The patent price of market access in the AUSFTA

Abstract

New generation trade agreements reach far behind borders, affecting many areas of domestic policy not previously associated closely with trade. One of the most uneasy of these areas is intellectual property, particularly patent monopolies. The USA has been a major force behind the extended reach of patent monopolies using preferential trade agreements. The patent and data exclusivity provisions of the AUSFTA were proposed by the USA. This paper provides detailed evidence about how such ‘TRIPS+’ policies compare to a balanced patent policy—one equally favouring creators and users of technology. Australia has never had an active patent agenda, but since AUSFTA has been willing to accept in its bilateral and regional trade deals highly prescriptive rules that tie the hands of future governments. The overall trend has thus been toward increasing imbalance, with Australian patent policy now having a very broad reach and very low eligibility standards. This particularly affects the cost of medicines, where large numbers of relatively uninventive patents surround a blockbuster drug and delay the market entry of generic alternatives. In addition to outlining the costs of Australia’s current patent policy approach, the paper concludes by highlighting a more balanced and less costly way forward.

Keywords:

• AUSFTA
• innovation policy
• patents
• TPPA
• trade policy

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. I would like to thank Dr Thurbon and two anonymous referees for useful suggestions on an earlier draft of this paper.

2. The agreements cover only 8.5 percent of US trade, mostly accounted for by the three high-income countries Australia, Korea and Singapore (Flynn et al. 2012, 109–110). Other agreements are Jordan 2000; Bahrain 2004; Chile 2004; Morocco 2004; Colombia 2006; Oman 2006; Panama 2007; and Peru 2007.

3. See http://dfat.gov.au/about-us/publications/trade-investment/australia-united-states-free-trade-agreement-fact-sheets/Pages/intellectual-property.aspx, accessed April 14, 2015.

4. Australia has always run a negative balance on its trade in intellectual property (see, e.g. IPAC 1984). IP receipts over the past decade have been of the order of 0.25 percent to 0.5 percent of the current account and payments have been two to eight times larger at 1.0 percent to 1.5 percent (IP Australia 2013, 22).

5. For a more detailed analysis see Moir (2014).

6. Australian courts have followed this trend—for example, adopting the much criticised State Street Bank decision to allow business method patenting (Welcome Real Time v Catuity [2001] FCA 445 (May 17, 2001)). The High Court has not yet moved to prevent this.

7. At the time Yaz was marketed MedlinePlus (a US National Library of Medicine service), (http://www.nlm.nih.gov/medlineplus/druginfo/meds/a601050.html#brand-name-2) listed brand names for 83 different low-dose combination oral contraceptives.

8. Bayer Pharma v Generic Health [2013] FCA 279.

9. The TRIPS requirement that all technologies be treated equally (a core demand from the pharmaceutical industry) also impedes balanced patent policy. Technologies are very different—some are hard to copy, some easy. The empirical evidence shows that patents are only needed in limited technology areas (López 2009). Yet WTO members are forced to provide patents in technology areas where they are not needed.

10. Though microorganisms must be eligible for patents. If plants are not protected under patent law they must be granted a form of sui generis protection (TRIPS Article 27(3)). Inventions that create morality or ordre public problems can also be refused patents.

11. There are widespread evidence-based criticisms of the very low inventiveness requirement in the US system (see, for example, Jaffe and Lerner 2004; Quillen Jr. 2006). The USA would, too, benefit unambiguously by lifting the inventiveness requirement to ensure at least some new knowledge was a requirement for patent grant. This would, however, prevent evergreening patents.

