US – Australia Free Trade Agreement: its impact on the Theraputic Goods Act

US – Australia Free Trade Agreement: its impact on the Theraputic Goods Act

The US Free Trade Agreement Implementation Act (Act) received royal assent on August 16 2004. We set out below a detailed analysis of the effect of the provisions relating to Therapeutic Goods. These provisions do not apply to Therapeutic Devices. The provisions are due to come into effect no later than 1 January 2005.

In summary the position will be that:

  • any applicant for marketing approval of a therapeutic good (listing or registration) will have to provide a certificate under section 26B; and
  • any patentee who seeks to enforce a patent against such applicant must give a certificate required under section 26C and face the risks of penalties and damages under sections 26C and 26D.

These provisions place a heavy burden on any applicant seeking approval of a therapeutic good to undertake extensive "freedom to operate" searches and patent validity assessments to ascertain whether relevant patents exist and to ensure that it is able to certify either that the marketing of the good will not infringe any valid claim of a patent or that notice has been given to the patentee.

They also place a very heavy burden on the patentee, and those advising the patentee, when seeking to enforce any patent "in relation to" any registered or listed therapeutic good.

Attached is a table summarising the effect of these provisions.

Unexpected impact

The provisions in Article 17.10.4 of the FTA were directed towards generic applicants seeking approval on the basis of bioequivalence. However, the amendments have a much broader impact and will affect:

  • all applicants for marketing approval irrespective of whether they seek to rely on prior bio equivalent data;
  • all biotech companies, including small start up companies, seeking to enforce their patents (even against multi-lateral generic manufacturers);
  • proprietors of patents which "relate to" a therapeutic good, including patents relating to processes (eg plasma fractionation) or complimentary medicines; and
  • all registrable or listable goods, e.g. vitamin supplements, certain cosmetics and other complementary medicines and goods at the "food-medicine interface" (ie. foods that are marketed with health claims such as sports drinks and energy bars) where the relevant good is the subject of a declaration bringing it under the Therapeutic Goods regime.

Detailed analysis the FTA

The Act contains provisions for the amendment of the Therapeutic Goods Act (TG Act) to give effect to Article 17.10.4 of the FTA. Under that Article Australia is required to provide that, where its approval process for therapeutic goods permits a person other than the original supplier of safety or efficacy data to rely on that data for the purpose of obtaining marketing approval for a therapeutic good (ie. for the purpose of application based on bioequivalence), that approval process must contain measures to prevent such other persons from marketing the good which is claimed in a patent without the consent of the patent owner. If a third person is permitted to request marketing approval during the term of the patent the patent owner must be notified of the making of the request.

The implementation Act

A. The Applicant's Obligations

The Act adds a new section 26B to the TG Act. Section 26B provides that in any case where a person applies for marketing approval for a therapeutic good, (irrespective of whether the applicant seeks to rely on safety or efficacy data already on file), the applicant must provide a certificate to the effect that either:

  • in good faith and on reasonable grounds it believes that marketing of the good will not infringe a valid claim of a patent "in relation to" the good (s.26B(1)(a)); or
  • a patent exists and the applicant proposes to market the good during the patent term and has notified the patentee of the application for approval (s.26B(1)(b)).

Giving a certificate that is false or misleading in a material particular is an offence punishable by fine up to 1,000 penalty units (presently $110,000).

B. The Patentee's Obligations

The Act also adds new sections 26C and 26D to the TG Act.

Section 26C provides that where an applicant has given a certificate under the above provisions and the patentee intends to commence patent infringement proceedings against that applicant, the patentee in turn must give a certificate to the effect that the proceedings are to be commenced in good faith, have reasonable prospects of success and will be conducted without unreasonable delay.

Proceedings are provided to have reasonable prospects of success if:

  1. based on all the circumstances which the patentee knew, or ought to have known, it had reasonable grounds for believing that:
    (a) (s)he would be entitled to be granted final relief for infringement;
    (b) each of the claims alleged to be infringed, is valid; and
  2. the proceedings are not otherwise vexatious or unreasonably pursued.

The consequences of the patentee giving a certificate which is false or misleading or of breaching an undertaking are a pecuniary penalty of up to $10 million. The penalty may be imposed upon application by the applicant or the Attorney General. In assessing the penalty the Court must take into account any profit obtained by the patentee and any loss or damage suffered by any person by reason of the exploitation of the patent during the proceedings.

If the patentee obtains an interlocutory injunction (and section 26D does not apply) the Court may also order payment of compensation to the Commonwealth or a State or Territory for damages sustained or costs incurred as a result of the interlocutory injunction.

Section 26D, applies where the applicant for marketing approval has given a certificate under the second limb of s.26B (i.e. has given notice to the patentee) and the patentee seeks an interlocutory injunction against the applicant. In that case, the patentee must first notify the Attorney General of the Commonwealth or a State or Territory and the Attorney General of the Commonwealth is deemed to be a party to the proceedings unless (s)he gives written notice to the Court.

If an interlocutory injunction is granted and the principal proceedings are discontinued (without the other parties' consent) or dismissed and the Court declares that:

  1. the patentee did not have reasonable grounds in all the circumstances which it knew, or ought to have known, for believing that:
    (a) it would be granted final relief for infringement; or
    (b) each of the claims alleged to have been infringed would have a reasonable prospect of being held valid; or
  2. the application for the interlocutory injunction was otherwise vexatious or not reasonably made or pursued,

the Court may in addition to the pecuniary penalty, order the patentee to pay compensation to the applicant on the basis of the patentee's gross profits during the period of the injunction and to the Commonwealth for damages sustained or costs incurred as a result of the grant of the injunction.

Provision Section 26B Section 26C Section 26D
Applies to Applicant for marketing approval. Patentee suing s.26B(1) applicant for patent infringement. Patentee seeking interlocutory injunction against s.26B(1)(b) applicant.
Requires Certificate to Therapeutic Goods Administration (given in good faith, on reasonable grounds), that:
(a) marketing the good will not infringe a valid patent claim; or
(b) it has notified the patentee of the application.
Certificate to Therapeutic Goods Administration that proceedings are in good faith, have "reasonable prospects of success" and will be conducted without unreasonable delay. In addition to s.26C certificate, notification to Attorney General of the Commonwealth, or a State or Territory.
Penalty / compensation Up to 1,000 penalty units (currently $110,000.00) for false or misleading certificate.

» up to $10 million for false or misleading certificate or breaching an undertaking in the certificate; and

» compensation to Commonwealth / State / Territory for damages or costs as a result of any interlocutory injunction obtained (unless s.26D applies).

If injunction is granted and:
» principal proceedings then discontinued (without other parties' consent) or dismissed; and

» court finds patentee did not have reasonable grounds or application for injunction was vexatious or not reasonably made or pursued,

court can order, in addition to the penalty up to $10 million penalty under s.26C, compensation to:
– applicant based on patentee's gross profits during injunction; and
– Commonwealth for damages or costs as a result of the injunction.

Notes   1. In setting penalty, court must take into account:
– patentee's profits during proceedings; and
– loss or damage suffered by any other person,
and may take other matters into account.

2. Applicant can seek leave of court to have penalty imposed.

1. Commonwealth Attorney General deemed to be a party to the injunction proceedings unless "opts out".

2. If patentee wishes to discontinue principal proceedings, will need consent of all other parties (including the Commonwealth Attorney General unless s(he) has opted out).