Tag Archives: law

Who’s Who Legal 2018: Our Life Sciences Practice in the Top Three!

Who’s Who Legal just published its 2018 rankings, highlighting the leading practitioners recognized “for their excellent work across the full spectrum of life sciences law”.

Our very own Paola Sangiovanni has been recognized among the top three most highly regarded practitioners in the life sciences legal industry in Italy. Here’s what Who’s Who Legal says about Paola:

«The “fantastic” Paola Sangiovanni at Gitti and Partners is “a truly dedicated life sciences expert”, who is considered “a great deal-maker”. Her transactional expertise in the life sciences space is in high demand, thanks to her “client-focused approach and excellent service”».

We are very proud to share such a terrific achievement with our clients and friends, and we would like to thank you all for your continued support!

New Whistleblowing Legislation Approved in Italy

Whistleblowers will be granted a higher level of protection under new legislation passed earlier this week in Italy.

The new provisions apply to civil servants as well as employees in the private sector. Whistleblowing protection will shield individuals who submit a good faith report concerning unlawful conduct, provided that such report is based on a reasonable belief and factual elements.

The new legislation prohibits any retaliation or other discriminatory measures against good faith whistleblowers, including termination, demotion, transfer or other organizational action.

In the private sector, the new legislation has a significant impact on organizational models adopted to prevent corporate criminal liability pursuant to Legislative Decree 231 of 2001. In fact, all organizational models will need to set up appropriate channels for the confidential reporting of criminal conduct and violations of the organizational models themselves.  Measures aimed at protecting the identity of the whistleblowers and the confidentiality of the reports, as well as disciplinary sanctions against retaliatory or discriminatory measures against whistleblowers, will also need to be included in such organizational models.

The new legislation is expected to enter into force shortly, upon publication in the official gazette.

Legality Rating by the Italian Antitrust Authority: Is It Useful?

Not only must we punish corrupt companies but also encourage healthy businesses“. The statement released by Mr. Raffaele Cantone, Chairman of the Italian Anti Corruption Authority, summarizes the rationale underpinning the so called “legality rating”, i.e. a score that the Italian Antitrust Authority assigns to companies who apply for it. In fact, Law no. 62/2012, converting Law Decree no. 29/2012, requires the Italian Antitrust Authority to assign a score ranging from one to three “stars”, to any applying company who complies with a series of legal requirements (inter alia, the absence of criminal sanctions or preventive/precautionary measures against key personnel of the company, no judgments pursuant to Legislative Decree No. 231/2001, no breaches in the field of health and safety at work, and no definitive tax assessments against the company).

The instrument, available to entities generating a turnover in excess of Euro two million per year, is completely optional, but continues to be widely utilized. A statement of the Antitrust Authority shows in fact that, in January 2015, the Authority  received respectively 14% more applications than in the previous month and the trend seems to continue.

So, companies line up as schoolboys in order to show that they are worth a certain number of “stars” in an effort to demonstrate the soundness of their compliance program: is it worth it? To respond, we have looked into the benefits of the legality rating to understand the actual relevance of a practice that is becoming widespread. Below is a summary of the alleged benefits.

  • A new Regulation, developed by the Italian Antitrust Authority in collaboration with the National Anti Corruption Authority, entered into force on November 14, 2012, sets forth that companies benefitting from a legality rating are enrolled in a register of virtuous firms. Such registration is supposed tofacilitate relations with banks or the granting of public funding as well as the possibility to participate in public tenders.
  • The first example of a public procurement process taking into account the legality rating refers to postal services. The procurement documentation (Decision of December 9, 2014, published in the Official Gazette no. 1 of the January 2, 2015) stated for the first time that “for the public procurement of large size, the contracting authorities can evaluate the opportunity to give an additional and proportionate score to companies that benefit from a legality rating issued by the Antitrust Authority pursuant to §. 5 ter of Law-Decree no. 1 of January 24, 2012, or that have equivalent certifications issued to foreign firms from other agencies or public authorities”. For the first time, legality rating actually mattered as it gave a chance to companies to score additional points in public tenders.Some have criticized the use of a legality rating in this context, given that section 83 of the Italian Public Procurement Code (Legislative Decree no. 163/2006) requires that contracting authorities assess bidding companies on the basis of objective requirements only. It has been in fact argued that making reference to a legality rating is too discretionary. However, the Antitrust Authority, in opinion no. 163/2013, seemingly admits the possibility of using discretionary requirements, such as “the curriculum of the company, possession of licenses or quality certifications, availability of business assets, the providing of services or similar work, and in general, skills and references” as “factors that can be weighedas criteria for admission to tenders”.

