Productivity Commissions Draft Report on IP Implications for the Pharmaceutical Industry

The Productivity Commission (Commission) has released its draft report into Intellectual Property Arrangements and made several draft recommendations with the potential to significantly impact IP rights holders in the pharmaceutical industry. 

If the Commission’s draft recommendations were to be accepted and implemented, key impacts on the pharmaceutical industry may include:

• once again raising the bar to obtaining patents;
• uncertainty as to the patentability of certain inventions;
• reductions in the effective term of pharmaceutical patents and, potentially, in the length of the data exclusivity periods;
• constraints on the ways in which patents can be exploited; and
• increased costs associated with maintaining patent portfolios. 

However, it is important to emphasise the draft status of this report , and that the final recommendations may differ from those contained in the draft report. The Commission is currently calling for submissions commenting on the draft recommendations , with the final report expected in August 2016. It is also unclear the extent to which the Australian Government will implement recommendations made in the final report, since a number of the Commission’s draft recommendations appear inconsistent with Australia’s international treaty obligations, while others may already be addressed by the recent Raising the Bar (RTB) amendments to the Patents Act 1990 (Patents Act). 

We briefly review the potential impact of a number of the Commission’s draft recommendations on the pharmaceutical industry below. 

Background to the Commission and the Draft Report

The Commission is the Australian Government’s independent advisory and research organisation for public policy. 

The Commission’s inquiry into the Australia’s intellectual property arrangements arose from a recommendation made in the Harper Competition Policy Review that the Government should ask the Commission to undertake ‘an overarching review’ of intellectual property. The terms of reference for the Commission’s inquiry asked the Commission to consider Australia’s intellectual property arrangements, "including their effect on investment, competition, trade, innovation and consumer welfare". In light of the broad scope of the inquiry, the Commission’s draft report is a wide-ranging review of Australia’s intellectual property regime, including the patent regime.  

Raising the bar (again?)

The draft report makes clear that the Commission considers that the patent system is tipped in favour of rights holders and should be reformed to increase the quality and social value of patents. To achieve this, the Commission has proposed two key draft recommendations:

1. Introduce an objects clause into the Patents Act (DR 6.2)

In particular, the Commission has recommended the introduction of a broad objects clause into the Patents Act, stating that the purpose of the patent system is ‘to enhance the wellbeing of Australians by providing patent protection to socially valuable innovations that would not have otherwise occurred’ and ‘should balance the interests of patent applicants and patent owners, the users of technology… and Australian society as a whole’.  

Decision-makers and courts would be compelled to consider the purposes set out in the objects clause when performing their duties under the Patents Act.

It is not clear what the proposed objects clause would add to existing patentability requirements.¹ In addition, the introduction of such a clause may lead to uncertainty for patent applicants, users and third parties, as it appears to import a subjective evaluation of ‘social value’ into the assessment of patentability, which may vary from case to case, and is not limited to the threshold consideration of patentable subject matter. Further, to the extent that an objects clause narrows or is otherwise inconsistent with existing patentability requirements, or operates as an additional requirement for patentability, it may be contrary to Australia’s international legal obligations.²

2. Raise the threshold of inventiveness (DR 6.1)

The Commission has recommended that sections 7(2) and 7(3) of the Patents Act be amended so that an invention is taken to involve an inventive step if, having regard to the prior art base, it is not obvious to a person skilled in the relevant art. 

The aim of this recommendation is threefold: first, to raise the level of inventiveness required to obtain a patent, which the Commission considers is currently too low; secondly, to shift of the onus of proof onto applicants; and thirdly, to simplify the test for inventiveness by removing the distinction between prior art and common general knowledge. 

The Commission considers that one of the benefits of a higher threshold of inventiveness is that it is likely to reduce the scope for so-called ‘evergreening’, by ensuring that patents are only granted for genuinely new products. 

However, given that the RTB amendments³ were only introduced in 2013 and their impact is yet to be fully realised, it may be that this draft recommendation is premature.  

Limiting special treatment for pharmaceuticals

The Commission also made a number of key draft recommendations in respect of pharmaceuticals, in particular:

1. Reduce and restrict extensions of time (EOTs) for pharmaceutical patents

The Commission was highly critical of the EOT regime and recommended that the EOT period be calculated solely on time taken for regulatory approval by the Therapeutic Goods Administration in excess of one year (DR 9.1) in order to ensure that EOTs were not granted in relation to a sponsor’s own delay. 

The Commission also recommended that, regardless of how EOTs are structured, manufacture for export be permitted during the EOT period (DR 9.2). 

