24 March 2022

Federal Appeals Court Affirms the Role of ‘Balance’ in Scheme for Extending Term of Pharmaceutical Patents

Balance On 18 March 2022, the Full Court of the Federal Court of Australia issued decisions relating to term extensions of patents covering pharmaceutical products: Commissioner of Patents v Ono Pharmaceutical Co. Ltd [2022] FCAFC 39 (‘Ono’); and Merck Sharp & Dohme Corp. v Sandoz Pty Ltd [2022] FCAFC 40 (‘MSD’).  The two decisions have (at least) three things in common.  First, both were decided unanimously by a panel comprising Chief Justice Alsop and Justices Yates and Burley.  Second, both found against the patentee, with the court reversing the primary judge’s decision in Ono granting an extension of term, and confirming the primary judge’s decision in MSD nullifying a previously granted extension of term.  And, third, both referred to the principle set out in the objects clause (section 2A) of the Patents Act 1990 that ‘the patent system balances over time the interests of producers, owners and users of technology and the public’ (emphasis added).

The scheme for extending the term of pharmaceutical patents inherently involves a balancing act.  Its primary purpose is to ensure that patentees are not excessively disadvantaged by delays in securing regulatory approval to market patented products.  For example, if a drug is not approved for use until 10 years or more after a patent application is filed, the patentee may have less than half of the standard 20 year patent term remaining to compensate for its investment in discovery and development before becoming exposed to generic competition.  On the other hand, an extended period without competition necessarily exposes the wider public to higher costs of medical treatment.  In an effort to balance these competing interests, the relatively complex provisions of the Patents Act aim to ensure that a ‘typical’ pharmaceutical patentee benefits from up to 15 years of exclusivity, by granting extensions of the patent term of up to five years, i.e. to a maximum of 25 years from filing.  (A 2013 review of pharmaceuticals patents – which the government initially declined to release – found that 53% of such patents have an effective life of 15 years, while 89% have an effective life of over 10 years.)

The primary provisions of the Patents Act governing extensions of patent term are:

  1. section 70, which sets out the conditions that must be satisfied before a patentee can apply for an extension of the term of its patent;
  2. section 71, which sets time limits for filing of applications for extensions of term; and
  3. section 77, which specifies how the duration of an extension of term is to be calculated. 

In each of Ono and MSD, the patentee sought to obtain an advantage, or avoid disadvantage, by arguing for beneficial interpretations of the extension of term provisions.  In each case they failed.  And in both cases the Full Court upheld the principle that the purpose of the extension of term scheme is to balance the competing interests of the patentee of a pharmaceutical substance against the public interest in the unrestricted use of the pharmaceutical invention after expiry of the patent.  In Ono, in particular, the Full Court rejected the proposition that sections 70, 71, and 77 should be construed to achieve a commercial outcome for the patentee.  In MSD the Full Court again invoked the principle of ‘balance’ in declining to permit an extension of term based on a later Australian marketing approval, in circumstances where the patentee had already obtained the benefit of an ‘export only’ approval of a substance falling within its patent claims with an effective life of over 15 years.

The relevance of the Full Court’s focus on balancing of interests, and its references to the objects clause, could extend beyond these cases.  The three judges here are all among the five who recently heard the appeal in the Thaler ‘AI inventor’ case, in which the competing interests of developers and owners of ‘invention machines’, and of the broader public (who might not see the same benefit in granting patent monopolies on automatically-generated inventions), are potentially at stake.  It will be interesting to see whether they adopt a similar approach to weighing up the balance of interests in that case, also.

The Scheme of the Extension of Term Provisions

The term extension provisions in the Patents Act, and the interactions between them, are, as I have said, relatively complex.  I therefore do not propose to describe them in detail here.  No description that I provide could, in any event, be a substitute for the statute itself, or its construction by the High Court and the Full Federal Court that is well set-out in the Ono and MSB decisions.  It suffices to observe that the scheme of the term extension provisions, as construed by the courts, has the following key features:

  1. the term of a patent can only be extended once;
  2. an extension must be based upon the first regulatory approval – i.e. listing on the Australian Register of Therapeutic Goods (ARTG) by the Therapeutic Goods Administration (TGA) – of a product containing or consisting of a substance covered by the patent, which must occur at least five years after the effective filing date of the patent;
  3. an extension application must be made within six months of that date of first regulatory approval, or six months after the date of grant of the patent, whichever is later;
  4. the duration of an extension is based upon the earliest date of regulatory approval (‘registration’ or ‘listing’) of any product containing any substance covered by the patent, regardless of whether this is the same approval and substance relied upon in the extension application, or an earlier approval of some other substance also covered by the patent (which may have occurred less than five years after the effective filing date of the patent);
  5. for the purposes of the scheme, the identity of the party that sponsored the application for any regulatory approval is granted (e.g. the patentee, or some third party) is immaterial, as is whether the approval was for marketing in Australia (‘registered goods’), for export only (‘listed goods’), or indeed for any other category of approval;
  6. the period of the extension may be up to five years, but cannot extend the effective life of the patent beyond 15 years; and
  7. the period of the extension may be zero, i.e. the scheme encompasses circumstances in which an application for an extension of term is permitted under sections 70 and 71 but, upon application of the calculation rules in section 77, it turns out that no actual time is added to the term of the patent.

