Gene Patents and Patents granted over Biological Materials: Their Impact on the Provision and Cost of Diagnostic Services and Medical and Scientific Research in Australia

A Submission to the Senate Community Affairs Committee Inquiry into Gene Patents

Part One

Dr Luigi Palombi Centre for the Governance of Knowledge & Development The Regulatory Institutions Network

The Regulatory Institutions Network, The Australian National University, Canberra, ACT, 0200 (02) 6125 5465: 0400 606 263: [email protected].

Table of Contents

Introduction i

1. The Australian Patent System 1

2. The British Patent System 3

3. Contemporary Problems and Issues with Patents 15

4. The Banning of Patents over Chemicals and Medicinal Products and the Strengthening of Compulsory Licensing 23

5. Patent Law Reform in Britain and Australia in the wake of the wake of the NHS in Britain and the PBS in Australia 27

6. The AU Patents Act, 1952, its reform during the 1980s and reccurring issues 35

7. The AU Patents Act, 1990 and the boundaries of patentable subject matter 39

8. The ALRC Gene Patent and Human Health Report 43

9. International Developments in Patent Law and their effect on the development of Australian Patent Law 50

10. Patentable Subject Matter 56

11. An Example of a Gene Patent which has been granted in Australia which claims as an invention ‘isolated biological materials’ 70

i

Introduction

The purpose of Part One of this two part Submission is to inform the members of the Senate Community Affairs Committee of the relevant elements of patent law and the history of its development.

For nearly four hundred years patent monopolies have been lawfully granted to inventors, not as a reward for ingenuity but to encourage the disclosure and working of ‘inventions’, which as the word suggests are things that are human-made constructs, contraptions, machines, processes, devices, implements and so on. In broad terms, it has been the accepted wisdom that inventions of this kind contribute to the public good and to economic development.

At the same time it has also been the accepted wisdom that monopolies are not to be tolerated because they impose significant economic burdens and social costs on society and the economy.

An exception to this rule was made in the case of patents, but on strict conditions. The most important of these being that they only be granted in respect of things that are inventions.

This Inquiry will be considering this law in respect to one category of patents. That category, which for the sake of expediency shall be called ‘gene patents’, are patents that claim, as ‘inventions’, isolated biological materials; that is, biological materials that exist in nature but which have been isolated from their normal environments, either through a process of discovery or through some process of manufacture. Consequently, it is the ‘isolation’ of these materials which distinguishes them from their origins.

Isolated biological materials include human genes and proteins, their derivatives and components as well as such materials that are sourced from animals and other organisms, including bacteria and viruses.

Human genes and the proteins which they code for, however, are clearly not things which anyone invented. Indeed, it is ridiculous to suggest otherwise for they come within the class of things called ‘natural phenomena’. Nonetheless, IP Australia has interpreted the law in Australia so as to justify the grant of gene patents which, because of the way the patents are defined, capture within the scope of the patent monopoly the exploitation of those natural phenomena in any way whatsoever. That said, the view of the law which IP Australia has adopted has not been the subject of review by an Australian court.

Additionally, gene patents almost always also claim as ‘inventions’ the medical and scientific use of the isolated biological materials to which they relate. Indeed, the assumption upon which these claims are drawn, sometimes speculative and sometimes simply plain obvious, is that knowledge of the isolated biological materials, which go to the core of the claimed ‘inventions’, are all that the educated reader of the patent needs to know in order to reproduce the inventions in all respects. As an example, one famous gene patent granted by IP Australia to Chiron Corporation not only claimed the isolated genetic material to the hepatitis C virus (HCV), but also the virus proteins and the use of the HCV viral materials (even to strains of HCV not even known at the time) in a vaccine that was capable of immunising a human being against HCV infection. That specific patent will be discussed in this Submission in some detail, but the Committee should note in the meantime that despite the fact that this patent was granted in 1992, one of the named inventors, a Dr Michael Houghton, wrote in the Journal of Hepatology in 1999, some 12 years after the original discovery that led to the patent, that: ‘There is no vaccine for HCV’. This leads to the obvious question: why did IP Australia grant an Australian patent which gave Chiron a patent monopoly over a vaccine that did not exist? ii

Given that no Australian patent granted by IP Australia is guaranteed to be valid, the longer these patents remain untested, the longer they impact upon Australian society and the economy because the nature of the patent monopoly gives the patent owner the exclusive right to make, hire, use, sell, keep and import the invention in Australia for a period of 20 years.

It is therefore a matter of great importance that this Committee understand the origins of Australian patent law as well as understand the development of patent law in countries that the Australian legal system is related to. For just as gene patents have been granted in Australia, they have also been granted by the corresponding patent offices in those countries.

That this occurs is due to a policy which the patent offices of the United States, the European Union and Japan adopted in 1988 and which was followed by IP Australia. Some of the legal ramifications of this policy were recently considered by the Australian Law Reform Commission in its Genes & Ingenuity Report; however, for the reasons explained in this Submission the Committee is respectfully asked to ignore this Report.

Beyond the ALRC Inquiry (2002-2004) there has not been any multi-disciplinary review or investigation of the legal, economic or social impact of this policy. In fact, there has not even been a court decision in Australia with regard to its legality. Therefore, it is now incumbent upon this Committee to consider the impact which these gene patents have had, are having, and may have, on the healthcare system in Australia and whether it is necessary to legislatively address this policy.

Thus it is relevant that the Committee consider whether the Patents Act, 1990 be amended so as to expressly prohibit the patenting of isolated biological materials that are identical or substantially identical to those materials as they exist in nature.

In this respect the patent system in Australia and how it has been and is being impacted upon by its relationship to patent systems in other countries is relevant to this Committee. Accordingly, the Committee’s attention will be directed to a number of relevant international developments in which patents have played a significant role. These include:

(a) the European Commission’s antitrust investigation into the use of the patent system in Europe to illegally suppress competition in generic medicines;

(b) the US Federal Trade Commission’s legal action against pharmaceutical and generic drug makers for conspiring to illegally refrain from competition in generic medicines;

(c) reports concerning the inability of patent offices to undertake the examination of patent applications to suitable standards;

(d) reports and inquiries into the very high costs of patent litigation and the use of patent litigation, or its threat, as inducements in conduct that violates anti-competition laws;

and

(e) reports, investigations and inquiries that document how patent owners are using patents and patent systems, including the number of patents applied for and granted over what is essentially the same invention, to illegally suppress competition.

It is often said that without patents there would be nothing to encourage the investment of the millions of dollars needed to undertake risky research and development in new technologies. Apart from the fact that history shows that this is not true - that indeed some of the greatest inventions and medical and scientific breakthroughs have occurred regardless of patents – it iii has been told so often by so many that it has become a truism. This Committee will undoubtedly become acquainted with this truism during the course of this Inquiry but the evidence, which is what this Committee must examine, will confirm that it is a myth.

What is not a myth is the propensity for patent owners, particularly multi-national corporations, to use their patents to control the use of leading-edge technologies for the sole purpose of maximising revenues. History shows that this level of control has led to the deliberate suppression of such technologies with the result that in times of international crisis or national emergency, national security has been jeopardised.

In the context of gene patents, the patent offices of the world (all of which earn revenue from the filing, grant and renewal of patents) have benefited greatly from the adoption of the patent policy in 1988 that created a fiction (that isolated biological materials are different from natural biological materials) for the express purpose of distinguishing things that have traditionally been excluded from patentability merely by this isolation. Needless to say, patent attorneys and patent lawyers have profited greatly from the growing patent domain. But there is a world of difference in the impact which such a policy has on technology exporting countries, like the US, the EU and Japan, against technology importing countries, like Australia, and that is something neither IP Australia nor the patent professions have taken into account. The effect of such a policy is multiplied when the so-called ‘technology’ is not an ‘invention’ but is natural phenomena that properly belongs in the public domain, free to be used for the common good.

Regardless, it would seem that the approach which led to this policy is under reconsideration, at least in the United States. Recently, the US patent office rejected a patent over a business method on the ground that it was not an invention. The decision has been upheld by the US Court of Appeals for the Federal Circuit and is now the subject of an application for leave to to appeal to the US Supreme Court. While it may be that this particular decision does not concern a gene patent, it nonetheless explores the principles that have their roots deeply embedded in the origins of patent law that exclude from patentability: ‘laws of nature, natural phenomena, and abstract ideas’.

Therefore, it will be a matter for this Committee to examine the impact which the policy developed by the US, European and Japanese patent offices in 1988 and carried into effect by IP Australia has had on the Australian people and its economy and to intervene if, in its opinion, the patent law in Australia, for whatever reason, has been ignored, distorted or overruled.

This is also important in the context of Australia’s obligations under the Agreement on Trade- Related Aspects of Intellectual Property Rights (TRIPS). According to this agreement, which binds all countries that are members of the World Trade Organization (WTO), patents are to be granted only with respect to ‘inventions’. Consequently, if, as this Submission maintains, isolated biological materials are not inventions, then the action of IP Australia in granting patent monopolies over such materials has exposed this country to potential international legal action.

Accordingly, the issue of whether isolated biological materials are, or should be, patentable subject matter is not an issue that can, nor should be, taken lightly because when patent laws transgress these inherent limitations, not only do the laws violate TRIPS but those that ignore or facilitate that violation are complicit in the economic and social costs which are inevitably and unnecessarily incurred by Australia and its people, economy, government and institutions.

1 The Australian Patent claim(s) a proper subject of . letters patent according to System the principles which have been developed for the What is a patent monopoly and what can be application of s. 6 of the the subject of a patent monopoly in Australia? Statute of Monopolies? • An Australian ‘patent’ is a private • Therefore the subject matter of a monopoly right granted by the patent, namely an invention, must Australian Patent Office (now called be a ‘manner of new manufacture’ IP Australia) in accordance with the and not be ‘contrary to the law nor AU Patents Act, 1990. mischievous to the state by raising prices of commodities at home, or • The word ‘patent’ is defined in AU hurt of trade, or generally Patents Act, 1990 to mean ‘a inconvenient’. This is the primary standard patent or an innovation condition of patentability in patent’. A standard patent, being Australia. Unless this condition of the typical kind of patent, provides a patentability is satisfied, the patent patent monopoly that has a term of is invalid without any further 20 years. The patent monopoly consideration. provided by an innovation patent, however, has a term of only 8 years. • However, if the primary condition is There is more to the distinction than satisfied there are three further their duration, but for the purposes secondary conditions of of this inquiry patentability that each must satisfy it is in order for a patent to unnecessary The subject matter must be an be valid. These are to elaborate invention. that the ‘invention’: further as it is (a) be novel; (b) An invention is any manner of new the standard contain an inventive manufacture that is not contrary to the step; and, (c) be patent which law nor mischievous to the state by will occupy industrially raising prices or commodities at home, applicable. the attention or hurt of trade, or generally of this inconvenient •The first two of these Committee. three are only • The legal satisfied if the ‘prior boundary of the patent monopoly art’ (i.e., relevant information that is defined by the ‘claims’ which has been published or is publicly are contained in the patent available before the earliest ‘priority document. The claims can number date’ (i.e., the earliest filing date of only one, but generally are more. the patent application)) does not The ‘claims’ define the ‘invention’ disclose the invention (novelty) nor that is the subject of the patent does not disclose enough monopoly. The legislative definition information about the invention that of ‘invention’ is: would enable a person of ordinary skill in the relevant technology to any manner of new consider the inventive step of the manufacture the subject of invention to be obvious (lack of letters patent and grant of inventive step). privilege within section 6 of the Statute of Monopolies, • Unless all patentability conditions and includes an alleged are satisfied the patent is invalid invention. ab initio (Latin: from the • According to the High Court of beginning). Australia [National Research Development • A patent can also be invalid in as Corporation v Commissioner of Patents (1959) much as the conditions stipulated in 102 CLR 252, 269] this involves asking section 40 AU Patents Act, 1990 are the question: not satisfied, namely, that (a) the Is what is defined in the invention is not fully described; (b) 2

the claim(s) is not clear and succinct Brief History of Australian Patents Legislation and fairly based; and, (c) the claim(s) relates to more than one • The AU Patents Act, 1990 (the invention. current operating legislation) was preceded by the AU Patents Act, • No Australian patent is presumed to 1952 which was preceded by the be valid as a matter of law. Section AU Patents Act, 1903. 20(1), AU Patents Act, 1990 provides: • Prior to Federation in 1901 the Australian colonial governments Nothing done under this had their own laws relating to Act … guarantees the patents. However, by virtue of granting of a patent, or that a patent is valid, in section 51 (xviii) of the Australian Australia or anywhere else. Constitution, the ‘power to make laws for the peace, order and good • Moreover, section 20(2) provides government of the Commonwealth’ that neither the Australian Patent with respect to ‘Copyrights, patents Office nor any of its employees can of inventions and designs, and trade be sued with respect to ‘any act’ marks’ is exclusively vested in the under the AU Patents Act, 1990. Australian Parliament. This would include the granting of an invalid patent. • The Australian colonies received their law from Great Britain. • Consequently, invalid patents are Through the effect of convention often granted by the Australian and law, the laws passed by the Patent Office British Parliament and and there is, at No patent is guaranteed validity the interpretation of present, no those laws by the legal or IP Australia is immune from suit even if British courts economic it grants an invalid patent remained relevant to accountability the development of for the Invalidity of one or more claims does law in Australia until consequences not necessarily render the whole 1986, when the suffered by patent invalid. Australia Act was those passed by the detrimentally Australian Parliament. affected. Essentially, the Australian There remains a legislative link to patent system (as does all others) the statutory beginnings of the relies on private litigation to resolve modern ‘patent’ in Great Britain in disputes over patent validity. This is that the AU Patents Act, 1990 an extremely inefficient and very defines the word ‘invention’ to expensive method which only mean: works when the parties to the litigation have the commercial ‘any manner of new manufacture the subject of incentive, sophistication, lawyers letters patent and grant of and access to the millions of dollars privilege within section 6 of needed to pursue the litigation to the the Statute of Monopolies, highest appeal court. and includes an alleged • Invalidity of one or more claims invention’. does not necessarily render the whole patent invalid. Whether the whole patent is invalid will depend on the structure of the patent claims, and this will depend of the nature of the ‘invention’ and the skill of the patent attorney employed to draft the patent documentation. 3

2. The British Patent separation of powers and an System essential contribution to the evolution of the modern democratic • The Statute of Monopolies, 1623 state. was a statute passed by the British • There were, however, some Parliament in 1623. The principal exceptions to the prohibition of objective of the law was to monopolies, such as the monopolies encourage economic development which the East India Company and by declaring all monopolies (with the Virginia Company enjoyed with some exceptions), including those respect to the trade in specific established by virtue of the King’s commodities, and the monopoly of letters patent, illegal. Section 1 the Courts to grant certain warrants stipulated as follows: and of cities, towns and boroughs to All monopolies and all regulate activities within their commissions, grants, borders. licenses, charters and letters patent theretofore made or • Another exception was that granted or heretofore to be provided in section 6. This allowed made or granted to any the King to issue letters patent for person or persons, ‘any manner of new manufactures’ bodies politic or to ‘the true and first corporate The principal objective of inventor and inventors’, whatsoever, of or the Statute of Monopolies, provided that the for the sole buying, 1623 was to ban monopolies monopoly did not extend selling, making or beyond 14 years and ‘be using of anything An exception was made for not contrary to the law nor within this realm … letters patent that granted to [are] utterly void the first and true inventor a mischievous to the state and of none effect. monopoly of not more than by raising prices of 14 years in respect of a commodities at home, or • The drafter of this manner of new manufacture hurt of trade, or generally legislation and its provided always that it was inconvenient’. Effectively, principal sponsor in not unlawful nor section 6 was the genesis the British Parliament mischievous to the state by of the modern patent was Sir Edward Coke, raising prices of systems of all common a noted lawyer, jurist, commodities at home, or law countries including privy counsellor and hurt of trade, or generally the United States, Canada, parliamentarian. Coke inconvenient. India, New Zealand, believed that South Africa, Singapore monopolies were and, of course, Australia. contrary to the good governance of Indeed, until the 13 colonies of the economy and to the full North America ceded from Great employment of the people of Great Britain to establish the United States Britain. Throughout his career he of America under its Constitution in sought to strike down laws and 1787, the laws of Great Britain regulations that permitted the provided the template for their own capricious use of monopolies. colonial legislatures, much like they Coke’s contribution to the common did for the Australian colonies. law was significant. In one case, commonly referred to as Dr The Statute of Monopolies and its relevance to the patent laws of the United States of America Bonham’s Case, he held: ‘when a statute was against the common • Although the United States right and reason, or repugnant, or Congress passed the first US impossible to be performed, the Patents Act in 1790 without specific Common Law will control it and reference to the Statute of adjudge such Act to be void’. The Monopolies, 1623, it was the intent effect was to hold parliament of the Congress that patent accountable to the judiciary – monopolies were only to be granted establishing one of the pillars of the in the United States provided they 4

were not injurious to the economy patents satisfied the patentability or national security nor contrary to conditions under US patent law. the best interests of its citizenry. • Thus the US Patents Act, 1836 saw Under section 1 of the US Patents two significant reforms. First was Act, 1790 not only was the patent the establishment of the US Patent monopoly restricted to ‘any useful Office. Second was the art, manufacture, engine, machine, reintroduction of pre-grant or device, or any improvement examination. Accordingly, pre-grant therein’, but petitions for the grant examination by the US Patent of patent monopolies were to be Office was expected to weed-out scrutinised by a high level executive unmeritorious patents. committee consisting of Thomas Unfortunately the cost, which Jefferson, the Secretary of State; included the cost of employing a Henry Knox, the Secretary of War Commissioner of Patents and patent and Edmund Randolph, the examiners and maintaining a patent Attorney-General. That these men office, was high; and while the US were delegated the responsibility of government underwrote the cost, the examining each and every petition introduction of patent filing fees for a US patent monopoly confirms defrayed this cost. that not only was the veracity of the inventor’s claim to •The establishment of the having ‘invented’ US Patent Office to assess something In 1836 the United States applications for patent patentable assessed, Patent Office was established monopolies by reference but, inevitably, so in an attempt to stop the only to compliance with was its impact on grant of patents over trivial certain technical patent inventions. Pre-grant the nation’s examination by patent thresholds had, however, economy, security examiners provided a unintended economic and citizenry. mechanism for vetting patent consequences. By 1890 the US Congress passed the • Clearly the backlog applications. Sherman Antitrust Act in patent In 1883 the British Patent specifically to prohibit applications and the Office, established in 1852, conduct designed to administrative was also required to ‘monopolize any part of the burden placed on undertake pre-grant trade and commerce among these three examination of patent the several States, or with officeholders under applications. foreign nations’. Despite this legislation was the fact that this legislation the reason why the has never been interpreted US Patents Act, 1793 removed the to apply to patent monopolies per requirement that they examine each se, it has been used to successfully and every patent application, prosecute corporations that have leaving it to private parties and the sought to gain an unfair advantage courts to resolve arguments about in the marketplace through the use the validity of the patents. But that of patent monopolies. move produced an unforeseen consequence. It opened the patent- floodgates and after the many Establishment of a British Patent Office, 1852 complaints about the low quality of a good number of the 10,000 patents • In Great Britain a proposal for the that were granted between 1793 and introduction of a US-style pre-grant 1836 was considered, it was decided examination was entertained in that the removal of the requirement 1851 but rejected by the British to scrutinise patent applications was Parliament in 1852. So although the detrimental to the country. So what British Patent Office was was needed was some established in 1852, it was a library administrative body to scrutinise and repository for models of patent applications to ensure that the inventions. 5

