The stupidest thing about the way we administer intellectual property law is . . . ?

I’m in a London pub thinking of all the Troppodillians back home and of course I’m thinking of intellectual property.  Today’s column in the Fin outlines a very stupid situation we have gotten outselves into. (This was a direct washup of our previous Prime Minister’s leadership – the man of steel.  Anyway, if you can think of anything sillier in the way we administer intellectual property law, please enter the competition.  The winner will be given an extension on James Watt’s patent for the steam engine (why not, parliament extended it long after the invention had been delivered to society).

Manufacturing Generic Pharmaceuticals for Export

Beggars cant be choosers. Any job we can create right now is welcome, but the greater skill it involves and the less it costs government, the more value it will generate and more secure it will be. And, to get on top of our ballooning current account deficit and resulting rising debt we need to put less effort into consumption and more into exporting. Enter U.S. based pharmaceutical firm Hospira which has its second largest manufacturing and R&D investments in Australia. It doesnt want handouts. It wants to manufacture new generation biologic generic drugs for export markets where drug patents have expired. Whats there not to like?

Hospira asked that a few years ago. It turned out there was a catch.

The major pharmaceutical companies had persuaded Australias Government to extend patent protection beyond the standard 20 years to make up for the time taken for clinical trials and regulatory approvals before new drugs can reach market. But partly because drug companies typically seek Australian approvals after they apply in really big markets, most Australian patent extensions lapse after similar extensions in the U.S. and Europe. They certainly expire after patents expire in countries like New Zealand, South Africa, India and Canada, where they dont offer patent extensions at all.

Now, given that virtually all the commercial benefit to patent holders arises from their exclusive right to sell into a market, its silly also to give them exclusive rights to manufacture, and thus the right to prevent other firms manufacturing for export. After all, generic drugs would be produced for those markets anyway, so the seller of the patented drug had virtually nothing to gain from preventing their supply from Australia.

Still, Hospira could have lived with that providing that the patent extensions mentioned above didnt prohibit manufacturing for export. There was a further complication. Wed been negotiating a free-trade agreement with America. An overarching American objective was to modify our intellectual property laws to their own advantage (the U.S. is a net exporter of intellectual property to every other country in the world).

In this environment, Australian officials and politicians patiently explained how sympathetic they were to Hospiras intentions. But, really Hospira had shown such inconvenient timing! But dont feel sorry for Hospira. Theyre happily manufacturing all those drugs they wanted to make here . . . from the new facilities they were forced to build in India. India has no patent extensions. (So much for Big Pharmas argument that ramping up IP extensions beyond international requirements encourages increased domestic investment. Generics manufacture is surging in countries like India and Canada who stood up for their own interests.)

And now its all happening again. To manufacture the next batch of generics high tech biologics for export, Hospira wants to further invest in their high tech Australian facilities. But officials have seemed almost as sheepish as they were when they last wrung their hands in 2004.

Big Pharma argues that manufacture for export is incompatible with the U.S. Free Trade Agreement. But, having seen Hospiras legal advice, while its no certainty, Id say Australia is within its rights and wed win if it were formally arbitrated.

But, for it to come to that, Big Pharma would have to cut off its nose to spite its face. It gains nothing from preventing us exporting, and indeed one Big Pharma firm is keen to supply inputs to those exports. In addition, frustrating our exports would show other countries that cooperating with Big Pharmas IP agenda can be a mugs game. However the real obstacle for Big Pharma in stopping our exports is that it would also need to convince the new U.S. Administration to make a similar spoilsport of itself against one of its closest allies.

But even if youre still not convinced, heres the thing. Even in the unlikely event that the Americans behave badly, and that the resulting arbitration goes against us, our Government could simply change the law back to comply with the ruling. So the real risk taker in all this is the company thats putting down its money and could get some of it stranded: Hospira.

This being so, and given that other generics producers will follow in Hospiras wake, we should be pretty disappointed if timidity and inertia are, yet again, the order of the day.

Nicholas Gruen is CEO of Lateral Economics which is consulting to Hospira in its attempt to receive permission to manufacture generic pharmaceuticals for export.

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4 Responses to The stupidest thing about the way we administer intellectual property law is . . . ?

  1. derrida derider says:

    to get on top of our ballooning current account deficit and resulting rising debt we need to put less effort into consumption and more into exporting

    Less effort into consumption, yes, but more into exporting? With a floating currency that’s not true. The size of your current account deficit is a product of the relation between domestic saving and domestic investment; how much you export and import is just a result of that.

    This isn’t just nitpicking – in present circumstances popular mercantilist beliefs could do real damage.

  2. DD,

    As you’d note, the case for this does not depend on mercantilism, but some of us like to think that in a small country that used to be chronically inwardly oriented, it makes sense to try to ensure that governments are not getting in the way of exports. But as you say – and as I intimated in the piece – increasing savings is crucial.

    I guess I should have had a big sign saying “SECRET ECONOMISTS’ HANDSHAKE” in the piece just before the relevant sentence, but I don’t think the paper would have liked it.

  3. derrida derider says:

    OK, Nic, maybe I’m a bit too zealous in stamping out heresy – my apologies. Though you gotta admit this particular heresy has often called forth strange demons of industrial policy, so putting the odd heretic on the rack may not be such a terrible thing.

    On the substantive issue in the article, of course you’re right. A lot of us (including you, IIRC) pointed out at the time of its adoption just how expensive – not to mention restrictive of trade – the IP provisions of the FTA are. As I said at the time “What do I think of a Free Trade Agreement with the US? I think it would be a good idea”.

  4. Tel_ says:

    Might be relevant: conference on this very topic coming up 16-17 April 2009 in Sydney.

    http://cyberlawcentre.org/unlocking-ip/2009/index.htm

    Hopefully we have got a bit past the slavish belief that the USA will look after us if only we give with all our hearts. Trading in China will no doubt be the next big step (but a tricky one).

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