Keeping pace with the ever-changing life sciences industry, Morrison Foerster stays on top of the trends and political, legal, and economic drivers to support striking the balance between innovative discovery and purposeful business planning to assure our clients continued success. MoFo Life Sciences shares timely legal and business insights and in-depth analyses on trends and the complex technologies at the heart of the global pharmaceutical, biotechnology, diagnostics, medical devices, digital health, and AgTech fields.Learn more about our <a href="https://www.mofo.com/capabilities/life-sciences-healthcare" target="_self">Life Sciences practice</a>.<h2 dir="ltr">ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Dr. Meghan Poon counsels clients on patent preparation and prosecution, portfolio strategy, and IP due diligence in the areas of biotechnology and biologics. She has significant experience in diverse technologies including antibodies, cell therapies, gene therapies, diagnostics, and gene-edited plants. She represents clients ranging from large international pharmaceutical companies to midsized companies, startups, and universities.Meghan has filed numerous Patent Term Extension applications to secure additional term for her clients’ patents, which cover FDA-approved products. In addition, Meghan has extensive experience addressing complex obviousness-double patenting and subject matter eligibility issues impacting her clients’ patent portfolios. Meghan also represents clients in both investor-side and target-side due diligence, in deals from seed funding to initial public offerings.Prior to law school, Meghan attended graduate school at the University of California, Los Angeles, where she received a Ph.D. in biological chemistry based on her work on protein-protein and protein-DNA interactions at a molecular level. Meghan is the author of several scientific publications and has presented her research at international conferences.Meghan received her J.D. from the University of Southern California Law School and spent a year as a visiting student at Santa Clara University, where she focused on intellectual property.

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Dr. Meghan Poon counsels clients on patent preparation and prosecution, portfolio strategy, and IP due diligence in the areas of biotechnology and biologics. She has significant experience in diverse technologies including antibodies, cell therapies, gene therapies, diagnostics, and gene-edited plants.

Meghan Poon

Wolfgang advises clients on contentious and non-contentious matters involving their most valuable intellectual property assets in life sciences, digital, and high-tech industries.His subjects of focus include research and development collaborations, complex licensing agreements, and other technology transactions, as well as know-how protection strategies, and employee invention law. He also has substantial experience in litigating patents, trademarks, and other intellectual property assets, often in a multijurisdictional context. In addition, Wolfgang and his team frequently clear trademarks and ad campaigns and prosecute trademark applications.Wolfgang is co-editor of our <a href="https://lifesciences.mofo.com/" dir="ltr" target="_blank">MoFo Life Sciences Blog</a>.Wolfgang is a partner of Morrison Foerster based in our German office in Berlin.<h4 dir="ltr">Representative Transactional Matters</h4><ul dir="ltr"><li>U.S.-based BioTech fund on various research collaborations and other transactions with German start-ups or research institutions.</li><li>Negotiate multimillion-euro strategic partnership between two AgTech leaders concerning the development and commercialization of pest-resistant transgenic traits.</li><li>Craft global multi-million collaboration regarding AI-powered robotic MaaS.</li><li>UK-based digital health company on product roll-out of RPM applications in Germany; coordinate international expansion.</li><li>Advise numerous German start-ups on their U.S. expansion.</li><li>Draft diverse global patent and know-how license agreements in the areas of AgTech and life sciences—including gene licensing and licensing of genome editing technologies (e.g., CRISPR)—and medical devices; draft correlating supply and distribution agreements.</li><li>Structure IP rights in connection with joint ventures and other M&A transactions, including the carve-out of a patent-heavy semiconductor business comprising nine jurisdictions into a German–U.S. joint venture.</li><li dir="ltr">Advise on government-funded, multi-partner R&D projects and/or R&D projects with academic institutions, as well as on employee invention law.</li></ul><h4 dir="ltr">Representative Contentious IP Matters</h4><ul dir="ltr"><li>Lead counsel in an international dispute between software companies on rights and obligations following termination of a multi-million licensing and distribution arrangement; coordinate local counsel.</li><li>Defend Japanese chip manufacturer in high-profile SEP-litigation; advise on global settlement arrangement.</li><li>Represent leading internet retailer in patent infringement and concurrent invalidity proceedings in the context of a multijurisdictional dispute concerning touch-screen technology.</li><li>Represent diverse pharmaceutical and life sciences companies in national and cross-border patent infringement proceedings and other technology-related disputes, including preliminary injunctions as well as pre‑trial discovery and inspection proceedings, concerning, inter alia, drug-coating technologies, toner cartridges, medicinal gases, transgenic plants, and vaccines.</li><li dir="ltr">Conduct trademark, copyright, and false advertising litigation, including, most notably, a high-profile trademark litigation for a German bank, and a nine-country cross-border trademark litigation involving a famous pharmaceutical brand.</li></ul>

Dr. Wolfgang Schönig berät Mandanten zum Schutz des geistigen Eigentums sowohl in streitigen als auch nichtstreitigen Angelegenheiten, mit einem besonderen Fokus auf die IP-rechtliche Beratung von Unternehmen aus den Bereichen Life Sciences, Digitalwirtschaft und High-Tech.Zu seinen Beratungsschwerpunkten gehören Forschungs- und Entwicklungskooperationen, komplexe Lizenzvertragsgestaltungen und andereTechnologie-Transaktionen, sowie Know-how-Schutz-Strategien und das Arbeitnehmererfinderrecht. Er verfügt zudem über umfangreiche Prozesserfahrung zur Durchsetzung von Patenten, Marken- und anderen IP-Rechten, häufig auch in einem grenzüberschreitenden Kontext. Darüber hinaus bewertet Dr. Wolfgang Schönig zusammen mit seinem Team regelmäßig die Rechtskonformität von Werbekampagnen, prüft die Verfügbarkeit von Marken und entwickelt entsprechende Anmeldestrategien.Dr. Wolfgang Schönig ist Co-Editor des Life Sciences Blogs von Morrison Foerster.Er hat seinen Doktortitel an der Heinrich-Heine-Universität Düsseldorf und seinen LL.M. an der Fordham School of Law in New York erworben, jeweils mit Schwerpunkt im gewerblichen Rechtsschutz. Seinen MBA-Abschluss erhielt er von der European University in Barcelona.Dr. Wolfgang Schönig ist Partner des deutschen Büros von Morrison Foerster in Berlin.<h4 dir="ltr">Repräsentative Transaktionen</h4><ul><li dir="ltr">BioTech-Fonds mit Sitz in den USA bei verschiedenen Forschungskooperationen und anderen Transaktionen mit deutschen Start-ups oder Forschungseinrichtungen</li><li dir="ltr">Verhandlung einer hochvolumigen strategischen Partnerschaft zwischen zwei Technologieführern im Bereich Crop Science betreffend der Entwicklung und Kommerzialisierung von bestimmten Resistenzen</li><li dir="ltr">Gestaltung einer globalen Multi-Millionen-Zusammenarbeit für KI-gestützte Roboter</li><li dir="ltr">Ein in Großbritannien ansässiges Unternehmen für digitale Gesundheit bei der Markteinführung von RPM-Anwendungen in Deutschland; Koordination der internationalen Expansion</li><li dir="ltr">Beratung zahlreicher deutscher Start-ups bei deren US-Expansion</li><li dir="ltr">Strukturierung und Verhandlung diverser Patent- und Know-How-Lizenzen in den Bereichen Ag Tech und Life Sciences – einschließlich Fragen zu genome editing wie CRISPR-Medizingeräte, sowie Gestaltung von Softwarelizenzverträgen und Erstellung korrespondierender Liefer- und Vertriebsvereinbarungen</li><li dir="ltr">Strukturierung von IP-Rechten im Zusammenhang mit Joint Ventures und anderen M&A-Transaktionen, darunter die Koordination eines neun Länder umfassenden IP Carve-Outs im Rahmen eines Halbleiter-JVs</li><li dir="ltr">Beratung zu staatlich geförderten Multi-Partner F&E-Projekten und/oder F&E-Projekten mit akademischen Einrichtungen sowie zum Arbeitnehmererfindungsrecht</li></ul><h4 dir="ltr">Repräsentative IP-Streitigkeiten</h4><ul><li dir="ltr">Lead Counsel in einem internationalen Rechtsstreit zwischen Softwareunternehmen über Rechte und Pflichten nach Beendigung einer millionenschweren Lizenz- und Vertriebsvereinbarung; Koordinierung der lokalen Anwälte</li><li dir="ltr">Verteidigung eines japanischen Chipherstellers in einem prominenten Streitfall bezüglich Standardessentieller Patente (SEP); Beratung zu einer globalen Vergleichsregelung</li><li dir="ltr">Verteidigung einer führenden Internetplattform gegen Ansprüche eines Patenttrolls wegen vermeintlicher Verletzung von Patent bezüglich Touchscreen-Technologie sowie korrespondierende US-Streitigkeiten</li><li dir="ltr">Vertretung von Pharma- und Life Science-Unternehmen in nationalen und grenzüberschreitenden Patentverletzungsverfahren und anderen technologiebezogenen Streitigkeiten, einschließlich einstweiliger Verfügungsverfahren und vorprozessualer Beweissicherungs- und Besichtigungsverfahren, unter anderem in Bezug auf Arzneimittelbeschichtungstechnologien, Tonerkartuschen, medizinische Gase, transgene Pflanzen und Impfstoffe</li></ul>