The Commission considered that the cost of EOTs to the Australian Government significantly outweighed any benefit Australia received from EOTs. The Commission noted that the evidence suggested that EOT policies had been ineffectual in attracting R&D to Australia. The Commission, however, acknowledged that Australia’s international legal obligations constrained Australia’s policy flexibility in relation to EOTs.

The Commission similarly acknowledged that allowing manufacture for export could conflict with Australia’s international legal obligations, including under TRIPS.⁴ However, it observed that, arguably, granting EOTs to pharmaceutical patents only may already breach the technological neutrality requirements of TRIPS.⁵ The Commission proposes that, given the potential conflict between this requirements in TRIPS and the positive requirements to grant EOTs in other international agreements (including AUSFTA and the proposed TPP),⁶ Australia should resolve any ambiguity in favour of allowing manufacture for export during the term of any EOT.

The Commission is also of the view that there should be improved data collection requirements concerning extensions of term and marketing arrangements which would provide factual material for analysis in a subsequent review of the ongoing value of the extension of term system.

2. No extension of data protection

The Commission raised concerns about data protection being used strategically, and has recommended that no change be made to the existing period of 5 years (including for biologics) (DR 9.3). Instead, the Commission is of the view that Australia should be exploring ways to reduce the exclusivity period so as to allow publication as soon as possible – especially for biologics.

This recommendation is potentially significant. To the extent it recommends no extension of the term for data protection, it supports the recent position taken by the Australian Government – in response to the proposed TPP – that Australia will not be extending the data exclusivity for biologics from 5 years to 8 years. However, it is expected that the US will strongly press the need for greater, not less, protection for biologics than is currently the case in Australia.⁷ To the extent this recommendation suggests that Australia should investigate ways to roll-back the level of existing protection, this would be inconsistent with Australia’s obligations under the TPP and AUSFTA.⁸

Other reforms

Other aspects of the draft report that may be relevant to the pharmaceutical industry include:

• A recommendation to restructure patent fees by steeply escalating fees towards the end of a patent term and imposing higher filing fees to discourage holders from maintaining patents for their full term and to reduce speculative or strategic claims (DR 6.3). This has the potential to disproportionately affect smaller businesses, as administrative fees are less likely to deter larger corporates from establishing and maintaining their IP rights. 
• A request for feedback in relation to the effects of empowering IP Australia to require additional information from applicants, in specified forms (Information Request 6.1).
• A recommendation to repeal s51(3) of the Competition and Consumer Act 2010 (Cth), which exempts licencing or assignment of IP from certain competition provisions (DR 14.1), a recommendation also made by the Harper Competition Policy Review.
• A recommendation to establish a transparent reporting and monitoring system to detect ‘pay-for-delay’ settlements, administered by the ACCC (DR 9.4). Many multinational companies will already be familiar with the competition law implications of such agreements in light of action by competition regulators in the US and the EU in relation to such agreements.
• A recommendation to abolish the innovation patent system (DR 7.1). A similar recommendation was made in May 2015 by the Advisory Council on Intellectual Property, who concluded that the innovation patent system resulted in a net cost to society and should be abolished.
• A request for feedback on whether the Federal Circuit Court could play a greater role in resolving lower value disputes. 

Next steps

Interested parties are invited to comment on the draft report by written submission to the Commission by 3 June 2016. The final report will be completed following receipt of further submissions and public hearings, and will be forwarded to the Federal Government in August 2016.

Endnotes

1. See for example the manner of manufacture test as recently considered by the High Court in D’Arcy v Myriad Genetics Inc [2015] HCA 35.
2. See for example Article 27(1) of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) which, subject to Article 27(2) and (3), requires that Australia make patents available for ‘any inventions’; see also Article 17.9(1) of the Australia-US Free Trade Agreement (AUSFTA), and Article 18.37(1) of the proposed Trans-Pacific Partnership Agreement (TPP).
3. Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth)
4. Article 30.
5. Article 27(1) states that ‘…patents shall be available and patent rights enjoyable without discrimination as to… the field of technology…’
6. See Article 17.9(8) of AUSFTA and Article 14.48 of the proposed TPP.
7. See for example Robert Holleyman, ‘Remarks by Deputy USTR Robert Holleyman to the U.S. Chamber of Commerce Global Intellectual Property Center 2015 Global IP Summit’ (6 November 2015) <>
8. See Article 17.10 of AUSFTA; Articles 18.50 and 18.51 of the proposed TPP.