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Amendments to medical device law: implications and need for action in private label constellations

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published on 11 November 2020 | Reading time approx. 8 minutes

From Dr. Barbara Klaus, Dr. Ralph Egerer, Violetta Meier and Ulrich Klaus


In order to create a solid, transparent, predictable and sustainable regulatory framework for medical devices and in vitro diagnostic medical devices that provides a high level of health and safety protection and at the same time encourages innovation, new regulations have been adopted at EU level in a bid to promote harmonisation in these diverse areas and the smooth functioning of the internal market. This article sheds light on the legal amendments concerning manufacturer obligations – especially with regard to the future design of private label constellations and the technical documentation of medical devices – and suggests solutions for affected companies.


 


A wide range of medical devices and procedures

Medical devices and in vitro diagnostic medical devices cover a wide range of medical devices and procedures used to diagnose, prevent, treat and alleviate diseases and disabilities. However, unlike medicinal products, their primary intended action is achieved not by pharmacological, immunological or metabolic means, but by physical or physicochemical means. Legal and in particular regulatory issues relating to medical devices are increasingly coming to the fore against the background of rapid medical progress, but also in the wake of the Covid-19 pandemic. For example, more and more medical devices are using Artificial Intelligence (AI) to diagnose patients more precisely and treat them more effectively, which, in addition to regulatory issues, poses problems in terms of legal liability, in particular. Moreover, hygiene masks, gloves, protective suits and coronavirus tests are more sought-after than ever before, with such products giving rise in particular to questions about their classification as medical devices (e.g. in contrast to personal protection equipment) and about requirements relating to placing them on the market.


New regulatory framework for medical devices and in vitro diagnostic devices

Medical technology companies must meet numerous regulatory requirements in order to manufacture and/or distribute medical devices in the EU. The requirements previously regulated in the Medical Devices Directives 90/385/EEC and 93/42/EEC as well as in Directive 98/79/EC on in vitro diagnostic medical devices and the national implementing acts will be replaced with Regulation (EU) 2017/745 (hereinafter MDR) and Regulation (EU) 2017/746 as of 26 May 2021 and 6 May 2022, respectively. Both are directly applicable in the EU Member States and therefore do not need to be transposed into national law. Of course, extensive adjustments of the national medical device laws are necessary, some of which have already been made in Germany (Medical Devices EU Adjustment Act – MPEUAnpG of 28 April 2020).

The Regulations contain major amendments concerning medical devices and in vitro diagnostic medical devices. In particular, the new obligations will apply not only to manufacturers of industrially manufactured devices, but in principle to all economic operators operating in the medical devices sector. Simply speaking, this means that import, distribution, trade and activities concerning the provision of services in health care facilities, e.g. the manufacture of custom-made devices, are also subject to stricter regulation. All economic operators must therefore clearly define their role and know and meet the related obligations. Otherwise they might face liability and sanctions. The amendments to medical device law have an impact in particular on private label constellations due to the extended definition of manufacturer indicated in Article 16 MDR: Importers, distributors and other persons who have not manufactured medical devices themselves, but who place the device on the market under their own name or trade mark (so-called “quasi-manufacturers” or “private label manufacturers”, hereinafter “PLMs”), are basically subject to the same obligations as the company that actually develops and manufactures the device and, if necessary, licenses them under its own name (“original equipment manufacturer”, hereinafter “OEM”).


OEM/PLM AS SUCCESSFUL BUSINESS MODEL

The OEM-PLM business model is not uncommon in the medical devices industry. In particular, given the need for medical devices in the era of Covid-19 such as hygiene masks, gloves and protective suits, this model has proven to facilitate opening up new sectors as companies can additionally purchase OEM-manufactured components and do not need to have in-house development and manufacturing know-how. OEMs, on the other hand, can limit their activities to development and manufacturing without having to set up their own sales structures and without the need to acquire regulatory and other specific knowledge in the respective market. A typical feature of this model is that the OEM does not act towards third parties as a manufacturer, but only the PLM does. The purchaser and end user of such medical devices therefore does not know the actual manufacturer.


