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Thursday, 22 June 2006
Page: 155


Mr HATTON (10:33 AM) —The Intellectual Property Laws Amendment Bill 2006 is a grab bag of measures covering a series of different areas in intellectual property law. They run to trademarks. They run to the springboarding regime and changes to that in the pharmaceutical area. There is also a series of other changes. If you look at the bill as a whole, you cannot deal with it in terms of any central theme because the changes are cast over a broad area; indeed, significantly different areas in intellectual property. If there is any theme at all—which is not centrally seen in the bill—it is the fact that it has taken a hell of a long time to make these changes.

This government have been in office for 10 years. They have taken seven of those 10 years—fully 70 per cent of that time—to make these changes. It is not as though the government did not have assistance from a number of committees of review which looked at what needed to be done and made very specific recommendations—some of which, many years after, have been taken up in this bill. What have the government been about all this time? The changes here are significant enough to be indicated by the government to be important, particularly their effect on competition in Australia between Australian generics pharmaceutical companies and overseas pharmaceutical companies. This bill changes the balance between those two sectors of the Australian pharmaceutical economy. All 10 of the companies based here argued against the changes in the bill—changes that will have a significant impact on what happens from here. Why has this bill taken so long? You would have to question the thrust of this bill and why the government want to do it.

There are provisions relating to trademarks and all those areas, but I am not interested in them. I want to concentrate specifically on schedule 7 of the bill—schedule 10 also is tangentially associated with this—and on the question of springboarding. What is it? You have to go back and have a look at what our regime is like, and has been like, in the treatment of the innovative production of pharmaceuticals in Australia—how they have been treated previously—how the generics industry has developed in Australia and what effect that has had on the price of pharmaceuticals in Australia.

It has been argued by some that there is an imbalance in Australia between the pharmaceutical companies and the generics companies and that, in fact, those who innovate Australian based international pharmaceutical organisations do not get enough return for their innovation and that the return is too high to generics companies. I say that because the question of the intellectual property of those who innovate here is protected under the basic provisions of the key legislation, which is the Patents Act 1990. What does that give innovative companies? They are granted exclusive rights to make, hire, sell or otherwise dispose of their invention for up to 20 years and an exclusive right to manufacture a potential product for sale in Australia or for export.

It was recognised that you needed to make an adjustment for that 20-year period, because it could take five years or so for global companies to do the research and development to start off with and then move into the full approval stages. You cannot just do the work in one country; you cannot take research that has been done in the United States, Singapore or somewhere and just incorporate it in Australia and get a big tick for it. In particular, you cannot do that if you have done the innovative work in Australia—and we have had significant innovative work in pharmaceuticals. The most important developments in that area came, you will not be surprised to hear, from the Hawke-Keating government. This government has made changes to intellectual property rights in this bill and hopes to have them passed. Members of this government, if you listen to the member for Mitchell, even if they were there as backbenchers when the Hawke-Keating government was in play, have diluted the program we had in place.

The program is very simple. It was a major and significant change that boosted Australia’s capacity to support Australian based international pharmaceutical companies to undertake research and development and to massively innovate for the benefit of Australian workers who worked for the pharmaceutical companies and for the benefit of Australia because these companies are paying taxes in Australia. It was for the benefit of Australia because we could build up an Australian capacity to operate here on a national basis and to export regionally and become a regional power in the pharmaceutical area and extend that to a worldwide presence. The government cut that capacity to pieces when it destroyed the factor F program that Labor brought into being. Factor F said, ‘If you really are interested in going out and starting to do full-blown research and development in Australia and then export that product, and if you take up this challenge, we will support you with this program to invest in Australian pharmaceutical companies by giving you a series of tax breaks and so on.’