In conclusion, if public procurement tenders give some weight to the legality rating, then obtaining it may actually be a good idea.

The risk is, as with any type of certification, that it will become a merely formal requirement, which does not attest the actual compliance efforts or a corporation’s culture.

Hospital Use Of ATMPs: Toward A Stronger Protection Of Patients Resorting To Compassionate Use

The Italian Ministry of Health has recently strengthened the requirements to obtain the authorization to manufacture and use advanced therapy medicinal products (“ATMPs[1]) which are non-routinely produced. In fact, following the enactment of the Decree of the Ministry of Health of January 16th, 2015, published only last week (the ATMP Decree)[2], more control on such drugs’ hospital use is expected. The ATMP Decree does not apply to ATMPs under clinical trial and solely focus on compassionate use of non-routine ATMPs.

THE PREVIOUS REGULATORY SCENARIO. Prior to 2006, the use of gene therapy and cell therapy medicinal products, for which a marketing authorization had not been obtained, was authorized only within clinical trials[3]. In 2006[4] non-profit manufacturing and compassionate use[5] of gene therapy and somatic cell therapy medicinal products was first allowed.

The 2006 Decree allowed the use of such products on the basis of certain requirements, checked by the Agenzia Italiana del Farmaco, the governmental agency in charge of pharmaceuticals (AIFA). Given the lack of therapeutic alternatives in a life threatening condition, the requirements for production and use of gene therapy and cell therapy medicinal products were not especially strict and heavily relied on the patient’s consent and positive feedback by the Ethics Committee, as well as on the self-certification on the existence of the requirements by the doctor responsible for the drugs administering.

THE NEW RULES INTRODUCED. The ATMP Decree was introduced to protect consumers from fraudulent conducts. Even though the Decree does not make specific reference to it, it is widely accepted that the ATMP Decree aims at limiting the proliferation of cases like the famous “Stamina case”, where therapies for treatment of life-threatening diseases have been provided to patients in sheer lack of scientific grounds[6]. AIFA will enforce the new rules by way of on-site inspections that may lead to suspension or revocation of a previously granted authorization to manufacture, as well as to the prohibition to administer the drug. The ATMP Decree can be summarized as follows:

  • AUTHORIZATION TO MANUFACTURE. Manufacturing of ATMPs for non-routine hospital use now requires a prior authorization by AIFA, which is only issued to GMP (Good Manufacturing Practices) certified manufacturers[7]. Prior to issuing its authorization, AIFA checks compliance of the manufacturing site. The process may altogether take up to 120 days, save for further inquiries by AIFA[8].
  • AUTHORIZATION TO USE. Use of ATMPs is limited to “compassionate use”. Only certain public research hospitals will be suitable candidates to obtain AIFA’s authorization[9]. Moreover, the authorization will be released only upon approval by (i) a Committee for the Assessment of Admissibility to Phase I of Clinical Trials, composed of expert biologists and clinicians, and (ii) by the concerned hospital’s Ethical Committee. The authorization is issued after an analysis of all documents necessary to assess risks and benefits of the proposed treatment, as well as data concerning safety and efficacy available from previous clinical trials.
  • COOPERATION BY MANUFACTURERS AND PHYSICIANS.
    • Manufacturers of ATMPs must ensure traceability of medicinal products as well as of patients for thirty years, and must report to AIFA any adverse events. Also, manufacturers can deliver ATMPs only after authorization to use has been issued and in compliance with a physicians’ prescriptions.
    • Physicians, on the other hand, must ensure that the patient’s informed consent is obtained, and must comply with Good Clinical Practice principles in administering ATMPs in accordance with the protocol approved by the Ethics Committee. Finally, traceability of the drug and patient must be ensured and adverse events must be communicated promptly.

CONCLUSIONS. Manufacturing and use of ATMPs on non-routine basis shall follow objective requirements, to be assessed by governmental entities who are able to appreciate their scientific basis, rather than – as in the past – used under the mere responsibility of physicians and on the basis of self-certified manufacturing facilities. If, on the one hand, it would be advisable that all who need to resort to compassionate use of medicinal products can access medicinal products as quickly as possible, on the other hand it must be ensured that the same people receive adequate protection from deceitful conducts. The Stamina case showed how vulnerable to deception patients who are in a life threatening condition without any available cure can be to false hopes spread by therapies without scientific basis: the recent ATMP Decree attempts to protect them.