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Wolfgang Schönig is a partner of Morrison Foerster (International) LLP based in our German office in Berlin. His practice specialty is advising on IP aspects relative to transactions in, among others, the life sciences, AgTech and pharmaceuticals industry, as well as legal representation in IP disputes. Wolfgang is specialized in research and development collaborations, complex licensing agreements, technology acquisitions, know-how protection strategies, and employee invention law.

Wolfgang Schönig focuses his practice on IP aspects relative to transactions in the digital, telecoms, high tech, life sciences, and pharmaceuticals industry, as well as legal representation in IP disputes.

Wolfgang Schönig advises clients on IP aspects relating to transactions in, among others, the life sciences, AgTech and pharmaceuticals industry, as well as legal representation in IP disputes. His additional focus areas include research and development collaborations, complex licensing agreements, technology acquisitions, know-how protection strategies, and employee invention law.

Wolfgang Schönig

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USPTO Discontinues Accelerated Examination Program in Favor of Expanding Track One Program

Subject Matter Eligibility of AI Medical Treatments

Data Privacy at the Crossroads of AI and Life Sciences: U.S. and EU Perspectives

Federal Circuit Vacates and Remands in Long-Pending Dispute over CRISPR IP

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Jianyuan (Yuan) Hua, FDA Regulatory and Compliance Associate in New York, contributed to the drafting of this post.The U.S. Food and Drug Administration (FDA) issued the much-anticipated <a target="_blank" href="https://www.federalregister.gov/documents/2022/02/23/2022-03227/medical-devices-quality-system-regulation-amendments">proposed rule</a> “Medical Devices: Quality System Regulation Amendments,” which will harmonize the current Quality System Regulation (QSR; 21 CFR Part 820) with the international standard specific for medical device quality management systems set by the International Organization for Standardization, ISO 13485:2016.  QSR has been the core regulation for device manufacturing in the United States since its implementation over 20 years ago.  Medical device establishments have come to have an increasingly international presence, necessitating significant efforts to comply with different requirements.  In order to reduce compliance costs for industry and harmonize domestic and international requirements, FDA first signaled its <a target="_blank" href="https://www.fda.gov/media/123488/download">intent</a> to align its QSR with the ISO 13485:2016 in December 2018, and estimated that a proposed rule would be issued in fall 2019.  After delays likely caused by FDA’s shift in priorities to focus on the COVID-19 response, the agency finally published the proposed rule last month.  The long-awaited and long-delayed proposed rule, if finalized, will rename 21 CFR Part 820 as “Quality Management System Regulation” (QMSR), and will harmonize the U.S. good manufacturing practices with international standards.  The proposal projects to save medical device establishments hundreds of millions of dollars in compliance costs. Many expected that FDA would rewrite QSR in order to align the U.S. regulatory framework with the ISO standard.  To the surprise of many, FDA performed a gap analysis and now proposes to incorporate ISO 13485 by reference rather than re-writing the regulation in its entirety.  ISO 13485 was first introduced in 1996, around the same time when FDA significantly revised Part 820, establishing the current QS regulation.  ISO 13485 went through many revisions since its first issuance, and its most current version has become more closely aligned with the requirements in part 820.  Notably, the 2016 updates to ISO 13485 included several requirements mandated by FDA under its QSR, such as document control and records management, particularly as both relate to protecting confidential information.  This alignment, as well as the agency’s commitment to global regulatory harmonization of medical device regulatory processes, prompted FDA to further explore incorporating the Quality Management System (QMS) requirements of ISO 13485:2016 into Part 820.  However, this “incorporation by reference” approach only applies to the current 2016 version of ISO 13485 and “[a]ny future revisions to this standard would need to be evaluated” before being incorporated.  As before, the proposed rule will only apply to finished devices, although FDA reiterates that it has the legal authority to apply the quality system requirements to manufacturers of components or parts of finished devices when needed.  The proposed QMSR, a nine-page document, is a “gap regulation” that is intended to be read in conjunction with ISO 13485.  Specifically, the proposed rule addresses FDA-specific requirements by adding necessary requirements and definitions that are absent from ISO 13485 and removing redundant or inconsistent regulations from Part 820.  For example, the proposed rule removed the term “device master record” (DMR) because (1) the concept is covered by ISO 13485’s Clause 4.2.3 on medical device files (MDF) and (2) under the QSR, the DMR is part of the design history file, which is inconsistent with the ISO standard.  Below are some key sections of the new proposed rule.Inspection.The proposed rule does not impact FDA’s authority to conduct inspections under section 704 of the Food Drug and Cosmetic Act (“FD&C Act”) (21 U.S.C. § 374).  However, FDA intends to replace its current inspection approach for medical devices, the Quality System Inspection Technique (QSIT), with an inspection approach that will be consistent with the requirements of the proposed Part 820 as finalized.  Similar to the current QSIT inspection approach, these inspections would involve the collection of information to support observations noted during the inspection and included on FDA Form 483, as appropriate and necessary.  FDA inspections will not result in the issuance of certificates of conformance to ISO 13485, nor is FDA developing a certification program for ISO 13485 or the revised Part 820.  In addition, manufacturers with a certificate of conformance to ISO 13485 are not exempt from FDA inspections.  Firms will need to participate in the Medical Device Single Audit Program (MDSAP) to avoid routine FDA inspections.Supplementary Provisions.  To fill the gap with ISO 13485, the proposed rule seeks to add (1) control of records (proposed section 820.35) and (2) device labeling and packaging controls (proposed section 820.45) to ensure consistency and alignment with other requirements in the FD&C Act and its implementing regulations.  For control of records, the agency plans to add the following requirements: <ul style="text-align: left;"><li>First, signature and date requirements will be required for records subject to Clause 4.2.5 of ISO 13485 (Control of Records).  </li><li>Second, information required by Part 803 (Medical Device Reporting) must be captured on certain records of complaints and servicing activities.  </li><li>Third, firms need to document in their records the Unique Device Identification (UDI) for each medical device or batch of medical devices in accordance with Part 830.  </li><li>Fourth, FDA proposes to retain the clarification from current Part 820 (section 820.180) about confidentiality of records FDA receives to remind firms that FDA protects such records in accordance with Part 20.</li></ul>For device labeling and packaging, ISO 13485 only states that “defined operations for labeling and packaging shall be implemented” without specifically addressing the inspection of labeling by the manufacturer.  Given that many device recalls are related to labeling and packaging, FDA proposes to supplement the ISO standard by retaining requirements from the current Part 820 (i.e., Subpart K).  If finalized, regulated industry must meet the requirements in ISO 13485 7.5.1 (Control of Production and Service) and the proposed section 820.45.Table 1—High-Level Summary of 21 CFR Part 820 Proposed Rule Differences and Additions<table style="text-align: left;" border="1" cellspacing="0" cellpadding="0"><tbody><tr><td width="165" valign="top" style="width: undefined%; height: auto;">Current part 820 </td><td width="229" valign="top" style="width: undefined%; height: auto;">ISO 13485 requirements </td><td valign="top">Proposed rule</td></tr><tr><td width="165" valign="top" style="width: undefined%; height: auto;">Subpart D—Document Controls</td><td width="229" valign="top" style="width: undefined%; height: auto;">Clause 4. Quality Management System</td><td valign="top">Differences addressed in 820.35</td></tr><tr><td width="165" valign="top" style="width: undefined%; height: auto;">Subpart M—Records</td><td width="229" valign="top" style="width: undefined%; height: auto;">Clause 4. Quality Management System</td><td valign="top">Differences addressed in 820.35</td></tr><tr><td width="165" valign="top" style="width: undefined%; height: auto;">Subpart K—Labeling and Packaging Control</td><td width="229" valign="top" style="width: undefined%; height: auto;">Clause 7. Product Realization</td><td valign="top">Differences addressed in 820.45</td></tr><tr><td width="165" valign="top" style="width: undefined%; height: auto;">Subpart N—Servicing</td><td width="229" valign="top" style="width: undefined%; height: auto;">Clause 7. Product Realization</td><td valign="top">Differences addressed in 820.35</td></tr></tbody></table>Risk Management.  Compared to the current QSR, which only explicitly addresses risk management activities in relation to design validation, the ISO standard has a greater emphasis on risk management activities and risk-based decision-making throughout the quality management system (QMS) processes.  Risk management for device manufacturers is the essential systematic practice of identifying, analyzing, evaluating, controlling, and monitoring risk throughout the product lifecycle to ensure that the devices they manufacture are safe and effective.  FDA expects the explicit integration of risk management throughout the clauses of ISO 13485 will send a clear message to manufacturers that it is necessary to “integrate risk management activities throughout their QMS and across the total product lifecycle.”On March 2, 2022, FDA hosted a public Device Good Manufacturing Practice Advisory Committee meeting.  While most industry stakeholders embraced the agency’s proposal, some have complained that the implementation period is too quick, saying that two years, rather than one, is a more appropriate timeframe.  Stay tuned for more detailed coverage about industry concerns in our next blog.Comments on the proposed rule can be submitted in the Federal Register (<a target="_blank" href="https://www.federalregister.gov/documents/2022/02/23/2022-03227/medical-devices-quality-system-regulation-amendments">Docket No. FDA-2021-N-0507</a>) until May 24, 2022, and the proposed rule is expected to be effective one year after finalization.<div style="position: absolute;left: -10000px;top: 0px;width: 1px;height: 1px;overflow-x: hidden;overflow-y: hidden;text-align: left;" id="_mcePaste"> <p style="background-image: initial;background-position-x: initial;background-position-y: initial;background-size: initial;background-repeat-x: initial;background-repeat-y: initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-color: white;vertical-align: baseline;" class="MsoNormal"> </div>

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Brigid is a food, drug, and medical device lawyer who counsels life sciences companies on a wide range of U.S. Food & Drug Administration pre- and post-market regulatory issues.

Brigid DeCoursey Bondoc

Brigid is a food, drug, and medical device lawyer who counsels life sciences companies on a wide range of U.S. Food & Drug Administration pre- and post-market regulatory issues.

Brigid Bondoc

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Quality Management System Regulation (QMSR) – Harmonizing the Quality System Regulation (QSR) with ISO 13485:2016

FDA Clinical Decision Support Software vs. EU’s Medical Device Regulation

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Jianyuan (Yuan) Hua, FDA Regulatory and Compliance Associate in New York, contributed to the drafting of this post.
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Quality Management System Regulation (QMSR) – Harmonizing the Quality System Regulation (QSR) with ISO 13485:2016

