MDCG 2021-27 Q&A on importers and distributors – sort of box of chocolates
Life, as they say, is like a box of chocolates: you never know what you’re going to get. MDCG guidance documents are very much like that too. Even if you’ve seen them coming in the consultation phase the end result may still surprise you. Some are really good, some are really good and complex, some are sub-optimal, and then there are the ones that raise more questions than they answer.
Rather than summarize what the guidance does, there are two distinct points in the guidance that I would like to highlight and discuss: the interpretation of ‘placing on the market’ that it offers and the introduction of a new obligation for importers. All the other Q&A are basically not that new if you’ve read the Blue Guide. Did I mention already that people should read the Blue Guide more often? It answers so many questions about CE marking. If only people would read it more often. I will helpfully tag it a lot in this post, so you cannot miss it. Also look out for the new and improved version that is scheduled to come out hopefully soon and addresses unresolved questions on distance sales and dropshipping.
Precisely because the Blue Guide answers so many questions relating to economic operators already, it is very important that guidance on questions mostly already answered in the Blue Guide is consistent with the Blue Guide and other product or sector specific guidance (for example the Guide to Application of the Machinery Directive). This is even more important because the MDR and IVDR are explicitly intended to be consistent with the other New Legislative Framework (NLF) legislation (recital 26 MDR and 23 IVDR), for which the Blue Guide provides horizontal guidance, so horizontal consistency of principles used in NLF legislation is of the essence. What is NLF legislation, you ask? You can read all about it in section 1.2 of the Blue Guide – simplified: it is the regulatory template underlying all CE marking legislation (“all the elements required for a comprehensive regulatory framework to operate effectively for the safety and compliance of industrial products with the requirements adopted to protect the various public interests and for the proper functioning of the single market”).
Placing on the market – transfer of a ‘property right’ required?
There is definitely a need for guidance on the interpretation of the MDR and IVDR defined concept of ‘placing on the market’, which determines if a specific person or legal entity is an importer for the purposes of the MDR or IVDR. As the Blue Guide states, ‘placing on the market’ is the most crucial term in NLF legislation, so better understand it well. And in my experience the term is generally not understood very well because I receive a lot of questions about its interpretation.
However, the term is also explained in a great level of detail in the Blue Guide (which I encourage everyone to read). For this reason, you would expect that the MDCG would be very careful with providing interpretation on widely used horizontal NLF concepts like placing on the market, to avoid inconsistencies. Unfortunately, the MDCG did not seem to be so precise in this guidance.
Close reading of the guidance shows that either the MDCG is limiting the interpretation of placing on the market a lot compared to the Blue Guide and defined concept of placing on the market in the law, or the MDCG has left crucial typos in the guidance. For the moment I am betting on option two.
The MDCG defines placing on the market in the guidance in the answers to questions 2 and 3 as:
“if a legal entity established in the Union obtains (via a transfer of ownership, possession or any other property right, which does not necessarily require the physical handover of the product) a device from an economic operator established in a third country and places an individual device on the Union market (i.e. the first making available), that entity is acting as an importer of the individual device.” (emphasis added)
The emphasized word “property” does not appear in the Blue Guide as a condition for placing on the market, does not appear in the definition of placing on the market in the MDR, IVDR, Market Surveillance Regulation nor does it appear in any other NLF legal act or guidance of which I am aware that defines and/or clarifies placing on the market. The Guide to Application of the Machinery Directive for example, which discusses placing on the market (and even contractual aspects of placing on the market) in quite some detail, does not mention the requirement of transfer of a property right either.
The Blue Guide explains making available (the crucial element in the concept of placing on the market) as
The making available of a product supposes an offer or an agreement (written or verbal) between two or more legal or natural persons for the transfer of ownership, possession or any other right (other than intellectual property right) concerning the product in question after the stage of manufacture has taken place. The transfer does not necessarily require the physical handover of the product.
This transfer can be for payment or free of charge, and it can be based on any type of legal instrument. Thus, a transfer of a product is considered to have taken place, for instance, in the circumstances of sale, loan, hire, leasing and gift. Transfer of ownership implies that the product is intended to be placed at the disposal of another legal or natural person.