British Royal Commission into the Workings of inventors knew that such an the British Patent Law, 1862-1864 examination would take place it would, as he said, ‘stop a great • Within 10 years, however, the number of Patents in limine’ (Latin: government of Lord Palmerston at the threshold). called a Royal Commission into the workings of the British patent • Bennet Woodcroft, the system. It was conducted between Superintendent of Specifications at 1862 and 1864 to investigate the the British Patent Office, was, proliferation of patents brought however, opposed to pre-grant about by the 1852 legislation. There examination of patents. Woodcroft had been some considerable referred to letters from his American complaint that too many patent counterpart, Justice Mason. He monopolies were being granted, explained that pre-grant many of which were of a ‘trifling examination of patents would be and frivolous nature’. very expensive and in support referred to one of the letters he had • Thomas Webster, a London barrister received from the US and drafter of the 1852 legislation, Commissioner of Patents to say that reminded the Commissioners that ‘the Americans pay about £23,000 a pre-grant examination had been a year for preliminary examination feature of the Bill which he drafted and they are very much dissatisfied but was deleted through an with it’. He not only described the amendment made to the Bill while it US pre-grant examination of patents was before the House of Lords. He as ‘very inadequate’ but also ‘a very argued that this amendment had cumbrous, been a unsatisfactory, and mistake Evidence was presented to the Royal unfair mode’ in the because Commission into the British Patent way it operated. He without pre- Laws in 1862 that without pre-grant pointed out to the examination the British patent system grant Committee that ‘the examination was ‘not only useless, but positively mischievous’. system of preliminary the British examination has been patent system tried and found was, in his opinion, ‘not only wanting … in France, Austria, useless, but positively mischievous’. Sardinia and Belgium … and According to Webster it encouraged abandoned in each country’. a ‘large class of speculators’ against which ‘almost all the objections’ • Another concern raised before the that had been made about the patent Royal Commission was the cost of system arose. He pointed out that patent litigation. According to under the 1852 patents legislation, William Carpmael, a noted London the two law officers who were duty patent agent with about forty years bound to ‘examine’ petitions for experience, patent litigation was letters patent had ‘granted within a ‘very expensive’. He attributed the very short time, [patent monopolies] major cause of the increasing containing if not the same thing, so expense to the lack of a requirement much of the same thing that one on the patent owner to ‘state with Patent would vitiate the other’ and sufficient accuracy the precise suggested that in the absence of a point’ in which the patent was ‘community of information’ in infringed, and explained that often regard to what was being patented, ‘the defendant has not the slightest the patent system was flawed in that notion’ until the opening of the case it was impossible to ensure that ‘bad what the precise point of the patents’ were not granted. Clearly, complaint for the infringement Webster was in favour of extensive against him was. Thomas Webster pre-grant examination being agreed, arguing that the ‘greatest conducted by the British Patent expense’ of the proceedings arose Office for the reason that if from the ‘bush-fighting’ between 6

the parties, where neither were Industrialization without National Patents: The Netherlands, 1869-1912, Switzerland, 1850-1907, compelled to disclose their case. In Princeton, New Jersey, US: Princeton University a related issue concerning the Press] adequacy of the courts to deal with the factual and legal issues • Between 1850 and 1873 serious surrounding patent validity, Webster consideration was given to suggested that it would be better to abolishing British patent ‘get rid of the jury’, with patent monopolies. In February 1851 The cases to be ‘tried by one of the Economist critiqued the British Judges of the superior courts’ with patent system: the aid of scientific assessors. An The privileges granted to American firm of patent attorneys, inventors by patent laws H & C Howson, who were are prohibitions on other observing the patent debate in Great men, and the history of Britain agreed with Webster and inventions accordingly Carpmael. They reported that the teems with accounts of British patent system encouraged trifling improvements ‘[the] indiscriminate and patented, that have put a stop, for a long period, to uncontrolled issue of patents … other similar and much [with] no check upon the repeated greater improvements. It patenting of similar inventions’. teems also with accounts Worse still, the of improvements adjudication of the carried into effect the validity of British Of the complaints made instant some patents patents in the about the British patent had expired. The courts was ‘so system in the mid-19th privileges have stifled terrible an ordeal, century, one was that patent more inventions than litigation was expensive and they promoted, and that sooner than inefficient. invite it, most have cause more brilliant schemes to ordinary mortals Another was the number of be put aside than they would be content to ‘trival and frivolous patents’. the want of them have their rights could ever have remain forever Yet another was the inability induced men to undefined and of patent examiners to assess conceal. Every patent unrespected.’ novelty and inventiveness is a prohibition against improvements in a particular British Free Trade Policies and Criticism of direction, except by the Patent Laws in Great Britain and Continental patentee, for a certain Europe, 1850-1875 number of years; and, however, beneficial that • British scepticism of patent may be to him who monopolies had been growing since receives the privilege, the the 1830s - a time when ‘free trade’ community cannot be was considered to be in the best benefited by it …. On all inventors it is especially a interests of the British economy. prohibition to exercise their Increasingly patents were perceived faculties; and in proportion to be trade barriers, akin to tariffs, as they are more which imposed additional (and numerous than one, it is an unnecessary) burdens on domestic impediment to the general manufacture. Indeed by 1869, so advancement, with which it convinced was the government of is the duty of the The Netherlands of the benefits of Legislature not to interfere, free trade that it repealed the and which the claimers of country’s first patent law which was privileges pretend at least first enacted in 1817. Moreover, to have at heart. Switzerland continued to refuse to • Indeed successive British enact such a law. [See Schiff, Eric (1971), governments held Inquiries into the 7

British patent system. The last of Benjamin Disraeli (British Prime these, in 1871, saw the appointment Minister 1868, 1874-1880) of a House of Commons Select introduced a Bill into the British Committee [HC Deb 07 March 1871 vol 204 Parliament in 1875 and 1876 to cc1512-34]. The Committee took amend the British patent system. evidence from people in all sectors What is interesting is that although of industry, the legal and patent Lord Granville (a Liberal who had professions, inventors and trade served in the government of associations. The result, in 1872, William Gladstone) was of the was a Bill to Amend the Patent Law opinion ‘that there are evils the effect of which was to: (a) “inherent in the nature of the Patent reduce the patent term from 14 Law” which no legislation but years to 7 years; (b) provide for a legislation to abolish patents will much stricter pre-grant examination succeed in removing’, he was not of patent applications; (c) enable the complaining that the Bill ‘did not revocation of patents not worked propose the total abolition of the within two years and (d) permit the Patent Laws’ because, he said, ‘I am compulsory licensing of all patents. ready to admit that … public opinion is not yet ripe for such a • The Bill, however, lapsed as the measure’. What is even more government of William Gladstone interesting is that the sponsor of the (British Prime Bill, The Lord Minister, Chancellor (Hugh 1868-1874) By 1873 serious consideraton was Cairns PC QC), became being given to the repeal of patent admitted in the House concerned to laws throughout Europe. The of Lords that he had deal with the Netherlands repealed its patent law in 1869, the newly unified Germany ‘never been a strong- effects of a had not enacted a national patent advocate for patents’, major economic law and Switzerland was refusing to nonetheless he believed recession which do so. that it was ‘desirable began in early that the public should 1873. In the UK a Parliamentary Select discriminate between • Committee had recommended As it turn out, reducing the patent term from 14 to the principles of a the Franco- 7 years and the ability to Patent Law and those Prussian War of compulsorily license all patents. inconveniences and 1870-71 not anomalies which exist only cost in the working of it … William Gladstone the British [which] in place of going to the election in 1874, but, having abolition of our Patent Laws, are triggered a deep and long rather to be treated as arguments for worldwide recession, as the the modification and amendment’. recession’s effects deepened so the Finally he said: call for free trade vanished. As I will not speculate as to protectionist policies regained what may happen in the popularity with governments across course of 100 years. The Europe the tariff reductions which country may come round to had occurred since the 1830s, the opinion that it could do mainly as a result of various ‘free without a Patent Law, and I trade’ agreements that Great Britain should look forward to such had negotiated with its trading a state of things with partners, evaporated. Notably, so considerable complacency. did the idea of abolishing patent But what we have to do in monopolies. the present day is to see what we can do to improve A Unified Germany: The New Economic the system which exists, Threat to Great Britain and Protectionism, and which by this Bill we 1871-1914 are not going to overthrow. (Emphasis added) [HL Deb • The Conservative government of 26 February 1875 vol 222 cc916-41] 8

• Clearly, leading political and legal American – patent figures in Great Britain at that time applications. These patents were ambivalent towards patent will not be taken out in monopolies which, in their order to protect industrial opinions, had not been shown to be plants established or to be established in Germany; positive inducers of economic they will be taken out to growth. But something made them monopolize production hesitate in abolishing patents. Was it abroad. These articles will merely public opinion, as they say, be imported into this or were they concerned to ensure country. Such a danger that the British economy was not must be met. It is not vulnerable to competition from enough to provide that Germany? foreign patentees be required to submit • It must be remembered that it would evidence that they have have been known to the Disraeli established a plant in government that Germany’s first Germany. Such evidence Chancellor, Otto von Bismarck, was may be mere shadow; they consulting with senior German can merely keep a small industrialists to develop the domestic production going country’s first national patent law. to maintain their Working in close consultation with patents.” (Emphasis added) Werner Ernst Siemens (a co-founder of Siemens AG), Bismarck not only • This Committee should note the sought to establish a words that have been German patent highlighted because his The incentive to retain patent system but he also systems after 1873 was the words are as relevant today ensured that it protectionist policies that as they were in 1876. It is would protect were fueled by a world through the control on the German industry. economic recession and a use of leading-edge Tariffs may have uniquely American view that technology, which patent been the blunt patents induced innovation monopolies enable, that is instrument of and economic development. posed the greatest economic protectionism, but threat to the host (or target) for Bismarck and nation. Siemens patent monopolies were far • Perhaps it may have been better for more subtle. That this was a view Germany to have followed the held by Siemens is evident from a example of The Netherlands which speech he made in 1876. He said: repealed its patent law in 1869, but “Today [German] industry as a result of the diplomatic efforts is developing rapidly; and made by the United States in 1873 as a result monopolization at the world’s first international of inventions and abuse of patent conference held in Vienna, rights will inevitably expose Germany did not have the same large segments of industry to serious injury. The incentive to do so. So having government must protect committed to maintaining a patent industry against these system, Bismarck enacted a German dangers. From abroad patent law that would minimise the another danger may arise. threat that Siemens spoke of. Inventive work is far more • developed in England, Undoubtedly, the German United States and France Reichstag’s decision to pass the first than in Germany. … . New national patent law in 1877 brought legislation will lead to a to an end Great Britain’s ‘free substantial increase of trade’ foreign policy. foreign patentees. We shall • experience a wave of Not only that, in what ultimately foreign – particularly was a tit-for-tat response, between 1877 and 1880 the Disraeli 9

government continued to pursue a was that competitors would policy of maintaining British patent actively monitor each other’s laws. technological developments and so would augment the • Ultimately, the British Parliament examination conducted by the passed a new and comprehensive patent examiners employed by patent law in 1883, but ironically it the British Patent Office. This was the re-elected government of was to give British William Gladstone, returned in manufacturers the ability to 1880, which sponsored this law. By supply information to the 1883 even the Liberals (who had British Patent Office; spoken in favour of the complete abolition of the British patent (c) Definition of ‘invention’: for the system before 1874) accepted that first time the word was defined the British patent system had to stay in a specific patent statute to if for no other reason than to protect mean ‘any manner of new Great Britain’s economy from manufacture the subject of Germany. Letters patent and grant of privilege within section 6 of the Statute of Monopolies and Reform of British Patent includes an alleged Laws, and Protectionism The decision to retain the invention’. Accordingly, British patent system was in response to the threat patentable subject matter • Even so, certain was restricted to a specific features which the posed by German industrialisation. class of innovation – one UK Patents, Designs that was both a ‘manner of and Trade Marks In 1883 the first new manufacture’ and not Act, 1883 introduced comprehensive patents law illegal or injurious to the into the British in British legal history British economy; patent system deliberately made it difficult showed that to get patents, particularly if (d)Compulsory Licensing: Gladstone’s the patentee was foreign. Anyone in Britain could government was not apply for a ‘compulsory going to make it Compulsory licensing was license’ if the ‘invention’ easy for anyone, intended to ensure that was being manufactured particularly British patents were not ‘exclusively or mainly foreigners, to obtain used to suppress outside’ of the Great Britain industrialisation within or if the ‘reasonable a patent monopoly. Great Britain. These features were: requirements of the public’ with respect to its (a) Pre-grant patent availability were not being met examination: the British Patent or if any person was ‘prevented Office, first established by the from working or using to the UK Patent Law Amendment Act, best advantage’ that invention. 1852, went from being The compulsory licenses were essentially a patent library to granted by the British Board of being an office which Trade ‘on such terms [as the scrutinised patent applications. Board] may deem just’. This was supposed to prevent the grant of patent monopolies • Thus, under the 1883 legislation the with respect to innovations that British Patent Office was no longer were not inventions; a mere repository of patent information but was required to (b) Opposition: any interested party assess the effects of British patents could ‘oppose’ the grant of a on the British economy. patent before grant by the British Patent Office. This enabled the market, so to speak, to self-regulate through the opposition process. The idea 10

