect trial participants’ rights during remote SDV.
In relation to communication with authorities, the Guidance emphasizes that the relevant competent authorities and ethics committees must be informed of:
- substantial amendments;
- urgent safety actions; and
- other COVID-19 related changes not related to participants safety and that do not seriously affect the benefit-risk balance for the participants and the scientific value of the trial.
Sponsors should mark all such communications with COVID-19 in the subject field. The Guidance also provides a non-exhaustive list for the classification of mitigation measures such as: (i) substantial amendments; (ii) urgent safety actions; or (iii) other measures.
Going forward, Health and Food Safety Commissioner, Stella Kyriakides, emphasized that “…it is absolutely crucial that we show flexibility in our rules to maintain research on critical treatments…” Due to the rapidly evolving situation, the Commission has advised sponsors and investigators that further updates to the Guidance are possible and likely.
German Government Adopts FDI Emergency Measures with Focus on Healthcare Sector
On 28 April 2020, the German government published a ministerial draft for an amendment of the Foreign Trade and Payments Ordinance (“Draft Ordinance”). The amendment supplements the existing Foreign Direct Investment (“FDI”) regime in order to tighten it with respect to acquisitions of critical companies in the healthcare sector by purchasers from third countries. The Draft Ordinance comes shortly after the German government proposed a new draft bill on 31 March 2020 reforming the current Foreign Trade Act (the “Draft Bill”). For more information on the Draft Bill please see our previous blogpost.
Peter Altmaier, the German minister for economic affairs stated that the competent authorities must learn about such critical acquisitions in the healthcare sector early enough to be able to examine them and that the new rules are intended to allow the authorities to prevent a flowing abroad of “medical know-how and production capacity, which are essential for the health care of the population”.
The Draft Ordinance is a direct reaction to the current Covid-19 crisis and will come into force ahead of other, broader amendments to the Foreign Trade and Payments Ordinance that were previously planned in connection with the Draft Bill. These broader amendments to the Foreign Trade and Payments Ordinance can still be expected later this year.
Draft Ordinance Expands the List of Sectors Requiring Mandatory Filing
Under the current FDI regime, the German authorities can investigate acquisitions in any industry sector where an acquisition by a foreign investor poses a threat to public order or security. However, mandatory filing of transactions is only necessary for certain key listed sectors.
The new Draft Ordinance extends the list of those sectors that require a mandatory filing. It further lowers the acquisition threshold from 25% to 10% for transactions within those sectors.
The new sectors include the development, manufacture or distribution of:
- services necessary to ensure the functioning of the German public safety digital radio network;
- personal protective equipment (or “PPE”), and including the materials and components required to manufacture PPE – inter alia protective masks (e.g. FFP2 and FFP3 masks), protective gloves or protective suits which ensure the protection of the health and safety of users;
- pharmaceuticals that are essential to guarantee the provision of health care of the population, and including the active ingredients for such pharmaceuticals;
- medical devices intended for the diagnosis, prevention, monitoring, prediction, prognosis, treatment or alleviation of life-threatening and highly contagious infectious diseases – inter alia surgical masks and respirators; and
- in vitro diagnostic medical devices used to provide information on physiological or pathological processes or conditions or to establish or monitor therapeutic measures in relation to life-threatening and highly contagious infectious diseases – inter alia diagnostic tests for the detection of an infectious agent.
Additional Clarifications
The Draft Ordinance further clarifies some existing FDI rules, including the following:
- Regarding the application of FDI screening to asset deals, the Draft Ordinance clarifies that FDI screening also applies to asset deals, in particular, where the acquisition includes (i) separable business units or (ii) essential business resources, which are required to maintain the operation of the undertaking or a separable part of it.
- In examining whether an acquisition by a foreign investor poses a threat to public order or security, the Draft Ordinance introduces a new provision (similar to Article 4(2) EU FDI Screening Regulation), allowing the German regulator to take into account the specific characteristics of the investor. This may include, for instance, whether the foreign investor is directly or indirectly controlled by the government, including state bodies or armed forces, of a third country.
No Expiry Date
Even though the draft ordinance arose in the light of the COVID-19 crisis, it will not have an expiry date. As the Draft Ordinance explicitly states, the new rules also address future crisis situations and aim to maintain the functioning of the public health care sector within Germany at all times.
Observations
The Draft Ordinance introduces new sector categories for which an FDI filing will be mandatory. It should be noted that the Draft Bill amending the Foreign Trade Act proposes to introduce a gun-jumping provision, i.e. a prohibition on implementing transactions prior to receiving a clearance decision, applicable to all transactions for which a filing is required. This gun-jumping provision will also apply to the above-mentioned new categories covered by the Draft Ordinance. As a consequence, acquisitions in the categories listed above will fall under the scope of the gun-jumping prohibition and under the new rules of the Draft Bill, a breach may ultimately result in criminal sanctions.
With the introduction of these new emergency measures, the German government joins a number of other EU countries reacting to concerns relating to takeovers by foreign investors of “critical” companies. While Italy and Spain have adopted emergency matters for a broad range of industry sectors, the German proposal has a clear focus on the health care sector and reserves additional FDI rules covering other sectors for the already expected forthcoming revision of the Foreign Trade and Payments Ordinance.
