You know it’s time to start blogging again when you realise you are talking back at the television (although at least I refrained from yelling at the tv…). Sometimes I wonder whether I’m doomed to keep blogging for so long as US-Australia FTA IP issues keep periodically hitting the headlines.

Why was I displaying this mild form of insanity? Last night, the FTA, and pharmaceutical prices issues hit the 7:30 Report (transcript not yet available), building on a story that hit the newspaper sites yesterday. According to the SMH:

‘Acting Prime Minister Mark Vaile says the “evergreening” amendment to the FTA – demanded by Labor as a condition of its support for the pact ahead of the 2004 election – could be tossed but after intense lobbying by the US pharmaceutical industry.

Mr Vaile said the amendment was unnecessary to begin with, and removing it would not force up medicine prices.’

It’s always a nightmare when patents, pharmaceuticals and evergreening hit the news. It’s a nightmare because (a) the term ‘evergreening’ is vague, uncertain of scope and appears to be used by different people to mean different things, and (b) that’s really hard to explain in a 30 second soundbite.

Sometimes, ‘evergreening’ is used to refer to the attempt to extend the patent monopoly on a substance beyond the period provided for under law: 20 years basic term, extendable by up to 5 years under Ch 6 Pt 3 of the Patents Act for pharmaceutical substances to recognise that patent owners may not get the benefit of the full 20 years because of delays entailed through the regulatory processes for approval. One way to extend the monopoly is to come up with new inventions relating to the same substance. So for example, you might have a first patent on the active ingredient in a drug. Then later, you file for a patent on a different use for the ingredient, or for a method for delivering the drug. Being applied for later, these patents will go for longer, of course. Thus extending the monopoly.

This can be called ‘evergreening’, because it ‘re-greens’ a monopoly that might otherwise expire early. The problem with calling this ‘evergreening’ is that the description covers things that are allowed and perfectly legitimate, and things that are abusive of the system. Consider 2 examples:

  1. Perhaps you discover an active ingredient, but it takes you years (and some highly inventive research) to work out how to apply it for human treatment. In this case, why shouldn’t we reward the inventive research, by granting a patent on the method for delivery?
  2. On the other hand, perhaps you file a method of delivery patent, but it’s not really inventive – it was obvious once you knew the ingredient.

In theory, in case (1) the second patent ought to be granted (and would be) and in case (2) the second patent would not be granted (and ought not to be). In reality both patents might be granted, because our examination system is not (and cannot be) perfect. And if (2) does happen, challenging and removing the patent is going to be a difficult and expensive process.

When people talk about evergreening, however, they generally use it in a pejorative way – to refer to abuses of the system. Does it happen? Maybe, but we don’t know how often (2) arises, because we don’t really know how often patents are granted that shouldn’t be.

But when people use ‘evergreening’ in the pejorative way, they are often thinking, not just of applying for patents that shouldn’t be granted. They are thinking of abuses of other rules as well. So, for example, consider the definition once offered by CRA International:

‘Evergreening refers to the alleged misuse of drug patent rules by brand name pharmaceutical companies, a tactic used to delay the delivery of cheaper generic drugs into the marketplace’.

This definition actually sums up quite well how people use ‘evergreening’ – as a general one to refer to all the alleged abuses of patent and drug listing rules to extend the monopoly of innovator companies and prevent/delay market entry by generic companies – combining applying for invalid or over-broad patents, and then using those patents, and other rules in the system, to delay generic entry.

What other rules? Well, in Canada and the United States, it has been argued that certain rules about the interaction between patents and systems of listing drugs for approval for therapeutic use are abused by innovator companies. In particular, there has been a lot of concern about the so-called ‘automatic injunction’. In the United States, there’s a set of rules that are complicated, but basically provide that:

  • when an originator drug company seeks approval for a new drug, it lists related patents in a book called the ‘Orange Book’;
  • when a generic seeks approval for a bio-equivalent drug (eg, when the main patent on the drug expires), it must certify, in relation to all the Orange Book Listed Patents, that they have expired (or will before approval is granted), or that they are either invalid or not infringed.
  • If the latter, the generic has to give detailed reasons as to why the patent is invalid or not infringed.
  • If the originator company files a lawsuit for infringement within 45 days, it gets an automatic stay of 30 months before the FDA can approve the generic’s entry.
  • Also, the first generic to file saying a patent is invalid, or not infringed, gets 180 days of market exclusivity – ie, once FDA approval is given to the generic, no other generics get entry for 180 days (this is designed to give generics incentives to litigate invalid patents or design around patents).