 

[1] According to Section 2 of Regulation (EC) No. 1394/2007 of the European Parliament and of the Council of 13 November 2007 on advanced therapy medicinal products and amending Directive 2001/83/EC and Regulation (EC) No. 726/2004 ATMPs include gene therapy products, somatic cell therapy products and tissue engineered products.

[2] The ATMP Decree has been published on the Official Gazette no. 56 of March 9th, 2015 and will become effective fifteen days after publication.

[3] See Section 1 of Ministerial Decree of March 2, 2004. Such non-routinely manufactured drugs were also excluded by the scope of the Pharma Code (Legislative Decree no. 219 of 2006) which focused on the industrial manufacturing of medicinal products and excluded non-routine drugs from its scope.

[4] Ministerial Decree n. 25520 of December 5th, 2006.

[5] According to Ministerial Decree n. 11521 of May 8th, 2013 “compassionate use” or “expanded access” of medicinal products may occur when no suitable alternative is available, in case of life-threatening situations, when serious harm to a patient’s health is potential, or in case of serious diseases with fast progression.

[6] The “Stamina Method”, created by Prof. Vannoni for the treatment of neurodegenerative diseases, is based on the conversion of mesenchymal stem cells into neurons and apparently lacks any scientific foundation. The method itself was also harshly criticized by Nature, one of the most prestigious scientific journals (http://www.nature.com/news/italian-stem-cell-trial-based-on-flawed-data-1.13329). Prof. Vannoni manufactured ATMPs while completely disregarding GMPs. Prof. Vannoni was criminally charged and prosecuted for organized crime with the purpose of fraud and recently plea bargained.

[7] Principles and guidelines of GMPs are contained in Commission Directive 2003/94/EC of 8 October 2003 laying down the principles and guidelines of good manufacturing practice in respect of medicinal products for human use and investigational medicinal products for human use.

[8] The process also includes submittal of request for authorization, along with a report on the ATMP.

Tax Relief on Exploitation of Intellectual Property Rights and Know-How

INTRODUCTION OF THE SO CALLED “IP BOX”. Law no. 190 of December 23, 2014 (“Law”), provides for a new regulatory framework concerning taxation of revenue arising from exploitation of intellectual property rights and know-how eligible for legal protection.

Starting from 2015, repatriation of intangible assets owned by Italian and foreign companies abroad will be favored. Exportation or re-exportation of intangible assets to countries having more favorable taxation of revenue arising from exploitation of intellectual property rights will likely decrease, whereas investments in R&D activities in Italy should increase.

SCOPE OF THE LAW. The Law expressly covers works of intellect, patents, trademarks, design, models, processes, formulas, as well as industrial, commercial, and scientific know-how eligible for legal protection[1]. Revenue arising from both direct and indirect exploitation will receive a more favorable taxation as profits from licensing of eligible assets as well as their direct use (e.g. use of patented machineries in manufacturing processes) will be partially excluded from companies’ taxable income. The Law provides for a progressive implementation of the tax relief system. In 2015, only 30% of the profits will be excluded, whereas such percentage will increase to 40% in 2016, and to 50% in 2017[2].

Capital gains arising from sale of eligible intangible assets will be entirely tax-exempt, upon condition that at least 90% of sales revenue are invested, within two years from the relevant sale, in maintenance or development of any of such assets.

It must be noted that the tax relief will not automatically apply to all eligible entities. Instead, companies must expressly opt for the regime, and their choice will be binding and irrevocable for the following five fiscal years.

WHO CAN BENEFIT. Entities carrying out business activity in Italy, regardless of their type or size, can benefit from the new taxation regime. Foreign companies and other incorporated or non-incorporated entities, including trusts, carrying out business activity in Italy through a permanent establishment, can also benefit from the newly introduced regulatory framework provided that their country of residency is a party to a double tax treaty and undertakes to exchange relevant information with Italy.

CONDITIONS. The exclusion of profits from corporate income will apply only to those entities that carry out R&D activities by way of contracts entered into with either universities or equivalent research entities, or with companies other than those belonging to the same group[3].

In case of direct exploitation of eligible intangible assets, companies must conclude an advanced pricing agreement (APA) with the Agenzia delle Entrate (the Italian tax agency) to determine the ratio between the production value of the assets and the corporate income[4]. Such an agreement is optional for revenue arising from exploitation of eligible assets within the same group[5], whereas it is mandatory in case of capital gains deriving from sale of the assets.