British and US Patent Systems Diverge – defence to the British economy. Misuse of Patent Laws and Antitrust While the working of a patent by a patent owner exclusively outside of • While both the US and the UK had the UK was retained as a ground established patent offices, it would upon which to seek relief, be fair to say that by 1890, when the jurisdiction was transferred from the Sherman Antitrust Act became law British Board of Trade to the British in the US, the US Patent Office’s Patent Office at the same time as the only role was to assess patent applicable relief was not solely a applications without reference to compulsory licence but included the economic issues, whereas the option of revocation. Moreover, British Patent Office did more – it while the ability to petition for a was required to consider the compulsory license or revocation economic effects of patents as well. was carried over from the 1883 Essentially, the economic effect of legislation, the British Board of US patents on the US economy was Trade was now required to refer an a matter for the US Department of application to a court which would Justice, not the US Patent Office, then decide whether to grant a whereas in Britain it was a matter compulsory licence or revoke the for both the British Board of Trade patent. and the British Patent Office. So although both patent systems had Impact of this Divergence on Australian Patent their genesis in section 6, Statute of Law Monopolies, 1623, by the turn of the •This divergence between 20th century they US and British patent had diverged in this The British patent system was systems is also relevant to very significant always designed expressly to Australian patent law way. take into account the economic effects of British because, almost • This philosophical patents in Great Britain, unquestioningly, the new divergence between whereas by the mid-19th Australian Parliament the British and century in America that role not only modelled the American patent had been relegated to Patents Act, 1903 (Cth) on systems continued antitrust laws. the UK Patents, Designs to widen. By 1907 and Trade Marks Act, the British 1883 (as it was amended in Parliament had replaced the 1883 1902) but the Australian legislation with the Patents & Parliament took its lead from Designs Act - significantly London and amended the 1903 strengthening Britain’s economic legislation to stay in step with shield in the process. Unlike the subsequent developments in 1883 legislation, which gave the British patent law. power to revoke exclusively to the • According to David Fulton, a courts, for the first time the British British patent law commentator of Patent Office was provided with the the day, the patent legislation in power to revoke a British patent, 1902 and 1907 restored the ‘original after a four year threshold, on the intention of the Statute of grounds that the patented article or Monopolies’, one that saw patents process was ‘manufactured or ‘not granted to inventors as a carried on exclusively or mainly reward for being ingenious, but for outside’ the UK. This was in the purpose of introducing new addition to the fact that applications manufactures into the country and for compulsory licenses could to create increased employment for continue to be made to the British the working classes’. Board of Trade, which was now also given the power to revoke the patent • It is commonplace for people to as an option to the grant of a believe that patents were and are a compulsory licence. The new reward for inventors’ ingenuity and legislation thus provided a twofold it is important to appreciate the fact 11

that this is not now nor has it ever British patents (and by this he been the case. It may well be a side meant mainly German chemical effect of patents that inventors may companies that had cartelised world receive higher than normal prices chemical production). George’s for their inventions, but that was complaint was not only directed to not, as Fulton emphasised, the their use of British patent principal purpose of patent monopolies so as to suppress monopolies. chemical production in Great Britain but how, in ‘covering all possible combinations [of True Purpose of Patent Law: Incentive for chemicals]’, they were used to Industrialisation, Not to Reward Ingenuity restrict research and development as well. Kenneth Swan QC (a well • The true purpose of the British respected British barrister who patent system was always economic would chair a Parliamentary and while Fulton was right to point Committee of Inquiry into the out that patent monopolies were British patent system in 1945) also designed to act as shared these concerns. Writing inducements for It is commonplace for in 1908, Swan believed that domestic industrial people to believe that ‘[l]atter-day commercial development, he patents were (and are) a methods have ... shown that in acknowledged that reward for inventors’ the hands of unscrupulous whether they actually ingenuity. This is not proprietors a British patent can did so depended on now nor has it ever be turned to great profit for the how patentees chose been the case. patentee without a to exercise their patent The true purpose of the corresponding benefit to the monopoly rights. As public.’ Fulton said: British patent system was always economic Calibrating the Patent System It is equally and while patent indisputable that, monopolies were •Thus, what Fulton, George under the designed to act as and Swan understood was how conditions existing inducements for important it was to get the before the coming domestic industrial balance right between the into force of the development, whether present Act, many they actually did so incentive which patent a patent granted to depended on how monopolies supposedly gave a foreigner, so far patentees chose to to domestic industrial from being an exercise their patent development and the cost and encouragement to monopoly rights. effect which those monopolies native industry, was imposed on the economy as a a positive fetter whole. If the patent system upon the wrists of was out of balance, so that those who would otherwise little regard was paid to the negative have found profitable effects of patent monopolies, then employment had working in this country been made rather than inducing economic compulsory. growth patent monopolies could (and did) suppress it. • Fulton’s view was also shared by Lloyd George (British Prime • Even worse, the patent system could Minister (1916 - 22)) who, while the be (and was) used by foreign President of the British Board of interests to subjugate the host Trade, introduced the 1907 patent country’s economic development. legislation in the British Parliament. During the Bill’s reading in the House of Commons, George German suppression of British and US industrialisation using Patents: Chemicals, emphasised that the object of the Medicines and World War I legislation was to ‘combat the evil’ created by the ‘abuse’ of the British • Unfortunately, the UK Patents & patent system by foreign owners of 12

Designs Act, 1907 came a little too very little scope for any meaningful late to provide the British economy technological transfer to the US. with any meaningful protection • Beyond artificial dyes, however, against German industry, which in were medicines. The analgesic, 30 years had become the leader in Aspirin, and the anti-syphilitic, chemical and electrical Salvarsan, were considered to be the technologies. What was unforeseen miracle drugs of the day. Their was a war which brought the production and availability in most German and British Empires into countries, however, was tightly military conflict only 7 years later. controlled by German companies Even neutral countries, such as the through the patent monopolies US, suffered as a result. US textile which the host countries had manufacturers had come to rely on granted. In February 1917 this new and leading-edge artificial situation prompted Dr F E Stewart, dyes, such as alizarine, that were a noted American pharmacist, to manufactured in Germany and write to the government of US imported into the US; but with a President Woodrow Wilson stating: wartime embargo on German exports in place, this became It becomes evident that impossible. Suddenly, the US [US] patent law as now Congress realised that patents had interpreted and applied undermined, not promoted, US does not promote progress industrialisation, in the arts of chemistry, pharmacy It is important to get the the US economy and drug therapeutics balance right between the and US national as carried on in the incentive which patent security. Of course, United States; in fact monopolies may provide German chemical it is a very serious industrial development and companies had hindrance … to the cost and effect which science … because it patented these those monopolies imposed does not stimulate artificial dyes on the economy as a whole. original research on (which were then If the patent system is out of the part of would-be the product of balance, then rather than inventors in this leading-edge inducing economic growth country. Neither does technological patent monopolies will it build up United suppress it. processes) in the States industries. US, a country that permitted the •The UK was in similar dire patenting of chemical substances straits. In this extraordinary and medicines (something which situation, the reinforcement of the could not be done in Germany). compulsory licensing provisions Using their US patent monopolies under the UK Patents & Designs over chemical substances, German Act, 1907 to even include companies ensured that the US revocation as an option proved to be remained an export market for their ineffective. The British and dyes and medicines by suppressing American patent systems, being their manufacture in the US. the only ones that permitted the Accordingly, essential know-how patenting of all inventions and expertise over chemical (including chemicals and production remained in Germany. medicines), had unwittingly Shrewdly, much of the information undermined their own ability to disclosed in the US patents by developing crucial know-how and German inventors was not only industrial capacity in leading- insufficient to permit large scale edge technological fields. commercial production, but in some • Of course extraordinary events instances was so misleading as to be prompted extraordinary responses. dangerous to human life. Indeed, For instance, as reported in The even when passing pre-grant Australian on 17 September 1915, examination, these patents provided 13

the Australian Prime Minister, very beginnings to this policy. William (Billy) Hughes, announced • The British Parliament went further that the Commonwealth of Australia and in 1919 passed amendments to had compulsory licensed Henry the UK Patents & Designs Act, Shmith and George Nicholas to 1907 that expressly excluded manufacture and sell Aspirin. chemical products as patentable According to Hughes the subject matter. Australian-made version of Aspirin was ‘purer’ than the German and the • What WWI had demonstrated to ‘conditions of the license’ ensured British and American policymakers that the drug should ‘comply strictly was that patents were not innocuous with the requirements of the British instruments which only acted as Pharmacopœia’, and that the stimuli and rewards for inventions. conditions of manufacture and the Moreover, it was a matter of price at which Aspirin would be national economic interest and sold should be ‘satisfactory to the security that a country had a Attorney-General’. The Australian practical capacity to produce version used the trade mark Aspro, leading-edge technologies, and through the marketing of this regardless of which country was the medicine by Alfred Nicholas sales originator of these technologies. of Aspro were eventually made to the UK, South Africa, Belgium, What WWI demonstrated to The Rising Economic Threat Egypt and by 1935 British and American of Technological Cartels Prior to France. This policymakers was that to WWII generous move by patents were not innocuous • Hughes established instruments that acted as Throughout the 1920s, as one of Australia’s stimuli for inventions. US and British companies most important tried to develop large scale pharmaceutical The national economic chemical production companies. interest and security capacities, they soon realised demanded that at all times that despite possessing the • The US and British their countries possessed a factories and patents once governments both practical capacity to owned by German passed their own produce leading-edge companies, without the legislations entitled: technologies. associated know-how and Trading with the practical and scientific Enemy Act. The US expertise, which only the legislation passed in 1917 and, German’s had, progress would be despite the fact that WWI had very slow. Exploiting the need for ended, in 1919 nearly 10,000 this knowledge, German patents were seized under this industrialists were able to negotiate legislation, including approximately their way back into positions of 100 patents that related to radio influence within US and British technologies alone. While the corporations, either directly through confiscated radio patents were sold share ownership or through strategic to the US Navy Department for corporate relationships. For nominal sums, by far the largest example, by 1926 Standard Oil had single beneficiary of these patents commenced a joint research project was The Chemical Foundation, Inc. into the establishment of synthetic This Foundation, which acted fuel production in the United States essentially as a trustee for the US with I.G. Farbenindustrie A.G. (I.G. government, then used these US Farben) using catalytic patents, confiscated from German hydrogenation research. [Incidentally, chemical companies such as Bayer, during WWII I.G. Farben’s used the free labour supplied from Auschwitz to produce synthetic oil to establish a chemical production and rubber. It also owned patents over Zyklon B, capacity in the US. Indeed, many the poison, manufactured by one of its US pharmaceutical giants owe their subsidiaries, used in the Holocaust] 14

• Had it not been for the spectacular • While this action restored national collapse of world capital markets in security, Roosevelt left it to October 1929, the subsequent Thurman Arnold, an Assistant Depression and the rise of fascism Attorney-General and head of the in Europe during the 1930s, this US Department of Justice’s process would have probably Antitrust Division (1938-1943), to continued. However, the prolonged unravel the cartels which had effects of the Depression and the formed between US and German remilitarisation of Germany made (and other foreign) corporations US and British policymakers wary around various patent technologies. of these corporate associations. On • For example, in 1919 Sterling Drug, 29 April 1938 US President Inc acquired the plant, equipment, Roosevelt sent a message to the US trade marks and patents owned by Congress complaining that the Farbenfabriken vorm. Friedr. Bayer ‘concentration of private power & Co (Bayer Germany) in the US without equal in history’ was a and confiscated by the US threat to the United States. He asked government. During the 1920s and that the US patent system be 30s Sterling had become closely scrutinised because he believed that associated with I.G. Farben for the the concentration of corporate reasons already explained. Sterling power was being exercised through and I.G. Farben came to Arnold’s the use of extensive patent attention prior to WWII, but by portfolios that 1941 as a result of his controlled leading- Patents are supposed to investigation into possible edge technologies. contain information that breaches of the Sherman He wanted the US teaches an ordinary skilled Antitrust Act, 1890, Congress to amend person how to make the Sterling, three of its the patent law ‘to invention. As the Americans subsidiaries and two of its prevent their use to learned in the 1920s this was most senior directors suppress inventions often not true. On many pleaded guilty, agreed to and to create occasions the information pay fines and gave written industrial was deliberately misleading undertakings to break ‘all monopolies’. or so preliminary as to be contractual obligations with Roosevelt struck practically useless. I.G. Farben’ and to agree out at the patentee’s ‘never again to promise any right to exclude the other drug manufacturer not to working of an invention by compete in foreign markets.’ proposing that patented inventions should ‘be made available for use by anyone upon payment of appropriate royalties’. • However, with the US entering WWII, Roosevelt’s attention turned to the defence of his country. Thus, his call for patent law reform faded as the US government instead turned to the US Trading with the Enemy Act, 1917 to expedite its control, seizure and confiscation of German, Italian and Japanese owned patented technology. Once again the ownership of thousands of patents was transferred from foreign (enemy) nationals to US corporations. The British Parliament passed its own version of the Trading with the Enemy Act, 1939. 15

3. Contemporary some US$200 million from Problems and Issues pharmaceutical companies for with Patents agreeing to withhold production of . generic medicines as part of out-of- • One of the longest and most court patent litigation settlements. lucrative cartels in history involved Apparently, ‘patent clustering’ is General Electric (GE) and Philips, another tactic which has been used which were the world’s leading to create barriers to entry. In her manufacturers of incandescent light statement, Kroes said: ‘The worst bulbs (first invented around the example we found of this method same time by Joseph Swan in was 1,300 separate patent filings, England and Thomas Edison in the across the EU, for a single US in 1878). They too were medicine’. Yet another tactic, which investigated for antitrust violations the Report noted, is the use of and by 1949, when the litigation extensive patent litigation which between the Respondents and the when resolved usually went against US Department of Justice was the patentee - meaning that the finalised, nearly 70 years had patent, as granted by the EPO, was passed since Edison’s light bulb was invalid in the first place. first patented and around 33 years Consequently, even during the had passed since the last of the course of the patent litigation, patents over key improvements had which on average took three years, been granted. This the patentee received an meant that for over economic and benefit that it The European was not entitled to receive. 50 years GE (in Commission’s Competition agreement with Commissioner, Neelie Despite this, there is no Philips) had, in the Kroes said: ‘The worst mechanism currently in place absence of a patent example we found of [the that enables the authorities to monopoly, used its use of patent monopolies recoup the economic value of market leadership, to suppress generic the illegal patent monopoly gained through medicines] was 1,300 from the patentee unless that patent monopolies, to separate patent filings, conduct amounts to a breach illegally maintain across the EU, for a single of European antitrust laws, in and extend market medicine’. which case, substantial fines control through and penalties can be imposed various agreements by the European and commercial devices deliberately Commission. According to Kroes, designed to suppress competition. even so, the alleged illegal antitrust activity has cost EU governments • Relevant to this Senate Inquiry are about US$3,800 million to date. The current events in Europe. Presently, investigation is continuing. the European Commission is undertaking a wide-ranging antitrust • What the European Commission’s investigation of pharmaceutical investigation demonstrates is that companies into their alleged use of large multi-national corporations patents and patent litigation to (which are usually also the owners inhibit competition. of key patents over leading-edge technologies) have, in the absence • On 28 November 2008 the of a strong regulatory and European Commission’s enforcement regime, a propensity to Competition Commissioner, Neelie use their market power (and this Kroes, held a press conference in may be exercised through patent Brussels in which she outlined the and patent related litigation) in ways preliminary findings of a year long that are economically and socially investigation. The Commission not damaging. It also demonstrates that only targeted established despite the fact that 140 years have pharmaceutical giants but generic passed since the British Royal manufacturers, who had received Commission into the workings of 16

the British patent system first heard Solvay SA. The complaint alleges complaints about the cost of patent that the generic manufacturers have litigation, and despite all of the violated the Sherman Act, 1890 by measures introduced into various agreeing to ‘delay until 2015 the patent systems and court sale of the low-cost generic versions administrations around the world to of AndroGel, a widely prescribed reduce these costs and improve the branded testosterone replacement efficiency of courts and patent drug, in exchange for substantial administration since that time, the payments from Solvay’. very same complaints are being • The charges made in the Complaint aired today. As a result, not only has arise from the agreement to settle patent litigation been used, as Kroes patent litigation which Solvay had alleges, for unlawful purposes, but brought against the generic the cost of patent litigation around manufacturers for patent the world (including in Australia) is infringement and, in response to itself an accessory to that illegality. which, the generic manufacturers On 15 February 2007 before the US had cross-claimed to revoke the House of Representatives relevant Solvay patent (which was Subcommittee on Courts, The due to expire in 2020) on various Internet and Intellectual Property grounds. Committee on the Judiciary, Dr Mark •In this respect it is The European Commission’s Myers, a former investigation demonstrates important for the Vice-President of that large multi-national Committee to understand Xerox Corporation, corporations (which are that the grant of the patent said in evidence: usually also the owners of under the US Patents Act, … [patent] key patents over leading- 1952 (as it does under the litigation costs edge technologies) have, in AU Patents Act, 1990) are escalating the absence of a strong comes without any rapidly and regulatory and enforcement conditions in respect of proceedings are regime, a propensity to use how a patentee may protracted. their market power (and this exercise their right of Surveys may be exercised through exploitation. Thus it seems, conducted patent and patent related litigation) in ways that are at first glance, impossible periodically by that the terms of a patent the American economically and socially damaging. litigation settlement Intellectual agreement, particularly Property Law Association when under US patent law indicate that litigation a granted patent is presumed to be costs, millions of dollars for valid (not under Australian patent each party in a case where law), could constitute a breach of the stakes are substantial, antitrust laws. After all, is not the are increasing at double patentee merely acting within its digit rates. At the same legitimate rights? time the number of lawsuits in District Courts is • However, the Complaint suggests increasing. otherwise. It alleges that how the patentee exercised its unconditional • However, the European patent rights did constitute a Commission is not alone. On 27 contravention of antitrust laws. The January 2009 the US Federal Trade Complaint asserts that the Commission and The State of ‘Defendants knew that if generic California filed a complaint in the entry were to occur, Solvay’s sales US Federal District Court for the would plummet, as generic Central District of California AndroGel would be priced against three generic pharmaceutical dramatically lower than branded manufacturers and Solvay AndroGel’ and so in settling the Pharmaceuticals, Inc, the US patent litigation protected its subsidiary of the Belgium based 17

