US Australia FTA: bitter pill for an appendage state

In the struggles of late Republican Rome, in the 80s BC, when whole armies lined up against each other to settle issues that had previously been decided by a vote in the Senate, the period under the consulship of Lucus Cornelius Cinna stands out. This was a time when far-reaching reforms were legislated, but were never implemented through lack of the institutional means to put them into effect. A major impediment stood in their way - the Roman general Sulla, and his army, were about to march on Rome once again.

The amendments to the US-Australian free trade agreement put up by Opposition Leader Mark Latham have the same air of unreality. They are well-intentioned, but lack the institutional means to achieve the intended outcomes - and meanwhile, there are the ranged forces of the US pharmaceutical industry waiting to do battle in the Australian courts.

The main Latham amendment refers to clause 17.10.4 of the agreement, popularly known in Australia as the "evergreening" clause. This is because it will facilitate the endless extension of patent rights by brand-name drugs producers, frustrating production of generic drugs and thereby maintaining high prices, and high profits, for the pharmaceutical firms. This process is now endemic in the US.

The Latham amendment seeks to frustrate the process in Australia by attaching penalties to firms that enter "dodgy" patents as a ruse for extending patent life. This amendment would certainly work in the United States. But it will not work in Australia - because we have no way of identifying just what these dodgy patents might be. It won't work also because the penalty for such dodgy patents is too low - a paltry few million dollars if it can be proved in a court of law. And the US drugs giants are lined up - like Sulla and his army - just itching for the fight.

To understand the intent of clause 17.10.4, we have to go back to its US legislative source, which is the Hatch-Waxman Act of 1984 . It governs competition between brand-name drugs and their generic equivalents and has been effective in raising the generic share of all prescribed drugs in the US from 19 per cent in 1984 to 47 per cent in 2000. Contrast this with the low level of generics in prescribed drugs in Australia - at about 15 per cent.

Hatch-Waxman did three innovative things. It required brand-name drugs makers to identify a patent covering each new drug application; these are then listed by the US Food and Drug Administration in the "Orange Book". Generics makers can consult this listing to ascertain when drugs can be expected to come off patent.

Second, it allowed generics producers to skip all the clinical trials data, in an abbreviated new drug application, provided they could demonstrate that their generic version of the drug had the same formulation, was administered in the same way, and had "bio-equivalence" to the brand-name drug.

Third, it required the generics producers to certify that their generic drug would not interfere with existing patent rights; or certify that the claimed patent coverage would not be infringed. If the brand-name company disputes this, and sues the generic producer within 45 days, then the FDA is required to place a "stay" on the entry by generics for 30 months. This is where the abuses known as evergreening enter the picture.

Clause 17.10.4 of the FTA ignores the first point; virtually prevents the effect of the second; and introduces all the complications of certification for would-be generics competitors - without any of the checks created by the requirement to list relevant patents, or the right to use previous test data in filing a submission for a generic drug.

The key missing institutional ingredient is the "Orange Book" where drugs producers are required to list the patent which they claim covers the brand-name drug approved by the FDA.

Under clause 17.10.4 there is no such listing - and instead of the onus being on the drug company to list the relevant patent, the onus is placed on the generic producer to search all known patent data bases and make a warrant that the proposed generic does not infringe any patent. This is an enormous and costly requirement, with no certainty of outcome, since a brand-name producer could virtually pick any patent in their portfolio at random and claim that it covers the drug - thereby creating a "dispute" which (in imitation of Hatch-Waxman) will delay entry by generics.

Effective as it has been, Hatch-Waxman has loopholes that brand-name drugs producers already exploit. Consider the case of the anti-depressant drug Paxil produced by GlaxoSmithKline. This holds the world record for multiple stays of execution under Hatch-Waxman - no fewer than five between March 1998 and February 2003 - amounting to more than 65 months of extended patent life, worth over $US1 billion to the pharmaceutical giant. Generics producers, led by Apotex Corporation, sought on each of these five occasions to demonstrate that their generic equivalent to Paxil (paroxetine hydrochloride) did not infringe on the patents, and in each case, GSK shifted the goal posts - as described in a Federal Trade Commission report issued in 2002. This is "evergreening".

If this is how the drugs firms behave on their home turf, think how they will behave in a client state like Australia where the gloves are off and the checks and balances of Hatch-Waxman have been rendered inoperative. This is the real case against the Latham amendment - that it delivers a "dumbed down" version of Hatch-Waxman, without the countervailing conditions that limit corporate abuses.

In the end, Republican Rome had to submit to Sulla's armed might, and nothing was ever the same again. Likewise, we must face the fact that under the FTA, nothing will be the same in the future. Much more than an amendment or two is required to prevent the irreversible damage that this trade agreement will unleash on significant areas of Australian life. But the only changes that will be considered compatible with the FTA are those that, like Latham's, are destined to be ineffectual, or those that have the blessing of the US Congress itself. In this way we become, in every sense of the word, an appendage state.