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Earlier this month, the U.S. District Court for the Middle District of Alabama decided Method Pharmaceuticals, LLC v. H-2 Pharma, LLC, a dispute concerning labeling for fluoride products that raised a variety of issues with broader implications for industries regulated by the U.S. Food and Drug Administration (FDA).  Because the suit was brought pursuant to the private right of action provided by the Lanham Act, the case also called into question whether such a claim was precluded by the authority of the FDA (or U.S. Federal Trade Commission (FTC)) over the product’s labeling.  In particular, the case addressed whether fluoride is most appropriately classified as a drug or dietary supplement and whether product labeling, including the use of “Rx” in labeling for a purported dietary supplement is misleading. This is not the first case to address the propriety of labeling for “prescription” dietary supplements, and a prior case addressing prenatal vitamins reached the opposite result, finding that the Rx mark was not misleading.  While the cases are factually distinct, strident competition in the dietary supplement industry may lead other manufacturers to edge out the competition by implying that their products have undergone the rigorous review for prescription drugs or are eligible for medical coverage or reimbursement.  Without a definitive statement from the FDA regarding whether such claims are false or misleading, we expect to see more unfair competition and false advertising cases like this one.BackgroundMethod Pharmaceuticals LLC and H-2 Pharma LLC produce fluoride products.  Because excessive consumption of fluoride supplements may cause tooth damage, some manufacturers, like Method, require prescriptions for their fluoride supplement products.  H-2, on the other hand, offers its fluoride products either by prescription or by general purchase as dietary supplements.  The FDA has not yet determined if H-2’s fluoride supplements should be treated as drugs or as dietary supplements,<a href="file:///C:/Users/cxm41/Desktop/PROOF-Method%20H-2%20Blog%20Post%20DRAFT%2002.10.2022%20-%202332645%20(bb%20comments).DOCX#_ftn1">[1]</a> an important distinction, given the costs of complying with myriad drug regulations in the United States.  Method claimed that: (1) H-2’s use of the “Rx” mark on its fluoride products misleads consumers to believe they are prescription drugs; and (2) that H-2 uses the Rx mark to have its products linked to Method’s prescription drugs in pharmaceutical databases that track substitute drugs for use by physicians, effectively pricing them out of the market.  In an <a target="_blank" href="https://www.law360.com/articles/1461691/attachments/0">order</a> filed on February 3, 2022, Chief Judge Emily C. Marks found that all but one of the five claims brought by Method could go forward, as these claims adequately allege a false representation and do not circumvent FDA’s regulatory authority.Use of “Rx” on LabelingMethod argued that use of an “Rx” mark on non-prescription products is likely to be interpreted as misleading, and insufficiently distinguished from the official “Rx only” or “R only” labeling required for prescription products.  Judge Marks found H-2’s distinction between “Rx” and “Rx only” insufficient because H-2 marks its products with “Rx” regardless of whether they actually are prescription products.  Judge Marks wrote, “Indeed, if H-2 is correct that FDA regulations do require all prescription drugs to be marked with ‘Rx Only,’ that it marks its products with the similar ‘Rx’ appears to make it more likely that the market would be confused, not less.”  Judge Marks also pointed to allegations that H-2 knowingly omitted the customary disclaimer that products are not FDA approved, painting “a broader picture of H-2’s alleged misrepresentations than a mere ‘Rx’ on its labels.”There have been a few other recent cases touching on the use of “Rx” and “prescription only” labels for non-drug products.  For example, the Northern District of Illinois in Lupinetti v. Exeltis considered prenatal vitamins labeled with the “Rx” mark or phrase “prescription only” and the allegation that this labeling was intended to cause government coverage under Medicaid.<a href="file:///C:/Users/cxm41/Desktop/PROOF-Method%20H-2%20Blog%20Post%20DRAFT%2002.10.2022%20-%202332645%20(bb%20comments).DOCX#_ftn2">[2]</a>  The court rejected that claim, finding that it was objectively reasonable for the prenatal vitamin manufacturers to believe they could label their prenatal vitamins as “prescription only.”  In that case, the manufacturers’ “prescription only” labeling and statements were based on Centers for Medicare and Medicaid Services (CMS) guidance explaining that “prescription prenatal vitamins continue to meet the definition of a covered outpatient drug and are rebate-eligible” and issuance of a “covered outpatient drug” code for prescription prenatal vitamins.<a href="file:///C:/Users/cxm41/Desktop/PROOF-Method%20H-2%20Blog%20Post%20DRAFT%2002.10.2022%20-%202332645%20(bb%20comments).DOCX#_ftn3">[3]</a>FDCA Implications: Claim Preclusion and Federal PreemptionMethod also highlights apparent tension between Federal Food, Drug, and Cosmetic Act (FDCA) and the Lanham Act.  As the opinion explains, the FDCA proscribes misbranding of food and drugs and vests exclusive enforcement authority in the FDA, while the Lanham Act allows competitors to sue each other for false or misleading product descriptions.  It is clear from the Supreme Court’s decision in POM Wonderful LLC v. Coca-Cola Co., 573 U.S. 102, 120-21 (2014), that the FDCA does not preclude lawsuits concerning misleading labels between private competitors when it comes to food and beverage products.  Since then, courts across the country have grappled with whether Pom Wonderful extends to dietary supplements.<a href="file:///C:/Users/cxm41/Desktop/PROOF-Method%20H-2%20Blog%20Post%20DRAFT%2002.10.2022%20-%202332645%20(bb%20comments).DOCX#_ftn4">[4]</a>Method reaches a reasonable conclusion: if the Lanham Act claim does not require courts to contradict the FDA or make a determination committed to the FDA’s sole discretion, then it is permissible.  That rule allows companies to limit unfair competition, but respects the FDA’s authority and expertise with respect to safety.Along those lines, Method is relevant to the larger topic of FDA preemption of state law labeling claims.  This is an important issue because labeling claims are influential in driving consumer behavior.<a href="file:///C:/Users/cxm41/Desktop/PROOF-Method%20H-2%20Blog%20Post%20DRAFT%2002.10.2022%20-%202332645%20(bb%20comments).DOCX#_ftn5">[5]</a>  In this case, the court weighed whether private lawsuits were foreclosed by the FDCA but in other cases, courts have resolved conflicts between the FDA and state regulators enforcing state laws.<a href="file:///C:/Users/cxm41/Desktop/PROOF-Method%20H-2%20Blog%20Post%20DRAFT%2002.10.2022%20-%202332645%20(bb%20comments).DOCX#_ftn6">[6]</a>  A major theme in all of these cases is determining the proper role for the FDA.  On one hand, the FDCA vests sole enforcement authority for its regulations in the FDA for good reason—not only because of the FDA’s expertise, but also because complex national issues require dynamic federal solutions.  On the other hand, the FDA cannot possibly respond to every complaint from the industry regarding unfair or misleading labeling.  Moreover, reading the FDCA and its preemption provisions too broadly could jeopardize other vehicles for limiting misbranding and false advertising. <a href="file:///C:/Users/cxm41/Desktop/PROOF-Method%20H-2%20Blog%20Post%20DRAFT%2002.10.2022%20-%202332645%20(bb%20comments).DOCX#_ftnref1">[1]</a> Method Pharmaceuticals, LLC v. H-2 Pharma, LLC, 2:20-CV-753-ECM (M.D. Ala. February 3, 2022).<a href="file:///C:/Users/cxm41/Desktop/PROOF-Method%20H-2%20Blog%20Post%20DRAFT%2002.10.2022%20-%202332645%20(bb%20comments).DOCX#_ftnref2">[2]</a> See Lupinetti v. Exeltis USA Inc., 2021 WL 5407424 (N.D. Ill Nov. 19, 2021).<a href="file:///C:/Users/cxm41/Desktop/PROOF-Method%20H-2%20Blog%20Post%20DRAFT%2002.10.2022%20-%202332645%20(bb%20comments).DOCX#_ftnref3">[3]</a> CMS, Release No. 159 (Dec. 28, 2011). <a href="file:///C:/Users/cxm41/Desktop/PROOF-Method%20H-2%20Blog%20Post%20DRAFT%2002.10.2022%20-%202332645%20(bb%20comments).DOCX#_ftnref4">[4]</a> The Eleventh Circuit, which was binding on the Method court, has held that the FDCA does not preclude labeling claims under the Lanham Act.  Belcher Pharmaceuticals, LLC v. Hospira, Inc., 1 F.4th 1374, 1380-81 (11th Cir. 2021).  And the Ninth Circuit has reached a similar conclusion in ThermoLife Intern., LLC v. Gaspari Nutrition Inc., 648 Fed. App’x 609, 612 (9th Cir. 2016).  But in Amarin Pharma, Inc. v. International Trade Commission, 923 F.3d 959, 968-69 (Fed. Cir. 2019), the Federal Circuit held that the FDCA precluded that plaintiff’s particular Lanham Act claims.<a href="file:///C:/Users/cxm41/Desktop/PROOF-Method%20H-2%20Blog%20Post%20DRAFT%2002.10.2022%20-%202332645%20(bb%20comments).DOCX#_ftnref5">[5]</a> See Amanda Berhaupt-Glickstein, Neal H. Hooker, & William K. Hallman, Qualified Health Claim Language affects Purchase Intentions for Green Tea Products in the United States, 11 Nutrients 924 (Apr. 2019); Johann Steinhauser, Meike Janssen, & Ulrich Hamm, Who Buys Products With Nutrition and Health Claims? A Purchase Simulation with Eye Tracking on the Influence of Consumers’ Nutrition Knowledge and Health Motivation, 11 Nutrients 2199 (Sept. 2019).<a href="file:///C:/Users/cxm41/Desktop/PROOF-Method%20H-2%20Blog%20Post%20DRAFT%2002.10.2022%20-%202332645%20(bb%20comments).DOCX#_ftnref6">[6]</a> See, e.g., Johnson & Johnson v. Fitch ex rel. State, 315 So. 3d 1017 (Miss. 2021), cert. denied, 142 S. Ct. 732 (2021) (assessing whether the FDCA preempts labeling claims under the Mississippi Consumer Protection Act). Morrison & Foerster filed an amicus curiae brief on behalf of former FDA officials in support of Johnson & Johnson’s petition for certiorari.