(see Blue Guide 2016, section 2.2)
The Guide on Application of the Machinery Directive, which even has a helpful section § 74 discussing ‘The legal and contractual forms of placing on the market’ states:
“Placing on the market is defined as making machinery available with a view to distribution or use. Making machinery available implies that the machinery will be transferred from the manufacturer to another person such as a distributor or a user. However, it could be that the distribution operation is part of the manufacturer’s own business, in which case it is when the item moves from the production area/factory to the distribution warehouse ready to be supplied. There is no restriction as to the legal or contractual form of this transfer.
In many cases, but not exclusively, placing on the market involves a transfer of the ownership of the machinery from the manufacturer to the distributor or user in exchange for payment (for example, sale or hire-purchase). In other cases, placing on the market may take other contractual forms (such as, for example, lease or rental). In such cases, the right to use the machinery is granted in exchange for payment, without transfer of ownership. The Machinery Directive applies to such machinery when it is first subject to a lease or rental contract in the EU.” (emphasis added)
Guide on Application of the Machinery Directive, § 74
See: no ‘property right’ required, because otherwise transfer by ‘any other right’ would not have been possible. Requiring a ‘property right’ as a necessary condition would would limit the interpretation given in the Blue Guide considerably and it would restrict contractual forms of transfer of which the Guide to Application of the Machinery Directive says are unrestricted, but it does appear in the answers to questions 2 and 3 in MDCG 2021-27. Yet, in the answer to question 7 the MDCG correctly refers to “any other right” as explained in the Blue Guide rather than any ‘property’ right, and thus refers to the Blue Guide and defined term in the MDR, IVDR, Market Surveillance Regulation and other CE directive and regulations correctly.
This means that we have inconsistent use of the definition of placing on the market in the guidance document, which creates a rather confusing situation. Not only is this interpretation inconsistent with basically every other CE instrument, horizontal guidance (the Blue Guide), old guidance specifically for medical devices (the Commission’s old notice on placing on the market of medical devices) and other NLF specific guidance (like the the Guide to Application of the Machinery Directive), but it also upsets existing tax planning of devices companies. Requiring a transfer of ‘property right’ as a condition for placing on the market will have severe consequences for the supply chain tax planning of a lot of international companies. These companies often rely on retention of title by legal entities outside the Union far beyond the point of placing on the market as a matter of tax planning. If these companies really need to transfer title or ‘any other property right’ to the devices placed on the market to the MDR/IVDR importer as a necessary condition for placing on the market, this is a big change to the existing situation that the MDCG might really have spelled out more clearly in the guidance. It will require costly revisions of tax structure for many manufacturers that will take time to implement.
No surprise therefore that I have had several clients and other interested parties asking why the MDCG seems to be limiting the scope of the concept of placing on the market for no apparent reason, which is what I’ve been wondering myself too. Basically there is no conclusive answer to this question at the moment. Given the inconsistent use of the terms ‘any other right’ (correct) and ‘any other property right’ (incorrect) in the guidance document itself this seems like an oversight on the MDCG’s part. Maybe they can fix it in an update of the guidance document. It’s not like the MDCG has not released new versions of guidance documents before. However, if the MDCG’s intention indeed is to limit the interpretation of the concept of placing on the market compared to the law and every other official EU guidance document out there, and moreover in a way that it will require many devices companies to revisit their current supply chain tax planning, it would be nice to have some more guidance about the special status of the concept of placing on the market under the MDR and IVDR compared to other NLF regulation.
Another interesting point is made in the answer to question 7 in the guidance (“What should an importer do in the case where an individual device already mentions another importer’s details on its packaging?”). In the answer the MDCG states:
“In the unusual case where details of another importer already appear on the packaging of an individual device (for example, the individual device has been exported and then re-introduced to the Union market), the importer should verify if the individual device has previously been placed on the Union market. This may be done by contacting the manufacturer. The importer should replace any previous importer details with their own, if having investigated the issue, they determine themselves to be the correct importer. The label with the previous details will be void.
If having investigated the issue, they determine the other importer already mentioned on the packaging as the entity that placed the devices on the market, they will assume the role of distributor for this device and thus should comply with Article 14 of the Regulations.”
Declaring a label ‘void’ is an interesting and very legal choice of words that pushes my lawyer buttons. Void means ‘not having validity anymore’, which I’m not sure is a qualification that you can use with respect to a label. A label as such does not have legal effect (like a contract, or a binding offer) so can not be (in)valid or void; it can only be compliant because it meets a legal requirement (or not). Rather the MDCG might have specified that the label with the previous details is non-compliant and should be removed or the device with the non-compliant label should be made available further. This would have tied in much better with the terms in which the importer obligations are formulated in article 13 MDR/IVDR.