EXEMPTED INCOME. Not all of corporate income benefits from the tax relief. The benefitting quota is instead calculated on the basis of the ratio between R&D costs incurred for maintenance and development[6] of eligible intangible assets and overall costs borne to produce such assets.

[1] The Law originally provided for works of intellect, patents, trademarks that are functionally equivalent to patents, processes, formulas and know-how eligible for legal protection. The meaning of “trademarks functionally equivalent to patents” has been debated ever since, with experts stating that such trademarks could be indentified in those trademarks used to market patented inventions. The recent Law Decree no. 3 of January 24th, 2015 (currently still to be converted into law) expanded the scope of the Law to all kind of trademarks, therefore also to purely commercial trademarks, as well as to design and models.

It must be noted that the scope of the Law is wider than what provided in other European countries by similar tax regimes, where tax relief is usually limited to exploitation of patents. Such systems are therefore commonly defined as “Patent Box”.

[2] The exemption is relevant to calculation of both IRES (corporate income tax) and IRAP (regional tax on production). It is estimated that, starting from 2017, revenue arising from exploitation of eligible assets will be taxed at a rate of 13.75%.

[3] The provision is aligned with the “nexus approach” adopted by OECD, aiming at limiting harmful tax competition amongst OECD countries. According to such an approach, tax relief is to be granted only when R&D costs are incurred, therefore hindering companies from exporting intangible assets to countries with more favorable tax rates without carrying out any R&D activity in such countries. (For further information on this issue visit http://www.oecd.org/ctp/beps-2014-deliverables.htm)

[4] The agreement is reached upon an international ruling procedure that is usually applied with regards to transfer pricing and dividends within the context of multinational companies.

[5] The Law originally provided for a mandatory agreement also in case of exploitation within the same group. Law Decree no. 3 of January 24, 2015, made such an agreement optional. Please note that the agreement may remain mandatory if the law decree is not converted into law or if it is modified by the law of conversion.

[6] Law Decree no. 3 of January 24, 2015, provides that such costs are increased by those incurred for the purchase of the asset or for research contracts entered into with companies belonging to the same group up to 30% of maintenance and development costs.

Italian Competition Authority Targets Big Pharma, Triggers Expansion Of Off-Label Prescription

I. ITALIAN COMPETITION AUTHORITY FINES ROCHE, NOVARTIS

On February 27, 2014, the Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato, hereinafter “AGCM”), in an unprecedented decision concerning the pharmaceutical industry in Italy, issued fines in an amount of more than 180 million euro in the aggregate against F.Hoffman-La Roche Ltd. and Novartis AG, as well as their Italian affiliates. The two companies have been found to have restricted competition in connection with the commercialization of two drugs known by their brand name of Aventis and Lucentis.

The fines issued by AGCM, however, did not only affect Roche and Novartis. The AGCM decision triggered in fact, within a very few months, new legislation and case-law on off-label use of medicinal products, making it effectively easier for physicians to prescribe such products so long as their prices are lower than authorized alternatives.

Furthermore, the AGCM decision made painfully clear to the industry that mere compliance with the specific regulations applicable to pharmaceutical products will no longer shield companies from antitrust scrutiny.

II. PHARMACEUTICAL PRODUCTS, RELEVANT MARKET AND MARKETING AUTHORIZATIONS

Aventis and Lucentis have been employed in the treatment of several eye diseases, including in particular age related macular degeneration (“AMD”) and neovascular glaucoma. Both drugs have been approved by the European Medicines Agency (“EMA”) pursuant to the centralized authorization procedure. According to applicable legislation, medicines derived from biotechnology processes are subject to a single marketing authorization issued by EMA, which is valid in the entire territory of the European Union.

Avastin, a drug developed by Genentech (a fully owned subsidiary of Roche), has been approved by FDA and EMA, in 2004 and 2005 respectively, for the treatment of colon cancer. The marketing authorization has not been sought for the treatment of eye diseases. However, Avastin has been consistently employed off-label by ophthalmologists in the treatment of AMD. While Genentech has retained the rights to market Avastin in the US, it has assigned to Roche distribution rights in the rest of the world in exchange for royalties. Neither Genentech nor Roche have ever submitted a request for a marketing authorization for ophthalmological indications.

Lucentis has also been developed by Genentech and has been approved by FDA and EMA, in 2006 and 2007, for the treatment of AMD. Genentech has assigned the distribution of Lucentis (except in the US) to Novartis and sells to Novartis the active principle (ranibizumab).

