The Convention on Biological Diversity (CBD) (to which the Nagoya Protocol on Access and Benefit Sharing is a supplementary agreement) provides for regular Conferences of the Parties (COPs). Concerns have been expressed that the Nagoya ABS system has not raised as much revenue for the support of biodiversity as was hoped. Consequently, various parties have turned their attention to other ways to raise funds for this purpose. The most recent meetings, COP16, in Cali, Colombia, produced a Decision which creates a fund to be financed by users of digital sequence information (DSI).
What is DSI? The flora and fauna of this world all contain RNA or DNA (usually in chromosomes) which codes for, and enables expression of, proteins that makes up their structures. The RNA or DNA is, normally, made of just four differing molecules (known as bases) strung together in a sequence and each triplet of these bases codes for one of twenty amino acids which form proteins. The sequences of RNA, DNA or proteins are conventionally represented by a series of letters. This information can be found stored digitally in various online repositories and the amount of this information is increasing. Some parties to the CBD consider that industrial users of DSI thus profit from the biodiversity of the natural environment and so should provide funding to ensure its maintenance. Needless to say, if this were mandatory and wide in scope it would have potentially wide ramifications across a variety of industries, not just medicines or health care products, but also many other products such as those used in fast moving consumer goods – think shampoos or detergents which may contain enzymes derived from biological sources.
What was decided at COP16? In relation to DSI that is made publicly available, users in sectors that directly or indirectly benefit from its use in their commercial activities, should contribute to a fund if they are above a certain threshold in size (two out of three of $20M in assets, $50M in sales and $5M in profits). The payments should be 0.1% of turnover or 1% of revenue. The Decision is without prejudice to national laws and it will be for each CBD party to decide whether and how to implement the Decision in its national law.
The Decision is non-binding on participants, but gives rise to many questions.
- Is this payment voluntary or involuntary? At the end of COP16 the UK Government made public that they would treat payments as voluntary. It is not clear that this will be the view of other countries. If the payment is involuntary, is this a tax?
- Are payments to be made on national or global turnover or profit? This is an important issue since the world’s biggest economy, the USA, is not a party to the CBD. Should any country require payments on global turnover or profit this would lead to an absurd situation of double payments being required.
- The Decision contains an ‘indicative’ list of sectors that are captured. This includes pharmaceuticals, nutraceuticals, cosmetics, animal and plant breeding and biotechnology. Given the list is indicative it is understood that any sector can be within scope of the Decision.
- What is “DSI” and what does it mean to be a ‘user’ of DSI? The UK is considering the meaning of “DSI” in a related context. As far as a “user” is concerned, on the one hand, some companies do use DSI (however defined) in the generation of products. On the other, almost every company uses products that were made in this way in at least part of their business – are they expected to pay? Is this what is meant by the distinction between ‘direct’ and ‘indirect’ use?
- Are payments to be made only in respect of products sold by a company that incorporate DSI? Some companies will sell both such products and products with no link to DSI. On its face the Decision implies that if any DSI is used by a company, all of its turnover and profit is in scope.
- What is the benefit for a company of paying into the fund? If a company pays into the fund, does that absolve it from payment obligations under national laws or analogous international mechanisms? The Decision merely provides that if a company makes a payment in line with the decision, it will receive a certificate excluding the expectation of making further payments into the fund that year. But does this also exempt users from payments under similar national schemes, or ensure that any patents for inventions utilising DSI are not vulnerable to limitation? That this is a serious concern is demonstrated by the fact that the UK, along with Chile and other like-minded countries calling themselves the Friends of the Cali Fund, is working to conclude a declaration to ensure that such payment stacking will be avoided, at least among the Friends.
- Is human DSI in scope? It appears the answer to the question is no, since the ABS system under the Nagoya Protocol does not include human genetic resources.
Regrettably none of the preparatory material for COP16 gives clarity on the issues above or discusses where, how and to what extent DSI is used industrially. Assumptions are made that the major use of it is in the pharmaceutical industry. However most of the DSI used in that sector is from humans and much of the rest relates to pathogens which are subject to their own access and benefit sharing scheme (which is still being negotiated) if they might lead to a pandemic, or subject to an existing scheme if influenza.
Non-human DSI is mostly used in producing and testing potential treatments. For example, it may be used in generating cell lines for the production of biological therapeutics. In common with many other industries, it can also be found in the adoption ‘green chemistry’ which involves the generation of substrate specific enzymes from bacteria for use in synthesising pharmaceuticals to avoid high temperature energy intensive reactions and potentially harmful volatile solvents. DSI from standard laboratory animal models can also contribute to exploring the safety and efficacy of experimental drugs. All of these activities are routine and have contributed significantly to the production of revolutionary treatments. DSI is important in the commercially smaller animal health sector which is vital for the health and welfare of farm animals as well as pets, especially in treating pathogens and parasites.
A proper analysis of where and how DSI is used would likely show that many sectors rely on it in some way, and certainly almost any sector that produces physical products will be an indirect user if this term is taken at its broadest.
What is the origin of DSI in patent applications? One study (Identifying Ways Forward, LSE, 2024) showed that the origin of about 70% of sequences is not given. Many may, of course, be artificial. About 25% was of human origin. Of the rest, the top ten species was dominated by laboratory models, such as rats and mice, standard expression systems such as E. coli and yeast, staple crops such as rice, domesticated animals such as cows and botanical laboratory models. It is noteworthy how few patent applications utilise DSI from biodiverse sources. It should not be surprising that the focus of biotechnological activity has been on those species on which human existence is most dependent.
At the time of the Decision, optimism was expressed that the Cali Fund would raise billions of dollars. Uncertainty around the issues referred to above and several others may explain, at least in part, why to date only a single donation of $1,000 has been made (and that by a company too small to fall within the scope the payment expectation). Given that many questions remain it is to be hoped that parties to the CBD will clarify their understandings of what the Decision means. It is probably too much to expect that there will be complete consensus, but the fund is only likely to attract resources if there is a clear understanding on how the fund supports biodiversity and a harmonised and realistic approach to payments without duplication. Perhaps the efforts of the Friends of the Cali Fund will help; perhaps not.
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