revenue generated from the sale of companies) to use their patent this product in the US, which ‘in the monopolies to thwart litigation that twelve months ending December may, should it be successful, 2007 … totalled … over $400 invalidate the patent that legitimises million.’ the patent monopoly. Furthermore, it demonstrates that private patent • The Complaint describes the impact litigation is not an adequate check to the economy and to the cost of against the failure of patent offices healthcare in the US in these terms: to grant patents when they should Significant consumer not. savings can result when generic companies • What the bringing of the Complaint successfully challenge demonstrates is that even though the patents and enter [the grant of a patent under US patent market] prior to patent law may be unconditional, laws that expiration. For example, a protect the economy against illegal generic company’s uncompetitive conduct, do impose successful challenge conditions that limit or restrict the invalidating a patent patentees how they exercises their covering the patent rights in the US. antidepressant drug Prozac resulted in generic • Undoubtedly the Committee will entry 2 1/2 years before read or hear during the course of patent expiry and about this Inquiry that the problem is not $2.5 billion in the patent system but the estimated way in which patentees consumer The successful legal savings. Another challenge which invalidated exercise their patent rights. successful US patents covering the This example seems to challenge cancer drug Taxol resulted support this. But the invalidating in generic entry over 18 Committee must consider patents covering years before patent expiry the possibility that a law that the cancer drug and produced estimated facilitates the kind of Taxol resulted in consumer savings of more anticompetitive conduct generic entry than $US3.5 billion. complained in a systemic over 18 years fashion suggests that the before patent problem is indeed the patent expiry and estimated system. consumer savings of more than $3.5 billion. • As history shows, corporations • Thus, by agreeing to settle the accustomed to the above normal patent dispute, the challenge to the revenues generated by patent validity of Solvay’s US patent was monopolies (usually over leading- withdrawn. Accordingly, Solvay edge technologies) have a remains able to use its US patent significant propensity to play the monopoly to control the market patent system, both before and after (and price) for AndroGel in return the expiration of those patent for which Solvay agreed to: (a) monopolies, so as to maximise allow the generic companies to those revenues. Patentees do this by enter the US market in 2015 and (b) using their considerable economic provide them with ‘substantial and legal power to threaten, sue and compensation’. In so doing, the prosecute alleged infringers (even Complaint alleges that ‘[r]ather than though the validity of their patent compete, [the Defendants] … monopolies may be questionable) agreed to cooperate on AndroGel through the courts. The cost and and share in monopoly profits’. inconvenience of patent litigation is a considerable burden that only the • This example further demonstrates most determined, wealthy and the propensity of patent owners sophisticated defendants can (particularly pharmaceutical legitimately bear. Thus, for the most 18

part, many patents of dubious Patent Office Efficiency: Reduced Productivity, validity remain on the patents Low Patent Examiner Morale and Low Patent register merely because there is no Quality regulatory mechanism within the patent system, outside of the patent • Beyond the issues of patent office itself, to test the validity of litigation costs and patent-antitrust patents. related activity, it has been apparent for some time that patent offices (in • Moreover, even when patents are virtually all major countries invalidated as a result of private including Australia) are finding it litigation, either wholly or partially, increasingly problematic to there is no penalty, civil or criminal, complete pre-grant examination of incurred by the patentee. Thus, at patent applications to an acceptable the present time, in the case of a standard. Consequently, there are patent which is invalidated, growing concerns among patent patentees retain the economic value administrators and antitrust of the patent monopoly to which regulators that patent quality across they were not entitled. The lack of the world (not only in Australia) is such penalties merely encourages, falling, with the result that the not deters, patentees to seek patent number of invalid patents being monopolies knowing that they are granted by patent offices is rising. likely to be invalid or being Dr Myers, also co-chair of the US recklessly indifferent to their National Academy of validity. Sciences’ four year study History shows that patentees • Furthermore, as entitled ‘The Patent accustomed to the above System for the 21st both the European normal revenues generated by Commission and Century’, said in April patent monopolies (usually 2004: Federal Trade over leading-edge Commission technologies) have a Basically over the examples significant propensity to play last fifty years there demonstrate, the the patent system, both before has been a settlement of and after the expiration of significant and patent litigation those patent monopolies, so continuing usually demands as to maximise revenues. strengthening of the patent processes that parties keep within the United the terms of the States and the world. settlement confidential. This lack of You have had patenting transparency makes it much more extended to new difficult for antitrust regulators to technologies in the biotech monitor this kind of illegal activity; area; patenting extended to thus encouraging, not deterring it. In technologies that this respect, the Committee should previously were not subject note that in order to undertake the to this form of intellectual antitrust investigation detailed property, such as software; above, the European Commission the encouraging emergence of new players, was required execute simultaneous universities and public raids on more than 40 research institutions; pharmaceutical company strengthening of the headquarters and offices throughout position of patent holders the EU. versus alleged infringers; • relaxed antitrust This situation represents a serious constraints on patent use; failure in the antitrust regulatory and the extended reach of regime only made worse by the fact patenting upstream into that patent offices are finding it scientific tools, materials, increasingly difficult to maintain and discoveries. So this acceptable patent pre-examination has been a fifty year period standards. of greatly enhancing the 19

patent system. But it has approach adopted by the EPO was created strains. Patents inconsistent with the ‘legal mandate are being more zealously … to ensure that patent applications sought and aggressively meet the legal standards set out in enforced, the volume is the law’. Paraphrasing the Report, increasing, the cost is increasing, and the its main complaint was the benefits of a patent unreasonable ‘productivity’ stimulating innovation expectations for ‘granting patents’. varies considerably across The Report concluded: different parts of the … it should be clearly industrial sector. recognised that the EPO is • According to a Report released in not at the service of any 2004 entitled ‘Quality of "client", but is a public Examination at the EPO’ [as in the authority, whose decisions must be led solely by European Patent Office in Munich, public interest. Staff should Germany] prepared by the Staff be given the necessary Union of the European Patent means to perform their Office (SUEPO), the EPO tasks correctly, including a established a working group to reasonable time allocation investigate the ‘strategic quality’ of and appropriate initial and the EPO’s patent examination continuous training. standards. The Report stated: •The seriousness and extent In the last couple of the problem is growing, as of years, “Patents are being more the European Community’s increasing zealously sought and Administrative Council’s concerns, not only aggressively enforced, Report of November 2007 of internal circles, the volume is increasing, the cost is increasing, entitled ‘Future Workload’ that quality shows. According to this standards were and the benefits of a seriously slipping, patent stimulating Report the European have led the Staff innovation varies Community is entertaining Representation to considerably across the ‘outsourcing’ of patent take a more different parts of the examination to ‘Japan, China pressing position industrial sector.” and others’, if only so that the in a number of EPO can ‘meet the publications. challenges’ of its ‘future • One of the concerns raised was the workload’. Citing statistics provided EPO’s reference to its ‘clients’ and by the World Intellectual Property ‘products’, which seemed Organization (WIPO) in its ‘World ‘particularly odd in view of the fact Patent Report 2007’, the Report that the EPO is not even a public confirms that in 2005 ‘more than utility producing some vendible 1.6 million applications were filed product or service’. It highlighted worldwide’. It also noted that the fact that the EPO defined its studies ‘show that there is not only products as ‘granted patents’. an ever-growing number of patent Indeed, this is a criticism that can applications but also a steady also be levelled at the Australian increase in the complexity and Patent Office, which seems to volume of applications, as well as a operate as a government ‘business’ growing number of claims filed.’ with its own ‘clients’, ‘products’ Relevant to this inquiry is the and ‘services’ rather than providing finding that ‘medical technology’ an ‘examination process’ that was one of the ‘four of the ten achieves a ‘balance between the fastest-growing technologies monopoly right granted to the between 1990 and 2003 before the patentee and his contribution to the EPO’ and that between 2000 and increase of technical knowledge’. 2006 there was an increase of But as the Report critiqued, the almost 60% in worldwide international patent applications 20

filed through the Patent Cooperation resources to examine Treaty. applications with the necessary thoroughness. • The reasons that the world’s major (emphasis added) patent offices have suffered a ‘significant impact on the • With regards to the ‘necessary production’ of patent monopolies, thoroughness’ of pre-grant patent according to the Administrative examination, it is important to Council’s Report, are: appreciate that the ‘steeply growing prior art’ is as much a contributor to (a) the increasing growth patent office inefficiency as are the of applications; ‘increasing growth of applications, (b) the complexity and the complexity and volume of volume of applications; applications [and] the shift towards technically more difficult fields’. (c) the shift towards This is because pre-grant technically more difficult examination is only as good as the fields; and ability of the patent examiners to (d) the steeply growing access relevant data: namely, prior art. published scientific, medical and technical publications; patents; • Naturally, the costs for patent patent applications; trade and offices are rising. industry literature and other The report confirms publicly accessible that the per unit The European Community’s information that make up the Administrative Council’s costs at the EPO ‘prior art’. Therefore, the have ‘substantially Report of November 2007 entitled ‘Future Workload’ more complex the increased since shows that the ‘ever technology the more 2004’. As these increasing workload’ of complex the prior art and the costs rise so does patent examiners is more difficult it is for a the pressure on producing ‘growing patent examiner to compare patent offices to backlogs and insufficient that prior art against what is increase revenue, time and resources to claimed to be an ‘invention’. which is principally examine applications with derived from patent the necessary filing and renewal thoroughness.’ Abolishing Patent Monopolies fees. This will be in the 21st century: The 19th particularly difficult century patent debate revisited. to accomplish when there are calls for reductions in patent filing and • It is worthy at this juncture to take renewal fees. Therefore, patent stock of the situation today, given offices are being squeezed as the the controversy over patent cost of examination rise while their monopolies that preoccupied a revenues stagnate or fall. succession of British (and European) governments from the • Patent growth is not, however, a 1850s and the serious criticisms European-US phenomenon, but is levelled at patent monopolies from being contributed to by patent both sides of politics in the period applications filed in China, South 1850 to 1876. Moreover, despite the Korea and India which, according to extensive measures introduced to WIPO statistics in 2004, have ameliorate the damage that patent increased by 27.9%, 27.3% and monopolies inflicted upon the 23.6% respectively. British economy, first introduced by • According to the Report what this the 1883 patents legislation and ‘ever increasing workload’ is successively by the 1907 legislation producing is namely: and the amendments in 1919, today the same underlying problems exist. … growing backlogs and What this suggests, as the insufficient time and parliamentarians in the 1870s 21

suspected, is that the world’s patent they had been made to systems are irreparable and that the include any new invention time has come for the abolition, in whatever. [HC Deb 07 March all their forms, of patent 1871 vol 204 cc1512-34] monopolies. It may be, as Lord • As at 2009 tens of thousands of Cairns (The Lord Chancellor in patents have been granted over Disraeli’s Conservative isolated biological materials. Not government) believed and as Lord only are these things not ‘manners Granville (a Liberal and noted of new manufacture’ (being an British statesman) conceded in the operative criterion in the current House of Lords in 1875, that the Australian patent legislation), but time was not then right to abolish they are nothing more than natural patent monopolies in Great Britain. phenomena that have been But faced with the evidence which discovered and removed from their we have today, and after 140 years natural environments. Indeed, if one of concerted international effort examines the rationale that has been effected through WIPO and its used to justify the patenting of these predecessor to harmonise patent biological materials (namely, their laws, it should not be difficult for isolation), one immediately this Committee to take the initiative appreciates how the patent laws, to do so. That it should do so is nearly 140 later, remain open to the further reinforced by the same criticism made by Samuelson international in 1871. agreements that are in Despite the attempt to •The propensity for those that place, supposedly, to ameliorate the negative benefit the most from patent foster free trade. effects of patent monopolies to employ patent Indeed, given the monopolies on the attorneys to draft patent World Trade British economy, first applications that inevitably (no Organization and the introduced by the 1883 matter what legislative ideals which it patents legislation and mechanisms are put in place to represents, being successively in 1902, 1907, 1919, 1932 and stop this behaviour) extend to antithetical to 1949, the same things that are not ‘manners of protectionism, that underlying problems new manufacture’, patents, which are that were complained of demonstrates the futility of instruments of in 1862 exist today. persevering any system of protectionism, should patent monopolies. Indeed, the be encouraged and playing of the patent system is fostered is an anomaly that can only so entrenched in the psyche of be removed through their complete patent attorneys that this profession, abolition. which is skilled at word play, will • In terms of the scope of this Senate exploit whatever loophole is Inquiry, which is directed inadvertently created in statutory specifically to patent monopolies language to obtain a patent granted over isolated biological monopoly for their clients, materials and their effects on the regardless of the spirit and intent of provision of healthcare and medical that legislation. and scientific research, the • In the context of this Inquiry it statement of Mr B. Samuelson, a matters a great deal that the Danish British parliamentarian, on 7 March Council of Bioethics, a body of 1871 is as pertinent today as it was independent scientists and ethicists then. He said: who were charged with The whole mischief of the investigating the patenting of Patent Laws had arisen human genes in Denmark and the from the interpretation European Biotechnology Directive given to the expression which facilitated this, stated in their "new manufactures," which 2004 report entitled Patenting had been extended until Human Genes and Stem Cells that: 22

The Council’s principal objection to the wording of the directive was precisely that in reality it rubber- stamps the practice that has gradually evolved in the USA, Japan and Europe whereby, under certain conditions—which it turns out to be very hard to get a grasp on in practice —parts of the human body can nevertheless be patented. And later: … it cannot be said with The playing of the patent system is so any reasonableness that a entrenched in the psyche of patent sequence or partial attorneys that this profession, which sequence of a gene is skilled at word play, will exploit ceases to be part of the whatever loophole is inadvertently human body merely created in statutory language to because an identical copy obtain a patent monopoly for their of the sequence is isolated clients, regardless of the spirit and from or produced outside intent of that legislation. of the human body. • To understand how this has come about we must first return to British patent history and go back to 1919 when the British Parliament passed amendments to the UK Patents & Designs Act, 1907 for the express purpose of banning the patenting of chemical and medicinal products. 23

4. The Banning of Patents adopting the German approach over Chemical and which from its legislative inception Medicinal Products and in 1877 permitted patents on the Strengthening of chemical processes but not on chemical products (which included Compulsory Licensing in 1919 medicines) themselves. It also further strengthened the compulsory licensing provisions first introduced in the 1883 patent legislation and • The response in the US and the UK subsequently reinforced in the 1907 (including Commonwealth patent legislation. Accordingly, if a countries) to the shortages of foreign-owned British patent (of chemicals and medicines caused by any kind) was not worked within the German embargo on the export the UK ‘without undue delay’, the of these goods during WWI, and British Patent Office was authorised exacerbated by the effect of German to issue a ‘license of right’ on such owned US and British (including terms as the Comptroller of Patents Commonwealth countries) patents, would ‘think expedient’. differed significantly. Whilst the US Furthermore, the Comptroller could, government, through the power if the foreign patentee was unable to provided by the US Trading with the demonstrate that it had sufficient Enemy Act, 1917, simply capital in the UK to work the patent, confiscated German grant an exclusive license to a owned US patents and British manufacturer or revoke the plant and By the end of WWI the the patent. equipment of German US and British chemical and governments both •With regard to patents over pharmaceuticals recognised that foreign the processes for chemical companies situated on owned patents had been products and substances used to undermine their intended for food or medicine, US territory (after own domestic capacity military hostilities the British Patent Office was for industrial production required to grant British with Germany had of, what were then, ceased) and leading-edge manufacturers a license unless established the technologies. there were ‘good reasons to Chemical Foundation the contrary’. The Comptroller which then licensed of Patents was directed to take US companies to create a US into account ‘the desirability of capacity for the domestic making the food or medicine production of such goods, the available to the public at the lowest British government took a slightly possible price consistent with giving different approach. [Vaughan, F.W. (1919), to the inventor due reward for the ‘Suppression and Non-Working of Patents, With research leading to the invention’. Special Reference to the Dye and Chemical Industries’, The American Economic Review, 9 • These divergent approaches were (4), 693-700; Steen, K. (2001), ‘Patents, reflective of differing views Patriotism, and “Skilled in the Art”: USA v The Chemical Foundation., 1923-1926’, Isis, 92, between US and British 91-122] policymakers on the role of patents - a view that the US steadfastly • In 1919 the British Parliament maintained despite the apparent passed amendments to the UK disastrous results during WWI. Patents & Designs Act, 1907. Some Equally, the British maintained their of the amendments were in bias towards compulsory licensing anticipation of the Treaty of despite the fact that WWI Versailles which was in the process demonstrated that compulsory of being settled. Instead of the licensing, available since 1883, had wholesale confiscation of German done little or nothing to prevent the owned British patents, the British shortages of essential chemicals government decided to simply ban (leading-edge technologies) at a the patenting of chemical products, time of national emergency. 24