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Fluoride Supplement Manufacturer Forced to Address Misleading Labeling Allegations

The EU General Court’s Ruling on Pay for Delay

mofolifesciences-pharma

Earlier this month, the U.S. District Court for the Middle District of Alabama decided Method Pharmaceuticals, LLC v. H-2 Pharma, LLC, a dispute concerning labe

Fluoride Supplement Manufacturer Forced to Address Misleading Labeling Allegations

Pharma

Bethany Hills and Dan Rubin authored an article for Life Science Connect outlining the U.S. Food and Drug Administration’s (FDA) new draft guidance in its latest effort to clarify its expectations regarding the integration of real-world data and real-world evidence into clinical research, product approvals, and post-approval monitoring of drugs.“Overall, the draft guidance aligns with other steps FDA has undertaken, including the ongoing Complex Innovative Trial Design Pilot Meeting Program, which is intended to support the goal of facilitating and advancing the use of complex adaptive, Bayesian, and other novel clinical trial designs,” the authors wrote. “Such innovative trial designs offer the prospect of greater efficiency and smaller cohorts of participants by sharing control arms and studying multiple agents in the course of the same study.”They added: “The goals of this draft guidance also appear to align with the industry guidance FDA issued for sponsors of master protocols evaluating drugs for the treatment or prevention of COVID-19 in which FDA has discussed how novel study design models can help researchers “do more with less” through more judicious use of human subjects in research and greater use or re-use of existing data sources. For instance, in the COVID-19 master protocol guidance, the agency has endorsed adoption of more complex research models that either share control arms, draw more heavily on existing data, or use data iteratively to refine the study on an ongoing basis, such as via Bayesian models in which results in one stage of a study can influence what variables or interventions are examined in the next. Master protocols are research plans that govern studies designed to examine multiple therapies, multiple diseases, or both, in the context of a single research study. In its guidance on the use of master protocols, the agency has articulated the potential public health benefits that could accrue from more flexible research designs, while emphasizing that with complexity can come increased risk of confusion or error. As the FDA has indicated its receptiveness to innovative research modalities, it has also made clear that its underlying high standards for scientific rigor remain unchanged.”Read the <a href="https://www.clinicalleader.com/doc/fda-releases-draft-guidance-on-use-of-real-world-evidence-for-drug-biological-products-0001" target="_blank">full article</a>.

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FDA Releases Draft Guidance on Use of Real-World Evidence for Drug & Biological Products

Is 2021 the Value-Based and Shared Savings Revolution?

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Bethany Hills and Dan Rubin authored an article for Life Science Connect outlining the U.S. Food and Drug Administration’s (FDA) new draft guidance in its lates

FDA Releases Draft Guidance on Use of Real-World Evidence for Drug & Biological Products

Biotech

Cell + Gene Therapy

FDA is actively monitoring the use of AI and machine learning (ML) software in medical devices and clinical developments, and has taken a number of first steps in building out a regulatory framework.  In 2021, FDA published the <a href="https://www.fda.gov/media/145022/download" target="_blank">AI and Machine Learning Software as a Medical Device Action Plan</a>, which outlines FDA’s approach to regulating AI/ML technologies and next steps in furthering oversight, as well as the <a href="https://www.fda.gov/medical-devices/software-medical-device-samd/good-machine-learning-practice-medical-device-development-guiding-principles" target="_blank">Good Machine Learning Practice for Medical Device Development: Guiding Principles</a>, to inform the development of Good Machine Learning Practice.  FDA also released a <a href="https://www.fda.gov/medical-devices/software-medical-device-samd/artificial-intelligence-and-machine-learning-aiml-enabled-medical-devices" target="_blank">database</a> of AI/ML-enabled medical devices currently marketed in the United States and will update this list as FDA reviews and authorizes additional AI/ML-enabled medical devices going forward. <a href="https://mofotech.mofo.com/topics/ai-trends-2022-fda.html" target="_self">Read more</a>.

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AI TRENDS FOR 2022 - FDA REGULATORY

Patenting Artificial Intelligence in the U.S. – Considerations for AI Companies

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FDA is actively monitoring the use of AI and machine learning (ML) software in medical devices and clinical developments, and has taken a number of first steps 

AI TRENDS FOR 2022 - FDA REGULATORY

Digital Health

In an interview with Sabine Wadewitz, life sciences expert Wolfgang Schönig talks about the details of CO²-neutral meat production, the legal framework conditions, and the latest developments in the industry.Excerpt below. _____________________________________________Dr. Schönig, CO2-neutral meat production is considered one of the key aspects in the fight against climate change. Can we really make a big difference through our food choices?According to expert estimates, conventional meat production takes up around 75% of the agricultural land used worldwide and is responsible for over 15% of the greenhouse gases emitted globally. This is a rising trend. Alternatives, such as plant-based meat substitutes or meat produced in cell cultures, are significantly more resource-conserving and climate-friendly by comparison, mainly because no greenhouse gases are produced, and the high water and energy consumption of conventional animal husbandry is eliminated. For the agri food industry, this is not so much an option, it’s a necessity, as the industry will have to meet strict CO2 reduction requirements by 2030 as part of the EU’s so-called Green Deal.How often does environmentally friendly meat end up on your plate?The market for meat substitutes is growing rapidly, and this is happening without strict regulatory requirements for the industry in terms of the CO2 reductions already in place. The market here probably anticipates the compelling need and sees the opportunities – both for plant based alternatives and for cell-cultured meat. It is important to remember that the world’s population will grow to nearly 10 billion by 2050, all of whom will need sufficient protein foods. So it's not so much a lifestyle choice, but an essential contribution to curb CO2 emissions and preserve our lives. It also presents immense economic opportunities.

Wolfgang advises clients on contentious and non-contentious matters involving their most valuable intellectual property assets in the digital, high-tech, life sciences, and pharmaceutical industries.

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“At any rate, it won’t fail because of money.”

mofolifesciences-agtech

In an interview with Sabine Wadewitz, life sciences expert Wolfgang Schönig talks about the details of CO²-neutral meat production, the legal framework conditio

“At any rate, it won’t fail because of money.”

