Australia: A Kiwi-sized "Spanner in the works" of the TPP?

Last Updated: 12 June 2013
Article by Charles Tansey and Gareth Dixon

We have previously reported on progress toward the Trans-Pacific Partnership ("TPP") – a Free Trade Agreement ("FTA") presently under negotiation by Australia, Brunei Darussalam, Chile, Canada, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. Recently, the negotiating parties set themselves a goal of finalising the agreement by October 2013.

The TPP will have very real consequences in respect of (to name but a couple) the Australasian healthcare industry, and patent law reform in New Zealand. For the negotiating parties, it represents an opportunity to trade freely with the United States. However, it is also somewhat politically-sensitive such that in order to do so, certain concessions will probably need to be made.

It now seems unlikely that the TPP will be concluded in October, as previously hoped. John Key, the Prime Minister of New Zealand is on record speaking to a Chinese news agency, describing ongoing negotiations as "complex". Mr Key appeared happy to prolong negotiations toward the TPP if it meant China joining the agreement.

The notion of China joining the TPP is nothing new. Indeed, the United States has welcomed Chinese participation (and also the large Asia-Pacific economies of Japan, South Korea and India) provided that they "come up to speed" in respect of the standards required of the agreement. Mr Key's comments suggest that New Zealand's preference would be for reach over expediency – and one could imagine this to be true of many of the other parties to the TPP. For a small country such as New Zealand to be party to an FTA with the world's two biggest economies (not to mention the possibility of Japan, South Korea and India) would be something of a "bonus".

We will wait and see how this plays out over the next few months. However, until such time as the TTP is concluded, one should not anticipate too much – if indeed any – progress in relation to New Zealand's new patents legislation. In this respect, the horse must continue to lead the cart...

The TPP is intended to be a high-level agreement specifically aimed at emerging trade issues. Of such issues, IP is expectably one of the foremost. We say "expectably" because one of the main criticisms of the TPP negotiations has been the apparent secrecy under which they have been conducted. Set against the seemingly expansive scope of the agreement, this provides matter ripe for the conspiracy theorists. Indeed, in August 2012, the Australian Government and Opposition joined forces to vote down a motion by the Greens to disclose the full draft text.

However, "secrecy" ain't what it used to be. Wikileaks has seen to that – and in 2011, a number of controversial draft clauses (many of which were IP-related) were leaked to the public; to be best of our knowledge, their authenticity doesn't appear to have been disputed. That said, nine rounds of negotiations have concluded in the interim, meaning that although many of the original clauses may have since changed somewhat, the content of the leaked material at least provides some guidance as to what we may be in for...

It will come as no great surprise to hear that the United States appears to be "driving" the negotiations. Moreover, from a patents point-of-view, it will come as no great surprise to hear that the United States is strongly behind their "Big Pharma" when it comes to negotiating the deal.

In a nutshell, there are fears that the TPP may reduce access to affordable medicines throughout the region party to the agreement. Additionally, many worry that the TPP may not be flexible enough to accommodate existing non-discriminatory drug reimbursement programs and the diverse health systems of the member countries.

Australia already has a Free Trade Agreement with the US; this came into force back in 2005. It is therefore no coincidence that as we will see throughout this article, Australian patent law (especially as it pertains to pharmaceuticals) is presently closer to US law than is New Zealand's. However, on the other hand, it is worth noting that the leaked Wikipedia materials suggest that the TPP is intended to go far beyond the AU-US FTA (or indeed any other FTA). As we will see, Australia will likely need to make further concessions in order to secure a deal that goes far beyond the realms of tariff reduction and trade promotion.

Shelston IP acts throughout both Australia and New Zealand. In the remainder of this article, we examine some of the effects that the TPP may have on our respective health systems, which share many similarities – but also some significant differences.

Australia, via the Pharmaceutical Benefits Scheme ("PBS") and New Zealand, via the Pharmaceutical Management Agency ("Pharmac") both have a government agency that provides subsidised prescription drugs to their residents. Whilst there may be fundamental differences in their scope and operation, such schemes effectively ensure that residents have affordable and reliable access to a wide range of necessary medicines.

Are the PBS and Pharmac under threat from the TPP?

Certainly, the respective governments of both Australia and New Zealand think not. Indeed, the New Zealand Prime Minister, has gone on record stating that "Pharmac is not for sale [during the TPP negotiations]". So why then the paranoia?