• That said, the US and British • Similarly, the Australian governments both recognised that government of Joseph Lyons foreign owned patents had been commissioned a Committee of used to undermine their own Inquiry chaired by Sir George domestic capacity for industrial Knowles which, for reasons of production of, what were then, conformity with Great Britain, leading-edge technologies. That the recommended in 1935 that the US government took a more drastic Australian patent legislation be approach to that taken by the British similarly amended. government is simply reflective, again, of a philosophical divergence. Either way both meant, Patent Law Reform in Britain and Australia by their actions, to encourage the after WWII – Removal of the Ban on the establishment of a domestic Patenting of Chemicals production capacity of leading-edge • With the end of World War II came technologies and goods that were a renewed interest in the British essential to the national security of patent system. Why this was so their countries; and confiscating when there were other more foreign owned pressing issues confronting patents or When the British Great Britain in the wake of ameliorating their government appointed a WWII is unclear, but one effects, were seen as Committee of Inquiry in 1930 to examine and report possibility might be the the first steps decision to establish the towards achieving on how the 1919 amendments to the patents National Health Service their goal. law had been operating, the (NHS), a revolutionary • When the British Committee recommending welfare scheme which government the retention of both the guarantee healthcare to all appointed a ban on the patenting of Britons. That this is the Committee of chemical substances and reason is plausible given that the Comptroller’s power to under the NHS all Inquiry in 1930 to revoke patents. The examine and report prescription medicines were Committee believed that to dispensed free-of-charge on how the 1919 foreign pharmaceutical amendments to the patent owners were, as a and thus the price of patents law had been result, more likely to grant patented medicines would be operating, the licenses to British a major component of its Committee manufacturers on budget. recommending the reasonable commercial •Accordingly, the British terms. retention of both the government recognised that ban on the patenting a mechanism was needed to of chemical keep a lid on the price of substances and the Comptroller’s patented medicines; and with power to revoke patents. The patents being a cause of higher- Committee believed that foreign than-normal prices, naturally pharmaceutical patent owners were, attention was directed to the way as a result, more likely to grant the British patent system could be licenses to British manufacturers on adjusted to ameliorate the potential reasonable commercial terms. [UK for the NHS budget to blow-out. Board of Trade, C. H. Sargant, (1931), Report of the Departmental Committee on the Patents and Thus, a Committee chaired by Sir Designs Acts and Practice of the Patent Office, Kenneth Swan QC (referred to 1930-31 [Cmd 3829] earlier), was appointed to look into • The Sargant Committee also the British patent system and recommended that the grounds of between 1945 and 1947 the opposition and revocation be Committee produced two interim provided in the patents legislation reports and a final report. and so, in 1932, amendments to this • Surprisingly, the Committee effect were made to the UK Patents recommended the repeal of the ban & Designs Act, 1907. 25

on the patenting of chemical • In its final report the Committee products which had been introduced made recommendations to the post- in 1919. The Committee’s decision, war British Government of Clement however, was not made on the basis Atlee, many of which were that the ban had been shown to have accepted. The UK Patents Act, 1949 produced deleterious effects on the was the result. The main aspects of British economy or that it had not this legislation, as needs concern achieved some level of success in this Senate Inquiry, were as follows: encouraging the British production (a) Substances found in nature of chemicals and medicines. Rather, not patentable: Section 4(7) the reason was simply to do with the provided ‘Where a complete actions of patent agents (as they are specification claims a new known in the UK – and known in substance, the claim shall be Australia and the US as patent construed as not extending attorneys) who, according to the to that substance when Committee, had deliberately found in nature’; undermined the effectiveness of the ban by drafting patent claims so as (b) The compulsory licensing to ‘cover all conceivable methods of for medicines, food or manufacture’, producing the effect surgical and curative that ‘the substance devices made easier: First, itself and not the the British Patent Office process of By 1947 another was mandated to grant manufacture’ was the Committee had concluded compulsory licenses ‘to subject of the patent that British patent agents make, use, exercise and monopoly. Under had deliberately vend the invention as a food undermined the those circumstances, effectiveness of the ban by or medicine, or for the maintaining the ban drafting patent claims so purposes of the production was a futile exercise. as to ‘cover all of food or medicine or as or as part of a surgical or • Therefore, the conceivable methods of curative device’ so as to Committee turned its manufacture’, producing the effect that ‘the make them ‘available to the attention to the use of substance itself and not public at the lowest prices compulsory licensing the process of consistent with the as the chief price manufacture’ was the patentees’ deriving a control mechanism subject of the patent reasonable advantage from for patented monopoly. their patent medicines. Swan had rights’ (Emphasis added). known how easy it Secondly, compulsory was for registered trade marks to be licences for these inventions associated with patent medicines so could be applied for that, even after the patent had immediately upon the grant expired, the doctor or the patient of a British patent. It was no would continue to make that longer necessary to wait association which would in turn four years before making an influence them to choose the application; medicine to which the trade mark was applied. So in seeking to use (c) Heightened patent scrutiny compulsory licensing, the in pre-grant examination Committee knew that it needed to and in opposition: First, broaden its application. It warned patent examiners were that ‘taken together, ... [the existing empowered to reject patent compulsory licensing provisions applications on the ground were] not adequate to prevent that the invention was for patents being used to the prejudice ‘anything obviously of the public interest.’ [UK Board of contrary to well-established Trade, K. R. Swan, (1946), Patents and Designs natural laws’ or ‘contrary to Acts, Second Interim Report of the Departmental Committee, 1945-46 [Cmd 6789], 10 (41)] law or morality’ or ‘a 26

substance capable of being well-being of the used as food or medicine’ community’; ‘promoting the produced by mere productivity of industry, admixture. Secondly, the commerce and agriculture’; British Patent Office was ‘fostering and directing now able to consider the exports and reducing lack of an inventive step imports, or imports of any (otherwise known as classes, from all or any ‘obviousness’) as a ground countries and for redressing of opposition (under the the balance of trade’; and 1932 amendments it was ‘ensuring that the whole not); resources of the community are available for use, and (d) Ability for any person to are used, in a manner best bring an action for calculated to serve the revocation in the courts: interests of the community’. Until 1949 only persons The ‘period of emergency’ who had an ‘interest’ in the in operation at the time of patent or who had the ‘fiat the legislation was of the Attorney-General’ stipulated to end on 10 could bring a patent December 1950, but could revocation action in the be extended at any time, ‘by courts. The idea was to Order in Council’. encourage private litigants to create a secondary patent- • As in 1935 (when the Knowles vetting process through civil Committee advised the Australian patent litigation; and government over the amendments in 1932 to the UK Patents & Designs (e) Wider Crown Use Powers: Act, 1907) the passage of the UK First, government Patents Act, 1949 prompted the departments could, if it was Australian government to ‘contrary to the public investigate the new legislation and interest’ not to do so, report on whether the Australian disregard any patent patents legislation should be monopoly. Secondly, a similarly amended. In 1950 a patent that was subject to Committee chaired by Sir Arthur Crown use could be revoked Dean QC recommended to the if the patentee ‘without government of Sir Robert reasonable cause failed to Menzies that it follow suit. The comply with a government result was the AU Patent Act, request’s to make, use or 1952. exercise the invention for services to the government on reasonable terms’. Finally, in the event of a declared emergency, any patent could be used on such terms as the British government deemed ‘necessary and appropriate’ to meet the specific purposes of the emergency. The prescribed emergencies included: ‘the maintenance of supplies and services essential to the life of the community’; ‘securing a sufficiency of supplies and services essential to the 27

5. Patent Law Reform in Page advised the Australian Britain and Australia in Parliament that the ‘provision of the wake of the NHS in free drugs has proved the Achilles heel of other national health Britain and the PBS in Australia schemes’. Neville writes that Page reported: … in the UK, the initial • By 1950 a number of attempts had estimate of providing medicaments for the first been made to establish what is nine months was called the Pharmaceutical Benefits £12,700,000 in 1948-49. In Scheme (PBS). Before the end of 1952, the cost had risen to WWII the first PBS Bills were £43,600,000. In that year, introduced and debated in the a charge of 1s. per Australian Parliament. The prescription was legislation was eventually passed introduced, but still, the but was controversial and led to a estimated cost of successful High Court challenge. In medicines under the NHS fact it was the government of Sir in the UK for 1952-53 was Robert Menzies that eventually £40,000,000. At the introduced the operative legislation inception of the New for the PBS as it is today. Earle Zealand health scheme in Page, the Minister for 1941, it was estimated that the drug cost to the Health, ‘argued that The government of Sir Government would not the cost of health Robert Menzies eventually exceed £500,000 per schemes in the UK introduced the operative annum. In 1945-46, the and New Zealand legislation for the PBS as cost had passed made it an imperative it is today. Earle Page, the £1,000,000. In that the Minister for Health, 1953-54, the estimated Commonwealth do ‘argued that the cost of cost of drugs in New all it could to contain health schemes in the UK Zealand was costs in Australia’. and New Zealand made it £3,200,000. [Neville, 266] [Warwick Neville, PhD an imperative that the Thesis, ANU, 2007: Healing Commonwealth do all it •By 1953 it was undeniable the Nation: Access to could to contain costs in that even though significantly Medicines under the Australia’. Pharmaceutical Benefits strengthened, the strategy of Scheme – The Jurisprudence using the compulsory from History, 256] licensing of medical patents • However, just as it was becoming (introduced into the UK Patents Act, clear in Great Britain that the UK 1949) was an inadequate response Patents Act, 1949 was failing to to the market power of the contain the impact of prescription pharmaceutical companies which, medicines, which were mainly just as Swan had predicted in 1908, patented or trade marked, by 1952 it used both the positive association was understood in Australia that between patented and trade marked more than the AU Patents Act, 1952 medicines and their relationship would be needed to contain the cost with the medical profession to of the PBS to the Australian neutralise the competitive effect of taxpayer. In the year ending June generic medicines. 1952 it was reported that the PBS • Clement Atlee’s government, had cost £6,699,002 and the cause however, implemented the NHS of the budget blow-out, of between before there was time to appreciate £2 and £4 million (based on the just how bad the budget blow- estimates made in the 1940s), was outs would be. So the die was cast the unexpected number of in the UK as a succession of British prescriptions for patented governments sought solutions to the antibiotics. growing size of the problem during • According to Dr Warwick Neville, the 1950s and 60s. Australia, at 28

least, was able to learn from Great Price Controls or Control through Prices? Regulating the Cost and Consumption of Britain’s mistake. It was under these Prescription Pharmaceuticals in the UK, 1948-67, circumstances that the AU National Business History, 47 (3), 352-366, 358] Health Act, 1953 and the AU • In 1959 another Committee of Therapeutic Substances Act, 1953 Inquiry, this time chaired by Sir were passed. Henry Hinchcliffe, submitted a • Thus while Australia had the PBS in report on the ‘Cost of Prescribing’ the UK, the Minister for Health to the UK Minister for Health. appointed Prof Guillebaud to chair a Hinchcliffe’s report was the subject Committee of Inquiry ‘[t]o review of some debate in the British the present and prospective cost of Parliament mainly because the the National Health Service; to Committee attributed, in part, the suggest means, whether by rise in the cost of prescription modifications in organisation or medicines to the relationship otherwise, of ensuring the most between doctors and pharmaceutical effective control and efficient use of companies. Dr Edith Summerskill such Exchequer funds as may be MP, for instance, advised made available; to advise how, in Parliament: view of the burdens on the ‘The joke among doctors’ Exchequer, a rising charge upon it wives today is that when can be avoided while providing for they want to do shopping in the maintenance of an adequate town they leave their Service; and to make husbands to have recommendation.’ lunch with a drug firm. In the year ending June The following invitation • The result was that 1952 it was reported that came to my notice last in 1957 the the PBS had cost week. It says: “Bayer Conservative £6,699,002 and the cause of Products Ltd. have government of the budget blow-out, of pleasure in inviting Dr. Harold Macmillan between £2 and £4 million —to the showing of a introduced the (based on estimates made new film-strip on Voluntary Price in the 1940s), was the rheumatoid arthritis. Regulation Scheme unexpected number of Any medical prescriptions for patented (which still operates colleagues will also be antibiotics. today in an amended welcome. At the Green Dragon, N.21, on form as the Wednesday and Pharmaceutical Price Regulation Thursday, 8th July and 9th Scheme). It was an attempt to July. Cocktails, 12.45; Film. induce the pharmaceutical 1 p.m., lunch, 1.20 p.m.” A companies to set reasonable prices doctor whom I know, who by allowing new medicines a 3 year went to one of these shows window during which there was no —rather a cynical man— price control. After that time the said, “We were expecting price would be established between some pep pills at cocktail the Ministry of Health and the time.” But no, there was an respective pharmaceutical company. adequate supply of gin. The film was not a film at The problem, as its name suggests, all, but a few cheap lantern was that it was a voluntary scheme slides. The lunchers were which the Association of the British well supplied with wine, Pharmaceutical Industry (ABPI) did and another cynical doctor not fully support. Consequently, in said, “The most important its first year of operation, as Judy things given out were Slinn noted in her study, while leaflets telling us what ‘reductions in the prices of some drugs to prescribe”—all 300 products had been made, the made by the firm, to overall saving was, at some recompense it for the lunch.’ [HC Deb, 15 July 1959, Vol £400,000, well short of the 609, 419-548, 421.] £750,000 envisaged’. [Slinn, J (2005), 29

• By 1959 the cost to the NHS of demonstrate a new approach to this prescribed medicines was over £70 issue, the Wilson government’s million. [HC Deb, 15 July 1959, Vol 609, Minister for Health, Kenneth 419-548, 420] Robinson, appointed Lord Patent Law Reform in Europe and Edward Sainsbury to chair yet another Heath’s push to have the UK join the European Committee of Inquiry into the NHS, Economic Community in the 1960s collides this time specifically directed to the with the NHS and the UK Department of ‘Relationship of the Pharmaceutical Health Industry with the National Health Service’. • By 1960 the By 1959 the cost to the NHS European Economic of prescribed medicines •Clearly, the UK Ministry of Community (EEC) was over £70 million. Health remained keen to had already find ways to reduce the cost commenced a process of patent law of prescription medicines reform in Europe. Under the and following on from the findings stewardship of Kurt Haertel (a of the Hinchcliff Committee’s report German patent lawyer who served (that pharmaceutical companies as the President of the German were buying favours from doctors in Patent Office between 1963 and order to sell medicines) the Wilson 1975), by 1963 his Committee had government decided to investigate produced and published the first the pharmaceutical industry and the draft of what would become the manner in which it conducted its European Patent Convention. relationship with the NHS itself. [Oudemans, G. (1963), The Draft European The all too evident problem was Patent Convention, London, UK: Stevens & Sons that pharmaceutical companies were Ltd; New York, US: Mathew Bender & Co. Inc.] successfully minimising the effects • The key reform of Haertel’s of compulsory licensing. Committee was the establishment of a single unified European patent • The Inquiry which Lord Sainsbury system administered through a chaired was extensive. It single organisation. In addition commenced in 1965 and presented however, and most importantly, its report to the Minister in 1967. were the proposals that no During the period of the Inquiry ‘invention’ should be banned from many submissions were filed and, patentability (that naturally, the Association of the British is, subjected to The all too evident problem technological was that pharmaceutical Pharmaceutical Industry discrimination) companies were successfully (ABPI) defended the and that patents minimising the effects of interests of the should have a compulsory licensing. pharmaceutical sector. In maximum life of this respect, it is 20 years. Both of these proposals particularly relevant to were incorporated into the draft know that during the Swan convention. Committee’s Inquiry into the British patent system only 20 years earlier, • At the same time, the Macmillan the ABPI (known then as the government sought to have Great Wholesale Drug Trade Association) Britain join the EEC. The had argued against the compulsory application, however, was rejected licensing of medicines and for the on the veto of France. lifting of the ban on the patenting of • By 1964 the Labour government of chemicals (which had been in Harold Wilson had been elected into operation since 1919). Thus, Swan’s office and as a result joining the Committee was very well aware of EEC was temporarily off the the issues that concerned the British agenda, but the problem of what to pharmaceutical industry when it do about the NHS budget was not. made its recommendation to Fresh in government and keen to strengthen the compulsory licensing regime under British patent law. 30

Indeed, Swan’s concession to the intervene’ and that medicines should ABPI in recommending the removal not be ‘treated differently from of the ban on the patenting of other products’. It also noted that medicines came, as we already the ABPI proposed ‘the patenting of know, because of the patenting new uses for known compounds,’ strategies employed by the ABPI’s and the extension of the patent term members – strategies that to 20 years. Thus the scene was set. undermined the effect of that ban. On the one side was the ABPI For this reason it cannot be said that which was striving to strengthen the Swan Committee was against patent protection for the the idea of continuing the ban on pharmaceutical industry in the UK. patenting medicines; it simply On the other was the Sainsbury accepted that there was no point in Committee which was determined continuing it. to find a way to halt the runaway cost of the NHS. • Predictably, the Sainsbury Committee was, during the course • Understandably, the Sainsbury of its Inquiry, Committee dismissed the reacquainted with ABPI’s submissions not the ABPI’s views Lord Sainsbury’s Committee only because its key on patenting. rejected the argument calling objective was to find a way However, in the for an extension of the British of keeping the price of patent term from 16 to 20 intervening 20 years, expressing the view medicines low, but because years the ABPI’s that the existing patent term it was suspicious of an views happened to was ‘too long’ and ‘that the organisation which it also dovetail with position could be met by a considered no longer Haertel’s draft of shorter period of complete representative of British the European protection.’ With regard to the economic interests. Patent Convention. argument that to ‘induce •Thus its Report rejected This was adequate research and the ABPI’s submission significant, as it development and innovation regarding the extension of was to turn out, for in the pharmaceutical the British patent term from now the Ministry’s industry’ there was a need for strong patent laws, the 16 to 20 years, expressing plan to reduce the Committee countered with the the view that the existing NHS budget was recommendation that ‘a patent term was ‘too long’ on a collision shorter period of monopoly and ‘that the position could course with those for the patentee followed by a be met by a shorter period that had aspirations right to receive royalties of complete protection.’ for Britain’s under a licence of right’ would With regard to the ABPI’s membership of the suffice. argument that to ‘induce EEC. adequate research and • Apart from the political situation, development and innovation in the there had been consolidation in the pharmaceutical industry’ there was a ownership and control of British need for strong patent laws, the pharmaceutical companies by Report countered with the foreign pharmaceutical companies, recommendation that ‘a shorter mainly from Switzerland and the period of monopoly for the patentee United States. This, as Lord followed by a right to receive Sainsbury’s Committee concluded, royalties under a licence of right’ meant that the ABPI’s views were would suffice. Not only that, the no longer those of a British industry. ABPI’s criticism of compulsory licensing as having been ‘little • The Sainsbury Committee noted used’ was dismissed as irrelevant by that ‘there was almost complete a Committee that blamed the British agreement’ among the members of Patent Office’s ‘inefficient’ the ABPI that ‘patent law should be administration, which ‘seemed to strengthened by restraining the have discouraged or delayed ability of the Government to potential licensees’, for its poor 31

