As mentioned in our earlier article (which can be found here) Australia’s Productivity Commission has released a draft report (Report) regarding intellectual property (IP) in Australia. The Report covers various IP rights and provides the Commission’s draft findings and recommendations in respect of those rights.

This article deals with the “Pharmaceuticals – getting the right policy prescription” section of the Report.

The “Pharmaceuticals” chapter of the Report focusses on four aspects of IP policy: patent term extensions, manufacture for export, data protection and “strategic behaviour” (specifically, “evergreening”, and Pay-for-Delay arrangements). A number of these aspects were also the subject of the Pharmaceutical Patents Review, the draft report of which was released in April 2013 (but which did not progress beyond the draft stage).

The Report does note that Australia is a party to a number of international agreements (such as TRIPS and TPP), which may affect whether, and the extent to which, some of the Commission’s recommendations can be adopted.

Extension of patent term (EoT)

This is the main focus of the Pharmaceuticals chapter, also colouring a number of statements made, and conclusions reached, in relation to the other aspects of pharmaceutical IP policy considered by the Commission. The Commission is of the opinion that the main issue with the current EoT regime is that the length of additional patent life (and therefore market exclusivity) that it provides to patentees (up to an additional five years beyond the traditional 20-year patent term) does not justify the consequent costs of new medicines borne by consumers, the government, and ultimately taxpayers (through the Pharmaceutical Benefits Scheme (PBS). The Report also notes that, due to the current EoT provisions, the term of a patent in Australia is often longer than that of its counterparts in other countries, further contributing to Australia’s economic burden beyond that experienced by other countries.

While the Report does discuss the high costs and significant time involved in developing a medicine and getting it to market, the Commission identified “unreasonable regulatory delay” as being the factor that should determine the length of any patent term extension (the current regime in Australia calculates the EoT based on the length of time from filing the patent to the first regulatory approval date). The Commission’s desired consequence of basing the EoT on “unreasonable regulatory delay” is that the EoT will be significantly shorter. This is because, currently, when a submission for approval is based on a dossier submitted in the US or Europe, the Therapeutic Goods Administration (TGA) rarely takes more than the “usual” length of time to approve a medicine (according to the Report) – therefore, EoTs will be shorter than what the current provisions allow (and due to the lack of delay in most approvals, potentially will not be able to be obtained for most patents at all).

However, in our view, there are other consequences of this proposal, such as:

  • if the TGA is required to assess an application for regulatory approval de novo (i.e. not on the basis of a prior approval in the US and/or Europe, as is currently the case), the regulatory process may actually take significantly longer, thereby increasing the length of the “unreasonable regulatory delay” and thus the EoT
  • patentees are not compensated for the other aspects of pharmaceutical development that often take much longer, and are more costly, than the approval stage – this is particularly the case for biologics, which can take up to 20 years from discovery to approval, significantly decreasing effective patent term.

The Report has also recommended that the provisions governing which patent claims can be the subject of an EoT be revised so as to restrict the types of patents that can be extended. According to the Report, there have been a number of decisions at the Patent Office and Court level that have broadened the scope of the term “pharmaceutical substance per se” beyond a new active pharmaceutical ingredient (API). According to the Report, this broadening is not in line with the original intention of the provisions, which was to extend the term of a patent based on claims to the API itself.

The Report also recommends a more onerous reporting regime to provide the Government with data to be used to assess the ongoing costs and benefits of maintaining the EoT system. Specifically, the Commission recommends that the provision in the Patents Act 1990 relating to data collection (s 76A) be amended to improve data collection requirements, and that EoTs should not be granted until data is received from the patentee in a satisfactory form. While the Commission does not go so far as to specify the types of requirements that should be included, the Report does refer favourably to the reporting requirements that are currently in place in Canada.

Manufacture for export

In a similar way to the Pharmaceutical Patents Review, the Report recommends that a manufacture-for-export infringement exemption be introduced, which will allow Australian pharmaceutical companies to manufacture patented pharmaceuticals, during the extended term of a patent, for the purposes of export. This recommendation is based on the fact that an Australian patent can prevent manufacture of a product in Australia for export to a country without a relevant patent, and the Commission is particularly concerned with cases where the foreign patent has expired before its Australian counterpart because of Australia’s EoT provisions. According to the Report, this results in a potentially significant loss of revenue for Australian pharmaceutical companies.