Global

Agtech

This week the U.S. Food and Drug Administration (FDA), along with Health Canada and the United Kingdom’s Medicines and Healthcare Products Regulatory Agency (MHRA), identified <a href="https://www.fda.gov/medical-devices/software-medical-device-samd/good-machine-learning-practice-medical-device-development-guiding-principles?utm_medium=email&utm_source=govdelivery&utm_source=STAT+Newsletters&utm_campaign=6a098880a8-health_tech_COPY_01&utm_medium=email&utm_term=0_8cab1d7961-6a098880a8-153551262" target="_blank">10 guiding principles</a> to inform the development of Good Machine Learning Practice (GMLP) and promote safe and effective medical devices that use artificial intelligence and machine learning (AI/ML).  The guiding principles “identify areas where the International Medical Device Regulators Forum (IMDRF), international standards organizations, and other collaborative bodies could work to advance GMLP,” including creation of educational tools and resources, international harmonization, and consensus standards.<img alt="Good Machine Learning" src="https://media2.mofo.com/v3/images/blt5775cc69c999c255/blt4bac1f9a18159f5f/6273178d4d9f89297129022f/211101-good-machine.jpg?format=auto&quality=60" type="asset" sys-style-type="download">The guiding principles reflect some of the focus topics articulated in FDA’s <a href="https://lifesciences.mofo.com/topics/five-key-takeaways-from-FDAs-transparency-of-AIML-enabled-medical-devices-virtual-workshop.html" target="_blank">Transparency of AI/ML-Enabled Medical Devices Virtual Workshop</a>.  For example, the guiding principles recommend that “users are provided clear, essential information,” emphasizing the importance of providing clear, contextually relevant information about the device to the intended audience.  The principles also include requirements that “testing demonstrates device performance during clinically relevant conditions,” and “deployed models are monitored for performance and re-training risks are managed.”FDA welcomes feedback through the public docket at Regulations.gov (<a href="https://www.regulations.gov/docket/FDA-2019-N-1185" target="_blank">FDA-2019-N-1185</a>) and may be contacted directly at <a href="mailto:Digitalhealth@fda.hhs.gov" target="_blank">Digitalhealth@fda.hhs.gov</a>.  Health Canada and the UK’s MHRA may be contacted directly at <a href="mailto:mddpolicy-politiquesdim@hc-sc.gc.ca" target="_blank">mddpolicy-politiquesdim@hc-sc.gc.ca</a> and <a href="mailto:software@mhra.gov.uk" target="_blank">software@mhra.gov.uk</a> respectively.For questions on any of the topics discussed at this meeting, please contact the authors or a member of MoFo’s <a href="https://www.mofo.com/capabilities/fda-life-sciences-compliance.html" target="_blank">FDA Regulatory + Compliance</a> practice.

FDA and International Counterparts Release Best Practices for Machine Learning in Medical Device Development

This week the U.S. Food and Drug Administration (FDA), along with Health Canada and the United Kingdom’s Medicines and Healthcare Products Regulatory Agency (MH

FDA and International Counterparts Release Best Practices for Machine Learning in Medical Device Development

On September 30, 2021, the U.S. Food and Drug Administration (FDA) <a target="_blank" href="https://www.federalregister.gov/documents/2021/09/30/2021-21324/interpreting-sameness-of-gene-therapy-products-under-the-orphan-drug-regulations-guidance-for">announced</a> final guidance titled “<a target="_blank" href="https://www.fda.gov/media/134731/download">Interpreting Sameness of Gene Therapy Products under the Orphan Drug Regulations</a>.”  The guidance finalizes the January 2020 draft guidance and provides FDA’s current perspective on certain criteria that help determine sameness of human gene therapy products for orphan drug designation and exclusivity purposes.  In the Federal Register notice announcing the final guidance, FDA noted that it received comments on the draft guidance that “generally supported the approach described in the guidance.”  FDA considered these comments and requests for additional clarification when finalizing the guidance, “adding clarification and examples, as feasible.”<h4>Background</h4>The Orphan Drug Act (ODA) seeks to incentivize the development of drugs for rare diseases, defined in the ODA as those affecting fewer than 200,000 people in the United States.  The incentives include a 25% tax credit on applicable research and development expenditures, waived user fees when submitting applications to FDA, and the potential for a seven-year period of orphan drug exclusivity for the approved indication.  Manufacturers must request and be granted designation before they are eligible for any incentives. When FDA grants marketing approval for a designated orphan drug for a use or indication within the designation disease or condition, FDA will determine if the drug is eligible for orphan drug exclusivity.  Orphan drug exclusivity is product and indication specific, meaning FDA cannot approve a drug containing the same active moiety for the same intended use or indication during the period of marketing exclusivity. FDA uses different criteria in determining sameness for macromolecule and small molecule drugs [1]. The FDA defines “same drug” for macromolecule drugs as “a drug that contains the same principal molecular structural features (but not necessarily all of the same structural features) and is intended for the same use as a previously approved drug, except that, if the subsequent drug can be shown to be clinically superior, it will not be considered to be the same drug." [2]If a sponsor requests orphan drug designation for a drug that is the same as a drug already approved for the same use or indication, the sponsor must provide a plausible hypothesis that its drug is clinically superior to the already approved drug.  Designation as clinically superior is based on greater efficacy, safety, or a major contribution to patient care.  In order to receive the seven-year market exclusivity, a sponsor must demonstrate that its product is actually clinically superior.<h4>Interpreting Sameness of Gene Therapy Products</h4>Human gene therapy products may qualify for orphan drug designation if they are intended for the treatment of a rare disease or condition and the sponsor sufficiently establishes a basis for expecting the drug to be effective in treating the rare disease.  The existing regulations do not describe how the “same drug” definition applies specifically to gene therapy products for orphan drug designation and exclusivity.  Mirroring the January 2020 draft guidance, FDA’s final guidance provides some insight into the current interpretation of how the “sameness” criteria applies to gene therapies.Assuming that two gene therapy products are intended for the same use or indication, FDA will consider the “principal molecular structural features” of the gene therapy products when determining “sameness.”  In the final guidance, FDA states its intention to generally “consider certain key features such as transgenes and vectors used in gene therapy products to be ‘principal molecular structural features’ under this regulation.”  However, FDA does not intend to classify two gene therapy products as different based solely on minor differences in the transgenes and/or vectors, and will determine whether differences are minor differences on a case-by-case basis.For two gene therapy products intended for the same use or indication, if the products express different transgenes, FDA generally intends to consider them to be different drugs because they will not contain the same principal molecular structural features.  This would be the case regardless of whether the two gene therapy products at issue have or use the same vector.  FDA also intends to consider vectors from a different viral group to be different for purposes of determining “sameness.”  Additionally, FDA clarified in the final guidance that it will consider two gene therapy products from the same viral group to be different “when the differences between the vectors impact factors such as tropism, immune response avoidance, or potential insertional mutagenesis.”  FDA intends to determine whether variants of a vector from the same viral group are the same or different on a case-by-case basis.In a case where two gene therapy products express the same transgene and have/use the same vector, FDA may also consider additional features of the final product when determining “sameness,” such as regulatory elements (e.g., promoters or enhancers).  In these instances, FDA generally intends to determine “sameness” of gene therapy products on a case-by-case basis.[1] 21 CFR 316.3(b)(14).[2] 21 CFR 316.3(b)(14)(ii).