utilisation. In fact, rather than hold yet another Inquiry. This time recommending the repeal of one that investigated the British compulsory licensing, the Report patent system in general terms, the recommended the simplification of idea being to move the debate about its administration so as to encourage British patents away from their more British companies to apply. specific application to the pharmaceutical industry and the • That said, the Report by implication impact upon the NHS. rejected key aspects of the draft European Patent Convention, • This Inquiry had already been namely the extension of the patent commissioned by the British term of 16 to 20 years and the non- government by the time the discriminatory treatment of Sainsbury Committee’s Report had inventions. Furthermore, it been presented to the Minister, no recommended that a system of non- doubt because drafts of the report exclusive patent licensing be had been made known to the developed. In its view, such a government well beforehand. The system would not only provide an chair of this Committee of Inquiry adequate incentive for was M A L Banks, who had recently pharmaceutical research and retired from the Board of British development, but would also Petroleum. By July 1970, when the mitigate against the effect of high Banks Committee presented its prices for patented report, Harold Wilson’s medicines. [Lord Sainsbury The Banks government had been defeated in (1967), Relationship of the an election and the new Prime Pharmaceutical Industry with the Committee Inquiry National Health Services, into the British Minister was Edward Health. In 1965-1967, [Cmd 3410]] Patent System, spite of this change, there is no which was heavily doubt that the Banks Committee’s • The Report thus influenced by Report, presented in July 1970, complicated the situation patent lawyers found an appreciative in terms of Britain joining and British patent government, especially as it had the EEC. Although within agents, effectively been Heath who had failed to the British Labour Party sanitised the secure Great Britain’s there remained a strong Sainsbury membership of the EEC in 1960. division of opinion on Committee’s Britain’s joining the EEC, Report. •The Banks Committee it was becoming effectively sanitised the increasingly clear that the Sainsbury Committee’s Report by government did not want to make seizing upon the Committee’s any decisions that could jeopardise concession that it was unable to deal its chances should the government with the British patent system decide to reapply. Therefore, the beyond its terms of reference. It did Wilson Government was in a bind. this in three ways. On the one hand the Ministry of • First, it portrayed the British patent Health wanted to reduce the NHS system as being out-of-step with the budget and the current patent laws rest of the world with regard to ‘the made this impossible. On the other treatment accorded to drugs’, by hand, if Britain were to reapply to pointing out that the patent laws of join the EEC, its patent law would ‘the United States and most of need to conform to the proposed Western European countries do not European Patent Convention, and in distinguish between drugs and other this respect the Report’s chemical substances.’ This was recommendations, if they were quite misleading, of course, since followed, would take British patent Germany only allowed the patenting laws even further away from of chemical substances from 1968 conformity with its European and most other European countries neighbours. still, at that time, continued to • The government’s solution was to expressly prohibit patents over 32

medicines. new patent philosophy – the pharmaceutical patent paradigm – • Next, it dismissed the Sainsbury one that said that without patents Committee’s recommendations for there would be no new medicines. streamlining the administrative Suddenly, and without explanation, processes to improve the the British patent system was now effectiveness of compulsory described officially as being licensing by arguing that whatever necessary to encourage innovation were the reasons behind compulsory and not about ‘introducing new licensing in 1947, it had ‘not manufactures into the country and generally worked in the way in to create increased employment for which it was intended’. the working classes.’ • Finally, it argued that the • Clearly, the British government was Government already had the ability not alone in adopting this new to control the price of patented philosophy. Haertel had managed to medicines by, first, invoking Crown persuade the West German Use powers that enabled it to use government of Kurt Kiesinger to ‘any patented medicine for the accept the pharmaceutical-patent services of the Crown’, secondly, paradigm – one that he believed to imposing ‘licenses of right’ on be essential if the EEC was to be an patents and, thirdly, revoking economic and political equal to patents on the ground the United States; and it is that the patentee had What the Banks important to recognise that failed to make the Committee failed to EEC policymakers also patented invention spell out was that if believed the US to be its main available for (and when) the ABPI trade competitor. For Haertel, Government service succeeded in destroying non- who had risen through the upon reasonable terms. government ranks from patent attorney to • What the Banks compulsory licensing President of the German Patent Committee failed to there would be nothing Office, a single European spell out was that if to stop the patent that applied throughout (and when) the ABPI pharmaceutical Europe just as a US patent industry neutralising succeeded in the competitive effects applied throughout the US, was destroying non- of generic competition an imperative. government in the UK market place. •Indeed, Haertel’s original compulsory licensing draft of the European Patent there would be nothing Convention provided for just that, to stop the pharmaceutical industry but after ten years of international neutralising the competitive effects consultation and with a pressing of generic competition in the UK need to meet the political market place. That, of course, would compromises involved in expanding be the price that had to be paid if the EEC to include the UK, Ireland, Britain was to join the EEC. Thus, Denmark and Norway, Haertel’s having laid the groundwork for a vision of a single European-wide different approach, the Banks patent to be administered and Committee made recommendations enforced through two European- that suited both the ABPI and a wide patent organisations (patent thankful British government. They office and patent court) was turned were: first, non-government into a patchwork of European compulsory licensing be abolished; patents. These patents would be secondly, ‘pharmaceutical granted by a European Patent Office substances … continue to be (located in Munich) under the patentable’; and thirdly, the term of banner of a ‘European patent’, with a British patent be extended from 16 national courts retaining the right to to 20 years. revoke that part of the European • Accordingly, it was convenient for patent that applied in their country. the British government to adopt a This compromise, as unpalatable as 33

it was to Haertel, was finally Commission into the accepted in 1973. pharmaceutical industry and its use of patents demonstrates (referred to • What did not disappear from earlier). In this regard it is important Haertel’s original draft, however, to appreciate that the problem is not was the prohibition on the merely a product of the aberrant technological discrimination of behaviour of some elements within patentable inventions. This was one the pharmaceutical sector, but is the of the fundamental changes that the result of a change in policy at a European Patent Convention would governmental level – a policy which now impose on all members and, ignores the fact that patent naturally, this suited the American monopolies were never intended to and Swiss pharmaceutical be rewards for innovation. Instead, companies who, since WWII, had what this policy has done is provide demanded a level technological the patentees of leading-edge playing field. Consequently, article technologies with enormous 52(1) of the European Patent economic power which can be used Convention, 1973 expressly (and is being used) to suppress provides that patents must be scientific and technical research granted for inventions ‘in all fields (and thus reduce innovative of technology’. competition) in the host country. • By 1978, when the European Patent The fact that generic medicines are Convention, 1973 came into effect, not making it into the the pharmaceutical- pharmaceutical market in patent paradigm The consequences of the Europe as rapidly as they was entrenched into adoption of this new patent should be, thus keeping the the very fabric of philosophy is today obvious, price of medicines the European patent as the antitrust investigation artificially high, is directly system. No longer currently being undertaken related to the application of concerned about the by the European this economic power in this petty squabbles Commission into the manner. pharmaceutical industry and over European Using a sample of trade, European its use of patents demonstrate. medicines across 17 politicians accepted Member States that faced that national patent loss of exclusivity in the laws that excluded pharmaceutical period 2000 to 2007 we found products as inventions were €14 billion in savings after generic unnecessary. This was only the entry, and that delays to entry beginning of a wider and more cost consumers around € 3 billion aggressive offensive by the on that sample. Neelie Kroes, European Commissioner for Competition Policy, 28 pharmaceutical industry (which November 2008 would soon include the fledgling • Thus, as the Sainsbury biotechnology industry) to ensure Committee well understood, the that the pharmaceutical-patent broader the rights of patentees, paradigm became a feature of the the more difficult it is for any patent laws of all countries. government to control the price of • Finally, with the passage of the UK the goods over which the patent Patents Act, 1977, the patent laws of monopolies apply, either through the country that had given Australia the processes used to produce its patent laws and guided the those goods or over the goods development of those laws, would themselves. no longer do so. • To the extent that there may be a • The consequences of the adoption need to provide an incentive to of this new patent philosophy is undertake research and today obvious, as the antitrust development into new investigation currently being technologies the obvious solution, undertaken by the European as that Committee proposed, may 34 be to simply replace the patent monopoly with the non-exclusive licensing of all patented inventions. 35

6. The AU Patents Act • It was under these circumstances 1952 and its reform that the Industrial Property during the 1980s and Advisory Committee (IPAC) reccurring issues presented to Barry Jones, as the Minister for Science, a report entitled Patents, Innovation and Competition in Australia in 1984. • Great Britain severed its economic Acting on the basis of this report (a ties to the Commonwealth in 1973 report originally commissioned by as a consequence of joining the the Minister of Productivity in the EEC. At about the same time government of Malcolm Fraser, Ian Australians elected the Labor McPhee) the Minister began a government of Gough Whitlam. process to reform Australia’s patent Together these events weakened the legislation. By 1989 the Patents links that had existed between Bill, 1989 was introduced to the Australia and Great Britain since Australian Parliament. During the Federation. In the few short years Bill’s second reading, the Minister the government of Gough Whitlam said: (1972-1975) managed to capture a growing nationalism to facilitate the The Patents Bill 1989 is a introduction of significant reforms complete redraft of the that would subtly indicate that Patents Act 1952, which it repeals and replaces. It Australia was an independent nation has two main thrusts. First, and one that was in control of its it implements a number of own destiny. policy changes flowing • Thus by 1975 not from an expert report only was the Federal reviewing the Australian patent Court of Australia ‘The Patents Bill 1989 is a complete redraft of the system from an established so as to economic perspective. provide an Patents Act 1952, which it repeals and replaces.’ Second, it brings the alternative court to language and structure the various State of the Act down to Supreme Courts, but the right of earth, so that mere mortals appeal from the High Court of without law degrees have Australia to the Privy Council was some chance of abolished. The High Court would understanding what it is all now be the final court of appeal and about, at least in general this meant that it would no longer terms. [HR, Hansard, 1 June 1989] be possible for English jurists to • However, the members of IPAC influence the development of law in were not unanimous. There was Australia. Moreover, the High Court disagreement with the patent became exclusively an appellate lawyers, patent attorneys and patent court leaving the Federal Court to bureaucrats on the one side and an deal with the development and economist on the other. The chair, interpretation of Federal law at first John Stonier (then a patent licensing instance. lawyer employed by BHP, and • However, it was during the today an associate at Davies government of Bob Hawke Collison Cave), Des Ryan (then a (1983-1991) that all formal partner of patent attorney firm, legalities were completed so that Davies & Collison now known as Australia was truly an independent Davies Collison Cave), David nation. The passing of the Australia Walsh (then a partner of the law Act in 1986 by both the British and firm Mallesons), Frank Smith (the Australian Parliaments and its former Commissioner of Patents, assent by Elizabeth II were the final subsequently joining the law firm acts of Australia’s independence. Baker & McKenzie as a solicitor) and Pat Smith (then the 36

Commissioner of Patents) were patent system’, he noted that, ‘it by understandably in favour of patent no means rejected it’. More monopolies. interesting, however, was the Minister’s flippancy toward a • Don Lamberton, a professor of system that he said some viewed as economics from the University of ‘some kind of mysterious sacrament Queensland, on the other hand, was which has to be observed if we are very critical of the failure of the to proceed along the path to Committee to (a) apply ‘economic economic heaven’. Clearly, the criteria’ consistently; (b) make ‘full Minister was just as ambivalent use of available empirical about the benefits of patent evidence’, and (c) refer to the monopolies in 1989 as was the Lord ‘concept of social cost’ without it Chancellor of England in 1876 but, ever being ‘fully grasped’. In his just as then, the Minister felt unable dissent he dismissed ‘the underlying to make the decision to abolish idea … that more patent protection patents because, as he said: will ensure more innovation’ as being ‘little more than faith’ noting Faced with conflicting that ‘no amount of talk about opinions on economic individual patent successes nor questions, IPAC about a future in which the recognised that it is Australian economy has magically imperative that Australia continue to operate a become progressive, innovative- patent system and to oriented, and participate in the competitive in a international ‘No amount of talk about individual world scene, can patent system. [HR, hide the facts patent successes nor about a Hansard, 1 June 1989] that Australia future in which the Australian economy has magically become •In the context of this exports little in progressive, innovative-oriented, Senate Inquiry it is the way of and competitive in a world scene, absolutely critical that manufactured can hide the facts that Australia this Committee revisit goods and has exports little in the way of the rationale expounded few inventions manufactured goods and has few by the Minister, which for sale’. inventions for sale.’ was simply a • Specifically, regurgitation of the Lamberton referred to the patent views of the patent lawyers and data which confirmed that ‘[m]ost patent attorneys. This is what the patents are granted to overseas Minister said: firms’. The policy approach to • But Lamberton was not alone. Tom review and change should Mandeville and Jean Bishop (also be to seek to optimise the economists from his university) had net benefits arising from the operation of the patent produced an earlier study entitled system in the national Economic Effects of the Australian interest to the extent Patent System [‘Supporting Papers for possible consistent with Economic Effects of the Australian Patent international conventions, System’, AGPS, Canberra, April 1982] in having regard to the which they joined him in particular circumstances of concluding that the economic costs the Australian economy. to the Australian economy of patent We should seek to modify monopolies were probably greater the Australian patent laws, than the benefits. adjusting the length, strength and breadth of • The Minister’s approach to these patent rights so as to divergent views was to err on the maximise the social side of the status quo. While he benefits and to minimise acknowledged that even IPAC ‘did the social costs to not wholeheartedly embrace the Australians. 37

More specifically this innovation; implies seeking- (b) reducing unnecessary to gain increased benefits social costs; for Australians by fostering indigenous innovation, and (c) improve the efficiency utilising the international of the administration of patent system in the patent system; and development export markets to improve (d) to make it harder to get Australia's international a patent by competitive position; strengthening the standards of novelty to reduce unnecessary and inventiveness social costs including those resulting from undesirable were are we today, nearly 20 years anti-competitive conduct later? involving patents; and • Rather than ‘fostering indigenous to improve the efficiency of innovation’, just as Lamberton had the administration of the noted in his dissent in 1984, the patent system with Australian patent system seems to consequent reduction of operate mainly for the benefit of direct costs. … foreign patentees who are able to One of the most obtain patent monopolies in Australia in ever-increasing important and According to the World constructive Intellectual Property numbers. According to the measures Organization’s (WIPO) World Intellectual Property recommended by World Patent Report Organization’s (WIPO) report IPAC was an 2008, the number of non- entitled World Patent Report adjustment of the Australian resident 2008, the number of non- standards of patent filings rose from Australian resident patent novelty and about 3,000 in 2000 to filings rose from about 3,000 inventiveness about 8,000 in 2006 in 2000 to about 8,000 in 2006 required of while, during the same while, during the same period, standard patents. period, the number of Under the present the number of Australian Australian resident resident patent filings per law, standard patent filings per GDP patents are tested remained unchanged. GDP remained unchanged. for novelty only •As for ‘reducing unnecessary against prior disclosures in Australia. social costs resulting from Under the Bill, they are to undesirable anti-competitive be tested against conduct involving patents’ there are, disclosures in documentary as this submission will detail later, form anywhere in the clear cases of foreign companies world. This change will using Australian patents to make it harder to get a 16- massively increase ‘social costs’ by year standard patent, but it stifling competition in Australia. will bring the requirement into line with similar • In terms of the efficiency of the requirements in most of patent system, not only is IP Australia's trading partner Australia finding it increasingly countries. [HR, Hansard, 1 June difficult to maintain satisfactory 1989] (Emphasis added) pre-grant examination standards • So, if the objective of the AU (and this is also the case Patents Act, 1990, the current internationally), but the costs of legislation, was to ‘maximise the patent litigation are as prohibitively social benefits and to minimise the expensive as they ever were. social costs to Australians’ by: • Furthermore, rather than making it (a) fostering indigenous ‘harder’ to get a patent monopoly, it is actually easier. According to the 38

Review of the National Innovation the transition that competition System conducted by an Expert policy made over a decade ago Panel, Venturous Australia, chaired now, from a specialist policy area by Terry Cutler (an industry dominated by lawyers, to an consultant and Board member of the important front of micro-economic CSIRO), ‘the tests of non- reform.’ obviousness and ‘analogous use’ • Beyond these issues, and despite have become much less stringent – one of the stated objective for as some have argued, to the point of introducing the Bill being to vacuity’. In its report delivered to modernise the statutory language, as Kim Carr, the Minister for IPAC recommended, the definition Innovation, Industry, Science and of ‘invention’ that had existed in Research, on 29 August 2008 the both the 1903 and 1952 legislation panel warned that ‘where remained unaltered. Thus the intellectual property rights are too reference to the Statute of easily granted, and where they are Monopolies in the definition of ambiguously defined’ there is ‘invention’ appears in the AU ‘mounting evidence that this is Patents Act, 1990. impeding rather than stimulating innovation’. • Coming like an echo from the 19th century, yet another Committee made a recommendation to government to raise the patentability bar. The expert panel recommended that: Patent law should be reviewed to ensure that the inventive steps required to qualify for patents are considerable, and that the resulting patents are well defined, so as to minimise litigation and maximise the scope for subsequent innovators. [Recommendation 7.2] • This submission asks the question: how many more times do we have to review the standards of novelty and inventiveness before we accept that the problem is systemic? • Clearly, patent attorneys and patent lawyers refuse to accept that there is a systemic problem, which is why the Cutler expert panel in the Venturous Australia Report has recommended that the government not rely so heavily on patent lawyers and patent attorneys in formulating innovation policy. In what is a clear rebuff to the dominance that these professions have enjoyed in the area of intellectual property in Australia, the report notes that ‘it is imperative that IP policy make 39