The effect of that was this. Merck Sharp and Dohme is located in the neighbouring electorate to mine of Reid and has a number of people from my electorate of Blaxland working there. Merck Sharp and Dohme was able to kick off its first major research in Australia directed towards the major export of a product. There was $400 million worth of product exported in a single year. They built that to over $2 billion worth of exports, all on the back of factor F. When this government came to power, they hacked that program to pieces. What did they put in its place? PIP. What was left was just like a small pip in a piece of fruit. What we had in capacity went from a watermelon down to a small, frazzled apricot or peach through the government’s push to have Australia’s pharmaceutical industry innovate product here, make it, have it protected under our intellectual property laws and then push it into the world.

I really do not think this government understands at all the importance of supporting companies that are locally based and doing research and exporting from here. If you think of them just as international pharmaceutical companies, you do not understand the dynamics of the companies themselves. They are competing globally against other elements of their companies. They work regionally. Our great task is to look at this from a different perspective and ask, ‘How can we build a pharmaceutical industry in this country and build the innovators—the overseas and Australian based innovators—into a much more significant exporting industry that supplies not only our needs but those of the region and the world?’ Why shouldn’t we support Australian based international companies to compete from an Australian regional basis with their operations in Belgium, Singapore or the United States? That is what we did with factor F and it had a multifold benefit to the Australian people. It built muscle and capacity within the pharmaceutical industry. That has been stripped away in the government’s 10 years.

What do we have in this bill? We have somebody’s really bright idea that the best thing that you could do to pull down the cost of pharmaceuticals in the Pharmaceutical Benefits Scheme is to push forward the generics manufacturers. You could do that by taking the springboarding provisions in this bill. There was a 1998 bill that gave a bit of a run to the pharmaceutical companies and said: ‘Well, you’ve got 20 years protection. We realise that you put the arguments and that it takes up to five years or so before you can actually get your product to market, so we’ll give you an extension. We’ll allow for the period of time it took you to develop the product and effectively give you a full 20 years of protection. At the end of that 20 years, local or overseas generics companies can then come in and produce product. The exclusive use will then be finished and we will get a benefit, where the generics companies can come in and match that product. There would then be a fall in the price of that product.’ That would be a terrific thing.

There would be a fall in price, less impact on our Pharmaceutical Benefits Scheme, a hope for greater competition and so on. But you also have to ask these questions. This is a significant boost to the generics companies. How much innovative capacity is there in local generics companies? Are they actually springboarding? As far as I know, there is not a single generics company in Australia that is doing research and development of its own. They take the IP of another company. The springboarding provisions in schedule 7 and the associated one in schedule 10 allow them to go in early, before the 20 years has expired, to take the intellectual property rights of a company, to access that information and to have the generics prepared so that from day one—that is, as soon as they have finished—they can go.

The arguments that have been made before the committees that have looked at this include that, if you look at our competitor countries, springboarding is available not just on a limited range of pharmaceuticals, as this bill allows for, but on all pharmaceutical products. Those provisions are current in Canada, the United States, the European Union and Singapore. That is four of the five or so with those provisions.

Australia faces a massive competitive problem with Singapore. Singapore have determined to become the pharmaceutical hub for the Asia-Pacific. They have decided to do that. And once they have decided to do something, they go ahead and do it and they do it in a world-class way. They have determined that they will build a pharmaceutical industry in Singapore that will match and beat us and will match and beat anyone else in the world. And they will back it to make sure that it provides returns for the Singaporean people. What is the effect of this bill on this? If you look at the Bills Digest and at the evidence given before the Ergas committee and others, you will see that the effect is that the pharmaceutical companies that are here in Australia will probably litigate to try to protect themselves and to try to stop the generics companies from having a benefit from the use of their IP. They do not like the provisions of this bill, and they might do that.

There is another thing that these companies might do. They might say, ‘Let’s have a look at the landscape in Australia. Let’s have a look at the factor F program.’ Its destruction and replacement by the minor PIIP program has made it harder for big pharma to operate in Australia and to build capacity here and then to export drugs to that world market. It has made it harder for them to regionally compete with the other elements of their companies, and they may be getting the big message that they might not be wanted as much here as elsewhere.

