What is fair in the context of data and cost sharing under REACH?

In a guest editorial for Chemical Watch, partner Simon Tilling and solicitor Tom Gillett discuss ECHA's Board of Appeal Case A-010-2017 on data sharing and its impact on the wider REACH regime

18 July 2019

ECHA's Board of Appeal (BoA) Decision, in a case involving a group of Dutch and Italian dye importers, scrutinises the requirements of transparency and fairness in cost negotiations between lead registrants and those requiring access to data under the REACH regime.

Given that the BoA found against the lead registrant and Sief manager on every point, "rejecting all pleas and arguments", this Decision may well embolden those considering filing data-sharing disputes with the agency. It also shines a light on the challenges faced by lead registrant consortia in terms of deciding what is fair, transparent and non-discriminatory in the context of data and cost sharing.

Background

The case concerns the substance sodium 4-[(2-hydroxy-1-naphthyl)azo]benzenesulphonate, a dye known as Acid Orange 7. Between 2012 and 2017, data-sharing negotiations took place between the lead registrant and Sief management consortium (REACH & Colours) and a group of companies called the Dye-Staff Cooperation Group, made up of Italian and Dutch dye importers (the importers).

The parties were unable to reach agreement on several aspects of the terms for sharing data and costs, namely:

  • the degree of detail required in the identification of the studies to which access was being negotiated
  • the calculation of the costs of gathering and submitting to the agency the information required for the registration of Acid Orange 7 (that is, the administrative costs)
  • an annual surcharge of 8% applied to the price of a letter of access, and
  • a surcharge of 15% applied to the value given to each study, regardless of how this value was calculated.

The agency Decision under challenge had found that the importers had made every effort to ensure that data and costs were shared in a fair, transparent and non-discriminatory way, while REACH & Colours had failed to do so.

ECHA reached this conclusion primarily on the grounds that, despite repeated requests from the importers, REACH & Colours did not provide them with the titles and authors of the studies to which access was being negotiated, and failed to address concerns regarding the calculation of the administrative costs and surcharges.

The agency consequently granted the importers permission to refer to four studies contained in the registration dossier, submitted by REACH & Colours. They appealed the Decision with the BoA.

Has a significant precedent been set?

REACH provides that Sief participants and data-owners "shall make every effort to ensure that the costs of sharing the information are determined in a fair, transparent and non-discriminatory way". This requirement is reiterated in Articles 2 and 4 of Implementing Regulation 2016/9: Article 2 sets out requirements for transparent data and cost sharing; Article 4 sets out requirements for fair and non-discriminatory data and cost sharing.

As with much of REACH, these provisions provide significant discretion to the parties to determine the details of how to structure cost-sharing arrangements. It is therefore unsurprising that market commentators have been keen to seize upon this case, looking for BoA findings on the types of information that must be shared and indeed the specific charges that can (or cannot) be applied by lead registrants.

An alternative view, however, is that these sorts of cases very much turn on their facts. And while it might be observed that some of the BoA’s findings read as though they are rather bold statements of principle, many of them may not be applicable in subsequent disputes with different factual matrices.

How much information is needed to be 'transparent'?

One area in dispute was that REACH & Colours failed to identify with sufficient detail the studies to which access was being negotiated, specifically their titles and author names. On that question, the BoA found that this was a failure to be transparent, stating that:

"The titles and authors of studies are essential to allow a potential registrant to determine whether it needs to obtain permission to refer to those studies. This is because, for example, the potential registrant may be able to obtain, or already have, legitimate access to a study report from another source. Once the potential registrant is aware of the precise study being referred to, it may also disagree with the previous registrant on the selection and relevance of that study pursuant to Article 11(3)(c) of the REACH Regulation. This information is also essential to help a potential registrant determine whether the cost of the studies, and the proportion of that cost which the potential registrant is expected to pay, has been calculated correctly."

This sounds rather definitive. However, the Decision is missing the rationale and arguments behind the two parties’ positions. In future cases, there is room to argue the point. For example, if the lead registrant had a legitimate reason to withhold the titles and authors of studies, there does not appear to be any legal justification why other relevant information (such as the test method used and the reliability of the study) would not suffice to determine whether access to that study is required.

Indeed, it is not at all clear why the name of the author is needed to work out if the cost of the study has been calculated correctly or whether the potential registrant has legitimate access to the report through other means. On the facts of a particular case, it might well be that a potential registrant has access to ‘study A’ and wants to know if ‘study B’ is in fact the same study. But that sort of question should be easy to resolve between the parties.

What is 'fair' when it comes to costs?

