Clinical trials are often carried out in cooperation between state research institutions (such as public universities) and private medical companies. In relation to EU state aid law, state research institutions in Germany are increasingly asking for strict requirements on contractual conditions, particularly with regards to the transfer of IP rights. However, such requirements are often not required under EU state aid law. Assessments should always be made on a case-by-case basis.

The EU state aid law prohibition on favouring private (medical) companies

According to Art. 107 para. 1 TFEU, EU state aid law generally prohibits the granting of state aid to companies within the EU if this gives them an economic advantage that they would not have received under normal market conditions. The rationale behind the EU state aid legal provisions – as with the other EU competition law provisions – is to ensure undistorted competition within the EU.

Member States, in particular state-funded research institutions, such as universities and university hospitals, are therefore required under EU state aid law to act in accordance with market conditions in the area of research in cooperation with medical companies. Sector-specific EU state aid law guidelines of the European Commission differentiate the requirements to be observed in the area of research and development (Framework for State aid for research and development and innovation, 2022/C 414/01). In the event of a breach, a research agreement may be null and void thus, generally, taking all contractual IP rights from the medical company. Also, the medical company as recipient of state aid may be required to compensate all benefits received from the state research institution and thus make payments in addition to the agreed prize, as well as interest.

EU state aid law and clinical trials

The cooperation between state research institutions and medical companies in conducting (clinical) trials raises the question of compatibility under EU state aid law due to the cooperation between state institutions and private companies. On the one hand, this applies to agreements for the conduct of clinical trials that are investigator initiated (so-called Investigator Initiated Trials, IIT) and are not initiated by a medical company but by the research institution itself. On the other hand, this also applies to so-called Company Sponsored Trials (CST), which relate to the classic area of contract research in relation to certain drugs or medical devices.

These forms of cooperation are legally relevant under EU state aid law if the companies receive benefits that they would not have received under normal market conditions. The specific standard of assessment is the so-called private investor test. The question is whether the company could have achieved the same contractual conditions with a private company operating in a market economy. If this question is answered in the negative, then there is a strong presumption that the company received an economic advantage relevant under EU state aid law. 

If the trials are fully funded ("contract research at market price") – as is often the case with CSTs – this generally excludes the criterion of economic advantage. In the case of non-fully funded trials – often IITs – care must be taken in the context of cooperation with medical companies (or their participation as financial funder) to ensure that they do not receive an undue advantage. This may lie in the fact that they receive IP rights or generated trial data that they would not have received in return for their financial support under market conditions. It is conceivable that they would have had to conduct the specific trial themselves as a sponsor – fully funded – in order to obtain the desired data and any IP rights. 

Excessive contractual requirements of state research institutions in Germany

Aware of the risk of possible unlawful state aid in the context of clinical trials, research institutions are increasingly putting strict requirements in clinical trial agreement negotiations. They often demand, irrespective of the type of clinical trial, an additional appropriate compensation payment for any IP rights that may arise, which should be subject to independent negotiation within the framework of separate agreements. However, this approach – which is intended to counteract the existence of an advantage relevant under EU state aid law – does not consider that when applying the relevant assessment standard for the existence of a legally relevant advantage under EU state aid law, parties acting in line with market conditions would not necessarily have concluded such agreements.

Rather, the fact that certain – valuable – IP rights may only possibly arise may already be compensated for by the financial contribution of the medical company, so that the possibility of IP rights arising is already part of the medical company's consideration. Economically acting parties must in fact assume that any IP rights that may arise – possibly even on the basis of drugs, medical devices or know-how made available to the research institution by the medical company – are reasonably included in the overall market price for the trial. In any case, in the vast majority of cases, such IP rights – which are actually commercially relevant and therefore valuable – are unlikely to arise beyond the trial data generated. The market price therefore covers in principle the IP rights that may arise, which is why IP rights that arise do not necessarily have to be remunerated additionally and separately. This view is also shared by the European Commission in its Framework for State aid for research and development and innovation (2022/C 414/01), according to which the market value of IP rights should be deducted from the price to be paid for the services in question if the IP rights are not to be transferred to the contracting medical company.

Conclusion

The cooperation between state research institutions and the medical companies can be relevant under EU state aid law. The parties involved are well advised not to ignore this when drafting agreements. However, this should not lead to excessive requirements being placed on certain areas of contractual conditions – in particular IP rights – which are not necessary for compatibility under EU state aid law. Compensation payments for any IP rights arising cannot be demanded in the case of fully cost-financed contract research, as these should be already covered by the total price for conducting the trial. In all other cases, a solution tailored to the individual case should be found that reflects the primacy of the EU state aid law assessment of the market appropriateness of the performance and consideration of the parties involved. The European Commission's Framework for State aid for research and development and innovation (2022/C 414/01) provides assistance in this respect.