Fresh exemption for patent infringement in New Zealand

Thursday 1st May 2008

The enactment of an amendment to the New Zealand Patents Act 1953 in December 2002 has the potential to reduce the effective life of pharmaceutical patents.

In a surprise move just prior to Christmas 2002, an amendment to the New Zealand Patents Act 1953 was enacted. The amendment has important implications for owners of patent rights operating in industry sectors where marketing approval is required to market a new product. In particular, the amendment has the potential to reduce the effective life of pharmaceutical patents.

A new section has been inserted into the Patents Act, which reads:

Regulatory review exception It is not an infringement of a patent for a person to make, use, exercise, or vend the invention concerned solely for uses reasonably related to the development and submission of information required under New Zealand law or the law of any other country that regulates the manufacture, construction, use, or sale of any product.

The Government commentary supporting the amendment states that the new section is:

“…to provide that, where a patent protects an invention, the production, use, or sale of the invention, without the consent of the patent owner would not infringe the patent. This would be solely for the purposes of gaining marketing approval to market the invention in New Zealand or any other country”.

The commentary also states that the amendment:

“…would facilitate the entry to the New Zealand market of generic products, such as generic pharmaceuticals. This could mean that cheaper pharmaceuticals might become available in New Zealand sooner than at present. It would also assist New Zealand manufacturers of generic products to gain access to the New Zealand market and export markets on comparable terms to competitors from other countries which, we are told, have already implemented a similar policy”.

Springboarding into Markets

The primary purpose of the amendment is to allow so-called “springboarding” into pharmaceuticals markets where drug trials are conducted by a generic manufacturer while a patent for the drug is still in force. Previous law in this area came from the New Zealand Court of Appeal in the decision Smith Kline & French Laboratories Ltd v Attorney-General [1991] 2 NZLR 560 and the New Zealand High Court decision in Monsanto Company v Chemical Company (N.Z.) [1984] FSR 559. The Courts protected the rights of patentees by restricting the activities of generic manufacturers until relevant patents had expired.

Monsanto concerned an application for an interim injunction to prevent the conduct of field trials of a Stauffer product needed for registration with the New Zealand Pesticides Board. Monsanto had patent protection in New Zealand for glyphosate, the active ingredient in the herbicide ROUNDUP. Stauffer’s product included a glyphosate salt that, in Monsanto’s view, infringed its New Zealand patent. The High Court granted interlocutory relief and held there was a serious question to be tried on the issue of infringement. The Court considered that the field trials were designed to obtain the data necessary to achieve permission for commercial use of the product in New Zealand and were a stepping stone to a full commercial launch. This activity amounted to gaining a commercial advantage during the lifetime of the patent and thus would constitute an infringement of the patent.

Smith Kline concerned an application to the New Zealand Department of Health for consent to distribute a generic cimetidine product, under the trade name Cytine. Samples of the Cytine tablets were enclosed with the application for consent. Smith Kline & French was the patentee in New Zealand for cimetidine. The cimetidine patent, at the time of the consent application, had about two years until expiry. The Court of Appeal held that the importation of a sample and its submission to a regulatory authority with a view to obtaining permission to market was a use of the patented compound and therefore constituted an infringement of the patent. This was the case even though there was no actual intention to market until the cimetidine patent had expired.

The amendment to the Patents Act reverses the position taken in Monsanto and Smith Kline. It does not go so far as to allow stockpiling of an otherwise infringing product but does allow commercial advantage to be gained during the existing term of a New Zealand patent. For example, a manufacturer of a generic drug will now be able to embark on trials prior to expiry of the patent covering the drug. This would enable the generic manufacturer to achieve marketing approval earlier than under the previous law.

Non-Controversial Amendment?

The Government is currently reviewing New Zealand’s rather outdated Patents Act. It is therefore surprising that the Government introduced this amendment by way of a Statutes Amendment Bill, rather than include the issue within the Patents Act review. A Statutes Amendment Bill is an omnibus bill consisting of amendments to several Acts. The rules of Parliament say that any amendments introduced in this way are to be non-controversial. The amendment to the Patents Act may have appeared non-controversial to Members of Parliament. However, most in the New Zealand intellectual property profession, and many proprietors of patent rights, do not regard this amendment as non-controversial.