FDA Finalizes Guidance on Interpretation of Orphan Drug “Sameness” for Gene Therapy Products

On September 30, 2021, the U.S. Food and Drug Administration (FDA) announced final guidance titled “Interpreting Sameness of Gene Therapy Products under the Orp

FDA Finalizes Guidance on Interpretation of Orphan Drug “Sameness” for Gene Therapy Products

Rare Disease

10/27/2021 Update: The adopted regulation ((EU) 2021/1873) is now officially published in the <a target="_blank" href="https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32021R1873&from=EN">Journal of the EU</a>.In accordance with the vote of the Council of the European Union on October 5, 2021, the European Union has adopted a new regulation aimed at extending the term of protection provided by Community Plant Variety Rights (CPVR) under Regulation (EC) No. 2100/1994, for varieties of certain plant species (CPVR Extension Regulation), which is available here: <a target="_blank" href="https://data.consilium.europa.eu/doc/document/PE-50-2021-INIT/en/pdf">2021/0019(COD)</a>.  The CPVR Extension Regulation enters into force 20 days after its publication in the <a target="_blank" href="https://eur-lex.europa.eu/oj/direct-access.html">Official Journal of the European Union</a>.The plant species benefitting from the CPVR Extension Regulation are Asparagus officinalis, L. (asparagus), and the species groups of flower bulbs, woody small fruits, and woody ornamentals. For varieties of these species and groups of species, the CPVR term originally granted under Article 19(1) of Regulation (EC) No. 2100/94 is extended by five years, from 25 years to 30 years.On the date the CPVR Extension Regulation enters into force, this term extension will apply to both new CPVR granted on or after that date and existing CPVR for varieties of these species (according to recital (4) of the CPVR Extension Regulation). According to Article 2 of the CPVR Extension Regulation, however, the extension of the CPVR term may be reduced if national plant variety rights already existed for a plant variety before the grant of the CPVR.These particular species and species groups are the focus of the CPVR Extension Regulation because technical problems arise in the breeding of varieties of these species “due to complex genetic backgrounds or due to the slow or technically complicated reproduction” according to the recitals of the CPVR Extension Regulation. As a result, once CPVR are granted, it takes much longer for varieties of these species to become profitable for the breeder than for varieties of most other species. The CPVR Extension Regulation aims to create incentives for the breeding of varieties of these more challenging species. Extending the duration of the CPVR protection will mean that the holder of the CPVR can profit from these varieties over a longer period of time.

European Union Adopts Regulation to Extend Term of Community Plant Variety Rights in Europe for Varieties of Certain Plant Species

10/27/2021 Update: The adopted regulation ((EU) 2021/1873) is now officially published in the Journal of the EU.
In accordance with the vote of the Council of t

European Union Adopts Regulation to Extend Term of Community Plant Variety Rights in Europe for Varieties of Certain Plant Species

