New Zealand: Progress toward New Zealand's new Patents Act - end of year report card

"Has progressed in fits-and-starts. A more consistent effort may be beneficial. For now, may have been consigned to the too-hard basket".

As readers will know, New Zealand patent law has been in the throes of reform for the best part of a decade. The original exposure draft of the Patents Bill was released in 2004 – and since that time, we've penned a series of very similar articles, each entitled something along the lines of "Progress Toward New Zealand's New Patents Act". Of course, the term "progress" has been somewhat subjective. More than eight years have elapsed – and we're still waiting for the new legislation to be passed.

As 2012 began, the current draft legislation (the Patents Bill 2008) had been dormant for nearly three years. Whilst it remained on the Parliamentary Agenda, it had slipped as low as #55. As such, we didn't expect much progress to be made during 2012 – passage of the Bill seemed to have been consigned to the "too-hard basket".

Perhaps that's a little harsh – for as we'll see in this article, there may be good reasons why the Bill appeared to have gone "nowhere fast". On the other hand, no such reason can obscure the fact that New Zealand's current patents legislation is based on the 1949 UK Patents Act – which, as we all know, was itself replaced nearly four decades ago. Of course, the world is a vastly different place to what it was at the end of World War II – and the social, political and economic rationale for replacing New Zealand's antiquated patents legislation are well known and widely accepted.

Unfortunately, we had a situation where the desirability of a new Patents Act was in effect, being overshadowed by the difficulties faced in achieving it – indeed, material ripe for the "too-hard basket"...

Fast-forward to August 2012 – and the New Zealand Government released its "Building Innovation" Report (see, our article: http://www.shelstonip.com/news_story.asp?m=8&y=2012&nsid=236). The net effect of this Report was that patents were suddenly "in vogue" – and the Patents Bill 2008 got the "shot in the arm" that it needed to move to the front of the Parliamentary Agenda.

In line with one of the stated objectives of the Report, the Bill had its second Parliamentary Reading on 12 September 2012. Unfortunately, that's not so much where the problems end as it is where they begin – and somewhat ironically, the Bill is probably now further from being passed into law than it was prior to this second Reading(!) Although the Bill was approved by a clear majority of the House, to assume that there was a majority consensus as to its content (especially as it relates to software patents) would be incorrect.

As we've reported on previously (see, e.g., http://www.shelstonip.com/news_story.asp?m=9&y=2012&nsid=240), perhaps the most controversial aspect of the draft legislation is the issue of whether or not software patents would be "in", "out" – or something in between.

In this respect, the New Zealand Government has somewhat "cast a rod for its own back"; the Government must now adopt a strong position where previously it had been weak. After initially (back in 2004, with the Exposure Draft of the Patents Bill) proposing to allow software patents, the Government then bowed down to a well organised anti-software lobby during the public consultation process; a blanket exclusion on software patents was proposed. However, whilst popular with proponents of open-source software, the proposed exclusion had two principal shortcomings: Article 27 of TRIPs – and background negotiations toward a Free Trade Agreement (FTA) with the United States (who would obviously insist on software patents being made available). When the Bill re-emerged from its three year slumber, three Supplementary Order Papers were then tabled – each proposing a different form of the software "exclusion" (see, our article: http://www.shelstonip.com/news_story.asp?m=9&y=2012&nsid=241).

The Bill has now been referred to a Select Committee of the Full House, who will no doubt debate the software conundrum and decide, once and for all, where New Zealand stands on this issue. This debate has hovered at around #20 on the Parliamentary Agenda for the past couple of months. Has it genuinely been consigned to the "too-hard basket" – or is there something else going on in the background?

As with most situations, the answer is probably "a little bit of both". Certainly, the software issue is going to be difficult to resolve during the Committee stage – especially given that the (Conservative) Government lacks a clear majority over a coalition of opposition parties and "crossbenchers".

However, as touched upon earlier, given the background negotiations with the United States (and others) toward a Free Trade Agreement, perhaps it is prudent on the Government's behalf to defer for a while – and consider the requirements of any FTA if/when it is agreed upon.