The cynical view, held by few, is that making the amendment by way of a Statutes Amendment Bill has the feel of a backdoor mechanism to amend the Patents Act without full scrutiny or the opportunity for submissions to be made by industry representatives and the intellectual property profession. However, while the amendment does seem to have been fast-tracked, the Government has given reassurance that the issue has been considered fully. The notion of reducing public expenditure on pharmaceuticals does appear to be the impetus behind the amendment and the “non-controversial” factor was doubtless seen as easily satisfied.

The New Zealand Government’s drug purchasing body is the Pharmaceutical Management Agency of New Zealand (Pharmac). Pharmac has the difficult task of meeting the budget for pharmaceutical expenditure in New Zealand. It therefore encourages the distribution and use of cheaper generic pharmaceuticals following the expiry of relevant patents. Any delay in achieving marketing approval for a generic pharmaceutical is counter to Pharmac’s aims and contributes to the perception that the total cost of pharmaceuticals is ever increasing. It is not difficult then to see why an amendment to the Patents Act that would help alleviate this problem is considered to be non-controversial, at least in the House of Parliament.

Compliance with TRIPS?

There is an issue whether the amendment to the Patents Act means that the Act is no longer fully compliant with the TRIPS Agreement. There are differing views on this point. The Government says it has been careful to ensure that the amendment does not breach any WTO obligations and points to other countries including Canada, Argentina and Malaysia which have similar springboarding laws. No doubt the Government is confident in its position given the ruling of the WTO that found Canada’s equivalent provision was not a breach of the TRIPS agreement (World Trade Organisation, WT/DS114/R, 17 March 2000). However, it remains to be seen whether the amendment to the Patents Act will have an impact on any of New Zealand’s international trade negotiations, particularly a free trade agreement with the United States being sought by the New Zealand Government.

Extensions of Term?

The TRIPS agreement resulted in amendments to the Patents Act in 1994. The more significant of these amendments include increasing the maximum patent term from 16 years to 20 years and repealing the provisions allowing extensions of the term of a patent. Losing the ability to seek extensions of term was seen as a trade-off with the overnight increase to a 20 year maximum patent life. However, many in the pharmaceutical industry have advocated restoring extension of term provisions perhaps along similar lines to the European Supplementary Protection Certificate.
It is notable that springboarding legislation tends to be available only in those countries where patent terms for pharmaceuticals can be extended. The new springboarding law in New Zealand coupled with the absence of any extension of term provision is seen as a double hit for research based pharmaceuticals manufacturers. However, one consolation of the new amendment is that the Government Minister responsible for introducing the amendment now says that the issue of extending the term of pharmaceutical patents will be investigated as part of the review of the Patents Act.

Conclusion

Although the wording of the amendment to the Patents Act covers activities related to any industry sector where regulatory approval is needed, the amendment has clearly been driven by the desire to reduce Government expenditure on pharmaceuticals. The amendment is nevertheless an erosion of the rights of patent proprietors. Any such amendment introduced and passed without the opportunity for scrutiny and debate by interested parties is controversial. Extensions of patent terms may become possible once the Government has completed its review of the Patents Act. This would mitigate against the erosion of patent rights at least for a significant number in the pharmaceuticals industry sector.

New Zealand is at an interesting stage in the development of its intellectual property laws. The new Trade Marks Act 2002 has recently come into force and the Government appears increasingly interested in updating New Zealand’s patent law. A Government review of the Patents Act is in progress, although there is no indication when that review might be completed. The opportunity to ensure an even balance between the rights of the patentee and those of the public is presenting itself. With extensive consultation and cognisance of international patent laws the final outcome should be a stronger and more effective patent system in New Zealand.



This article was also published in Patent World, May 2003

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