III. OFF-LABEL PRESCRIPTION IN ITALY

In assessing the alleged restrictions on competition arising out of the marketing and commercialization of Avastin and Lucentis, AGCM extensively took into account the regulation of off-label prescription in Italy, which deeply affected the use of the concerned drugs by Italian healthcare professionals.

In the absence of any international regulation on off-label prescription of drugs, Italian legislation has developed through the adoption of a series of subsequent regulatory guidelines and ad hoc decisions. Law 648/1996 is the main legal instrument governing off-label prescription of drugs in Italy. Such law provides that, in the absence of a valid therapeutic alternative, the national health service may reimburse (i) innovative drugs that have been approved in other states but not in Italy; (ii) drugs that have not yet been authorized but are undergoing clinical trials; and (iii) drugs to be used for a therapeutic indication other than the approved one. The Italian pharmaceutical agency (Agenzia Italiana del Farmaco, hereinafter “AIFA”) holds, and periodically updates, a list of all the above drugs that may be reimbursed by the national health service, the so called “List 648”. Pursuant to such legislation, healthcare professionals may prescribe drugs included in the List 648 for off-label use and obtain reimbursement from the national health service. This legislation is peculiar to the Italian system, as in other countries off-label use is allowed but not reimbursed.

In 1998, the scope of the above provisions has been restricted, by providing that drugs may be prescribed for off-label use only if the healthcare professional is convinced, on the basis of documentable evidence, that the patient cannot be treated with approved drugs and such off-label use is in line with scientific works published on recognized international journals (Law 94/1998).

According to a brief submitted by EMA in the AGCM proceedings, the permissive legislation governing off-label use of drugs and their reimbursement has been beneficial to pharmaceutical companies, as it has allowed to sell products outside of the approved indications, while gathering at the same time scientific data to support future marketing authorizations at the expense of the national health service. The price of such products in most cases is also not established through negotiations with AIFA, as normally required for approved drugs used in accordance with their indications, thus generally yielding higher prices for reimbursement of off-label drugs. The unintended consequences of the above regulations led to a further crackdown on off-label prescriptions in 2006, when it was established that medicinal products cannot be prescribed and reimbursed unless they are at an advanced stage of clinical trials (at least in second phase) and scientific data from such trials are available (Law 296/2006).
In 2012 a change in the legislation concerning medical malpractice had the effect of further discouraging off-label prescription. Law Decree 158/2012, in fact, established that healthcare professionals are exempted from liability due to ordinary negligence if they comply with guidelines and good practices recognized by the scientific community. This has disincentivized healthcare professionals from prescribing drugs off-label, unless such practice is generally endorsed by the medical community.

IV. THE ANTICOMPETITIVE ARRANGEMENTS CONCERNING THE MARKETING OF AVASTIN AND LUCENTIS

Understanding off-label legislation and the possibility to obtain reimbursement from the national health service is essential to understanding how the Aventis-Lucentis case unfolded. The price of Lucentis is in fact significantly higher than the price of Avastin: as of November 2012 the price reimbursed by the national health service per injection was equal to €902. Avastin, on the other hand, had a price per treatment ranging from €15 to €81 and had been included in the List 648 for the treatment of AMD.

In line with then applicable legislation, the placement on the market of Lucentis triggered the cancellation of Avastin from List 648 for most of its off-label uses, since a valid alternative treatment, duly authorized for the same indication, was available on the market. AIFA definitely cancelled Avastin from the List 648 in October 2012 following a change in the summary of the product characteristics previously filed by Roche with EMA in order to account for certain adverse events in the ophthalmic use of Avastin as compared to Lucentis.

AGCM in its decision points to a concerted allocation of the market between Roche and Novartis, with this latter focusing on the ophthalmic sector and the first focusing on antitumoral drugs. In line with this shared marketing strategy, AGCM held that the two companies artificially restricted the use of Avastin, also by undertaking a variety of regulatory actions aimed at limiting its off-label use. Roche, on the other hand, claims that any such actions were in line with its pharmacovigilance duties, as they related to adverse events in connection with the use of Avastin in ophthalmic settings.

It is quite interesting to note that the actions undertaken by Roche regarding Avastin were on their face completely in line with the current regulatory framework. Roche, in fact, was under no obligation to seek a marketing authorization for the treatment of AMD and was actively (maybe too actively!) reporting any adverse events occurred in connection with the off-label use of Avastin. According to AGCM, however, all such actions in the aggregate had the specific goal of restricting competition and were instrumental to a restrictive agreement between competitors, even if they were formally in line with pharmaceutical regulations. The allegations of AGCM have been supported by the economic and contractual ties between Roche and Novartis and their common interest in the commercialization of the two products.

