 Published by the Australian Government on the 20th March 2014, the independent "Pharmaceutical Patents Review Report" recommends to shorten and reduce patent term extensions, to address the problems of evergreening and data protection, and to reverse Australia's passive approach to the negotiation of intellectual property and international trade. The report emphasizes the need for Australia to protect its public health interests in the negotiation of the "Trans-Pacific Partnership"

The High Price of Drug Patents: Australia, Patent Law, Pharmaceutical Drugs and the Trans-Pacific Partnership

by Matthew Rimmer*

Associate professor, Australian National University College of Law, Canberra

This week, the secrecy surrounding an independent Australian report on patent law and pharmaceutical drugs has been lifted, and the work has been published to great acclaim.

On the 20^th March 2014, the Australian Government published the final version of an independent policy report, the Pharmaceutical Patents Review Report, after much public pressure.1 The report has significant implications in respect of patent law, pharmaceutical drugs, the Pharmaceutical Benefits Scheme, and trade policy - particularly in respect of the Trans-Pacific Partnership. The independent report has also highlighted the opportunity of great savings for the Australian health-care system through shortening patent term extensions. The economist Peter Martin has warned: ‘Australia’s enthusiastic approach to extending the life of pharmaceutical patents has cost the economy “billions of dollars” an independent review has found.’2

This paper provides a short review of the Pharmaceutical Patents Review Report, and highlights key recommendations. In particular, it looks at the call by the review for a frugal, parsimonious approach to the granting of patent rights in respect of pharmaceutical drugs in Australia. The paper considers the recommendations of the Pharmaceutical Patents Review Report to shorten and reduce patent term extensions. It examines the proposed recommendations to address the problem of evergreening. This paper also considers the debate over data protection. Finally, the Pharmaceutical Patents Review Report is critical of Australia’s passive approach to the negotiation of intellectual property and international trade. The findings of the report emphasize the need for Australia to protect its public health interests in the negotiation of the Trans-Pacific Partnership.

The Pharmaceutical Patents Review Report

Under the leadership of Julia Gillard, the Australian Labor Party took a keen interest in the impact of patent law upon research, patient care, and the provision of health-care.3 Indeed, Gillard had taken a particular interest in patent owners engaging in the nefarious practice of ‘evergreening’ - extending the life of patents beyond their natural term by making minor changes.

The report had been commissioned by Mark Dreyfus QC MP, a Parliamentary Secretary for Innovation in the former Australian Labor Party Government. The review was designed to examine whether Australia’s patent system was ‘effective in securing timely access to competitively priced pharmaceuticals and in supporting innovation and employment in the industry.’ The report was undertaken by three well-respected experts - Tony Harris; intellectual property academic Professor Dianne Nicol, and economist Dr Nicholas Gruen.

Initially, the Minister for Industry Ian McFarlane for the new Coalition Government was reluctant to release the final report. Melissa Parke MP - the member for Fremantle - asked in the Australian Parliament: ‘By what date will he release the final report of the 2012 Pharmaceutical Patents Review, and is he considering the draft recommendations released in April 2013?.’4 Ian McFarlane responded that ‘the Government has no plans to release the final report at this stage’ and ‘the Government is not considering the recommendations made by the panel in the draft report.’ Ian McFarlane maintained: ‘As the Pharmaceutical Patents Review was commissioned by the previous government and conducted by an independent panel, the government is not obliged to release the report.’

Dr Deborah Gleeson from LaTrobe University highlighted the failure of the Coalition Government to publish the report.5 She noted: ‘While Treasurer Joe Hockey is complaining that Australia is running out of money to fund the health system, the Coalition Government has buried a report with recommendations for large-scale savings on drug costs.’ But the burial of the final report, the submissions made to the review and the economic estimates of the costs of patent term extension is particularly concerning in the light of the current Government’s search for cost-cutting measures.’ Gleeson lamented: ‘It will be a shame if we end up with knee-jerk policies like $6 GP co-payments in an attempt to cut health system costs when sensible reforms to patent law could generate hundreds of millions of dollars of savings through the Pharmaceutical Benefits Scheme’. She warned that ‘an even worse prospect would be the further extension of patent monopolies through our international trade agreements, adding hundreds more millions to the health budget.’