Quite simply, we need the US more than they need us. In order to secure the TPP (and with it, for example, access to the lucrative US dairy market), both Australia and New Zealand will likely need to yield in several key areas. With this in mind – and as mentioned above, about all that has been made publicly-available over fifteen rounds of TPP negotiations is the Wikileaks material – this is probably where the paranoia kicks in.

Of the leaked material, "Article 8" relates to patents – and it is the draft clauses relating to clinical data exclusivity, linkage, patentable subject matter and patent term that are the real "eye openers" in terms of their potential effects on our pharmaceutical and healthcare industries.

"Clinical data exclusivity" relates to the protection of the clinical data submitted to a government regulatory agency in order to prove the safety and efficacy of a new drug – and the prevention of generics manufacturers relying on such data in their own applications for regulatory approval. Big Pharma has long argued that since obtaining clinical data is so expensive, it is unfair to let their competitors rely on such data without incurring costs themselves. On the other hand, excessive data exclusivity periods make things harder (more expensive) for generics manufacturers, ultimately keeping prices high.

Both Australia and New Zealand presently allow "springboarding" of a pharmaceutical patent – that is, the use of patented subject matter (during its patent term) to obtain the clinical data necessary for the regulatory approval process. The rationale has always been so that generics are able to enter the market the day after the patent expires – thereby preventing a de facto extension of term. However, as springboarding often means that the generics manufacturer obtain their own data rather than rely upon another's, this doesn't appear to be at odds with the intent of the draft proposal (which reflects Big Pharma's above-mentioned concerns).

Presently, both Australia and New Zealand provide five-year data exclusivity periods. The US, on the other hand, provides five years for new pharmaceutical chemical entities, three years for new indications – and twelve years for biologic products. Under the TPP negotiations, they are thought to be pushing for something similar throughout the countries party to the agreement.

Net effect: Drug prices wouldn't necessarily rise as such – but may take longer to fall due to a lack of competition from generics, who would face greater expenses and possibly longer delays in getting their products onto the market.

"Patent linkage" delays regulatory approval of a generic pharmaceutical until such time as any patents covering the drug in the relevant territory have expired – it's almost like a counter-balance to springboarding. In essence, two government agencies (the regulatory body – in the US, the Food and Drug Administration ("FDA") and the Patent Office) communicate so as to ensure that neither undercuts the efforts of the other.

In the US, the FDA maintains a list of pharmaceuticals currently under patent; this is popularly known as their "Orange Book". They will not provide marketing approval for a generic that would infringe any of the patents recorded in the book until such time as the relevant patent has expired. Moreover, a 30-month stay of marketing approval is activated where generic applicants challenge the validity of existing patents.

By comparison, in Australia, the burden is reversed. An applicant for regulatory approval must declare whether their product would infringe an existing patent and must notify the patentee of this declaration. The Therapeutic Goods Administration ("TGA") will not provide approval for a generic copy which would infringe an existing patent.

New Zealand currently has no patent linkage provisions, nor are any contemplated in the impending new legislation (the Patents Bill 2008) which is presently before Parliament.

Doctors Without Borders has previously noted that patent linkage effectively requires the various regulatory authorities to assume responsibility for policing patents. The European Commission's Pharmaceutical Sector Inquiry Report of November 2008 cautioned against patent linkage and referred to innovator-blocking tactics in relation to generics and obstacles to innovation.

Net effect: Drug prices wouldn't necessarily rise as such – but may take longer to fall, as generic competitors will take longer to reach the market.

Patentable subject matter and New Zealand. Don't get us started. We've penned several recent articles outlining New Zealand's on-again-off-again stance relating to the patentability of computer software. The present "compromise" position remains at odds with the time-honoured ratio from the 1980 US case of Diamond v Chakrabarty. However, whereas "everything under the sun made by man" would look somewhat out of place in a multi-lateral trade agreement, the formalised US proposal only allows subject matter to be excluded from patentability on the very narrow grounds that its commercial exploitation would be contrary to "ordre public" or morality.

From a pharmaceuticals point-of-view, this may open up access to patents for methods of medical treatment of a human being using a pharmaceutical; these are presently banned in New Zealand (although they are allowable in Australia).