TRANSFER OF MANUFACTURER OBLIGATIONS TO THE “QUASI-MANUFACTURER” (PLM)

It should be noted, however, that the new MDR explicitly stipulates that the comprehensive manufacturer obligations described in detail in Article 10 also apply to other economic operators if they make the devices available on the market in their own name (Article 16 (1) a) MDR). Besides, this applies not only to distributors, but also to importers and EU representatives acting as quasi-manufacturers, which is often the case with non-European, especially Asian manufacturers. However, Article 16 (1 a) MDR on the other hand clarifies that the manufacturer obligations do not pass to other operators if the actual manufacturer is identified as such on the product packaging and has entered into an agreement with the importer or distributor that he (the manu­facturer) remains responsible for meeting the regulatory requirements. Under the new MDR, “Own Brand Labelling” without assuming manufacturer responsibility therefore requires an agreement between the distributor/importer/EU representative and the supplier, according to which – although the product bears their brand – the supplier is indicated as the manufacturer on the product label and is responsible for meeting the manufacturer obligations under the MDR. Otherwise, especially if the supplier is not indicated as the manufacturer in any written agreement, but the distributor/importer/EU representative distributes the product under his own brand, the distributor/importer/EU representative is responsible as the manufacturer and must also be identified as such on the product. The identity of the actual manufacturer is therefore not disclosed on the product label to the end user of the medical device. The OEM must only be indicated in EUDAMED by the quasi-manufacturer as the supplier who “designs or manufactures” the device (Article 10 (15), Article 30 (1) MDR).

It should be noted at this point that even if the importer/EU authorised representative/distributor does not place the device on the market under his own name, he is still subject to the manufacturer obligations if he changes the intended purpose or otherwise modifies a device in such a way that compliance with the applicable requirements may be affected (Article 16 (1) b) c) MDR). This only does not apply if these operators merely provide accompanying information (including translation) on a medical device already placed on the market or information required by the regulations of the relevant Member State or if only the outer packaging of the device is changed because this is required by the regulations of the relevant Member State in which the device is marketed (Article 16 (2) a) b) MDR).


DOCUMENTATION REQUIREMENTS UNDER THE CONFORMITY ASSESSMENT PROCEDURE

In cases where the distributor/importer/EU representative is subject to the manufacturer obligations due to marketing of the medical device under his own brand in accordance with Article 16 MDR, he is also obliged to keep complete technical documentation on the device. This is because the new MDR now expressly requires: “Manufacturers of devices other than custom-made devices shall draw up and keep up to date technical docu­men­tation for those devices” (Article 10 (4) MDR). And manufacturer is whoever markets the products in their own name, even if it is “only” the quasi-manufacturer. In practice so far, the PLM fulfilled the documentation obligation by merely referring to the technical documentation of the original manufacturer. This scenario will no longer be possible under the new MDR. Instead, the PLM as the manufacturer in the legal sense must physically have in place the complete technical documentation. The legislator's intention was to ensure that the person who markets the device under his own name identifies more strongly with the device. After all, marketing a device under one's own name expresses the will to appear to third parties as a manufacturer. This is in line with the European legal concept according to which the consumer sees as the person responsible the person who presents the product to the user as his product.


CHALLENGES FOR THE INDUSTRY

These new requirements pose a challenge for both the original manufacturer and the quasi-manufacturer. This is because the former has now the obligation to provide the latter with all the information required to prepare the technical documentation in accordance with Annexes II and III MDR and thus to prove product conformity, without any deletions or blacked out places. This includes the entire technical documentation and records from the quality management system and information about suppliers and outsourced processes. This means that the original manufacturer’s own know-how must be passed on to the quasi-manufacturer. This also applies to modifications, since the manufacturer, including quasi-manufacturers, is himself responsible for keeping the technical documentation up to date in accordance with Annexes II and III (Article 10 (4) MDR). When the original manufacturer discloses his know-how, there is a great risk that the quasi-manufacturer will possess all the information necessary to have the product manufactured by other manufacturers. On the other hand, the quasi-manufacturer cannot fulfil his documentation and updating obligations under the new MDR without support of the original manufacturer. Moreover, when he receives the necessary information from the original manufacturer, the problem may arise that he will not have the necessary expertise to assess this information. He will therefore not be able to carry out the conformity assessment required by the Regulation.

It is clear that detailed contractual arrangements and quality assurance agreements have to be signed, in particular to regulate the exchange of information between the actual manufacturer and the quasi-manufacturer – in both directions – and the co-ordinated processes and audits of the manufacturer.


