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I was interested, the other day, to see this Online Opinion article by Nick Gruen (Club Troppo) on Australia’s pharmaceutical industry and the idea of manufacturing generics for export. The basic point of in Nick’s post is that investment in the manufacture of generic biologics in Australia is being prevented by Australian patent law and provisions introduced by the AUSFTA (or, at least, government’s interpretation of those provisions). In summary:

1. Australia extends the term of patents for pharmaceuticals to compensate drug companies for delays in the marketing approval process;
2. Patents last longer in Australia than elsewhere – at least partly because pharma companies apply for marketing approval later here than elsewhere, which means marketing approval is granted later, which means the drugs come off patent later.
3. You can’t manufacture for export during the (extended) patent term, even for export (ie even where the drugs won’t be sold in Australia, and even if they’ll only be sold where the drug is off patent);
4. By the time the drugs are off-patent in Australia, generic manufacturing based elsewhere in the world has garnered post-patent market share in many countries, putting a company that manufactures in Australia too far behind the eight-ball;
5. Result: generics manufacture not possible in Australia meaning that high tech industry not possible here – even though result is only that the manufacture ends up elsewhere (like India) where there is no patent term extension.

Since I’m on record as saying that actual changes to IP law brought about by the AUSFTA were less dramatic than people said at the time, this warranted investigation. So I’ve investigated.

My view? Looking at the literal terms of AUSFTA, it looks like there are reasonably supportable ways through for Australia. AUSFTA is constraining (more constraining than TRIPS is), and that is a problem. But there’s always some room for interpretation. Which makes me wonder. Is this another potential case of Australia being the overly-conscientious ‘stick to full letter and spirit of the treaty law’, ‘don’t rock the boat’ goody two-shoes, adopting a conservative interpretation of treaty language that prevents it taking full advantage of the flexibilities available? More over the fold.

The main relevant provisions in AUSFTA are:

1. Art 17.9.8(b), which provides that for pharmaceutical products that are subject to a patent, ‘each Party shall make available an adjustment of the patent term to compensate the patent owner for unreasonable curtailment of the effective patent term as a result of the marketing approval process.’ AND
2. Art 17.9.6, which says (to paraphrase) that if Australia allows springboarding or Bolar-type exceptions (ie, you allow generics to use patented inventions before they expire solely to generate information for applying for marketing approval for the drugs), then you absolutely cannot allow export of drugs manufactured under springboarding authority for anything other than getting Australian marketing approval.

Couple those two provisions with a situation where (according to Nick) Australian marketing approval is sought later than other markets, and you can see how Australia could (a) get patents that expire later and (b) can’t manufacture drugs for export for longer than other countries providing patent extensions, even for export to countries where patents have expired. Australia can introduce exceptions to patent rights (‘provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties’: Art 17.9.3).

So is Australia completely constrained? I strongly doubt it. Just off the top of my head, AUSFTA requires Australia to offer patent extensions but offers no explicit constraint on their length. This doesn’t mean Australia should or could simply use this as a loophole – for instance by offering patent term extension of just a day. But it does mean that some decision as to the appropriate length of patent extensions remains essentially within the sovereignty of Australia – subject to the more general requirements of the agreement.

Also, Australia isn’t obliged to compensate patent holders for their delay in seeking marketing approval. And it’s worth noting too that in the Canada — Patent Protection for Pharmaceutical Products case, the WTO Dispute Settlement Panel took the view that patent owners’ interest in getting compensation for delays in marketing approval was ‘neither so compelling nor so widely recognised that it could be regarded as a ‘legitimate interest” under TRIPs. So a lesser level of protection should be possible during any extended term. The 17.9.6 absolute prohibition on exports is confined to those cases where springboarding is used in Australia.

In short, even though the language is detailed, in the end, they’re words. There is usually room for interpretation. A quick review suggests to me that things aren’t clear cut here, but that a reasonable case can be made that Australia has room to meet its needs in allowing manufacturers to export to generics markets.

And that brings me to an important point. Australia’s interpretation of treaties.

I’ve observed, in discussions of copyright in Australia, that the people at the Attorney-General’s Department who are involved in copyright often take a very conservative view of the obligations in various copyright-related treaties. I’ve even heard doubts raised about whether the three-step test would allow Australia to adopt a fair use defence – a doubt I find amazing in view of the US defence, the introduction fo such a defence by Israel and the respectable academic opinion that the three step test is not, and is not meant to be, some kind of straight jacket.

Treaties have got more detailed over time. But they’re still not legislation, and we shouldn’t treat them as such. I was going to write that “Australia should take some risks if it will serve an important Australian interest.” But that’s not quite right. In fact, it might well be that attitude within government which is a problem. There’s no ‘risk’ here, in the sense that we understand it when we talk about ‘risk’ to a company being advised on compliance with national laws. There are only a range of pragmatic considerations, involving judgments that are practical, political, and diplomatic as well as legal, about the costs and benefits to Australia of different courses of action. The only ‘risk’ is that, IF a case were brought (which I think unlikely – this would be a poor test case of FTA obligations) THEN Australia might have to reverse course.

It’s possible that if a case were brought, Australia could be ultimately unsuccessful. But it’s pretty unlikely that America would choose this case, against a strong ally, on an issue where the provisions aren’t clearly constraining, and where all a dispute would do is harm Australia without promoting any direct US interest (since generic manufacture WILL happen somewhere, if not Australia). Does Australia really want to be the schmucks here?