The Statute of Monopolies was passed in England in 1623.
Nearly 400 years later its basic tenets remain intact in our patent law. The very law that deals with technological changed has remained in substance unchanged.
Before 1623, the King granted monopolies to his cronies in whatever field of trade in whatever geographic area he saw fit – corn in Norfolk, leather in Essex and so on. Enough, said Parliament. There would be freedom of trade and manufacture. But to encourage innovation a monopoly “for the term of 14 years [would] be made for the sole working or making of any manner of new manufactures within this Realm to the true and first inventor”, but such monopolies should not be “contrary to the law nor mischievous to the State by raising prices of commodities at home or hurt of trade”.
Another important element of a the Act was that the patent applicant had to make the details of his invention public, so that after the 14 years exclusivity it would be open to anyone to manufacture the invention. That was the trade-off. The state gave protection for exclusivity for a time after which the public would benefit because the invention was public property.
It is now 20 years, but the same questions of novelty, raising prices, and hurt of trade face us with pharmaceuticals and the US-Australia Free Trade Agreement.
About 30 million patents – mostly for widgets and gadgets — are registered worldwide; about 7 per cent of them in Australia. Pharmaceuticals are small but extremely money-intense element of these. About 15,000 patents for drugs, therapies and pharmaceuticals are registered in Australia. Drug companies routinely register in all developed countries.
Not all patent drugs are on the Pharmaceutical Benefits List. Some are cheaper than the co-payment, so there is no need. Others have not met the cost-benefit test set by the Pharmaceutical Benefits Advisory Committee.
Conversely, not all the 1500 drugs on the pharmaceutical benefits list are patent. The patents of some have run out, but the generic cannot be produced at under the co-payment level, so the drug is still subsidised.
The pharmaceutical companies are not ogres exploiting the sick for filthy loot. But neither are they innovative Florence Nightingales. They deserve a reasonable return for research and development. The costs are immense and the benefits many.
The pharmaceutical companies do their best to continue their patent monopolies for as long as possible. They do it in two main ways. During their 20 years of legal monopoly they try to build up a brand name for their drug which is registered as a trade mark which can be extended indefinitely. The drug becomes known by the trade mark, not the chemical name. After the patent expires, doctors and patients ask for the brand name so get the expensive version not the cheaper generic manufactured by another company using the patent specifications made public (by law) by the inventing company.
The other way of extending the monopoly is to concoct newer ways of delivering the therapeutically critical chemical. A capsule instead of a pill would not give you a new patent because the new method of delivery is obvious. But if you put the important chemical in a new chemical compound and asserted that it was more effective or faster acting, then you could get a new patent.
This is one form of ever-greening. Other forms include pharmaceutical companies applying for extensions to patents because they have not have a reasonable time to exploit them. In the US, but not in Australia, the patent holder gets continued protection while the extension application is dealt with.
The problem arises when the companies seek to prevent other companies from manufacturing generics based on the original patent. Under the FTA, the patent holder must be notified before a generic is sold. Labor’s proposed amendments to the free-trade enabling legislation want to prevent the suppression of generics.
Labor has hovered around the real problem but has not correctly identified it, and Labor’s solution is untenable.
Conversely, the Government is wrong to claim that ever-greening does not happen in Australia. Pharmaceutical companies are at it all the time. A cursory search of the patent database reveals what amounts to “new way of delivering old drug”.
Take application 2004202301, for example, filed on May 26 this year. It is for “novel hydrate forms of alendronate sodium, processes of manufacture thereof and pharmaceutical compositions thereof”.
A patent for alendronate sodium was lodged in 1999. Essentially the chemical helps the body retain calcium in the bone. It is a treatment for osteoporosis. It is a great invention. It has spared many people from bone degeneration and the company deserves its 20 year monopoly.
And if the company finds a new and better way of delivering the chemical to the body it should get a new patent and a new 20 years for that method of delivery (but not the old method).
There are dozens of others like it.
But here is where Labor went off the rails. It proposed fining companies that put up these “ever-greening” patents if they turned out to be “bogus” and somehow prevented the manufacture of generics.
That would not help nor hinder the PBS and shows a misunderstanding of Australian patent law. If a company gets a new patent for delivering an old chemical in a new way, it does not stop a generic manufacturer making the old chemical in the old way once the old patent has expired.
Labor’s plan would just a minor embuggerance for drug companies. They would still file for their evergreen patents because they can hardly leave Australia unprotected so an Australian generic company could reproduce immediately using the specifications lodged overseas.
The Government exaggerated. Foreign Minister Alexander Downer accused Opposition Leader Mark Latham of talking first and thinking later.
“[Latham] hasn’t thought through the consequences of what he’s saying,” Downer said. “He hadn’t realised that if you implemented his proposal, as he’s described it, then every single person in Australia who applies for a patent but gets that patent knocked back gets hit with a massive fine. In which case . . . they’re not going to apply for patents at all. That will destroy the intellectual property regime we have in this county.”
No. Labor’s plan applies only to the few hundred drug applications, not the thousands of general patents. And the drug companies will not be deterred for the reason given above. Downer was talking first and there is little evidence of any thinking later.
Nonetheless, Labor missed the point.
The point is to ensure that the Pharmaceutical Benefits Advisory Committee is not pressured or forced by the Free Trade Agreement into accepting at much greater cost the new method of delivering the old chemical when the old method delivered by a generic would do almost the same job much cheaper – in short, is more cost effective.
As it stands, the FTA requires the Pharmaceutical Benefits scheme to be more open and accountable. Former members of the committee and others have been urging that irrespective of the FTA. The FTA requires information about what basis a decision was made; that companies get chance to put a case; that there is timely consideration; and there is a review. These are common administrative standards and should be welcomed.
There has been some concern that if a US company does not like a PBAC ruling that it can use the FTA to demand a listing. Doubtful. The PBS does not deny the US company access to the Australian market. It can sell its drug on the open market for whatever it likes.
The FTA cannot force the Government to buy drugs, or to buy them at a certain price, or to subsidise them to Australian consumers. The Australian Government is acting like any bulk purchaser and demanding a discount. The drug company can take it or leave it.
If the PBAC decides not to put on the list an ever-greened new method of delivering an old drug, it is just too bad for the drug company, provided the process for the non-listing is open.
Similarly, if the PBAC allows an expensive drug on the list for a limited purpose (say, an anti-nausea drug for chemotherapy), the company cannot demand a similar subsidy for people with tummy aches. The drug company’s free trade is not affected. It can still sell the drug (on prescription) to people with tummy aches, but they will have to pay the full price.
The big threat to the PBS is not US drug companies, but whether there is a political will in Australia to continue to fund the scheme which now costs $5 billion a year.
If that political will prevails, the collective purchasing power of the Australian Government makes it powerful enough to take on the most powerful US drug company.
They can evergreen as much as they like. There is nothing to stop a company producing a low-cost generic from the original expired patent and there is nothing to stop the PBAC listing that drug in preference to any newer version of it.