It’s no secret that the Australian Government is struggling to manage the cost of its healthcare obligations. Increasingly it seems these struggles are impacting on the rights of intellectual property holders in the pharmaceutical sector. Both the courts and Government policy appear to be making life for proprietary drug companies in Australia increasingly difficult.

First the Courts

Originator drug companies have suffered some heavy defeats in Australia’s courts in recent times. In mid 2016, subsequent to a finding that a patent on a blockbuster product was invalid, the Full bench of the Federal Court found that there was no reason why the patentee should not reimburse A$60M in ‘overpaid’ subsidies paid to it under Australia’s Pharmaceutical Benefits Scheme (PBS). Very recently, Nicholas J. of the Federal Court found that an application by a generic manufacturer for subsidisation of the cost of a drug under the PBS will only be an infringement of a patent if the commencement of guaranteed delivery of product required by the process will occur during the lifetime of the patent. One wonders if ‘stockpiling’ will be the next domino to fall.

Then the Policy Advisors

Late last year the Productivity Commission handed down its final report [PDF, 972KB] into Australia’s Intellectual Property Arrangements. It described Australia’s Patent Extension of Term provisions as having had ‘little effect on investment and innovation’ in Australia and also as having had ‘largely illusory’ benefits resulting in a ‘costly policy placebo’. Among other measures the Productivity Commission recommends:

  • adjusting the Extension of Term provisions to compensate patentees only for unreasonable delay by the regulator, and
  • adjusting the inventive step provisions (again) to enable patent grant on only ‘genuine improvements’ and not on subject matter intended to ‘evergreen’ existing patented technology which shows ‘no appreciable difference to the user’,
  • monitoring so-called ‘pay-for-delay’ settlements, and
  • rolling back data protection provisions.

The Federal Government will apparently delay legislating largely administrative changes to Australia’s intellectual property acts to enable it to incorporate any changes it wishes to make in view of the Productivity Commission’s report. Given the Federal Government’s health funding difficulties, it would be a brave person who was to bet against at least some aspects of the above recommendations being targeted for implementation in these changes.

And now the bureaucrats

Already, it seems anticipatory procedural changes are occurring at IP Australia. A very recent practice change involves submitting the patent subject of a Patent Extension of Term application to a validity review before the extension of term application is considered. While no such step is statutorily established as part of the Extension of Term provisions of the Patents Act (s70 etc), s97 of the Act dealing with Re-examination is permissive, allowing the Commissioner to unilaterally re-examine a granted patent under any circumstances. In our experience, this new step apparently includes consideration being given to the fate and scope of parallel family members in other jurisdictions. A determination is made as to whether any prior art raised in proceedings in those jurisdictions subsequent to the grant of the Australian patent might also be applicable to claim validity in Australia, and if so, a re-examination report is issued.

Where to from here

On a practical level, the most recent practice changes on Extension of Term applications suggest that before making such an application, a patentee should preemptively review the validity of their Australian claims – particularly if proceedings in other jurisdictions subsequent to grant in Australia have raised relevant prior art.

But, in our view, there are practicalities – and then there’s innovation policy – the Australian Government’s great economic Achilles heel.

The global pharmaceutical industry is increasingly outspoken about the limitations of trying to run a proprietary pharmaceutical business in Australia. Long suspicious of the PBS subsidisation process, the US-based PhRMA has weighed in on the pharmaceutical regulation process in Australia asserting that it does not comply with US-Australia Free Trade Agreement (FTA) which requires both countries to make third parties notify pharmaceutical patent holders when seeking marketing authorisation for a generic.

According to Pfizer CEO, Ian Read, Australians only get access to 30% of new drugs. We risk losing access to the world’s best and most innovative medicines unless it chooses to properly understand the risk and reward equation associated with drug innovation. The creep of legislative and administrative clawback of the rights of proprietary drug companies will only exacerbate this risk.

The Federal Government should be careful what it wishes for. Paring back the reward systems means that Innovators will just not bother risking the Australian market.