AGCM, in assessing whether the above practices had an impact on the market, also examined the higher costs borne by the national health service in connection with the prescription of Lucentis instead of Avastin and estimated such higher costs in the amount of €540 million in 2013 and €615 million in 2014. While such higher costs have not been taken into account by AGCM in defining applicable sanctions, but rather to show that the practice of Roche and Novartis had actual effects on competition, they quickly became the basis for a claim by the Italian Ministry of Health, who – soon after the AGCM decision – stated that it is willing to seek reimbursement for damages suffered as a consequence of the alleged anticompetitive arrangements.

V. NEW LEGISLATION AND CASE-LAW ON OFF-LABEL PRESCRIPTION

Following the decision of AGCM and the interest generated in the public opinion by the Avastin-Lucentis case, the Italian Government enacted a law decree (36/2014) significantly extending the possibilities for off-label prescription of drugs. The new legislation, in particular, provides that off-label prescription is allowed and reimbursement is warranted even if a valid alternative drug duly authorized for the concerned indication exists. The possibility to obtain reimbursement for such drugs is subject to their inclusion in the List 648, upon an assessment by AIFA that their use is appropriate and cost-effective. In addition, off-label use must be recognized by the scientific community and must be in line with Italian and international researches. Lastly, AIFA may also take appropriate monitoring measures to ensure patients’ safety, and is thus authorized to act independently in the event that the concerned pharmaceutical company fails to take action.

This new legislation appears to lessen the restrictions on off-label prescription previously introduced, and allows AIFA broad authority to expand the list of reimbursable off-label drugs. Contrary to past legislation, however, for the first time off-label regulations explicitly factor in the cost-effectiveness of off-label prescriptions in order to determine their reimbursement.

Only a few months after the AGCM decision and the enactment of new legislation, the Constitutional Court also decided a dispute regarding the prescription of Avastin. In fact, following the 2012 cancellation of Avastin from List 648, many Italian regions continued to recommend the use of Avastin in the treatment of AMD, giving rise to a dispute with Novartis. One of these disputes reached the Italian Constitutional Court, which on May 19, 2014 held that AIFA always had the power to conduct an independent assessment of valid alternative treatments, based not only on authorized indications but also on economic efficiency for the national health service, de facto authorizing AIFA to include products in the List 648 for off-label use and reimbursement, even if an alternative treatment is approved and marketed, but comes at a higher price.

VI. CONCLUSIONS

The AGCM decision already had the effect of triggering an independent investigation into this matter in France and, although still subject to judicial review, is likely to generate further litigation in the next months with the Italian Ministry of Health and other authorities abroad. In addition, the regulations enacted in the aftermath of the AGCM decision can be expected to trigger new actions from AIFA aimed at extending off-label use of drugs, to the extent that such use may serve the purpose of complying with budget restrictions.

Aside from the details of the Avastin-Lucentis case, however, the key takeaway for the pharmaceutical industry is that compliance with the regulatory framework no longer shields pharmaceutical companies from antitrust investigations. AGCM made it very clear that it will independently assess commercialization and marketing strategies of pharmaceutical companies, regardless of their formal compliance with regulatory requirements. Moreover, AGCM expressly stated that the marketing authorization is an entry barrier and cannot be used to determine the relevant market. If other authorities across the world are willing to follow this path, it might well be time for the industry to reassess their marketing strategies.

Which Organizational Model Will Shield An Entity From Corporate Criminal Liability Under Italian Law?

THE ENACTMENT OF LEGISLATIVE DECREE 231.  At the time of its enactment in 2001, Legislative Decree no. 231 had a revolutionary impact on the Italian legal system as it subverted a basic tenet of Italian criminal law according to which corporations bore no criminal liability. The assumption that only individuals could be directly subject to criminal sanctions was erased and a system aimed at punishing corporations for crimes committed by individuals to their advantage or in their interest was created. A specific set of sanctions able to punish the corporation and its shareholders was devised: monetary sanctions and blacklisting sanctions (inclusive of the prohibition to carry on the business activity and the appointment of receivers), which may also be ordered on an interim basis, apply instead of arrest and imprisonment of individuals[1].