Intellectual Property

Stephanie Pong, London trainee solicitor contributed to the writing of this article.On January 1, 2021, the UK launched its very own <a target="_blank" href="https://www.gov.uk/government/publications/participating-in-the-uk-ets/participating-in-the-uk-ets">emissions trading scheme</a> (the “UK ETS”) exercising its autonomy since departing the EU. Under this scheme, companies operating in certain sectors can trade emission allowances (also known as carbon credits). On May 19, 2021, Intercontinental Exchange, Inc. (“ICE”) hosted the scheme’s first emission allowance auctions on behalf of the UK government.The benefits of the scheme are twofold. Not only does it provide continuity from the UK’s participation in the EU’s equivalent emission trading scheme (the “EU ETS”), but it also focuses efforts to reach the UK’s <a target="_blank" href="https://www.gov.uk/government/news/uk-becomes-first-major-economy-to-pass-net-zero-emissions-law">goal</a> of reducing all greenhouse gas emissions to net-zero by 2050 as announced in June 2019, and other carbon reduction commitments.<h4>The UK ETS largely mirrors the EU ETS</h4>Similar to the EU ETS, the UK ETS works on the cap and trade principle (i.e., market participants buy or receive emission allowances within the cap and then trade those allowances with other participants), which provides economic incentives for reducing industrial pollutant production.Established through the <a target="_blank" href="https://www.legislation.gov.uk/uksi/2020/1265/contents/made">Greenhouse Gas Emissions Trading Scheme Order 2020</a>, the UK ETS currently covers the same industries as the EU ETS: 1) the power generation industry; 2) the aviation sector; and 3) other energy intensive industries. The UK government has, however, stated that it intends to expand the scope of the UK ETS to other sectors.The first auction under the UK ETS took place on May 19, 2021, on ICE, which also hosts the EU ETS. On May 10, 2021, the UK government published guidance on the supply of allowances in the UK ETS (the “Guidance”). The Guidance clarified that auctions under the UK ETS will take place every two weeks, with around 83 million allowances (divided between the fortnightly auctions) predicted to be sold this year. For the 2021 auction calendar, please follow the link <a target="_blank" href="https://www.theice.com/publicdocs/circulars/21030.pdf">here</a>. The 2022 auction calendar will be published by July 15, 2021, and the UK ETS Authority has anticipated 80 million allowances will be available for the 2022 period. The first auction saw all of the available allowances sold to 14 bidders, at a price of £43.99.The <a target="_blank" href="https://www.legislation.gov.uk/uksi/2021/484/contents/made">Auctioning Regulations</a> and <a target="_blank" href="https://www.gov.uk/government/publications/participating-in-the-uk-ets/participating-in-the-uk-ets">guidance</a> for UK ETS participants provide that the Auction Reserve Price (“ARP”) is £22 per tonne of carbon dioxide equivalent, which is the minimum price at which emission allowances can be sold at auction. The UK government will consider withdrawing the ARP later in 2021 as the scheme matures and certain amendments to the Auctioning Regulations, most notably the removal of the requirement that a natural person be established in the UK to submit, modify, or withdraw a bid under the UK ETS, have been made and came into force on <a target="_blank" href="https://www.legislation.gov.uk/uksi/2021/513/contents/made">May 19, 2021</a>. Further, the UK’s implementation of the “monitor, report, and verify requirements” under the Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”) comes into force on May 26, 2021, and the UK government will hold further consultations this summer on proposals for implementing CORSIA and its interaction with the UK ETS; further developments of the UK ETS are therefore expected over the coming year.Certain sectors deemed to be exposed to a significant risk of “carbon leakage” receive free allowances. “Carbon leakage” refers to businesses transferring production to other countries with less stringent emission constraints, therefore leading to an increase in total emissions. The UK ETS uses the same benchmark to calculate free allocations as the EU ETS. The UK government closed its <a target="_blank" href="https://www.gov.uk/government/consultations/uk-emissions-trading-scheme-free-allocation-review-call-for-evidence#:~:text=Within%20the%20context%20of%20the,the%20risk%20of%20carbon%20leakage">consultation</a> in April 2021, which called for evidence on how to use its free allocations effectively under the UK ETS. The UK government published an <a target="_blank" href="https://www.gov.uk/government/publications/uk-ets-allocation-table-for-operators-of-installations">allocation table</a> setting out operators of stationary installations’ entitlement to free allowances for 2021‑25 and aims to have those under the scheme year 2021 allocated by May 28, 2021; the aviation allocation table is expected in June 2021. We expect to hear further related proposals later this year.<h4>ICE UK Allowance (UKA) Futures</h4>Coinciding with the start of the first UK ETS auction, and subject to regulatory approval, ICE plans to launch the ICE UK Allowance (“UKA”) Futures contracts, with UKA Daily Futures following on May 21, 2021. ICE UKA Futures will trade on ICE Futures Europe and clear at ICE Clear Europe alongside ICE’s global environmental complex, including European Union Allowances (“EUA”), California Carbon Allowances (“CCAs”), and California Carbon Offsets (“CCOs”). By facilitating trading in allowances through futures contracts, market participants may benefit from a more liquid market, improved price discovery, and the ability to sell or procure allowance on a forward basis and otherwise hedge market exposure.<h4>The UK ETS is more ambitious than its EU counterpart</h4>Although the UK ETS largely mirrors the EU ETS, one key difference is that the UK ETS has a more ambitious emissions reduction target. The UK’s initial cap on the total amount of certain greenhouse gases that can be emitted by the installations covered by the system (i.e., allowances) is 5% lower under the UK ETS than the UK’s share cap under the EU ETS. As the UK ETS has a smaller market than the EU ETS, a lower cap will help maintain market stability by limiting price spikes and aggressive price fluctuations. Further, the threshold for triggering the UK ETS cost containment mechanism, which would allow the UK government to intervene should price spikes occur, was set at £44.74 a tonne by the UK government on <a target="_blank" href="https://www.gov.uk/government/publications/uk-emissions-trading-scheme-markets/uk-emissions-trading-scheme-markets#cost-containment-mechanism">May 10, 2021</a>. This is a lower threshold than that under the EU ETS. Future contracts traded as high as £50.23 a tonne on the first day, however this settled back to £45.75 after the first auction. The high prices were driven by high levels of interest in the first auction, and by a small number of bidders. The initial volatility is expected to settle over time, however there remain concerns that the UK government may need to step in within the first few weeks of the UK ETS’s launch.New entrants to the UK ETS will need to ensure that they are accurately recorded on the new UK ETS registry. Further, a new permit system is expected to replace the current permit system, which was set up and managed in accordance with the EU ETS, in the near future.Enforcement of obligations under the UK ETS will be carried out by the relevant UK environmental regulators with civil penalties of £100 per tonne for exceeding emission allowances, which is a slight increase from the €100 fine under the EU ETS.