Australia: The FTA´s Impact On Generic Pharmaceuticals And The PBS: Much Ado About Nothing?

Last Updated: 23 September 2004
Article by Nicholas Tyacke

Key Point

  • The FTA amendments to the Therapeutic Goods Act will have a limited impact and have little to do with "evergreening" of patents.

There has been a great deal of public debate regarding the impact of the US Free Trade Agreement, as implemented by the US Free Trade Agreement Implementation Act 2004, on the Pharmaceutical Benefits Scheme and the Australian generic pharmaceutical industry. In fact, the relevant provisions are of a very minor nature and, oddly, have little, if anything, to with the issue of "evergreening" of patents (that is, the accumulation of multiple patents and patent applications regarding a single pharmaceutical product, with a view to extending patent coverage of some kind for as long as possible). The effects on the PBS are likely to be relatively subtle and only fully revealed over time.

Under current law, the Therapeutic Goods Administration ("TGA"), in making its decision whether to list or register a pharmaceutical product, so it can be sold in Australia, does not consider whether the product falls within the scope of an Australian patent, or even whether an infringement action has been commenced against the applicant with respect to the product that is the subject of its application for listing or registration. Many were concerned that Article 17.10.4 of the FTA, which talks of preventing the marketing of a pharmaceutical product or a use of such a product during the life of a patent which "claims" that product or such use and of notifying the patentee of an application to the TGA for such product or use, was intended to impose restrictions on the TGA's consideration of applications for generic pharmaceuticals.[1]

The implementing bill as initially proposed by the Government included provisions for the notification of the TGA by an applicant for listing of a generic pharmaceutical product of any, or the absence of any, applicable Australian patent, but did not expressly prevent (and indeed requires notwithstanding) the listing of the product once the required notification has been given. There was concern, however, that the effects of this notification procedure might lead to patentees commencing legal proceedings alleging patent infringement to prevent the listing of generic pharmaceuticals. This concern led to certain additional provisions being proposed by the Opposition, which were designed to discourage the commencement of unfounded or vexatious legal proceedings. In this article, we consider the Act including both sets of provisions, as enacted.

Notification of the TGA and any affected patentee

The Act amends sections 25, 26 and 26A of the Therapeutic Goods Act 1989 to make the registration or listing of the applicant's goods contingent on the applicant giving the TGA one of two types of "certificates" -- the first, that the applicant will not market "in a manner, or in circumstances, that would infringe a patent," or the second, that the applicant will market during the life of a patent covering the product and has notified the patentee of the application to the TGA. Significantly, however, the Secretary must proceed to register or list the goods if the applicant gives it the certificate required under the new section 26B(1) without inquiring into the certificate's correctness. It is interesting to note, in passing, that the vagueness of the amendments is such that, in certain circumstances, an applicant to the TGA may be entitled to certify under either of the section 26B certification types. Only the second type of certification requires the applicant to have given the patentee notice of its application for listing or registration.

The only restraint on an applicant’s choice of certification is imposed by the new section 26B(2), which makes the giving of a certificate that is "false or misleading in a material particular" an offence subject to a significant fine. Although this section appears to impose strict liability for a false certification, an applicant is able to submit the first certificate , which doesn't require notice to the patent holder, if it is "acting in good faith" and "believes on reasonable grounds" that it will not market in a manner or circumstances that would infringe a valid claim. The penalty provision thus is unlikely to act as a serious deterrent to a generic applicant in its decision to submit the first, rather than second, certificate.

The significance of this amendment is not clear. It is possible that it may have the effect of putting a patentee on notice of the TGA application earlier than it would otherwise be, but it need not slow the process of the application for TGA approval at all. However, the steps required by an applicant to the TGA to list a generic pharmaceutical product and the making of the TGA application, if undertaken before the expiry of the initial 20 year term of a relevant patent, may themselves be an infringement of the patent: see Smith Kline & French Laboratories Ltd v A-G (NZ) [1991] 2 NZLR 560 [22 IPR 143] (although this decision did not relate to the application for Government approval as such, but the importation and use of the relevant drug for the purposes of such application). If that is so, then the patentee has an opportunity to commence proceedings against the generic applicant, in effect to prevent the TGA application proceeding, and the steps preparatory to marketing of a generic product, and as a consequence gain a considerable time advantage, because the preparation and the application could not start until after the patent's expiry.

