Safeguard clause (clause de sauvegarde)

The safeguard clause is a mechanism for controlling expenditure on reimbursable medicinal products, provided for by the French Social Security Code, which requires exploitant companies to pay a contribution where their overall turnover exceeds an amount set each year by the Social Security Financing Act. The name is misleading: it is a compulsory levy imposed by statute, unrelated to any contractual stipulation. It applies to reimbursable medicinal products sold both in community pharmacies and in hospitals.

How the contribution works

The trigger threshold, known as amount M, is set by the Social Security Financing Act. Where the companies’ turnover, net of certain rebates, exceeds that amount, the contribution is due on the excess and is allocated among the liable companies according to, in particular, their turnover and its growth. It is collected by the bodies responsible for collecting social security contributions.

Exemption by agreement

Companies that have concluded an agreement with the Economic Committee for Health Products may be exempted from the contribution by paying, in the form of rebates, a sum representing a set proportion of the contribution they would owe. This mechanism encourages the signing of agreements with the Committee and makes the safeguard clause as much a regulatory instrument as a source of revenue. Its yield has risen sharply in recent years, making it a source of tension between the State and the companies.

Contractual implications

The contribution is owed by the exploitant company. Co-marketing, distribution and patent licence agreements should therefore specify who bears the final cost, how it is charged against the net sales used as the royalty base and how it is allocated where several products are concerned. Since the final amount is known only after the financial year has closed, subsequent adjustment mechanisms are needed.

Key points

The safeguard clause is a statutory contribution, triggered when an overall expenditure amount is exceeded, and its name should not lead to its being mistaken for a contractual stipulation. It should be built into the financial forecasts for any launch, and its cost expressly addressed in licence and distribution agreements. Signing an agreement with the Economic Committee for Health Products opens the way to exemption by rebate.

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This glossary entry is general in scope and does not constitute legal advice.

Dhenne Avocats acts in pharmaceutical patent disputes and on the medicines regulatory questions that accompany them, from the marketing authorisation to the supplementary protection certificate.

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