Information activist Brendan Molloy - a member of Pirate Party Australia, and Electronic Frontiers Australia – sought to reveal the report through freedom of information requests.6

In the end, the Australian Government relented, and published the Pharmaceutical Patents Review Report. The Australian Government was non-committal about the recommendations of the report:

Government statement on the Pharmaceutical Patent Review final report. The Pharmaceutical Patent Review was commissioned by the previous government and conducted by an independent panel. The review panel provided its final report to the previous government in May 2013, which did not release the report. The government notes that the report is one of a number of reviews of the pharmaceutical system conducted during the term of the previous government. The government has no plans to respond to the report at this stage but may take information in the report into account when considering future policy. The views expressed and recommendations made in the report are those of the review panel and do not necessarily reflect government policy.

It is a credit to the Minister Ian MacFarlane to release the report, so that there could be a full and frank public discussion in respect of patent law and pharmaceutical drugs.

A Frugal Approach to Patent Rights

The final 233-page report – Pharmaceutical Patents Review Report – is essential reading for those interested in intellectual property and public health. The combination of Tony Harris, Dianne Nicol, and Nicholas Gruen has ensured that the work is a multi-disciplinary investigation into patent law and pharmaceutical drugs. The report is a thorough, systematic, and balanced piece of work. The report is informed wide-ranging consultations and interactions with industry, government, academia, and consumers.

The Pharmaceutical Patents Review Report emphasizes that ‘the question of how much patent protection to offer is crucial.’ The study noted:

Pharmaceutical patent rights that run for too long or that are defined too expansively will deprive people of drugs because purchasers, including Governments, cannot afford them. They can also constrain follow on innovation: too weak a patent system means patients will suffer because the industry has inadequate incentives to develop new drugs.

The Pharmaceutical Patents Review proposed a frugal approach to the grant of patent rights. The Review recommended that ‘the Government should expeditiously seek a situation where Australia has strong yet parsimonious IP rights – that is, rights that are strongly enforced and that provide the incentive necessary to underpin an appropriate level of investment in innovation – but that are not defined so broadly as to impose costs on innovation or other activity without commensurate benefits.‘ The report suggested: ‘Australia should take a leadership role in seeking consensus with jurisdictions with similar interests to identify and pursue a range of changes in international patent law and practice along these lines.‘ The report observed: ‘While the patent system must be strong to be effective, it should also be parsimonious, avoiding restrictions on trade and innovation that are not necessary for it to deliver incentives to innovate.’

Patent Term Extensions

The Pharmaceutical Patents Review Report makes a number of important recommendations relating to patent term extensions. Under Australia law, the patent term lasts for twenty years. Since 1998, pharmaceutical drug patents can obtain additional term extensions for up to a further years. The inquiry noted:

An important part of the terms of reference of this inquiry is to evaluate the extension of term (EOT) that the Australian patent system allows. It applies to some pharmaceuticals for which patentees have taken at least five years from the effective patent filing date to obtain regulatory approval for the pharmaceuticalâs use. The current scheme dates from 1998. It aims to attract investment in pharmaceutical R&D in Australia, as well as providing an effective patent term for pharmaceuticals more in line with that available to other technologies. The scheme currently provides an effective patent term of up to 15 years.

The report noted that patent term extensions were expensive for the Australian Government: ‘The estimate for 2012-13 is around $240 million in the medium term and, in today’s dollars, around $480 million in the longer term’. The report stressed: ‘The total cost of the EOT to Australia is actually about 20 per cent more than this, because the PBS** is only one source of revenue for the industry.’ The report emphasized: ‘Using the patent scheme to preferentially support one industry is inconsistent with the TRIPS rationale that patent schemes be technologically neutral.’

**acronym for Pharmaceutical Benefits Scheme

The inquiry canvassed a number of policy options to address patent term extensions:

Australia is required by AUSFTA to provide some form of pharmaceutical EOT but its scope and length are not specified. Actual savings obtained from reducing the term of the extension would be affected by many factors, including price changes caused by increasing sales volumes, the 16 per cent mandated price reduction following the entry of a second drug, the influence of competing generic manufacturers and reductions from price disclosure mechanisms. But there are timing issues in reducing the EOT provisions immediately without compensation. Savings from the options considered in this report, including the recommendation to reduce the effective life of extended Australian pharmaceutical patents, would take several years to reach full effect.

The inquiry recommended: ‘The Government should change the current EOT to reduce the maximum effective patent life provided from 15 years.’ There was a difference of opinion between the members of the review: ‘Harris and Gruen support reducing the effective life to 10 years, whereas Nicol supports reducing the effective life to 12 years.’ The report advised: ‘The length of the extension should be calculated as being equal the number of days between the patent date and the date of first inclusion on the Australian Register of Therapeutic Goods minus 20 years less the maximum effect patent life.’ The report noted: ‘The current 5 year cap on extensions should remain, providing a maximum of 25 years patent term for extended patents.’