7 The AU Patents Act, included the right to practice their . skills exclusively for a short period 1990 and the of time in the new territory. This boundaries of was common place throughout patentable subject northern Italy from around the 13th century and was eventually adopted matter. in other parts of Europe. Thus in 1623 when Lord Coke drafted the • It is a fundamental and irrevocable Statute of Monopolies and used the requirement of patent law (that has term ‘manner of new manufacture’ existed since the exception to the in the exception to the ban on all ban of all monopolies was made law monopolies, he was contemplating a in 1623 by effect of section 6 of the very specific kind of innovation. Statute of Monopolies) that patent monopolies must only be granted • Inevitably, as science and for ‘manners of new manufacture’, technology progressed, inventions in other words, ‘inventions’. that were unimaginable to people who lived at that time, such as cars, • Thus, patent monopolies are not to trains and planes, were devised by be granted for the discovery of ingenious people. New machines natural phenomena. Nor are they to have also been invented that applied be granted for innovations that are new forms of energy, such as the essentially mental abstractions, such steam engine, the dynamo, the as mathematical formulae or telephone, the light bulb, the radio, algorithms, or theories which the television, the jet engine, the explain laws of rocket engine and the nature, such as The expert panel in the Venturous nuclear reactor just to E=mc2. Australia Report acknowledged name a few. Of course • Regardless of the that as ‘new knowledge always there are countless other builds on old knowledge, the examples. modern tendency property rights we have erected to to see the encourage innovation can actually •In time it became creation of obstruct it’. accepted that even a new private process that could be monopolies, used to make an existing which patent monopolies are one of thing could also be an invention. many, as the price that society must For example chemical processes pay those who are creative, that could use coal tar to make ingenious or artistic, this has never artificial dyes that were almost been the object of patent law. identical to natural dyes were • Our forefathers not only knew that eventually accepted to be scientific and technological progress ‘inventions’. Another example were is cumulative but that it is critical chemical processes that changed the for human advancement that molecular structure of naturally knowledge be shared. This has been occurring compounds so that they acknowledged by the Cutler expert could be safely used as medicines. panel in the Venturous Australia • As science and technology has Report: as ‘new knowledge always progressed so patent law has had to builds on old knowledge, the face up to this challenge. Thus the property rights we have erected to term ‘manner of new manufacture’ encourage innovation can actually has been interpreted by the courts in obstruct it’. ways that have kept up with the • One way in which our forefathers times. tried to encourage the transfer of • In this respect, in 1959 the High this knowledge from artisans, such Court of Australia handed down a as the Venetian glass makers, to decision in the case of National their own trades people was through Research Development Corporation incentives to migrate, which v Commissioner of Patents (1959) 40

102 CLR 252 (NRDC) that has long production of crops that was been accepted in Australia (and in unprecedented. The Court held: other common law jurisdictions) as The effect produced by the expressing sound principles that aid appellant’s method exhibits the law in meeting this challenge, the two essential qualities and numerous scholarly articles upon which ‘product’ and have been written about it. But the ‘vendible’ seem designed reason why it was an important to insist. It is a ‘product’ decision is that it held that a method because it consists in an of using known chemicals (which artificially created state of were herbicides) to produce a new affairs, discernible by effect (which was horticultural, observing over a period the namely, it killed weeds but not the growth of weeds and crops respectively on sown land crops over which the herbicide was on which the method has sprayed) was patentable subject been put into practice. And matter – it was an invention. This the significance of the technology presented a challenge product is economic; for it for patent law. The Commissioner provides a remarkable of Patents had ruled that it was not a advantage, indeed to the technology that was an invention lay mind a sensational because it was a horticultural advantage, for one of the process. The High Court, however, most elemental activities decided otherwise. by which man has served his material needs, the • The controversy cultivation of the soil revolved around for the production of the fact that the IP Australia has interpreted its fruits. end result of this NRDC as authority for supporting the patenting of •Certainly, IP Australia method or process (the Australian Patent was not a physical isolated or purified human genes and other genomes. Office) has interpreted product. While However, this interpretation has NRDC as authority for the result of the yet to be tested in an Australian supporting the patenting use of this method court. of isolated or purified was measurable human genes and other and visibly genomes. However, this apparent, it was not something one interpretation has yet to be tested in could touch. The challenge for the an Australian court and the High High Court was to decided whether Court’s own statement in NRDC such a result was nevertheless a that ‘however advantageously man ‘product’ because, as the Court may alter the conditions of growth, acknowledged: ‘if there were the fruit is still not produced by his nothing that could properly be action’ suggests that it did not mean called a ‘product’ of the process, to extend the boundary of patentable even an ingenious new departure subject matter to include isolated or would be outside the limits of purified biological materials even if patentability.’ produced by technical processes. • The Court found, however, that Yet, as the Australian Law Reform there was a ‘product’ in the form of Commission (ALRC) noted in its the effect achieved by the report entitled Gene Patents and combining of these known Human Health, some academics herbicides. It was this effect which support IP Australia’s interpretation. it held was a new and vendible and The report stated: useful product. According to the Dr Dianne Nicol has Court a process was a patentable suggested that inventions invention, even if it was agricultural involving genetic materials or horticultural in nature, because and technologies appear to the end result of the process was the satisfy the NRDC achievement of an effect on the requirements because 41

genetic research and the proviso that excludes from treatments are commercial patentability an invention that is in nature and have value in ‘contrary to the law nor an economic sense, both mischievous to the state by raising directly through the prices of commodities at home, or activities of the Australian biotechnology industry and hurt of trade, or generally indirectly through the ability inconvenient’. The problem of what of such technology to to do with these words, the report alleviate disease. says, has been compounded by the Australian Federal Court which has • It follows that biotechnology has been ‘reluctant’ to apply these provided the law with yet another words ‘to deny patent protection to challenge for where to draw the particular inventions’. Thus the line. Is it the case, as IP Australia ALRC recommended that: and some academics contend, that isolated biological materials such The responsible Minister as human genes that have been should initiate an removed from the human body independent review of the appropriateness and and purified through some adequacy of the ‘manner of technical process are, or should manufacture’ test as the be, considered to be inventions? threshold requirement for • However, after conducting its patentable subject matter review of patent law and its under Australian law, with a particular focus on the interaction with biotechnology, the requirement that an ALRC’s report failed to make any invention must not be meaningful ‘generally recommendations inconvenient’. with regard to what The ALRC’s report is so the law should be. riddled with inaccuracies with •Such a review is currently Apart from noting a pro-patent bias that it is being conducted by IPAC’s that it had been the unreliable. successor, the Advisory practice in some Committee for Intellectual overseas jurisdictions to allow the Property (ACIP). patenting of isolated biological materials, and that this had produced some questionable results, it recommended that patent law not be changed in Australia. That said, the ALRC was somewhat critical in its report about the definition of ‘invention’. It stated: The test for patentable subject matter may nevertheless warrant reform. The manner of manufacture test was considered in 1984 by the IPAC Report and in 2000 by the IPCRC, and was endorsed on both occasions. Yet it has become apparent during the course of this Inquiry that there are problems with the test. [para 6.54] • The principal cause of its criticism lay in the language used in s.6 of the Statute of Monopolies, specifically, 42

8 The ALRC Gene Patent Health and Society, . University of Melbourne and Human Health Justice Annabelle Bennett, Report Federal Court of Australia . Dr Kerry Breen, Chair, Australian Health Ethics Committee of the National • Unfortunately, the ALRC’s report is Health & Medical Research fundamentally flawed in a number Council Professor Don Chalmers, of respects, both as to procedural Head, University of fairness and substantively on Tasmania Law School matters of law. Consequently, the Professor Andrew Christie, report is so riddled with a pro-patent Intellectual Property bias that it is unsafe and must be Research Institute of ignored by this Committee in the Australia, University of context of this Inquiry. Melbourne Dr Trevor Davies, Partner, Procedural Unfairness Allens Arthur Robinson • Clearly, the independence of the Dr Carina Dennis, ALRC demanded that the Advisory Australasia Correspondent, Nature Committee, appointed to assist the Professor Paul Greenfield, ALRC on patent law and Senior Deputy Vice- biotechnology, be Chancellor, University of made up of experts The independence of the Queensland who would provide ALRC demanded that the Dr Eric Haan, Head, the ALRC and, Advisory Committee, South Australian Clinical ultimately, the appointed to assist the Genetics Service and Attorney-General ALRC on patent law and Chair of the Human with a balanced view. biotechnology, be made Genetics Society of Regrettably, this was up of experts who would Australasia not the case in this provide the ALRC and, Dr Jane Hall, Director, ultimately, the Attorney- Centre for Health instance. Indeed, it is General with a balanced Economics Research fair to say that no one view. Regrettably, this and Evaluation, on the Advisory was not the case. in this University of Committee who instance. Technology, Sydney professed an expertise Ms Helen Hopkins, in patent law was of Executive Director, the view that isolated biological Consumers Health Forum materials should not be patentable. Professor John Mattick, That they acted for, or had acted for, Director, Institute of or were, or had been associated with Molecular Bioscience, organisations that derived income University of Queensland Dr Dianne Nicol, University from companies that had a vested of Tasmania Law School interest gene patents, the very Professor Alan Pettigrew, subject of the Inquiry, should have CEO, National Health & disqualified them from any Medical Research Council involvement whatsoever. Dr Bill Pickering, Partner, • Blake Dawson Waldron The Advisory Committee, appointed Dr Deborah Rathjen, CEO, by the ALRC was made up of the Bionomics Ltd following (those with patent law Dr Vivien Santer, Principal, expertise or who directly involved Griffith Hack in gene patents are highlighted in Professor Vicky Sara, CEO, blue and underlined): Australian Research Council Associate Professor Ian Professor Sue Serjeanston, Anderson, Deputy Director, Executive Secretary, Centre for the Study of Australian Academy of Science 43

Professor Brad Sherman, • Dr Rathjen was, and still is, the Director, Centre for CEO of an Australian company that Intellectual Property has patent applications and granted Research, Griffith University patents for various human genes and Mr John Stonier, Davies other biological materials. Collison Cave Professor Ron Trent, Head, • The remaining members of the Department of Molecular & Committee were either scientists, Clinical Genetics, Royal academics, journalists or Prince Alfred Hospital and administrators who, except for Dr University of Sydney Nicol, Prof Christie and Prof Mr Guy Wilmington, Manager–Scientific & Sherman, had no prior expertise in Technical Affairs, patent law. Medicines Australia • Indeed, Dr Nicol, Prof Christie and • Thus, Dr Pickering, Dr Santer, Mr Prof Sherman (being patent law Stonier and Dr Davies were patent academics) had, prior to their law professionals whose firms acted joining the Committee, expressed for companies that owned or had the view that the patenting of significant interests in patents over biological materials was within the isolated human genes or other legal boundaries of patentable biological materials. Indeed, Dr subject matter in Australia. Prof Pickering was the patent attorney Christie even going so far as to that filed Australian patent suggest in an academic paper that applications for Chiron Corporation the patentable subject matter (Chiron) in the threshold was so low that 2 late 1980s over Principles of fairness and the even the formulae E=mc the hepatitis C interests of justice demanded that was patentable subject virus genome those associated with the ALRC matter. [Christie, A (2002) be untainted in respect to any ‘Business Method patents and and its proteins Beyond: Why E=mc2 is inherently and Dr Davies’s issue over which the ALRC had patentable (at least in the US and firm, Allens been asked by the Attorney- Australia)’] And it is also to Arthur Robinson, General to specifically advise him be noted that Prof on. acted for Chiron Christie’s chair at the in litigation that University of Melbourne challenged the validity of one of was funded by Davies Collison those patents in the 1990s. Cave, the patent attorney firm to Moreover, Mr Stonier is the same which Mr Stonier, another member person who chaired IPAC and which of the Committee, was associated led to the report referred to earlier - (being the same firm that had a report that was favourably played a role in the IPAC Report disposed toward the patent system. some 20 years earlier). • Justice Annabelle Bennett QC, • With regard to the scientists on the although no longer practising as a Committee Prof Mattick was named barrister at the time, did, while she as an inventor on a number of patent was a barrister, act for a number of applications, one dating back to Erythropoietin large multinational pharmaceutical 1988 that involved a method for the and biotechnology companies, one production of proteins. Furthermore, It is a protein that is of which was F Hoffmann La Roche that same patent application produced naturally by AG - a company that had substantial (bearing international publication the human body to interests in patents over isolated number W0 88/08430) was prepared regulate red blood cell production. biological materials. Justice Bennett by the patent attorney firm F B Rice also acted for Kirin-Amgen, Inc, & Co, which just so happened to be For more information: one of the world’s largest the firm that Dr Pickering, also a biotechnology companies with member of the Committee, was a http://en.wikipedia.org/ respect to its patenting of partner when he prepared the patent wiki/Erythropoetin erythropoietin, a human hormone. applications for Chiron in 1989. Finally, Prof Mattick gave evidence 44

as an expert for Kirin-Amgen, Inc Substantively on Matters of Law as part of an opposition that A misrepresentation of the state of concerned an application to patent patent law in the US isolated erythropoietin in Australia. • The ALRC report referred to US • In respect to conflicts of interests patent law on the issue of patentable that may arise in similar situations, subject matter so as to provide it is useful for the Committee to be information on developments of referred to the decision taken by the patent law in other countries. In Judicial Committee of the UK doing so it grossly misrepresented House of Lords to vitiate a previous the state of US patent law. decision concerning an application to extradite General Pinochet which • For instance, at paras 6.39 and 6.40 was made while one of Lord’s was a the report discusses the US Supreme member of Amnesty International – Court decision in Diamond v an organisation that had publicly Chakrabarty 447 US 303 (1980). It supported the application but which states that this case was the first was not a party to the proceedings. case to support the patenting of There the House of Lords held: biological material in the US and that it laid the foundation for the The principle that a judge patenting ‘of a range of biological was automatically disqualified from hearing a material, including whole matter in his own cause organisms, genes, proteins, and cell was not restricted to cases lines’. This is a particularly one in which he had a sided view which happens to agree pecuniary interest in the with the views of those that support outcome, but also applied the patenting of biological materials to cases where the judges and ignored the literature from US decision would lead to the patent law academics and other promotion of a cause in scholarly organisations that which the judge was questioned the relevance of the involved together with one decision with regard to the patenting of the parties. [R v Bow Street Metropolitan Stipendiary Magistrate of isolated biological materials, and others, ex parte Pinochet Ugarte which is what human genes in the (No 2) [1999] 1 All ER 577] context of the ALRC inquiry was • It follows from what their Lords about. For example, Prof Rebecca said that principles of fairness and Eisenberg, an American law the interests of justice require professor, observed that the US complete independence and Supreme Court in Chakrabarty ‘did although it cannot be said that the not reach the issue of whether ALRC Advisory Committee was naturally-occurring microorganisms judicial, nonetheless, it was part of a that have been newly isolated or process which, if it was to have any purified also fall within the ambit of credibility, demanded that those “manufactures” or “compositions of associated with it be untainted in matter”’. [Eisenberg, R. S. (1987), ‘Proprietary Rights and the Norms of Science in respect to any issue over which the Biotechnology Research’, The Yale Law Journal, ALRC had been asked by the 97 (2), 177-231.] Attorney-General to specifically • This is very relevant because in advise him on. most instances the only point of • Whether they were actually distinction between a human gene motivated by, or acted upon, any (or the protein that it codes for) that bias is irrelevant. What mattered is the subject of a patent monopoly was that there be an apprehension of and the human gene (or protein) in bias. the human body is that one is isolated from the human body while the other remains in situ. • This is far removed from the 45