This bill resets the balance in Australia between the generics companies and the innovators. We could all wish that the innovation was always Australian. We have significant Australian innovators that have become world forces because of the products they have developed—against most of Australia’s history, because in fact they have gone out and commercialised those products effectively.

We can think of a product in the flu area that is not being supported by this government. We face a profound problem in the form of an international flu epidemic. This government has decided that it will put its money into building up stocks of Tamiflu rather than building up stocks of the Australian Relenza, which is a brilliant product to try to stop major flu outbreaks. That product was developed by a company that did the R&D, innovated, built itself and realised that it had to go worldwide in order to make it. It is an entirely brilliant product. Is it supported by this Australian government? The answer is no. They do not understand the effectiveness and capacity of Relenza. They do not understand that you can build up stocks of Tamiflu but there will not be enough and it will only operate for a maximum period of three months or so, when you need six months coverage. They will not support that local innovation; they would rather import that.

With this bill the government have effectively said, ‘What we are most concerned about is those companies that do not innovate and with changing the intellectual property regime to reset the balance to try to lower the cost because, if you are producing generics, you can not only produce them here but you can flog them overseas.’ We might be able to flog those generics, but we will do so in strict competition with countries that are supporting their industries—some far more than others. So there is a real problem here. There is a real problem here with the lack of understanding of the dynamics. There is a problem if you take a simplistic approach to this area. You can say, ‘These are Australian companies producing drugs: we want them to produce here, we want to lower our costs here and we want them to flog the stuff overseas.’

What happens if the major investments of overseas farmer companies in Australia either dry up or cease—if those companies decide, because of the environment that exists in Australia, where innovation is not being properly rewarded, to relocate to Singapore, because the Singaporeans give them a better deal? We have seen this before; we have seen it in Malaysia and elsewhere. But the capacity of the Singaporeans to design and then implement a grand scheme has been demonstrated time and again in a whole range of different industries. They can take the great advantage we have got here and just strip it away from us. We will then have another major set of Australian producers—locally based, using locally based employees and researchers—who can be gone within a wink. If you think that that is stretching it too much, I ask you where Ericsson’s R&D centre is now. I will tell you where it is not: it is not in Australia. The most significant R&D centre that we have seen in the telecommunications area, with in the order of 300 researchers, just up and closed overnight. They moved back offshore. They moved back home. We can lose it—we can lose the local advantage. We can just have a narrow focus with regard to this.

What if the government had been properly apprised of what the potential is here—and you would have to expect that they should have been—and if they had listened to evidence given to the Ergas committee or they had listened to what had been said by Australian based industry generally? Certainly they listened to the generics and they said, ‘This is a wonderful thing and you should go with it.’ But what did Paul Jones in the patents and trademarks practice at Freehills say about the changes? They may make innovative pharmaceutical companies more willing to litigate to protect their market share. He sums it up:

Clearly this new provision favours generic companies over innovators. The springboarding amendment will raise the stakes for innovators with generic pharmaceutical products likely to be on the market sooner after patent expiry and in greater numbers. Consequently, innovators may be more willing to litigate to protect their market share.

As I have argued, they can not just litigate; they can go or they can wind back what they are doing here. The normal approach that Australians would have to overseas companies and to major multinationals over the whole length of our history is: (1) to be fearful of them; (2) to think that they are just here to grab everything they can get; or (3) to think that they may be part of some grand conspiracy to rip us off. All companies go after profits. All companies seek to maximise their position. All companies need to be constrained by government regulation. All companies cannot get ambit claims that they put up and cannot win all that they might want to win.

But this is a major 21st century industry. The government says it is on about innovation, but it has not backed Australia’s ability. It has had the report, but the recommendations in the report are not in this bill. Instead of that, it has actually gone backwards and said: ‘We’ll take the normal sort of nationalistic approach. We’ll just think of Australian based generics. We’ll just think of how we can pull that amount we might be paying down here—how we can sort of mix it with the overseas companies producing generics.’ It has not supported Australian based pharmaceutical companies. It does not understand the capacity to have great wins for Australia by taking the right approach. We need to be really careful of what is happening here.