Legal Spotlight: REACH: implications for in-house counsels

Much has been said on the complexity of REACH, its wide scope of application and its economic impact on businesses. It does indeed present an onerous administrative, technical and scientific exercise, writes Jean-Philippe Montfort.

But companies should not forget that REACH also gives rise to serious legal, commercial and strategic issues that may have important consequences if not correctly handled.

The job of in-house counsels is to make sure that issues of concern and major impact to their companies are identified and properly addressed. Below are some of the points they should consider:

Pre-registration: Consider future products and key supplies

Many companies are focusing their efforts on the fast approaching pre-registration period that starts on 1 June this year. This is indeed a "must" in order to benefit from the transitional periods provided by REACH for the registration of phase-in substances, and not be forced to cease manufacture or importation while a full registration is achieved.

Importantly, pre-registration is open to "potential" registrants, which means that companies can also pre-register substances that they intend to produce or import, and therefore guarantee EU market entry for future products.

Companies can also use pre-registration for substances they currently buy in the EU, but for which they may want to switch to a foreign supplier in the future, or to guarantee a key supply in case the EU supplier defaults.

Prospective pre-registration will further delay considerably the need to subject substances used in product and process orientated research and development (PPORD) to reporting under REACH. Legal counsels should ensure their businesses seriously consider pre-registering more than the substances they currently produce or import.

Ensuring continuity of supply

Any company buying a substance in the EU is a downstream user under REACH and will need to take steps to ensure the substances that they use or buy will be (pre)-registered under REACH. Substance portfolios and uses therefore need to be reviewed, and contact made with suppliers.

Contractual assurances are recommended to ensure suppliers are taking the necessary steps. These arrangements need to be carefully thought through and require in-house counsel involvement. For example, for key supplies, purchasers could consider imposing an obligation on EU suppliers to buy from competitors in case of failure to supply for force majeure or other circumstances.

Pre-registration also offers an opportunity to ensure continuity of supply for downstream users. Once they have pre-registered, downstream users can import from alternative sources if their own supplier (or only representative) fails to pre-register in time… or becomes too expensive

Consider legal and strategic implications for data sharing and consortia

All companies pre-registering the same substance will form a substance information exchange forum (SIEF) and will be required to share data and costs before jointly submitting data for registration purposes. These are complex mechanisms which will often require companies to enter into consortium agreements that specify the rights and obligations of the players involved and will affect their liabilities.

In-house counsels should be involved in defining their company policy on data sharing and consortia and in discussing staffing and strategic considerations in REACH consortia. Depending on the number of substances involved and the availability of internal and external resources, they may want to see each draft of a consortium agreement or have to limit their review to only the final drafts, although this will lessen the impact they can make.

Confidential Business Information (CBI) and competition law issues

These will also arise in the context of data sharing and participation in SIEFs and consortia for the purposes of substance registration. Companies will need to consider how to approach participation in data sharing arrangements in order to protect proprietary information (where this is possible) and minimise the risk of contravening competition laws. In-house lawyers have the expertise to train and alert staff on antitrust issues and ensure that sensitive information is channelled properly in external discussions. But REACH will multiply the contacts – and therefore the risks – and in-house counsels should pay particular attention to making sure that consortia under REACH are not built to discriminate against new entrants or foreign companies. Disproportionate and unjustified entry fees and other tools are often proposed in consortium agreements and may be the tip of the iceberg of a more profound intention to discriminate that may ultimately be revealed and sink all companies concerned into costly antitrust procedures and heavy fines.

Prepare for the substitution or defence of substances of very high concern

The publication before June 2009 (and perhaps even in 2008) of a "candidate list" of substances that may be subject to authorisation could lead to a de facto ban on those substances in all except very critical uses. Business customers may refuse to purchase products containing such substances because of risks to continuity of supply, and anticipated pressures from NGOs, distributors and consumers to exclude such substances. This may lead to a ‘black-list’ effect in advance of any legal ban. Companies should assess whether substances they use, or supply, may be affected, and if so prepare strategies for dealing with this, either by providing alternatives or preparing the legal defence for these substances. In-house counsel should be involved early in the process so that they can help prepare for possible future legal remedies.

Distribution and manufacturing agreements

In-house lawyers should also ensure that existing distribution agreements, toll manufacturing agreements and other commercial arrangements are revised to specify the parties’ respective responsibilities for meeting their REACH obligations, ensure continuity of supply, and address the situation that would arise if the substance supplied ends up on a candidate list.

Toll manufacturing agreements raise a number of difficult issues in this respect, as the toller is the manufacturer and therefore the party that must register if the tolling is taking place in the EU. Available mechanisms exist to address this, in particular, the use of a third party representative. But they all raise a number of difficult issues, for instance, over rights of access to data acquired in consortia, that have to be addressed.

Product liability issues

The REACH registration and evaluation process will generate a great deal of new data substances, and lead to the collation and publication of existing data. This process is bound to highlight additional concerns in relation to exposure to specific substances. NGOs have already launched initiatives to inform consumers about health risks from exposure to chemicals on the basis of information that will be generated under REACH 8 CW Newslink 29 November 2007 . Availability of new information on hazards, exposure and risks – and increased awareness of these issues – is likely to lead to an increase of product liability claims and insurance implications for suppliers both inside and outside the EU.

Regulatory appeals

Finally, from experience with other EU regulatory schemes, one can anticipate that decisions to be taken by authorities under the REACH Regulation (e.g. to require additional testing, force data sharing, refuse confidentiality, refuse authorisation or ban or restrict substances), may be based on perceptions and public pressure rather than hard science and, in some cases, companies will have to appeal against these decisions before the European Chemicals Agency’s Board of Appeal or in court. This will require careful handling by in-house counsels at various stages of REACH processes to ensure the case is properly documented and that the company has used all the opportunities to be heard provided for by the regulation. Failure to do so may foreclose opportunities for legal challenge.

Jean-Philippe Montfort

Mr Montfort leads the REACH team of Mayer Brown, a global law firm with extensive experience in the field of chemicals regulation. Mr. Montfort was the project leader for the Reach Implementation Project (RIP) 3.4 on Data Sharing and Consortia.