The Pharmaceutical Patents Review Report emphasized that there could be significant savings to Australian tax-payers from the reform of Australian patent term extensions. The recommendation by Harris and Gruen was predicted to provide for massive savings:

Mr Harris and Dr Gruen recommend reducing the effective patent life from 15 to 10 years. Over time this would save the PBS approximately $200 million a year. in today’s dollars, based on current pricing arrangements (that the entry of generics will lead to price falls of 35 per cent) which the Government has agreed with Medicines Australia. The savings would grow in line with PBS costs which are growing at 4.5% per annum, substantially faster than real GDP. If the Government secured all of the pricing benefits allowed by the entry of generics, annual savings in today’s dollars could amount to around $400 million which would similarly be expected to grow with PBS costs. This is calculated on data that generics have led to a 70% price reduction in the United States. This is consistent with recent findings by the Grattan Institute that the price of generics paid by the PBS is several times the price secured by relevant Australasian Governments.

It is calculated that Professor Nicol’s recommendation to shorten the effective patent life would result in significant savings: ‘The estimated savings resulting from this reduction would be approximately $130 million a year.’ Moreover, it was noted: ‘If a 70% price reduction from generic entry was achieved as discussed above, the savings would be approximately $260 million a year.’

Patent Standards and the Problem of Evergreening

The former High Court of Australia Justice Michael Kirby observed in a case that patent law ‘should avoid creating fail-safe opportunities for unwarranted extensions of monopoly protection that are not clearly sustained by law.’

The Pharmaceutical Patents Review Report also addressed the pernicious problem of evergreeening - where patent owners seek to indirectly extend the life of patent protection, beyond its natural monopoly. The report noted:

In most developed countries, including the United States and Europe, there are concerns about pharmaceutical manufacturers using patents and other management approaches to obtain advantages that impose large costs on the general community. The cost arises because these actions impede the entry of generic drugs to the market. Although some find the term to be a pejorative, relevant literature has dubbed such actions ‘evergreening’: steps taken to maintain the market place of a drug whose patent is about to expire.

The report noted: ‘It is probable that less than rigorous patent standards have in the past helped evergreening through the grant of follow-on patents that are not sufficiently inventive.’ The report called for improvements in the oversight of patent quality standards: ‘The Panel sees a need for an external body, the Patent Oversight Committee, to audit the patent grant processes to help ensure these new standards are achieved, and to monitor whether they inhibit the patenting of follow-on pharmaceuticals which promote evergreening with no material therapeutic benefit.’

Data Protection

The inquiry also considered the vexed question of data protection for pharmaceutical drugs. The report noted:

When an originator seeks regulatory approval for a drug, it must provide data to the TGA*** demonstrating the drug’s safety and efficacy. Although these data remain confidential to the TGA, it may use them after a five year period to approve a generic or equivalent drug. This saves the pointless replication of tests to show safety and efficacy.

***acronym for Therapeutic Goods Administration

The pharmaceutical drugs industry argued that the five-year period of data exclusivity in Australia was too short. The Pharmaceutical Patents Review Report found that there was no need to extend data protection in respect of pharmaceutical drugs:

It is conceivable that drugs might not be brought to Australia, for example, because regulatory and marketing costs cannot be recouped within five years. Medicines Australia submits that some of its members chose not to supply a total of 13 drugs to the Australian market because of the inadequacy of the data exclusivity period. However, they are only able to identify three of these, and the Panel’s analysis – shown in chapter 8 – suggests they are not convincing. AbbVie offers a more compelling example, but even there the Panel believes that expanding data exclusivity for all or for a wide class of drugs is a poorly targeted response to issues affecting a small number of pharmaceuticals. A policy of subsidising drug development discussed above seems more appropriate.

The report noted: ‘The Government should actively contribute to the development of an internationally coordinated and harmonised system where data protection is provided in exchange for the publication of clinical trial data.’

Such a finding has a broader significance, given the push by the United States for stronger data protection in the Trans-Pacific Partnership.

Trade and the Trans-Pacific Partnership

The Pharmaceutical Patents Review Report observed that ‘Larger developed countries that are major net IP exporters have tended to seek longer and stronger patents, not always to the global good.’ The report warned: ‘The acquiescence of Australia and other countries to that agenda means that some features of Australiaâs patent law are of little or no benefit to patentees but impose significant costs on users of patented technologies.’