By way of a brief history, back in February 2008, the US announced that it would attempt joining negotiations with four Asia-Pacific countries: New Zealand, Singapore, Brunei and Chile (the "P4"), with a view to "gatecrashing" their negotiations toward the "Trans-Pacific Strategic Economic Partnership".

Whilst in theory, the opportunity to trade freely with the US would be a boon for the P4 countries, any such multilateral free trade agreement will inevitably come at a price; New Zealand would likely need to yield in certain areas in order to secure such a deal. With this in mind, the US Government publishes an annual report entitled "Foreign Trade Barriers", in which it particularises laws and regulatory mechanisms of foreign countries that are considered significant barriers to US exports. In this document, US pharmaceutical companies have identified New Zealand's lack of pharmaceutical extension as being an impediment to trade.

In New Zealand, pharmaceutical extension of term was the subject of a governmental review dating back to a discussion paper released in June 2003. When all the "pros and cons" were considered, the New Zealand Government opted against enacting a pharmaceutical extension provision on the basis of its economic impact on consumers – and this is the side on which New Zealand's "line in the sand" has been presumed to lie (note: the situation is very different in Australia).

However, given the lobbying power of the "big pharma", the chances of the pharmaceutical extension issue appearing at the US-P4 negotiating table would appear somewhat "real". In the extreme, this could see New Zealand patent law aligned for compatibility with 35 USC 155 and 156, so that US "big pharma" are able to maintain their New Zealand patents for longer, and in turn, make greater profits. The trade-off, of course, is that the New Zealand consumer, who would then be required to pay more for healthcare, is afforded greater access to the US marketplace (which includes the highly-lucrative US dairy industry). In terms of NZ's "bargaining chips" toward the FTA, pharmaceutical extension is likely to be high on the list.

Of course, such a concession is unlikely to be well received by the New Zealand public. In this respect, the Pharmaceutical Management Agency ("Pharmac") in the authority charged with selecting which drugs are subsidised by the New Zealand Government; they generally opt for cheaper generics where possible. Any extension of term will obviously delay the availability of generics onto the New Zealand market, with the net effect that certain medicines will be more expensive – and for longer. It goes without saying that such a concession is unlikely to win the Government votes come election time.

In the interim, just as the Patents Bill 2008 currently sits idle, so too does the P4 Agreement. However, several countries have recently joined, or are considering joining. Australia, Canada, Peru, Vietnam, Malaysia and Mexico are in the former group; South Korea, Japan, Taiwan and the Philippines are in the latter. Although President Obama seemed keen to settle negotiations at last year's APEC Summit, the fifteenth round of negotiations recently concluded in Auckland. Is it mere coincidence that the Patents Bill 2008 (with no extension of term) again seems to have stalled while the "P4+" negotiations rumble on? We think not.

As mentioned, New Zealand had previously decided against a pharmaceutical extension on the basis of its economic impact on local consumers. However, with a potential US-NZ FTA at stake, it is possible that the Patents Bill 2008 may yet undergo one or two changes before it is passed into law. However, if there's one thing we've learnt since 2004, when the first draft of the Patents Bill was released, it's to not hold our breath...

As an aside, one of the other especially controversial aspects of the US-P4 negotiations as they pertain to intellectual property appears to be the extent to which alleged copyright infringers are able to be extradited and/or prosecuted when they are domiciled abroad. In this respect, the "MegaUpload/Kim Dotcom" case has assumed almost cult-like status throughout Australasia (see, our article: http://www.shelstonip.com/news_story.asp?m=1&y=2012&nsid=213). As things stand, Mr Dotcom's extradition from New Zealand to the United States is by no means certain, whereas if the US-P4 FTA were signed tomorrow, the situation would be largely reversed.

To conclude, I'd like to offer my personal thanks to those who have read (and perhaps commented) on my articles throughout 2012. Sincere best wishes for the holiday season – and I look forward to working with you again in 2013.

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