So how does an importer determine if he is ‘the correct importer’? Simple: read the definitions of importer in the MDR/IVDR (and of course guidance in the Blue Guide) and the answer is obvious: you can only be an importer if you place a device on the market (i.e. make it available for the first time). Accordingly, if the device was already placed on the market before export, then it already has an importer and it is not placed on the market for the purpose of CE marking / NLF legislation again if it is re-imported in the Union (see specific guidance on this point in – you guessed it – the Blue Guide). In that scenario the previous importer is the ‘correct’ importer and the second ‘importer’ is not an importer for the purposes of the MDR/IVDR but a distributor for the purposes of the MDR/IVDR (which is correctly clarified in MDCG 2021-27 under question 7) – even though the second ‘importer’ may be an importer for customs law purposes, but customs law is a different legislative system with its own divergent definitions. The customs law importer is not necessarily the same entity as the MDR/IVDR defined importer – important point because I see many people not understand this in practice.
The requirement for the importer to verify status of the device with the manufacturer in case of an already applied importer label is an interesting and actually new requirement that does not have a specific basis in article 13 or elsewhere in the MDR or IVDR (nor is mentioned in the Blue Guide or other NLF regulation guidance that I am aware of). So where does this come from? It might be that the MDCG considers this a specific application of the importer duty to cooperate with the manufacturer to achieve an appropriate level of traceability (article 25 (1) MDR / 22 (1) IVDR). It might also be that the MDCG considers this part of the verification duty of the importer in article 13 last para MDR/IVDR, because the importer is deemed to have reason to believe that the device is not in conformity in this case and must then inform the manufacturer. Either way, good guidance would have specified a specific legal basis for a new requirement rather than magically pull it out of a hat like this. If we would have had a specific legal basis, it would have added weight to the binding nature of the requirement rather than just being a statement in a guidance document with a disclaimer on its cover page that it is not legally binding. In my view, this is not how good guidance should be written. One would rather start with an existing requirement that has a legal basis, and then clarify that requirement. One would not invent a requirement that seems practical for one’s own purposes and then make it look like it is official without mentioning a legal basis. Guidance is about clarifying rules, not making them up.
The question is also how helpful verification with the manufacturer is, because the manufacturer (in the scenarios where you need an importer) is not placing devices on the market – so how would the manufacturer know if the device was placed on the market previously? The manufacturer may be able to identify the economic operator to whom he supplied the device (as he must be able to do pursuant to article 25 (2) MDR / 22 (2) IVDR) but the manufacturer does not control whether the importer places the device on the market or not (for example because the importer decides to reserve the device for export without informing the manufacturer). Rather, the importer could just verify in Eudamed if the device has already been registered with an importer in accordance with article 13 (4) MDR/IVDR because that would answer the question conclusively – but wait … Eudamed is not so functional yet unfortunately and the necessary modules are only available on voluntary basis at the moment. Let’s hope it will be functional at some point so these things can be done more reliably. Current timeline for full functionality not known – the rolling plan does not commit to a timeline so it really depends on who you ask. Some say somewhere 2022, some say somewhere 2023.
So – room for improvement
Guidance is supposed to clarify, not to confuse or make new rules. In that light, MDCG 2021-27 can certainly be improved and be made consistent with definitions in binding law, as well as horizontal guidance (Blue Guide anyone?)
Unless I am completely mistaken about the need for a transfer of title or property right as a necessary condition for placing on the market the MDCG 2021-27 is up for a clarification of whether the MDCG changes the scope of the concept of placing on the market or not. Transfer of title or property is certainly not a necessary condition for placing on the market in my opinion. It would be too easy for the MDCG to rely on the self declared non-binding nature of the guidance (see the disclaimer on the cover page) and leave it to the market to sort out this confusing use of the term, especially given the consequences for companies’ supply chain tax planning.
The importer verification requirement is new, so it would have been nice to explicitly link it to a clause in the law. Otherwise it’s non binding guidance that just leads to discussion with competent authorities and notified bodies that actually in practice do apply MDCG guidance like it is law.
Several MDCG guidance documents are already in second or even third iteration by now. This one deserves a place in that group as soon as possible.
And, by the way, happy holidays everyone! I wish you a lot of correctly answered questions about the MDR and IVDR in 2022.