The Pharmaceutical Patents Review Report was highly critical of Australia’s passivity in international negotiations over intellectual property and trade. The report found:

In their negotiation of international agreements, Australian Governments have lacked strategic intent, been too passive in their IP negotiations, and given insufficient attention to domestic IP interests. For example, preventing MFE**** appears to have deprived the Australian economy of billions of dollars of export revenue from Australian based generic manufactures. Yet allowing this to occur would have generated negligible costs for Australian patentees. The Government does not appear to have a positive agenda regarding the IP chapters of the TPP Agreement.

****acronym for Manufacturing for Export

The report noted: ‘The Government has rightly agreed to only include IP provisions in bilateral and regional trade agreements where economic analysis has demonstrated net benefits, however this policy does not appear to be being followed.’

The Pharmaceutical Patents Review Report recommended that ‘the Government should ensure that future trade negotiations are based on a sound and strategic economic understanding of the costs and benefits to Australia and the world and of the impacts of current and proposed IP provisions, both for Australia and other parties to the negotiations.’ The Pharmaceutical Patents Review Report stressed that ‘the Government should strongly resist changes - such as retrospective extensions of IP rights - which are likely to reduce world economic and social welfare and it should lead other countries in opposing such measures as a matter of principle.’

Furthermore, the Pharmaceutical Patents Review Report recommended: ‘Given the current constraints placed on Australia by its international obligations, as an interim measure the Government should actively seek the cooperation of the owners of Australian pharmaceutical patents to voluntarily agree to enter into non-assertion covenants with manufacturers of generic pharmaceuticals seeking to manufacture patented drugs for export’. In its view, ‘This would help them avoid the embarrassment of Australia’s trade and investment performance being penalised by its previous agreement to strengthen IP rights.’

The Pharmaceutical Patents Review Report warned: ‘There are signs that these past failures are being replicated in the current Trans-Pacific Partnership (TPP) negotiations because small, net importers of intellectual property, including Australia, have not developed a reform agenda for the patent system that reflects their own economic interests â and those of the world.’

WikiLeaks has published a draft text of the Intellectual Property Chapter of the Trans-Pacific Partnership.7 The Intellectual Property Chapter contains a number of measures, which support the position of pharmaceutical drug companies and the biotechnology industry.8 Notably, the United States has pushed for extensions of the patent term in respect of pharmaceutical drugs, including where there have been regulatory delays. There has been a concern that the Trans-Pacific Partnership will impose lower thresholds for patent standards, and result in a proliferation of evergreening. There has also been a concern about patent-registration linking to marketing regimes. The United States has also pushed for the protection of undisclosed data for regulatory purposes. There has been wide concern that the Trans-Pacific Partnership will result in skyrocketing costs for health-care systems in the Pacific Rim.

Disturbingly, Australia has been quite passive in the debate over intellectual property and public health in the Trans-Pacific Partnership negotiations. Other countries - such as Canada, New Zealand, and Malaysia - have argued, more passionately, that there is a need for the patent system to protect public health.

Moreover, the Trans-Pacific Partnership also contains an investment chapter, with investor-state dispute settlement. The brand name pharmaceutical drug company Eli Lilly have deployed an investor clause under the North American Free Trade Agreement to challenge Canada’s drug patent laws. There is a concern that the investor-state dispute settlement regime in the Trans-Pacific Partnership could be deployed to challenge public health measures, and reforms to the patent system designed to combat problems such as evergreening.

Professor Joseph Stiglitz has been concerned about the impact of the Trans-Pacific Partnership upon equality and human rights.9 He observed that ‘Agreements like the TPP have contributed in important ways to this inequality’. Stiglitz warned: ‘Corporations may profit, and it is even possible, though far from assured, that gross domestic product as conventionally measured will increase’. He feared that ‘the well-being of ordinary citizens is likely to take a hit.’ The Nobel Laureate warned that ‘Trickle-down economics is a myth’. Stiglitz concluded that ‘enriching corporations - as the TPP would - will not necessarily help those in the middle, let alone those at the bottom.’

