The Nagoya Protocol five years into play: key points of attention when working with genetic resources

Genetic material from plants, animals, microbials or other biological origin is today frequently used not only by companies active in the pharmaceutical or plant breeding industry, but also by businesses in the cosmetics and food industries. Think of a German cosmetics company developing a cream based on a plant extract from Indonesia, or a dairy company optimising lactic acid bacteria originating from South Africa for the development of a new type of (probiotic) yoghurt in Europe.

Few of these companies are aware that the use of such genetic material could be subject to the obligations of the Nagoya Protocol. Due to its complex legal regime, complying with these obligations is a major challenge. Increased attention from the public authorities to this Protocol renders it nonetheless essential for companies to ensure that they are aware of and respect such legislation. 12 October 2019 marks the fifth anniversary of the Nagoya Protocol, and, as is explained in this blogpost, might be a turning point when it comes to enforcement.

How does it work?

The Nagoya Protocol, adopted in Nagoya (Japan) and entered into force on 12 October 2014, sets out a legal framework for the fair and equitable sharing of benefits arising from the use of genetic resources. The Protocol requires both the member states (currently 120 countries are a party to the Protocol) and companies within such member states to comply with a number of obligations when genetic resources from a specific country are used. There are consequently three relevant parties: (i) the provider country (the country where genetic material is collected), (ii) the user country (the country where genetic material is used) and (iii) the company involved in collecting and/or using the genetic material. For companies based in the EU, this international legislation is supplemented by a European Regulation which brings EU law in line with the Protocol and sets out detailed compliance rules. In addition, an implementing Regulation sets out the details regarding the monitor user compliance, best practices and register of collections.

Whereas the Protocol lays down the general principles on access and benefit sharing (ABS) of genetic resources, the provider countries themselves determine whether and which rules on ABS they implement. ABS rules consequently vary from very strict to non-existent, depending on a specific provider country.

Key obligations for user countries and companies

The Protocol and the EU Regulation impose a two-fold obligation on member states and European companies.

First, companies need to check whether the provider country has any rules in place which regulate access to their genetic resources, and whether a prior informed consent (PIC) is needed. Depending on the provider country, mutually agreed terms (MAT) could need to be negotiated. These MAT consist of key principles on the sharing of benefits (both monetary and non-monetary ones) with the provider country. A contractual agreement is then established between the provider country and the user of genetic resources. To the extent both the PIC and MAT requirement are fulfilled, the company will obtain a permit to access the genetic resources. If the provider country notifies such permit to the ABS Clearing House, this permit can become an internationally recognised certificate of compliance (IRCC).

Second, the parties (countries) to the Protocol on the other hand should enforce compliance with the above requirements of the provider countries. In the EU, this means that companies need to submit a compliance declaration through the EU online platform DECLARE, which sets up a system of national online notification platforms, demonstrating that they have carried out a due diligence on the provider country. EU member states from their side thus need to ensure that companies using genetic resources comply with the access rules defined by a provider country. This means not only designating competent authorities and focal points responsible for applying the Regulation, but also defining effective penalties in case companies do not comply with the Protocol.

Consequently, sanctions for non-compliance with the Regulation vary from country to country, and may amount to administrative fines of up to 50.000 EUR in Germany and criminal fines of up to 1.000.000 EUR and one year of imprisonment in France.

Does the Protocol apply to my company?

There are four key points in considering whether the Protocol applies to a company based in the EU:

1. There should be a use of material of plants, animals, microbial or other genetic material, or any associated traditional knowledge held by a country’s local community relevant for using such genetic resources.
2. Such “use” should include R&D activities potentially leading to new insights or further applications and commercialisation of such genetic resources.
3. The genetic material should be collected from a provider country which is a party to the Protocol and has ABS rules in place.
4. There is no more specific international regulation (such as the Treaty on Plant Genetic Resources for Food and Agriculture or the WHO's Pandemic Influenza Preparedness) applicable to the use of such resources, as such regime always takes precedence.

Particularly, companies active in the cosmetics, food, pharmaceutical or plant breeding industries may be affected by the Nagoya rules.

Enforcement: the time is now

To date, South Africa and India have the strictest provider country legislation in place, while Chinese provider rules are also very advanced and Brazil is stepping up as well.

On the other hand, the EU’s due diligence rules are the strictest in ensuring compliance with the Protocol. While in the first years after 2014 regulators focused mainly on implementing the legislation and relevant processes, we now see European regulators in particular becoming more active. In several countries such as the Netherlands, the UK and France, regulators have reached out to companies requesting to confirm that they comply with the Protocol. Germany seems to have made most progress, having adopted quite an advanced strategy to identify potential users of genetic resources by using algorithm based software.

While to our knowledge no fines have been imposed to date, it can be expected that this enforcement trend will only continue, and regulatory authorities will soon have a clearer view on which companies potentially fall under the scope of the Nagoya Protocol.

If you are a company active in the cosmetics, food, pharmaceutical or plant breeding industry, it is essential that you assess whether your activities could possibly be subject to the Nagoya Protocol and ensure compliance with the aforementioned rules.

It is ten past twelve.

This article was co-authored by Rada Petrovic.