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Amendments to a number of Australian Acts were required in order to ensure that Australia’s legislation complies with the FTA. Amid great controversy and headline news, the Federal Opposition party insisted on the incorporation of amendments that were, it was claimed, necessary to safeguard the availability of cheaper generic products on the Australian Pharmaceutical Benefits Scheme (PBS; the scheme under which drugs are subsidised by the Government). Reluctantly, at the eleventh hour, the Government agreed to incorporate the additional amendments into the enabling legislation that was eventually passed by Parliament on 16th August 2004. Now the US has reserved the right not to allow the FTA to enter into force until they are satisfied that the enabling legislation fulfils Australia’s obligations under the Agreement.
Three issues are at the core of the “pharmaceuticals” debate: the practice of “evergreening” by large pharmaceutical companies, the new requirement under the FTA for generic companies to notify patent owners of their activities, and the (up to) A$10m penalties for patent owners taking action on the basis of a patent that they know to be invalid.
“Evergreening”
Labor argued that “evergreening” was the source of concern and linked it to the FTA. By way of explanation Mark Latham, leader of the Federal Opposition, said: “What the FTA does is provide a new notification procedure where the generic companies will tell the patent companies they are looking to market, and that gives the patent companies the capacity to put a bodgy patent application in to try and delay the cheaper drugs coming on the market”.
“Evergreening” refers to the practice of obtaining patent protection for improved formulations for a “known” drug (eg: using new excipients, new crystalline structures or new polymorphs) or for using a “known” drug to treat “new” ailments. The patent covering the “original” drug cannot be extended by the introduction of “evergreening” patent applications - bodgy or not. It is open to anyone, including generic drug companies, not only to copy the drug as originally patented after the term of the initial patent expires, but also to use the information provided in the patent to develop their own new forms of the drug - and, in fact, many generic drug companies do both.
Concerns about “evergreening” per se preventing cheaper generic versions of the original drug from entering the market are, consequently, unfounded. Moreover, neither the FTA nor the Government’s proposed enabling legislation nor Labor’s amendments have any impact on the practice of “evergreening”.
Notification of request for marketing approval for patented product
The Australian Therapeutic Goods Act has been amended under the enabling legislation such that, if a generic pharmaceutical company seeks marketing approval for a product, they must now provide a certificate to the Australian regulatory authority, the Therapeutic Goods Administration (TGA), either:
(a) to the effect that, acting in good faith, they believe on reasonable grounds that they are not marketing, and do not propose to market, the product in a manner or in circumstances, that would infringe a valid claim of a patent; or
(b) to the effect that a patent has been granted in relation to the product, they propose to market the therapeutic goods before the end of the term of the patent and they have given the patentee notice of the application for registration or listing of the therapeutic goods.
If the certificate provided is false or misleading in a material particular, a penalty of up to A$110,000 can be imposed.
Much controversy has surrounded this new “notification requirement”. The Guide to the FTA specifically indicates that the notification procedure is to apply in cases where the generic manufacturer believes a claim to be invalid – and it would clearly apply in cases where the generic manufacturer believes the patent to be valid. The initial draft proposed by the Australian Government required notification irrespective of the perceived validity or invalidity of the patent. However, the amendment drafted by the Opposition and now included in the legislation means that if a generic manufacturer believes a claim to be invalid, they are not required to notify the patentee. This seems contrary to the spirit of the FTA as specifically stated in the Guide.
Given the requirements as they now stand, in the vast majority of cases, generic companies are likely to seek either non-infringement opinions or opinions that the claims that they would infringe are invalid – thus avoiding the requirement for notification altogether. In practice, and for obvious reasons, a generic manufacturer is highly unlikely to submit a certificate under option (b) which would amount to an admission to wilful infringement of a patent that they agree is valid.