POSSIBLE SOLUTIONS

To meet these challenges, there are several ways in which original manufacturers and quasi manufacturers can set new rules for their future business relationships. MDR itself offers one possible solution. According to that solution, the documentation obligation would remain with the original manufacturer if he was identified as such on the packaging. Although the quasi-manufacturer would act as a distributor to third parties, he would also be released of all regulatory manufacturer obligations. This solution could fairly problem-free be achieved by concluding an appropriate agreement between the two parties.

If, on the other hand, disclosure to consumers of information on the actual manufacturer is not desired, other possible solutions are either a model of co-operation where the quasi-manufacturer could meet his manu­facturer obligations with the help of the original manufacturer, or the appointment of a joint go-to person who would be assigned to the quasi-manufacturer but would not be allowed to disclose confidential information about the device to the latter. However, the conformity of these options with the Regulation as well as the contractual safeguards for both entities pose quite a legal difficulty. This is because, in addition to the question of who should bear the risk of liability for defective devices, higher costs are to be expected and additional safeguards are to be made to protect know-how.

Last but not least, it would also be possible for the original manufacturer, when transmitting information to the quasi-manufacturer, to limit himself to providing only information that is statutorily required. This would enable reconciling the manufacturer obligations and the protection of core know-how. However, it would not always be easy to distinguish between the statutorily required content of the technical documentation and the core nature of know-how.

In many cases, the original manufacturer can obtain very effective protection by securing his know-how through patents or utility models. This can be relevant, for example, for the information on product speci­fi­cations such as functional elements, raw materials, auxiliary materials, manufacturing processes or composition of the device contained in the technical documentation. Patent protection gives the original manufacturer the power to prevent the quasi-manufacturer from passing on the protected know-how to a third party who would then use the know-how for its own purposes. This right can be enforced both against the quasi-manufacturer and against any third party, and if necessary this can be done quickly and efficiently through legal action.

However, not all of the information to be transferred to the quasi-manufacturer can be patent-protected. This is only possible for technical inventions which are new, i.e. do not form part of the state of the art. Patent protection is impossible in the case of technologies already known and business information of a non-technical nature within the meaning of patent law, which is also to be included in the technical documentation according to the new MDR (e.g. information on suppliers or subcontractors). In this respect, the original manufacturer is initially left with the non-patent forms of protection described above.

In any case, however, the original manufacturer should also insist on the strictest possible agreement on the confidentiality of the information contained in the technical documentation. On the one hand, such a non-disclosure agreement enables the original manufacturer to claim injunction, damages and – if agreed – a contractual penalty from the quasi-manufacturer if the quasi-manufacturer – in breach of the contract – discloses information arising from the technical documentation. On the other hand, the most efficient protection of information in the form of the legal protection of secrets is ultimately only available to the original manufacturer through a suitable non-disclosure agreement. In Germany, for example, according to the Act on the protection of trade secrets (GeschGehG) of 19 April 2019, breaches of trade secrecy obligations are subject not only to civil law claims for injunction, information and damages but also imprisonment of up to three years.
   

Conclusion

All of the above-mentioned solutions have various advantages and disadvantages for both entities. For the sake of long-term customer loyalty and good cooperation, original equipment manufacturers and quasi-manufacturers should therefore jointly develop individual solutions and be cooperative. It is important that a practical solution is found where the interests of both parties are equally safeguarded and protected. The know-how of the original manufacturer must be protected in the same way as the quasi-manufacturer must be enabled to fulfil his documentation obligation imposed by the Regulation. In this respect, it is of central importance that the contractual relations of the parties involved are structured appropriately and individually.


Outlook

The numerous amendments introduced by the Medical Devices Regulation will lead to significant restructuring and time-consuming changes in the industry. Medical devices already certified must be adapted to the new requirements. The MDR provides for transitional provisions including transition periods in Article 120, so devices may continue to be placed on the market for a maximum of four years after entry into force. However, such extended validity periods are subject to additional requirements. These are formulated in a very complex manner and Article 120 MDR with its 12 paragraphs is not easy to apply. It is therefore advisable to seek legal advice on regulatory aspects also in this area.

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Dr. Barbara Klaus

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+49 911 9193 1999

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Dr. Ralph Egerer

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+49 911 9193 1504
+49 911 9193 1599

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