The BoA found against REACH & Colours in relation to each of the heads of dispute regarding costs, namely administrative costs, the 8% annual surcharge for a letter of access (LoA) and the 15% surcharge on the value of each study.

In each case, it confirmed that REACH & Colours had complied with its obligations for transparency, but found fault with the specific methods used for quantification of those costs, and ultimately found that the charges were not fair. Based on the information contained within the Decision, these findings appear to be logical and to follow the established case law in this area.

The BoA does not make any significant comment on the level of such charges generally, so it seems unlikely that this case marks a significant departure in terms of what is recoverable by lead registrant consortia. Again, this Decision is very fact-specific. Care is needed before drawing sweeping generalisations on the back of it.

Who would want to be a lead registrant?

What resonates loud and clear from this Decision is the precarious position that lead registrants can find themselves in when faced with a data-sharing dispute. This is illustrated by the list of factors that REACH & Colours claims ECHA did not take into account, namely that the importers:

  • did not provide any justification for why the precise references of the studies in question were needed
  • complained about the high cost of the LoA rather than making genuine counter-proposals during the negotiations
  • did not accept the appellants’ suggestion to ask a third-party consultant to review whether the administrative costs charged were reasonable
  • repeatedly refused to meet with the appellants, and
  • were inconsistent during the negotiations on whether they were negotiating to share data on Acid Orange 7 only or also on other dyes.

Limited consideration is recorded in the judgment as to whether there is any merit in these specific protestations. The BoA simply conclude that the "negotiations as a whole show that the [importers] consistently challenged [REACH & Colours], to no avail". In the absence of more substantive findings, it seems reasonable to conclude that the BoA’s view is that the obligation to make every effort to ensure that costs are determined in a fair, transparent and non-discriminatory way fall most heavily on the lead registrant consortium: perhaps the BoA is concluding it is sufficient for the other party simply to offer ‘consistent challenge’.

But is that fair? Certainly, we find in practice that on numerous occasions most of the 'effort' comes from the lead registrant or its consortium. It is always so much easier to pick holes in another’s reasoning than to come up with your own coherent position, and so there is an inherent imbalance in data-sharing disputes. If others are going to seize upon this case as precedent for how to address data-sharing disputes in the future, it would have been helpful for the BoA to offer some further guidance on what might be expected of those objecting to the costs.

This case highlights the difficulties that lead registrants face, particularly those managing complex consortium structures and responsible for multiple substances. There is clearly a delicate balancing act to be performed between accounting for each and every cost associated with a given substance and looking for those economies of scale and efficiencies that could ultimately reduce costs for all.

This case may indeed turn out to be a further turn of the dial in favour of those looking to benefit from any flaws or inconsistencies in the judgement calls made by lead registrants or consortia. On the facts of this case, the BoA Decision may well be right, but we question whether it will be used against those lead registrants and consortia who are doing the right thing.

If this Decision is taken to be a green light for those who wish to sit on the side-lines and snipe at the costs of those who have put themselves forward to fulfil the regulatory burden of REACH, then we have concerns that it creates (at least) two significant risks to the fair functioning of the regime.

Firstly, if lead registrants are driven to undertake ever more detailed record keeping and itemisation to reduce the risk of challenge – even if doing so is inefficient and disproportionate – the costs of market access for all Sief members will inevitably be driven up over time as a result. Many might think it is better to recover a bigger share of a greater sum than to minimise the overall costs but at the risk that a 'fair' contribution might be harder to recover.

Secondly, these data-sharing disputes are a high stakes game for lead registrants, and one that is weighted against them. If the lead registrant wins, not much happens (as our clients have experienced after numerous successful defences of challenges by potential registrants). The parties simply continue to discuss data sharing. But if the challenger succeeds, it receives a token for access from ECHA, leaving the lead registrant to seek to recover its debt in a national court (with the associated risks of coming before a court inexperienced in such matters).

With Decisions like this one which, however correct on the facts, carry a risk of encouraging challengers, lead registrants will need to think hard about when to fight and when to settle for something that it might otherwise perceive to be less than fair.

That would then place a downward pressure on data costs over time, with consortia forced to reduce charges to avoid disputes. This will ultimately have an impact on all companies which joined consortia to do the right thing and take on the primary burdens of the REACH Regulation. Surely that cannot be 'fair'.

This article was first published on 28 June 2019 and is reproduced with permission from Chemical Watch.

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Simon Tilling Partner

  • Head of Environment
  • REACH, Chemicals and Product Stewardship
  • Energy, Power and Utilities

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