Notably, the proposed shortening of the EoT (as discussed above) will also decrease the length of time over which Australian pharmaceutical companies can take advantage of this type of infringement exemption. In fact, if the EoT period is shortened as predicted by the Commission, the value of a manufacture-for-export exemption is questionable.

Data protection

Data protection has recently been one of the most hotly-debated aspects of pharmaceutical IP protection, coming to prominence particularly as a result of the TPP negotiations. The Commission does not consider that there is any reason to extend the current data protection period (which is five years), including in relation to biologics. While it is noted that biologics are costly and difficult to produce, the Commission considers that there is a lack of evidence that patents are providing insufficient protection for biologics, and also that extending data protection for biologics is likely to overcompensate the majority of products and increase costs to consumers.

It appears that the Commission has not adequately considered the issue of patentability of biologics – the changing nature of the law of patentable subject matter around the world may impact Australian law and patent filings in Australia, and make patenting of these types of medicines more difficult in the future. Therefore, contrary to the Report’s conclusion, patents may not actually provide sufficient protection for biologics (in particular, if coupled with a shortened, or non-existent, EoT).

The Report also recommends that data submitted to regulatory authorities for the purposes of registration be eventually published, as a means for providing the public and the medical community with information in relation to an approved medicine. However, the Report also recommends that this be undertaken in a way that is internationally co-ordinated, so as to avoid the situation where the confidentiality of data that is the subject of data protection in one country is breached by the publication of that data in another country. This will require not only significant administrative resources once implemented, but also significant international negotiations to put in place, as Australia will not be able to implement this in isolation.

Strategic behaviour

This is considered in the Report under two heads: “evergreening”, and “Pay-for-Delay” arrangements. Notably, the Commission does not itself seem particularly convinced that either of these practices are actually a concern in Australia.

With regard to so-called “evergreening”, the Report notes that this is “likely” occurring in Australia. In a similar way to the Pharmaceutical Patents Review, the Report recommends that the issue be dealt with by amendment to the Patents Act 1990, particularly to raise the inventive step threshold. Specifically, the Report recommends that the inventive step be determined by asking whether a course of action required to arrive at the invention or solution to the problem would have been obvious for a person skilled in the art to try, with a reasonable expectation of success. This in effect adopts an amended version of one of the tests currently employed to assess inventive step – the amendment is effected by removing the requirement in that test that a person skilled in the art directly be led as a matter of course (to try the claimed invention in the expectation that it might well produce a solution to the problem).

The Report also recommends that any changes to the Patents Act 1990 in respect of raising the inventive step be accompanied by an Explanatory Memorandum that sets out the new test for inventive step and notes that the intent of the change is to better target “socially valuable” inventions. This last requirement is discussed at length in the Report, but, in our opinion, there is no clear direction from the Commission about this. Whether an invention is “socially valuable” is capable of being interpreted in different ways depending on what is considered to be “socially valuable” by society at any particular time. In addition, in the Report, the value of a patent is determined based on factors such as forward citations (which may be suitable for scientific research papers but is not suitable for patents where the citation practice is not as well-developed or widely adopted), a “generality” index (which is also based on citations), and patent family size (which may ultimately have more to do with the funding that a company has available to spend on patents than the value of the invention to society).

Turning to “Pay-for-Delay” arrangements, the Report notes that there is no evidence of such arrangements in Australia. However, it still proposes that a system (similar to what is used in the US) be adopted by the ACCC to detect any such arrangements. This proposal appears to ignore the fact that, in the US, a 180 day period of exclusivity is awarded (under the Hatch-Waxman Act) to the first generic drug manufacturer, if they seek early entry into the market by challenging the originator’s patents (and is the first generic to do so). It is also available to generics and originators to settle the Hatch-Waxman litigation on the basis of delayed entry by the generic in exchange for keeping their exclusivity. Therefore, in the US, “pay-for-delay” arrangements are incentivised. In addition, the need to commence court proceedings to obtain a period of exclusivity essentially “flags” that there is a likelihood that a deal will be struck between the originator and the generic, and that documents relating to the arrangement that the Federal Trade Commission (the equivalent of the ACCC) can review will be produced. In contrast, in Australia, there is no equivalent incentive to initiate court proceedings. Such a system does not provide any reliable means to alert the ACCC of any potential agreement.

Submissions and final report

The Commission has requested written submissions on the draft report by 3 June 2016, and aims to release its final report in August 2016.