There is evidence that these complicated US rules have been abused. When the FTC studied these rules and these issues in 2002, they found that:

‘two of the provisions governing generic drug approval prior to patent expiration (the 180-day exclusivity and the 30-month stay provisions) are susceptible to strategies that, in some cases, may have prevented the availability of more generic drugs. These provisions continue to have the potential for abuse.’

The generic industry in Canada has argued a similar system there is also abused (see the Generics Industry Submission in the FTA consultations, attaching a Canadian report, here).

Do we get any such abuse in Australia? Well, importantly, we do not have an Orange Book system here, nor do we have 30 month stays on TGA approval. Under the amendments the Liberal Party introduced, the generic company applying for TGA approval has to certify either that:

  • acting in good faith, it believes on reasonable grounds that it is not marketing, and does not propose to market, the therapeutic goods in a manner, or in circumstances, that would infringe a valid claim of a patent that has been granted in relation to the therapeutic goods; or
  • that there is a patent, but either the generic does not intend to market until the patent expires, or that the applicant has given the patentee notice of the application for registration or listing of the therapeutic goods.

It’s a minimal version of what the US has – without the listing, and without the automatic stays. So we cannot have that kind of US-style ‘evergreening’.

Is there still potential for the patent system and TGA system to be abused? Of course there is always potential. Any system of very valuable monopolies (and drug monopolies are valuable) gives rise to strong incentives to use every part of the system to extend monopolies so far as is possible. For example, that unjustifiably broad or invalid patents will be applied for and granted, and that these will be used to delay generic entry. But as I noted above, that risk is inherent in the patent system, and we don’t know how often unjustifiably broad, or invalid patents are granted. We just don’t have the evidence on that.

How do the Labor amendments play into all this? The Labor amendments are designed to prevent abusive use of the rules that Australia does have: by providing that if a patentee intends to sue a generic applying for TGA approval for patent infringement, they must certify that the infringement proceedings:

(a) are to be commenced in good faith; and
(b) have reasonable prospects of success; and
(c) will be conducted without unreasonable delay.

If they make such a certification, and it is ‘false or misleading in a material particular’, then they can be subject to a $10 million fine. So, in essence, the provision is designed to prevent frivolous litigation, or bad faith litigation, or unduly vexatiously-managed litigation.

Are the amendments particularly useful? I’m not sure. But the question now is whether they should be removed.

Last night, on the 7:30 report, it was alleged that these amendments (a) cause uncertainty, and (b) single out the pharmaceutical industry for unfair treatment – no one else suffers these kind of fines for bringing litigation.

(b) is probably right – I’m not aware of such provisions elsewhere in the law. But then again, perhaps Labor took the view that such provisions were justified given the FTC findings from 2002 – that where litigation did ensue between pharmaceutical and generic companies in the approval process, that generics succeeded 73% of the time.

Regarding (a), I’m not sure how you would prove that there is increased uncertainty beyond that inherent in litigation. A court that found that litigation was vexatious, or conducted wiht unreasonable delays, has at its disposal such possibilities as rulings for indemnity costs or costs orders which, in patent litigation, could be quite high.

It will be very interesting to see what evidence any research done produces. I can’t help but think it is just too soon to know whether the amendments have a positive or a negative effect. 12 months? What can you prove in 12 months? Come back in 3 years and we might have something more to talk about.

To me, the more interesting question is actually – what would be the political effects (or realpolitik) of removing the amendments. The FTA created more processes for review and appeal of PBS pricing and listing decisions, and a ‘Working Group’ with more possibilities for US and industry involvement and pressure in the way the PBS works. The protection of the PBS, depend on government being able to withstand the inevitable increased pressure from pharmaceutical companies to increase prices. To me, the most interesting thing would be – if the government now removes the amendments, on less than compelling proof of problems, does that not just indicate that it is willing to change according to industry (or US) pressure? Just a speculation.