Provisions designed to discourage improper legal proceedings

In response to the concerns, however, that these provisions might be abused in some way by pharmaceutical patentees, the Opposition proposed, and the Government accepted, certain amendments to the legislation in respect of the first form of certification – that is, one of non-infringement.

The amendments introduce a new section 26C to the Act which requires a patentee, before commencing any proceedings alleging the infringement of a patent in respect of therapeutic goods the subject of a certification under the new section 26B(1), to certify to the TGA that it will commence proceedings in "good faith", that the proceedings have a "reasonable prospects of success", and that those proceedings will be conducted "without unreasonable delay". The amendments also impose significant penalties if that certificate is "false or misleading in a material particular" or, having given the certificate, the patentee breaches its terms.

In addition, the new section 26D adds a requirement that, if any application is made for an interim or interlocutory injunction, the Federal Attorney-General must be notified and become a party to the proceedings (unless the Attorney-General gives written notice to the court that he or she does not want to be a party). Furthermore, in addition to penalties if the certificate given is false or misleading in a material particular, if an interim or interlocutory injunction is granted but the patent infringement proceedings are subsequently dismissed or abandoned and the court declares that the proceedings brought by the patentee were baseless, vexatious or not reasonably pursued, the court may award the original TGA applicant compensation (including by way of an account of profits, which are not usually available in these circumstances), as well as make an award of damages to the Commonwealth, and/or any State or Territory, for costs incurred and damages suffered by it as a consequence of the grant of interlocutory relief.

These remedies will certainly make a patentee think twice about commencing any proceedings seeking interlocutory relief, not least because of the significant politicisation of the proceedings as a consequence.

Amendments will not take effect unless the FTA is ratified

None of these amendments to the Act will come into effect unless the United States and Australia ratify the Agreement later this year. However, it seems highly unlikely that the United States could object to the amendments made by the Opposition, unless for purely political motives. They are only a deterrent for manifestly wrongful conduct, and arguably do little to change the existing obligations of any person commencing proceedings for infringement of a patent. Apart from the greatly different scale of pecuniary penalties possible in the unlikely event a court was ever persuaded to make such a declaration, Order 11 of the Federal Court Rules already requires an applicant's solicitor to certify to the court that the factual and legal material available at the time of commencing the litigation provides a proper basis for each allegation in the statement of claim. A solicitor's general obligations to the court also arguably already address the first two of the above certification requirements, while the timely conduct of the litigation is already controlled by the court.

Neither the provisions originally proposed by the Government, nor the Opposition’s amendments, have any relationship to the PBS, other than the fact that, before being considered for inclusion in the PBS a pharmaceutical product must be listed by the TGA. The PBS was established by and is governed by the National Health Act 1953 together with the National Health (Pharmaceutical Benefits) Regulations 1960. While the FTA does require changes to the process by which pharmaceuticals are to be subsidised under the PBS, allowing for more access by the drug companies during the decision-making process, the Act does not include changes to the PBS required by the FTA. At present, such changes are merely the subject of a public consultation document.

There are a number of other provisions of the FTA relating to pharmaceutical products which either do not require a change to Australian law at the present time, or which have not been implemented, no doubt pending further consideration.

[1] Under US law, for example, an applicant seeking regulatory approval for the marketing of a generic pharmaceutical product must file one of four certifications, each of which will determine when (and if) the FDA (the regulatory body) can approve its application. A Paragraph I Certification states that no brand name drug patent has been submitted to the FDA, a Paragraph II Certification states that a relevant patent has expired, a Paragraph III Certification states that the relevant patent has expired and a Paragraph IV Certification states that the applicant intends to market during the life of a patent alleged to cover its product, but it contends that the claims of that patent are invalid and/or will not be infringed by its product. In the case of a Paragraph IV Certification, a patentee has 45 days from notice of that certification to bring an action for patent infringement. During that 45 day period, the FDA cannot approve the generic application. If an action is commenced within that period, regulatory approval of the generic product is automatically stayed until the earliest of (a) the date the patent expires, (b) a court determination of patent non-infringement or invalidity or (c) 30 months from the date the patentee was notified of the Paragraph IV Certification.

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.

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