This, it should be emphasised, is the position in light of the decisions in Ono and MSD.  In each case, as we shall see, the operations of certain features of the scheme were in dispute.

Ono: What Happens When Somebody Else Obtains First Approval?

In Ono, the patentees are Ono Pharmaceutical Co Ltd (‘Ono’), and ER Squibb & Sons, LLC (‘ER Squibb’).  A commercial product, covered by at least claim 3 of the patent at issue, is called OPDIVO, which contains the active ingredient nivolumab.  OPDIVO was included in the ARTG from 11 January 2016, based upon an application sponsored by Bristol-Myers Squibb Australia Pty Ltd (‘BMS’), which is a company related to ER Squibb.  The patent was filed on 2 May 2006, and thus nearly 10 years of its term had already elapsed when OPDIVO was granted regulatory approval.

Ono applied for an extension of the patent term based on the registration of OPDIVO on 11 July 2016, i.e. exactly six months after its inclusion in the ARTG.

Unusually, however, a different pharmaceutical company had obtained an earlier approval of a product comprising an active ingredient falling within the scope of the patent.  The product KEYTRUDA contains the active ingredient pembrolizumab, which also falls within the scope of, at least, claim 3 of the patent.  The KEYTRUDA product was included in the ARTG from 16 April 2015 (i.e. nine months prior to OPDIVO), based upon an application sponsored by Merck Sharp & Dohme (Australia) Pty Ltd (‘MSD’).  This is an unusual circumstance because, clearly enough, marketing of KEYTRUDA in Australia is an infringement of the Ono patent, which would normally prevent MSD from obtaining regulatory approval.  Indeed, proceedings (NSD954/2014) relating to validity and infringement of the patent had commenced on 22 September 2014 and concluded, following a settlement, on 23 January 2017.

Ono also applied for an extension to the patent term based on the registration of KEYTRUDA on 11 July 2016.  This application was out of time (i.e. more than six months after the inclusion of KEYTRUDA in the ARTG), and was therefore accompanied by an application for an extension of the time within which to apply for an extension of term.

There are two potential benefits to Ono in having its extension of term based on its own OPDIVO registration.  First, since OPDIVO was registered later than KEYTRUDA, the period of the term extension would be longer.  Second, it would not need to rely on the Patent Office granting its application for an extension of time.

Ono’s argument, which was successful at first instance, was that the term extension provisions should be construed to inherently require that the first regulatory approval must be that of the patentee, ignoring any earlier approval that might have been obtained by a third party.  The primary judge (Justice Beach) considered the extension of term regime to be ‘beneficial and remedial’, and that the provisions should thus be construed in a manner favourable to the commercial interests of the patentee.  He considered Ono’s construction, which would enable it to base an extension of term on the later registration of the OPDIVO product, to be ‘reasonable and commercial’.

The Full Court disagreed, stating, at [115], that:

Whilst it may be accepted that the object of the extension of term regime is to compensate a patentee of a pharmaceutical substance for time lost in obtaining regulatory approval before it can exploit its invention, it does not follow that ss 70, 71, and 77 should be construed so as to achieve what might be described as a commercial outcome for a patentee. As the High Court noted in [Alphapharm Pty Limited v H Lundbeck A/S [2014] HCA 42], and as [the primary judge] appeared to accept, the extension of term regime seeks to balance a range of competing interests, not just the interests of the patentee. It can be taken that the legislature saw the correct balance as being achieved by the very words it chose to implement that regime.

The Full Court also noted, at [22] and [51], the role of ‘balance’ in the section 2A objects clause, being consistent with the High Court in Alphapharm.

MSD: What Happens When Multiple Substances are Approved?

The claims of a patent may cover more than one pharmaceutical substance, and different substances (or combinations) may be incorporated into different products that receive regulatory approval at different times, and potentially for different purposes.

In MSD, the patentee Merck marketed two products for the treatment of diabetes, falling within the scope of its patent.  Its JANUVIA product contained the active ingredient sitagliptin alone and received the earliest approval, less than five years after the effective filing date of the patent. Its JANUMET product contained a combination of sitagliptin and metformin as active ingredients and was approved later, more than five years after the filing date.  Merck had been granted an extension of term based on the JANUMET approval, but at first instance the primary judge (Jagot J) had found this extension to be invalid.