Conclusion

The Pharmaceutical Patents Review Report is a landmark report, which should receive serious consideration by policy-makers in Australia, and throughout the Pacific Rim. The study deserves a wide readership amongst intellectual property academics, economists, and health experts. The Pharmaceutical Patents Review Report provides a cautionary warning of the need to design a patent regime, which is appropriate and well-adapted to Australiaâs economy, research and development system, and public health-care regime:

The Report shows that the Australian patent system has worked against Australia’s best interests. Patents are clearly necessary and important for the development of and access to needed drugs. But Australia’s patent system has allowed and will continue for some time to allow patents to be granted which would not be granted elsewhere; it has awarded a longer effective patent life than is provided in the United States or than seems necessary to underpin drug development in Australia; it has allowed patents to expire later in Australia than in its major trading partners. All of this has limited the generic manufacturing base, employment and exports and it has increased Australia’s pharmaceutical costs. The Raising the Bar Act which recently came into force may moderate this, but its efficacy will not be evident for some years, and there is the prospect that, even with the changes introduced by Raising the Bar, patent standards are still insufficient to moderate evergreening in the pharmaceutical industry. The Panel’s recommendations, if adopted, would only start the next phase of the repair work.

The report also highlights the problem of patent owners seeking corporate welfare in domestic patent law reform and international negotiations. There is a need to guard the integrity of the patent system against being co-opted by brand-name pharmaceutical companies and biotechnology companies. Patent term extensions and evergreening undermine the public bargain of patent law to promote the progress of science and the useful arts. There is a need to ensure that the public domain is not captured by private companies. The report should be a guide in Australia’s future approach to domestic patent law reform, and international negotiations over intellectual property and trade. The study highlights the need for greater consideration of the economic impact of legal revisions - particularly in the area of patent law and pharmaceutical drugs. Australia’s patent regime should protect the public health of its citizens.

References

1 Tony Harris, Dianne Nicol, and Nicholas Gruen, Pharmaceutical Patents Review Report, Canberra, 2013, http://www.ipaustralia.gov.au/pdfs/2013-05-27_PPR_Final_Report.pdf

2 Peter Martin, ‘Drug Patents Costing Billions’, The Sydney Morning Herald, 2 April 2013, http://www.smh.com.au/national/health/drug-patents-costing-us-billions-20130402-2h52i.html

3 Matthew Rimmer, ‘Julia Gillard, Big Pharma, Patent Law, and Public Health’, The Conversation, 27 November 2012, https://theconversation.edu.au/julia-gillard-big-pharma-patent-law-and-public-health-10226

4 Melissa Parke MP, ‘Pharmaceutical Patents Review’, House of Representatives, Australian Parliament, 11 February 2014, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F55d46158-f865-4a9f-9015-36543a3b6b7b%2F0183%22

5 Deborah Gleeson, ‘Cost-Cutting Crusade Ignores Health Savings’, ABC, The Drum, 6 March 2014, http://www.abc.net.au/news/2014-02-28/gleeson-cost-cutting-crusade-ignores-vital-health-report/5289726

6 Brendan Molloy, ‘Pharmaceutical Patents Review’, Right to Know, 28 February 2014, https://www.righttoknow.org.au/request/pharmaceutical_patents_review_fi

7 WikiLeaks, ‘Advanced Intellectual Property Chapter for All 12 Nations with Negotiating Positions (30 August 2013 consolidated bracketed negotiating text)’ https://wikileaks.org/tpp/

8 Alexandra Phelan and Matthew Rimmer, ‘Trans-Pacific Partnership #TPP #TPPA Drafts Reveal a Surgical Strike against Public Health’, East Asia Forum, 2 December 2013,http://www.eastasiaforum.org/2013/12/02/tpp-draft-reveals-surgical-strike-on-public-health/

9 Joseph Stiglitz, ‘On the Wrong Side of Globalization’, The New York Times, 15 March 2014, http://opinionator.blogs.nytimes.com/2014/03/15/on-the-wrong-side-of-globalization/

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*Dr. Matthew Rimmer is an Australian Research Council Future Fellow working on Intellectual Property and Climate Change. He is an associate professor at the ANU College of Law and an associate director of the Australian Centre for Intellectual Property in Agriculture (ACIPA). He holds a BA (Hons) and a University Medal in literature, and a LLB (Hons) from the Australian National University. Rimmer received a PhD in law from the University of New South Wales for his dissertation on The Pirate Bazaar: The Social Life of Copyright Law. He is a member of the ANU Climate Change Institute. Rimmer is the author of Digital Copyright and the Consumer Revolution: Hands off my iPod, Intellectual Property and Biotechnology: Biological Inventions, and Intellectual Property and Climate Change: Inventing Clean Technologies. He has co-edited Incentives for Global Public Health: Patent Law and Access to Essential Medicines, and Intellectual Property and Emerging Technologies: The New Biology. Rimmer has published widely on copyright law and information technology, patent law and biotechnology, access to medicines, clean technologies, and traditional knowledge. His work is available here.