Furthermore, the FTA actually requires that, in addition to the notification procedures, measures be taken in the marketing approval process to prevent the marketing of a patented product. Since neither the Government’s initial draft nor the Opposition’s amendments provide for this requirement, the enabling legislation passed in Parliament is not strictly aligned with the FTA requirements.
This may well be the result of the “template” style of approach that the US tends to adopt in relation to the drafting of bilateral agreements of this nature, with the consequence that tailoring to the practical implementation considerations in relatively sophisticated jurisdictions such as Australia is inevitably compromised. On the other hand, the US may well raise this as a substantive issue, once the amendments have been fully considered.
Penalties
The Federal Opposition also insisted on the inclusion in the Therapeutic Goods Act of provisions relating to the imposition of penalties when a patentee commences proceedings against an alleged infringer knowing that the patent is invalid. The legislation states that if a patentee wishes to commence proceedings against a generic manufacturer who has submitted a certificate to the TGA to the effect that they do not infringe a valid claim of a patent, the patentee must provide a certificate to the effect that the proceedings:
(a) are to be commenced in good faith;
(b) have reasonable prospects of success; and
(c) would be conducted without unreasonable delay.
The penalty for providing a false or misleading certificate or for breach of an undertaking given in the certificate is a fine of up to A$10m. When determining the extent of the penalty, the court must take into account any profit obtained by the patentee and any loss or damage suffered by “any person” by reason of the patentee exploiting the patent during the proceedings.
In addition, if a generic manufacturer gives notice to a patentee that they propose to market a patented product before the end of the patent term, the patentee may apply for an interlocutory injunction to restrain the generic company from doing so. Importantly, however, if an interlocutory injunction is granted and the principal proceedings are dismissed with the court declaring that the patentee did not have reasonable grounds:
(a) to believe that it would be granted final relief by the court;
(b) (in addition to the fact of grant of the patent) for believing that each of the claims in respect of which infringement is alleged in the proceedings would have a reasonable prospect of being held to be valid if challenged; or
(c) the application for the interlocutory injunction was otherwise vexatious, or not reasonably made or pursued;
the court may assess and award compensation to the generic manufacturer and may award to the governing authority compensation for any damages sustained or costs incurred as a result of the grant of the interlocutory injunction.
Although aggressive in theory, the deterrent value of this legislation may not be significant in practice because it will be difficult to conclusively prove that a patentee did not commence proceedings “in good faith” and did not have “reasonable prospects of success”. It may be a useful tool for generics, however, in certain circumstances – most notably, when an equivalent patent has been revoked in a number of the larger jurisdictions (eg. US, Europe and Japan) on, for example, grounds that are common in all jurisdictions such as lack of novelty. Such situations, however, are not likely to be common. Since the pace of proceedings is largely dictated by the courts, it is also difficult to envisage a situation in which a patentee could conclusively be shown to have been responsible for “unreasonable delays”.
Not only are the benefits of the penalty of up to A$10m questionable due to the subjective nature of the criteria to be applied and the small number of cases to which they will be relevant, it is possible that the inclusion of the penalty in the legislation violates the World Trade Organisation Agreement of Trade Related Aspects of Intellectual Property Rights (TRIPS) that prohibits governments from discriminating against specific technologies. This could provide strong grounds for rejection of the enabling legislation by the US.
Conclusion
In summary, we believe that neither the new notification procedure nor the penalties introduced by the enabling Australian legislation are likely to have a significant effect on the number or type or generic products entering the Australian market or the frequency with which litigation takes place (although it may take place a little earlier in some instances). Consequently, the availability of cheaper drugs to the Australian PBS is not likely to be greatly affected by the legislation discussed above. The enabling legislation could, however, become the Achilles heel of the FTA should the American authorities reject it due to incompatibilities with the FTA and/or TRIPS.
*By way of clarification, there has been no change to the springboarding provisions under the Australian Patents Act that allow for marketing approval activities to be carried out by third parties once a patent term has been extended beyond the 20-year term (due to delays in the patentee’s marketing approval process).
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