On appeal, the Full Court agreed with the primary judge.  The difficulty for Merck was that the initial approval of JANUVIA could not, in any event, provide the basis for an extension of term.  It is expressly excluded, having occurred less than five years from the effective filing date of the patent.  On the other hand, while JANUMET was first approved more than five years after the filing date, the Full Court confirmed that the date of the earliest approval, i.e. of JANUVIA, must still be used to calculate the period of any extension, which in this case would be zero.

As the Full Court said, at [80]:

The primary judge correctly observed that there is a degree of oddity about a statutory scheme that would permit an application to be made within s 71 but which is nonetheless resulted in an extension of term under s 77 of zero. However, the choice is between the language chosen by the legislators and conjecture as to a policy said to be discerned not from the language used but rather vague notions about what a sensible construction should be. In the present case, the primary judge rightly chose the former, observing that it may be understood that the legislature inferred that a patentee would not make an application under s 71(1) at all if the term of the extension would be zero.

The Full Court also observed, at [70]-[71], that ‘the purpose of the extension of term scheme is to balance the competing interests of a patentee of a pharmaceutical substance whose exploitation of monopoly has been delayed (because of regulatory delay) and the public interest in the unrestricted use of the pharmaceutical invention (including by a competitor) after the expiration of the monopoly’ and that ‘[t]his conclusion is consistent with the recently introduced objects clause set out in s 2A of the Patents Act’ (italics in original).

Merck advanced an alternative argument, based on the fact that its two initial approvals were ‘export only’ listings (‘listed goods’), while it also had two subsequent approvals for marketing of JANUVIA and JANUMET in Australia (‘registered goods’).  To succeed on this argument, Merck required the phrase ‘first inclusion in the ARTG’ to be restricted to ‘registered goods’, ignoring any earlier approval of ‘listed goods’.  This would have required the Full Court to overrule its earlier decision in Pfizer Corp v Commissioner of Patents [2006] FCAFC 190.  Unsurprisingly, it declined to do so.

Conclusion – On ‘Balance’, the Term Extension Scheme is Settled

Pharmaceutical patent term extensions – even relatively short ones – can be worth huge amounts of money.  There may therefore be no limit to the creativity of patentees in trying to stretch the wording of the provisions in the Australian Patents Act to gain even a small advantage.  But, following Ono and MSD, it does not appear that there is much scope remaining to squeeze more life out of any alleged ambiguities.

It is now clear that ‘first’ means first, and ‘earliest’ means earliest (and that ‘earliest first’ also means exactly what it says).  However convoluted the collective operation of sections 70, 71 and 77 may seem, in some less common cases, they actually work as intended.  Once a (first, earliest) patented product has been approved, on behalf of any sponsor, and for any purpose, then the date of that approval determines the duration of any extension of term of the corresponding patent.  And that is entirely fair enough.  From the date of approval, the patentee has the opportunity to make money from products covered by the patent.  Depending on the type of approval, and the circumstances, that opportunity might be via export, it might be via Australian sales, it might be via licensing of the patent, or it might be via damages extracted from an infringer.  The fact that the patentee might be able to make more money at some future time, under a further approval, is irrelevant.  Sometimes the patentee might be able to exercise control of its benefit, e.g. by choosing which approval to pursue first, or by judicious use of divisional patents with narrow claims covering only specific substances.  Sometimes it might not.

As the Full Court has said (and the High Court before it), the purpose of the extension of term provisions is to balance the competing interests of the patentee (in obtaining a sufficient return on its R&D investment, despite regulatory delay) and of the public (in having unrestricted access to medications at prices tempered by competition).  They are not there merely to maximise a commercial benefit to the patentee in all circumstances.

And this principle of ‘balance’, as well as being inherent in the extension of term scheme, is now also enshrined in the section 2A objects clause as something to be considered when interpreting all provisions of the Patents Act.  Some individual judges may be willing to find ‘balance’ in decisions favourable to patentees, on the basis that by fostering innovation and technological advance the patent system benefits all of society.  However, refence to section 2A in Ono and MSD suggests that the three judges in these cases, at least, find a degree of ‘balance’ in limiting the extent to which the Patents Act may be construed in ways primarily beneficial to patentees.

While section 2A was intended to reflect an already-existing position, it seems to be gaining some prominence in recent Federal Court decisions.  I expect that it will be in play again in the appeal by the Commissioner of Patents against the decision by Justice Beach recognising the right of Dr Stephen Thaler to proceed with a patent application naming only the ‘AI’ machine DABUS as inventor.  With the three Ono and MSD judges all on the panel in that appeal, I would not be surprised to see the balance swing against the applicant, and in favour of the public interest in not permitting the grant of patent monopolies on automatically-generated inventions in the absence of evidence-based policy grounds and/or clear legislative intent.


Post a Comment

Copyright © 2014
Creative Commons License
The Patentology Blog by Dr Mark A Summerfield is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Australia License.