THE PRINCIPLE OF LEGALITY.  Along with the horrific prospect of monetary fines up to 1.5 million Euros and disqualification from contracting with the Italian public administration (which is the source of vital revenues for many companies, especially in the life sciences field) came a couple of good news.  First of all, criminal liability of the corporation is subject to the principle of legality, i.e., it arises only if certain specific crimes listed in Legislative Decree no. 231 are committed.  A corporation, therefore, does not have to face the Italian criminal code in its entirety and may focus on a subset of crimes. The list of crimes has however been increased time and again by the Italian legislator and crimes giving rise to corporate liability now span from terrorism to money-laundering (and with each new addition that initial sense of relief gradually fades…).

AN EXEMPTION FROM LIABILITY.  In addition, Legislative Decree no. 231 expressly provides for an exemption from criminal corporate liability when the following circumstances are proven:

  • prior to the commission of the fact, the management body has adopted and effectively implemented organizational and management models adequate to prevent crimes similar to those of the type that occurred;
  • an internal corporate body (organismo di vigilanza) having autonomous powers of initiative and control has been entrusted with the task to oversee the application and compliance with such model, has ensured that the model is updated, and its vigilance has not been omitted or insufficient.

The key to shielding a company from criminal corporate liability is apparently easy as there are only two main ingredients required for this recipe: an “organizational model”, and an effective vigilance body.  Once both are proven by the defendant, then the burden of proof shifts to the prosecutor. As often highlighted by case law, criminal corporate liability is not strict liability (responsabilità oggettiva), but applies only as a consequence of “organizational negligence” (colpa di organizzazione)[2].  But what is exactly an organizational model and which are its essential features in order for it to be an effective ground of exemption from liability?

WHAT IS AN ORGANIZATIONAL MODEL?  In the course of the last decade or so, many corporations have tried to understand what an organizational model is, and how to set up one.  The industry associations CONFINDUSTRIA[3], representing industrial companies, and ASSOBIOMEDICA, in the name of medical device manufacturers, have gone as far as drafting guidelines in order to shed light on this exemption from liability.  In particular, ASSOBIOMEDICA has just released interesting Guidelines on this subject in November 2013[4].

Such guidance is very welcome as, in fact, Legislative Decree 231 deals with the issue only in a few sentences and the interpreters have been left with the difficult task of… making sense of them[5].  A useful hint comes from the legislator’s requirement that a model meets the following conditions (which also serves as step-by-step method on setting up a model):

a) identifies the activities which may give rise to the commission of crimes;

b) provides for specific protocols aimed at programming training and executing the decisions of the corporation in relation to the crimes that must be prevented;

c) identifies ways to manage financial resources adequate to prevent the commission of crimes;

d) foresees obligations to inform the vigilance body required to oversee the functioning and compliance of models;

e) introduces an adequate disciplinary system aimed at sanctioning any lack of compliance of measures set forth in the model”. (Section 6, paragraph 2)

The first step explains what I like to describe as the “soul searching” activity that the corporation must carry out in order to answer the following question: which business activities can lead to the commission of crimes? This also illustrates why a “cut & paste” organizational model will never work, since the law deems that the corporation has adequately prevented the commission of the 231 crimes only after understanding where and how likely they are committed. An organizational model must, at any given time, be extremely customized to its business, market, organizational structure and to the actual activities of the corporation[6].

Once risks are in focus, measures can be set up in order to prevent corporate crimes. The company is free to determine which measures to adopt, but preventive measures need to be sufficiently effective so that an individual must have fraudulently eluded them in order to commit the crime.

Only the corporation itself can determine which measures are appropriate and effective: measures, in fact, can range from a code of conduct to organizational measures, from policies, procedures and protocols mapping and regulating business activities to controls and monitoring systems adequate to verify if the prescriptions by the corporation are actually followed by employees. Specific attention is given to financial resources, which Legislative Decree no. 231/2001 believes should be managed with sufficient protocols, separation of functions and controls as to prevent any crimes from being committed with corporate funds. Last but not least, an organizational model needs some “teeth”: if employees do not abide by the rules, they need to be adequately sanctioned.

So, back to our original question: what is an organizational model? It is a system of structural and prescriptive measures that organizes a business in the most effective way to prevent the commission 231 crimes. In other words, the organizational model is not just a document, but reflects and memorializes the efforts undertaken by a company in order to prevent the commission of crimes foreseen by Legislative Decree 231/2001.