Net effect: Broadening the definition of patentable subject matter may allow patentees a more liberal scope than they are presently afforded in New Zealand. More pharmaceutical patents – or more correctly, more pharmaceutical indication patents mean higher prices – and for longer. The situation in Australia probably wouldn't change a great deal, where the ambit of patentable subject matter is already rather broad.

According to the Wikileaks material, the US also proposes doing away with pre-grant patent oppositions – a cornerstone of both the Australia and New Zealand patent systems. From a pharmaceuticals perspective, this effectively prevents competitors (such as generics) from challenging the grant of a patent in advance – and leaves them with the considerably more arduous task of persuading the relevant authority (be it the Patent Office or a Court) to change its mind after a patent has been granted. This is particularly relevant in the case of "follow on" drugs, which may represent only a very modest advance on those whose patent protection is nearing its end.

Net effect: The onus falls heavily upon Patent Examiners to "get it right". If they don't, the burden then falls, perhaps unfairly, on interested parties such as generics. It goes without saying that if a patent is granted on a drug that is perhaps not worthy of patent protection – and if a competitor is dissuaded from challenging such grant due to cost and complexity, then the consumer is the overall "loser" such that they then have to pay a patent premium on a drug that should, in an ideal world, be relatively inexpensive.

One final key US proposal arises in respect of an "extension of term" for pharmaceutical patents. By "extension of term", we're talking about the same sort of thing as a Hatch-Waxman extension in the US, or a Supplementary Protection Certificate in Europe. In short, Australia offers one, New Zealand (presently) does not.

The main arguments advanced in favour of an extension of term for pharmaceutical patents are to ensure that the patent system provides adequate incentives for investment in the development of new pharmaceuticals; and to provide incentives for pharmaceutical companies to invest in the country providing for the extension. On the other hand, the main proposition against extending the term of a pharmaceutical patent is the cost that would be imposed on consumers; these costs occur directly through increased retail prices and indirectly though higher costs to the public health system.

As signatories to the TRIPs agreement, Australia and New Zealand are obligated to offer a minimum patent term of twenty years; there is no requirement to provide a longer term, although they are free to do so should they wish. Accordingly, Australia and New Zealand have each drawn very different "lines in the sand" in respect of balancing the arguments for and against a pharmaceutical extension of term.

Under section 70 of Australia's Patents Act 1990, the term of a pharmaceutical patent may be extended for up to five years subject to a patentee meeting certain, rather strict criteria. An extension of term is intended to provide some measure of compensation to a patentee, who before being able to sell a patented drug, must first conduct safety and efficacy tests to the satisfaction of the local authorities.

New Zealand patent law does not offer an equivalent to section 70 of the Australian legislation. Moreover, no equivalent is proposed in the Patents Bill 2008, which, as mentioned above, is presently before Parliament.

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.

However, enter the TPP negotiations. 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 (and its prohibition on patents for methods of medical treatment, discussed above) as being of particular impediment to trade.

Although somewhat speculative, the TPP could see New Zealand patent law aligned for compatibility with Australia's section 70, so that US Big Pharma are able to maintain their New Zealand patents for longer – and in turn, make greater profits.

Net effect: New Zealand patents can be held by Big Pharma for longer, keeping generic competitors at bay and maintaining higher prices. Australian patent law is already fairly well aligned with the content of the leaked material in this regard.

In summary, the TPP has the potential to radically alter the healthcare landscape in both Australia and New Zealand by effectively boosting the patent monopoly rights already held by Big Pharma. Tipping the scales in favour of these corporations may endanger government agencies such as the PBS and Pharmac – the respective cornerstones of the Australian and New Zealand health systems.

Whereas both governments have denied that such a regime will be entered into, the apparent secrecy of the negotiations has made many stakeholders somewhat nervous. Indeed, given the previous (seemingly "firm") commitment to finalise the TPP by October 2013, things may be about to "get ugly". Conspiracy theorists throw in the fact that a further US proposal is to allow corporations to directly sue governments that impose barriers to "potential profits" (e.g., Phillip Morris' attempts to sue governments imposing plain packaging requirements on tobacco products) – and suggest that this is likely to be our respective governments' only real "non-negotiable".

It is also interesting to note that New Zealand's Patents Bill again sits idle while the TPP negotiations rumble on. Only time will tell. Watch this space.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Charles Tansey
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.