12. A 1984 review, which was meant to be economic, drew the dissenting comment from its sole economist that the report ‘does not live up to its claim to have adopted an economic perspective and to have applied economic criteria’ (IPAC 1984, 79–80). The 2000 IPCRC review simply assumed that inventiveness was required before grant of a patent, a false assumption which calls its findings into grave doubt (IPCRC 2000). Since then there has been only one attempt at an independent inquiry (Harris et al. 2013), and that review systematically refused to look at the issue of inventiveness. The government has advised parliament that patents, because they provide a powerful exclusive right, are granted only for things that are ‘a significant advance over what is known or used’ (Explanatory Memorandum to the 2011 Intellectual Property Laws Amendment (Raising the Bar) Bill). This statement is factually incorrect, as demonstrated both by the rules in the Patent Examiner’s Manual and by the many trivial patents regularly granted (Moir 2013a).

13. 25 years for pharmaceutical products. As it takes some time to get the patented product to market, the effective monopoly period is lower. The average effective period of market monopoly derived from a patent over a new breakthrough drug is 14 years in the USA (Harris et al. 2013, 83).

14. These other matters are also important to patent balance, but are not discussed here for reasons of space.

15. See, for example, the discussion on manufacturing for export in the Pharmaceutical Patent Review (Harris et al. 2013).

16. Data protection provisions in TRIPS and the AUSFTA cover both clinical trial data for pharmaceuticals and safety data for agricultural chemicals. In both cases the term of protection for agricultural chemicals is 10 years not five. Agricultural chemicals are outside the scope of this paper.

17. ‘IFAC-3 welcomes the regulatory-related definition of a “new product” contained in Article 17.10.1(d) as being a product that does not contain a chemical entity that had been previously approved in Australia as providing an important clarification of the term “new chemical entity” found in TRIPS Article 39.3.’ (IFAC 2004, 14, emphasis added).

18. Article 20 of the Declaration of Helsinki: Ethical Principles for Medical Research Involving Human Subjects prohibits the continuation of trials when conclusive results are known (18th World Medical Association General Assembly, Art. 20, http://www.wma.net/en/30publications/10policies/b3/17c.pdf). One can presume that it is also unethical to commence such trials when there are already conclusive results.

19. ‘Nothing done under this Act or the PCT guarantees the granting of a patent, or that a patent is valid, in Australia or anywhere else’ (Patents Act 1990, S.20(1)). Despite this, in 2012, Yates, J stated that ‘[r]egistration of the patent is, of itself, prima facie evidence of validity’ (Novartis v Hospira [2012] FCA 1055 per Yates J, paras 51, 91–94).

20. Despite this, DFAT focuses almost exclusively on ‘market access’ issues, an emphasis salient on its trade webpage.

21. Indeed this was a primary reason that the UK’s entry to the European Economic Community was so delayed. The UK’s agricultural policy was based on subsidies, with substantial imports from Australia and New Zealand keeping consumer prices low. In the period before Australia reduced almost all tariff barriers, the Productivity Commission (then the Industries Assistance Commission) wrote many reports demonstrating that this basic economic fact holds across all industries.

22. See Holovac (2004) for a full discussion of how the 1984 Hatch-Waxman Act operates to encourage generic producers to challenge weak patents and gain early entry to the market.

23. See the various submissions to the 2012–13 Pharmaceutical Patent Review (PPR), particularly that from Alphapharm (http://web.archive.org/web/20130425142849/ https://pharmapatentsreview.govspace.gov.au/submissions/), and also Moir and Palombi 2013.

24. This section takes wording from the European Medicines Agency’s procedures to make unpatentable inventions where there is no enhanced efficacy of a known product. The discussion in Novartis AG v Union of India and others, Civil Appeal Nos. 2706–2716 of 2013, Supreme Court of India reviews the background to this part of the act (http://supremecourtofindia.nic.in/outtoday/patent.pdf).

25. The two that are missing from the 2014 draft are restrictions on the use of compulsory licences and restrictions on parallel importing.

26. The leaked 2014 version is at https://www.wikileaks.org/tpp-ip2/#article_e4. The 2014 and 2013 (https://wikileaks.org/tpp/) versions are very similar; as is the leaked 2011 version, which has been extensively analysed by Flynn et al. (2012).