THE ORGANIZATIONAL MODEL’S WATCHDOGThe system is only regarded as effective if it is supervised by a specific body of the corporation (organismo di vigilanza, or ODV) having “autonomous powers of initiative and control(Section 6 Paragraph 1). Much debate has been sparked by these few words of Legislative Decree 231/2001[7].  If such words need to be interpreted as requiring autonomy, independence, continuity of action and competence, then the corporation is faced with a difficult task: finding one or more people who will be independent yet knowledgeable about the corporation’s activities, free and autonomous to make decisions yet informed about what is going on within the company. The near impossible balance is often achieved by appointing a mix of internal and external individuals who can bring professional skills, but also perspective, to the job. ASSOBIOMEDICA’s guidelines point out that the above requirements must be referred to the body in its entirety, and not to the single members of the organismo di vigilanza[8], and add that the body’s activity must be full-time, a feature rarely found in practice. The model must also set forth adequate information flows that sufficiently inform the ODV on activities within the areas at risk.

SO WHICH ORGANIZATIONAL MODEL DOES PROVIDE AN EXEMPTION FROM CRIMINAL CORPORATE LIABILITY? On the basis of the opinion of scholars, guidelines and case law on this issue, the answer is fairly simple: an effective one. What does this mean? Unapplied codes of conduct, policies and protocols are not going to help. A beautifully crafted model without a documented history of controls, monitoring and suggested sanctions by the ODV will not get very far. A passive ODV will show that the company is aiming at a pretense of compliance, rather than targeting actual compliance.

Interesting tips can be drawn from the assessment carried out by court appointed experts on the organizational models of pharmaceutical companies accused of criminal liability in connection with a fraud investigated by the office of prosecution in Bari, which ended with plea bargain. The experts concluded that the models were insufficiently preventing the concerned crimes. Although the protocols were “appreciably implemented”, the ODV was deemed to be too marginal within the life of the corporation, audits on the use of financial resources did not occur, while very high incentives to sales staff were granted[9].

In conclusion, the organizational model must become a living system, known to employees, strictly applied after adequate audits, and giving rise to sanctions in case of lack of compliance. A court must be able to see that the organizational model has truly become the DNA of a company, who has tried its very best to prevent that its business activities can lead to criminal conducts.

[1] The exercise of understanding how sanctions originally envisaged for natural persons apply to corporations is still ongoing. For example, a recent court decision (Supreme Court no. 44824 of September 26, 2012) has stated that bankruptcy of the corporation is not equal to death of the offender and thus does not extinguish the crime, thus contradicting prior judgments of lower courts (e.g., Court of Milan October 20, 2011).

[2] The concept of “colpa di organizzazione”, which appeared in case law as early as in the decision of the Court of Palermo of July 1, 2005, was well clarified by the Supreme Court in its decision no. 27735 of July 16, 2010. A useful discussion of the same principle can also be found in the decision by the Court of Milan of March 8, 2012, which argues that negligence in organization is constituted by planning negligence, management negligence and vigilance negligence.

[3] The latest guidelines by CONFINDUSTRIA have been updated on March 31, 2008.

[4] http://www.assobiomedica.it/static/upload/lin/linee-guida-231-01-parte-generale-rev.-2009.pdf

[5] The Court of Milan (Ufficio Indagini Preliminari, November 3, 2010) has however excluded that the indeterminateness of Legislative Decree no. 231/2001 can give rise to a breach of the Constitution.

[6] Additionally, certain scholars argue that the legislator could not possibly suggest any preventive measures due to the constitutional principle of freedom of economic enterprise.

[7] The latest amendments to Legislative Decree no. 231 of 2001 allowing the board of statutory auditors (collegio sindacale), the supervisory committee (consiglio di sorverglianza) and the committee for management control (comitato per il controllo della gestione) to serve as organismo di vigilanza have given rise to further critiques as many scholars disagree on the ability of such bodies to have sufficient independence and adequate professional competence. See, e.g., the white paper of March 27, 2012 by Associazione dei Componenti degli Organismi di Vigilanza ex D.Lgs. 231/2001.

[8] Note that others disagree on this point (e.g.,  Carlo Piergallini “Paradigmatica dell’autocontrollo penale (dalla funzione alla struttura del “modello organizzativo” ex d.lg. n. 231/2001”, on Cassazione Penale, fasc. 1, 2013, pag. 0376B.)

[9] See the thorough analysis of Matteo Vizzardi “Prevenzione del rischio-reato e standard di adeguatezza delle cautele: i modelli di organizzazione e di gestione di società farmaceutiche al banco di prova di un’indagine peritale” published in Cassazione Penale, March 2010, no. 3.