<h4>The UK and EU ETSs will likely remain largely parallel</h4>The EU-UK Trade and Co-operation Agreement (the “Agreement”) does not provide much wriggle room for the UK ETS to diverge significantly from the EU ETS. Under the Agreement, the EU and UK agreed that they are both committed to cooperate on carbon pricing. “Serious consideration” will be given to linking up the UK and EU schemes, similar to how the EU and Swiss schemes were <a target="_blank" href="https://www.bafu.admin.ch/bafu/en/home/topics/climate/info-specialists/reduction-measures/ets/linking-swiss-eu.html#:~:text=Under%20the%20Agreement%2C%20flights%20from,covered%20by%20the%20EU%20ETS.&text=An%20electronic%20link%20between%20the,the%20registries%20since%20September%202020.">linked</a> in 2020. At present, aircraft operators, for instance, must comply with the UK ETS for flights from the UK to EEA countries, and the EU ETS for flights from EEA countries to the UK. Divergence of scheme rules will only make it more complex for market players to ensure compliance. Regardless, it is unlikely that the UK ETS will become substantially different, or less stringent, compared to the EU ETS, given the UK’s ambitious net zero 2050 target and 68% emission cuts by 2030, versus the EU’s 55% target.The approach to carbon pricing was addressed in a <a target="_blank" href="https://commonslibrary.parliament.uk/research-briefings/cbp-9212/">briefing paper</a> published by the House of Commons on May 4, 2021, which indicates the government’s preference to link the UK ETS with the EU ETS to ensure market liquidity and price visibility and to reduce the risk of carbon leakage. However, for this to be achievable, the two schemes must be closely aligned including both adopting net-zero targets. A risk of linking is that it may limit the policy autonomy that the UK has over its scheme in relation to governance arrangements and the proposed expansion of the UK ETS to other sectors. Alternatives suggested in the paper include having a standalone UK ETS or implementing a carbon tax.<h4>Emission Trade Schemes around the world</h4>United StatesIn contrast to the UK and EU, the United States lacks a nationalized carbon market. Rather, carbon trading in the United States takes place across a variety of fractured markets, with some being driven by voluntary private trading, and others by various government regulations.Market drivers from the federal level include the recently updated <a target="_blank" href="https://home.treasury.gov/news/press-releases/sm1227">45Q tax credit</a> for certain forms of carbon sequestration, and several programs <a target="_blank" href="https://www.epa.gov/emissions-trading-resources">administered</a> by the U.S. Environmental Protection Agency.A minority of states have also constructed state-level exchanges. These include the <a target="_blank" href="https://ww2.arb.ca.gov/our-work/programs/cap-and-trade-program">Cap-and-Trade Program</a> in California, and the <a target="_blank" href="https://www.rggi.org/program-overview-and-design/elements">Regional Greenhouse Gas Initiative (RGGI)</a>, which is a cooperative effort between eleven eastern states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia).On the private side, organizations such as <a target="_blank" href="https://verra.org/">Verra</a> and the <a target="_blank" href="https://americancarbonregistry.org/">American Carbon Registry</a> operate their own voluntary registries. These private organizations also interact with the various regulatory markets by providing standards and quantifying and verifying carbon valuations. For instance, Verra helps administer California’s Cap-and-Trade Program.AsiaKorea has the second largest in scale emission trade scheme (“ETS”), after the EU ETS, which was launched in 2015 and is also based on the cap and trade principle. This year, the scheme entered into its final phase (2021-2025), which further reduces the proportion of free allocations.China, the world’s largest emitter of greenhouse gases, <a target="_blank" href="https://www.forbes.com/sites/scottcarpenter/2021/03/02/toothless-at-first-chinas-carbon-market-could-be-fearsome/?sh=538e0e062af1">launched</a> its national ETS on February 1, 2021. China’s ETS covers the power generation sector in its initial phase. Since August 2017, China has operated seven regional ETSs that will gradually transition into a single national scheme.Similar to the United States, Japan does not have a nationalized carbon market; however, it was a pioneer in that the Tokyo metropolitan government launched the Tokyo ETS in 2010, which notably targets office buildings, educational institutions, and commercial buildings, as well as factories and other industrial/energy sector facilities. The Tokyo ETS is linked to the Saitama ETS, which was established in 2011 by the Saitama Prefecture.Latin AmericaLatin American countries including Chile, Mexico, Argentina, and Columbia have taken a different approach of introducing carbon taxes and other carbon pricing mechanisms to tackle the climate crisis. However, the efficacy of these solutions is debatable, especially given their very low carbon tax rates, which may fail to discourage carbon-intensive activities.<h4>Concluding Remarks</h4>It is clear that countries across the globe recognize the need to take extensive action to tackle the climate crisis, in particular by reducing their respective greenhouse gas emissions. A popular and effective solution that has emerged over the last 5-10 years is the emission trade scheme. However, such schemes have proved to be costly and highly complex to implement, often requiring a pilot phase.The UK ETS represents a promising test as to how a new emission trade scheme can begin to grow and develop, using established emission trade schemes (such as the EU ETS) as models. As we look to the future, more countries might begin to adopt nationalized carbon markets and schemes in order to meet their carbon reduction commitments, and we may even see major emission trade schemes linking up to unify humanity’s attempt to reverse climate change.Visit our <a href="https://www.mofo.com/capabilities/environmental-social-governance.html" target="_blank">Environmental, Social, and Governance (ESG)</a> resource center and follow our Life Sciences blog to stay informed about any progress on this matter.

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Associate

Dr. Liz Freeman Rosenzweig focuses her practice on patent prosecution and intellectual property and regulatory counseling in the areas of life sciences and agricultural biotechnology, including AgTech

Liz Freeman Rosenzweig Ph.D.

Liz Freeman Rosenzweig

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David concentrates on structured transactions involving commodities and derivatives. He also has extensive experience with mergers, acquisitions, and corporate reorganizations. David works closely wit

David Kaufman

David concentrates on structured transactions involving commodities and derivatives. He also has extensive experience with mergers, acquisitions, and corporate reorganizations. David works closely with the firm’s financial institution and end-user clients in the commodity, equity, fixed income, and credit derivative markets, often assisting clients in developing and structuring products.