Hepatitis C Virus genetically modified bacterium that performed had no natural Human Growth was the subject of the patent which precedence. For the first time ever, Hormone Is a naturally occuring the US Supreme Court consider in a microorganism was capable of virus which causes Chakrabarty. Sure enough, in degrading crude oil. The Chief It is a protein hepatitis C. Hepatitis Chakrabarty the US Supreme Court Justice emphasised that this was a (hormone) is the inflammation of held as patentable ‘anything under significant degree of artificiality – produced the liver. the sun made by man’, but the Chief one that so changed the naturally by the Justice went further and was quite microorganism that it could no human body and For more information: stimulates cell specific about the kinds of human longer be said to be a product of growth. http:// intervention necessary to transform nature. a product of nature into a product of en.wikipedia.org/wiki/ • The Chief Justice considered three For more man. Hepatitis_C_Virus characteristics about Chakrabarty’s information • The invention in US 3,813,316, bacterium to be crucial: the level http:// entitled ‘Microorganism having of human intervention, the end en.wikipedia.org/ multiple compatible degradative result (its function) that was wiki/ energy-generating plasmids and unprecedented in nature and the Growth_hormone preparations thereof’, granted on 28 significant utility that this function May 1974, was a genetically had. modified bacterium. Although it Insulin • In the first instance, the artificial was derived from nature, the Court bacterium in Chakrabarty was found that, unlike the natural It is a protein significantly modified when bacterium from which it was (hormone) produced compared to any natural derived, it contained ‘two stable naturally by the microorganism, not just the energy-generating plasmids, each of human body and bacterium in issue. The human enables cells to which provided a intervention involved the absorb glucose from separate The genetically modified genetic modification of a the blood. hydrocarbon microorganism was not natural bacterium through degradative merely ‘isolated’ from its the insertion of two For more pathway’, which natural environment, nor plasmids that were not information: the natural purified through a process of found in any naturally bacterium did not http:// manufacture. occurring microorganism. en.wikipedia.org/ contain. Dr wiki/Insulin Chakrabarty’s •In the second instance, the insertion of these two plasmids, microorganism displayed markedly through the use of what was then a different characteristics from any leading-edge molecular biological found in nature; namely, it degraded technique, was held by the Chief crude oil. There was no naturally Justice to result in something ‘made occurring microorganism or by man’ because: ‘the patentee has anything that came close that produced a new bacterium with performed this function. The markedly different characteristics Court’s emphasis here was not on from any found in nature and one the artificial bacterium performing Insulin-like having the potential for significant a new function in comparison to growth factors 1 utility.’ (emphasis added) the natural bacterium, but on the Factor VIII & 2 artificial bacterium performing a • Undoubtedly, this genetically function different from any found It is a protein modified bacterium was artificial in produced It is a protein in nature. It did more than simply produced naturally some degree. Undoubtedly, it was naturally by the replicate or reproduce an identical by the human body derived from nature. Undoubtedly, it human body and substance or thing already and stimulates cell had a commercial and industrial facilitates blood produced in nature, such as growth. application and, undoubtedly, it was clotting. insulin, human growth factor, valuable. However what actually hepatitis C virus, erythropoietin, For more For more convinced the US Supreme Court information: human tissue plasminogen information: that it was a new ‘composition of activator or Factor VIII: C. http:// matter’ was that it displayed http:// en.wikipedia.org/ ‘markedly different characteristics • Finally, the microorganism’s en.wikipedia.org/ wiki/Insulin- from any found in nature’. Indeed ability to degrade crude oil had the wiki/Factor_VIII like_growth_factor the biological function that it potential for significant utility that _1 46

was directly attributable to its new patentable as such, by characteristics – characteristics that reason of its having been were alien to nature. prepared artificially for the first time from anthracine, if • Only in satisfying all three criteria it was set forth as alizarin, did the US Supreme Court rule that a well known substance. Chakrabarty’s genetically modified • Thus it has never been lawful under bacterium was something that was US patent law to claim as patentable subject matter. Of course ‘inventions’ products that are to be a patentable invention identical to those that exist in Chakrabarty’s invention had to also nature, such as proteins that already satisfy the secondary conditions of exist naturally, even though they patentability: namely novelty, were the product of a technical obviousness and written description. process. Thus the US Supreme Court emphasised that it was the new • Yet the impression which the reader characteristics per se which of the report is left with is that possessed the potential for Australia would be out of step with significant utility, not simply the the US if it did amend the AU artificiality of the bacterium per se Patents Act, 1990 to expressly that proved decisive. What was prohibit the patenting of isolated crucial in this process of biological materials that are transformation was the degree of identical or substantially identical to human naturally occurring intervention, materials. At para 6.52 which was What actually convinced the US the report states: significant, and Supreme Court that the genetically modified organism However, the time how that directly for taking this contributed to its was a new ‘composition of matter’ which was capable of approach to the new function of being an ‘invention’ under US patenting of degrading crude patent law was that it displayed products and oil. The ‘markedly different materials has long microorganism characteristics from any found in since passed. For was not merely nature’. It degraded crude oil. decades, naturally ‘isolated’ from its occurring chemicals natural have been regarded environment, nor purified through a by patent offices in many jurisdictions as patentable process of manufacture. subject matter, when they • Moreover, it has long been accepted are isolated and purified. in the US that making something that already exists, through the use A misrepresentation of the state of patent law in of an inventive process, does not Europe justify the grant of a patent over that thing. In Cochrane v Badische • In 1998 the Directive on the Legal Anilin & Soda Fabrik (BASF) 111 Protection of Biotechnology US 293 (1884) the US Supreme Inventions (Biotech Directive) was Court held that ‘artificial alizarin’, a passed by the European Parliament. chemical dye that was identical to It then became incumbent on alizarin, a natural dye made from countries that are members of the the Madder plant, was not European Union (EU) to transform patentable subject matter regardless the Biotech Directive into their of the fact that the artificial version national patent laws. Quite rightly, was the result of a technical and the ALRC report at para 6.38 artificial process. The Court held: confirms that the Biotech Directive provides that isolated biological ‘[c]alling it artificial alizarin did not make it a new materials derived from human and composition of matter, and other sources are patentable subject matter under the European Patent 47

Convention. • Even today, 11 years later, the Biotech Directive remains, • Unfortunately, what the ALRC according to Christoph Ann, a report failed to point out is that the Professor of Law at the Munich Biotech Directive required all EU Technical University, ‘highly countries to adopt the Biotech controversial, both ethically and Directive by July 2000, yet amid politically; not only in Germany but enormous controversy in Europe, by throughout Europe and in most parts that date, of the 15 countries which of the world’. [Ann, C (2006) Patents on then made up the EU, only 7 had Human Gene Sequences in Germany: On Bad complied. The 8 that had not Lawmaking and Ways to Deal With It’, German included Italy, France, Germany, Law Journal, 7 (3), 279-291] Belgium and The Netherlands. • Professor Ann explains that the • Failure to mention the dissention Biotech Directive ‘triggered’, in the over the Biotech Directive among Bundestag and among legal EU countries was a significant scholars, ‘a lengthy and extremely omission. controversial discussion’ which was only resolved in Germany in 2005 • Furthermore, the ALRC’s report when the German Parliament finally failed to mention that of the conceded to the demands of the countries that had complied, such as European Commission. Even so, Denmark, the government had argues Ann, the transposition into commissioned the Danish Council German patent law technically did of Ethics to investigate and report not comply. The German on the Biotech patent law, Paragraph Directive. According to the Danish Council 1a Sec. 4 PatG, included Despite the fact of Bioethics, the idea that ‘a a stipulation that for an that the Danish sequence or partial sequence of a isolated human gene to Council of gene ceases to be part of the be patentable subject Bioethics had human body merely because an identical copy of the sequence is matter the patentee had yet to publish its to show the application report by the isolated from or produced outside of the human body’ is of that gene in ‘at least time that ALRC ‘unreasonable’. one application’. Thus, had completed says Ann, ‘[w]ithout its inquiry, the such disclosure a human ALRC should have known about it gene sequence is not patentable and thus should have mentioned it. under German Patent Law’. • In this respect it is important for this • While Ann is critical of Paragraph Committee to know that the Danish 1a Sec. 4 PatG because he argues it Council of Bioethics’ Report was creates a disparity between German critical of the rationale employed by and European patent law, it is the Biotech Directive to justify the relevant that the Committee which distinction between a product of is undertaking this Senate Inquiry nature and a product of mankind. understand that it is by no means the Indeed, the Report completely accepted position in Europe that rejected the idea that the mere isolated biological materials per se isolation of a human gene could be (that is, without qualification) a sufficient act to distinguish it from should be patentable subject matter. a human gene that exists in the human body. According to the • It is also worth noting that France Danish Council of Bioethics, the and Italy have followed the German idea that ‘a sequence or partial legislative example. sequence of a gene ceases to be part A misrepresentation to the effect that Australia of the human body merely because would be out of step with the rest of the world an identical copy of the sequence is isolated from or produced outside of • At para 6.53 the ALRC’s report the human body’ was states: ‘the ALRC considers that a ‘unreasonable’. new approach to the patentability of 48

genetic materials is not warranted at Amgen Inc v Board of Regents of the this stage in the development of the University of Washington (1995). patent system’ and it gave a number • The parties were represented by Dr of reasons, the first being, that do to Bennett, Dr Santer and Dr Pickering so ‘would represent a significant (who were all subsequently to be and undesirable departure from appointed members of the ALRC’s accepted international practice with Advisory Committee). Kirin-Amgen respect to genetic inventions’. was represented by Dr A Bennett • This statement is misleading. There (now Justice Bennett of the Federal is no ‘accepted international Court), instructed by Mr I Ernst practice with respect to [the (patent attorney of Shelston Waters, patenting of] genetic inventions’ Sydney) and Mr G Cox (patent that has been legally verified. Apart attorney). The Board of Regents from the disparity in the patent law was represented by Dr J Emmerson, between European countries, all of instructed by Dr V Santer (patent which are members of the EU as attorney of Griffith Hack & Co, well as the European Patent Melbourne). Genetics Institute, Convention with regard to ‘genetic another Opponent, was represented inventions’, it is not necessarily the by Dr W Pickering (patent attorney case that the patenting of isolated of F B Rice & Co). biological materials is lawful in the • The invention (which was the United States. Moreover, there are a subject of the patent application Erythropoietin number of filed by Kirin-Amgen) countries, such “The overwhelming evidence, was to erythropoietin in It is a protein that is as Argentina, produced naturally including Amgen’s own admissions, an isolated and purified that expressly by the human body establishes that human form. Erythropoietin is exclude the to regulate red erythropoietin (uEPO) and isolated a protein which is patenting of blood cell erythropoietin (rEPO) are the same produced naturally in biological product. The EPO gene used to production. humans. materials that produce rEPO is the same EPO For more exist in nature gene as the human body uses to •In all other material information: or are produce uEPO. The amino acid respects the substantially sequences of human uEPO and erythropoietin, as http:// identical rEPO are identical.” produced in the human en.wikipedia.org/ thereto. body and as isolated and wiki/Erythropoetin purified, is identical. This fact had • While it is true that the patent been confirmed in 1989 in patent offices of the United States, Europe proceedings before a US Federal and Japan agreed among themselves District Court which held: Amino acid in 1988 that they would permit sequence patents that claimed isolated …the overwhelming evidence, including biological materials as inventions Is the order in and published a memorandum to Amgen’s own admissions, establishes that human which amino this effect and have since granted acids lie in the such patents, this does not mean that erythropoietin (uEPO) and isolated erythropoietin chain in the patents are valid. Indeed there is (rEPO) are the same proteins. presently considerable controversy product. The EPO gene in the United States among used to produce rEPO is Proteins consist intellectual property law academics the same EPO gene as the of amino acid and practitioners over the validity of human body uses to chains. these very patents. produce uEPO. The amino acid sequences of human For more A misrepresentation on the state of patent law uEPO and rEPO are information: in Australia identical. [Amgen, Inc v Chugai Pharmaceutical Co and Genetics http:// • At para 6.33 the ALRC refers to the Institute, Inc (1989) 13 U.S.P.Q.2D en.wikipedia.or decision of David Herald, a Deputy 1737] g/wiki/ Amino_acid_se Commissioner of Patents (of the • However, either because he was ill- Australian Patent Office), Kirin- quence 49

informed or because he ignored this explanation. The problem, however, US court decision (published some is that (a) the parties never raised 6 years earlier), Herald erroneously patentable subject matter as an concluded that isolated and purified issue; (b) no evidence was filed by erythropoietin had ‘been the parties which was relevant to deliberately changed from the that issue (probably explaining the naturally occurring form’ and so error he made in thinking that the was patentable subject matter under erythropoietin ‘molecules’ which s.18(1) AU Patents Act, 1990 were the subject of the patent had because it was ‘directed to been ‘deliberately changed’ when in artificially created states of affairs’. fact they were identical); (c) there was no legal argument by the parties • That finding was incredible in view with respect to that issue; and, (d) of the fact that recombinantly made regardless, he had no jurisdiction in erythropoietin was according to the the absence of the parties raising it patent owner, Kirin-Amgen, as an issue. identical to the erythropoietin made by the human body. • The ALRC, however, simply ignored these points in its report, • In effect, the Opponents had leaving it open for the reader to conceded this issue so it really did deduce that this decision was not matter what Herald thought legitimate when it was, in fact, about the legal limits applicable to nothing of the kind. It was highly the primary patentability threshold irregular and it is relevant for this of patentable subject matter. This Committee to understand why may seem strange given that this Herald, a Deputy was an issue that Commissioner of the was open for The Deputy-Commissioner of Australian Patent Office, them to contest, Patents handed down a decision would deliberately set especially as no on the issue of ‘manner of new about trying to establish a Australian court manufacture’ knowing that the legal precedent without had made any issue ‘not [been] directly argued’ having any right at law to ruling, but when by the parties in the Opposition. do so. it is appreciated that both •Furthermore, it is Opponents had their own patent relevant for this Committee to applications pending for essentially understand why the ALRC would the same kinds of inventions, it choose to ignore this irregularity. becomes easy to see why they had chosen not to do so. • Indeed, the Grounds of Opposition were limited to three issues. Namely: (a) was the invention obvious?; (b) was the invention novel?; and, (c) did the claims that defined the invention comply with requirements of s.40 (in other words was the definition of the invention clear and succinct and fairly based on the information disclosed in the patent)? These are all secondary patentability thresholds. • Nonetheless, Herald handed down a decision on the issue of ‘manner of new manufacture’ knowing that it had ‘not [been] directly argued’. Precisely why he did so is unknown for he did not proffer any 50

Austro-Hungarian government, it was the United States which had 9. International first raised the possibility of this Developments in event being held in diplomatic communications. Specifically, the Patent Law and their United States government was efect on the alarmed at the prospect of European development of governments taking their lead from The Netherlands and repealing their Australian Patent Law. patent laws. Naturally, it was well aware of the negative attitudes Events leading to the establishment of the towards patents which prevailed in World Intellectual Property Organization Great Britain (and other countries) • Although Australia was merely a at the time and that neither the collection of colonies in 1873, an newly unified Germany nor event occurred in August of that Switzerland had enacted national year which was to play a role in the patent laws. Moreover, of the development of its patent (and European countries and states which copyright and trade mark) law as it had enacted patent laws, nearly all progressed into Federation and followed the French example which beyond. That event was the first excluded patents over medicines international intellectual property and food and other technologies. convention and it occurred during This was at odds with the American the Weltausstellung (German: approach which perceived these International Exhibition) which was laws that protected the right of the held in Vienna between May and ingenious and the creative to receive September. Then within the Austro- fair compensation for their Hungarian Empire, which was contribution to social and economic formed only a few years earlier in development, as essential to a new 1867 (and survived until end of world order – one that was WWI), Vienna was the site chosen democratic in nature. by the Emperor, Franz Joseph I, to • Indeed the American approach to proudly display the grandeur of his patents at the time is best summed vast empire to the world. It was, in up in a book published by H & C effect, a world trade fair and it was Howson, US patent attorneys, in one of many that preceded and 1872. They wrote: superseded it during the 19th Our Patent Laws are, century. Importantly for Franz undoubtedly, the most truly Joseph, the International Exhibition liberal of any. They more was the first in which German was clearly than any other spoken as the official language. recognize the truths that • These grand international productive industry is the basis of natural wealth and exhibitions, which had started in power; that such industry Paris a little after the French will flourish in proportion as Revolution, were held in London it is made a secure course and Paris mainly, but by 1873 it was of individual profit; that true Vienna’s turn. After that, in 1876 it invention is intellectual was Philadelphia and even production of the most Melbourne and Sydney hosted this beneficial kind, and that, event in 1879 and 1880 respectively. therefore true policy, which The last great international trade fair is always just, demands was held in Paris in 1937. that it shall be made, as far as possible, a secure • In the context of these grand affairs source of individual profit. the first international intellectual • It must be remembered that the property convention took place. world in the 1870s was not Although it was hosted by the predisposed to democracy as it is 51

today. Apart from the fact that throughout the Austro-Hungarian women were excluded from the Empire. electoral process, the very idea that • The reaction of the US government everyday working people would was to complain to the Austro- have the right to vote was anathema Hungarian government about the except in the United States. state of these laws. Naturally, with • Understandably, American the prospect of the US withdrawing perceptions of individual freedoms from participation, the Austro- and rights were strongly regarded, Hungarian government passed defended and promoted. American legislation to specifically protect people were beginning to show the exhibitors from the effect of this world that a new democratic patent law. But it also led to a country could industrialise and suggestion by the US government, become a serious competitor to the which the Austro-Hungarian manufacturers in Great Britain, government accepted, that it host an Germany and France. Therefore, the international intellectual property protection of American intellectual convention. In accepting the property was seen as sacrosanct and invitation on behalf of the United countries that did not follow suit States, Columbus Delano, US were portrayed as Secretary of the Interior, free-riding on the In 1872 the United States wrote on 29 May 1873 intellectual genius government was alarmed at the to the Austro-Hungarian which American prospect of European government stating that entrepreneurship governments taking their lead while he believed the encouraged. from The Netherlands and meeting would be, ‘of repealing their patent laws. the very greatest • Ironically, it was an Naturally, it was well aware of importance … if the attempt by a US the negative attitudes towards American [patent] congressman in patents which prevailed in system can be properly December 1872 to Great Britain (and other presented before that stop American countries) at the time and that Congress, discreetly and participation at the neither the newly unified cautiously sustained Weltausstellung that Germany nor Switzerland had with facts and figures, I sparked the idea of enacted national patent laws. Moreover, of the European feel confident that the an international countries and states which had best results can be intellectual property enacted patent laws, nearly all expected.’ convention. followed the French example Congressman which excluded patents over •US President Ulysses Shellabarger medicines and food. Grant appointed the objected to a Assistant Commissioner proposal that the US of Patents, John government contribute $100,000 Marshall Thacher (who was to serve towards the cost of the US as the US Commissioner of Patents exhibition. He was prompted to rise in 1874-75), to head the US to his feet by an article that had delegation. Thacher’s objective was, been published in Scientific according to a report of the events American, whereby the ‘substance published by Scientific American on and effect’, he said, showed ‘that 6 September 1873, ‘to discuss the both the law of Austria and the propriety of establishing a uniform practice of that Government [was] patent law in Europe … and also to such as that the exhibition of any of suggest, to the several governments, the inventions of our country there the general principles and features will result practically in a surrender which such a law ought to of those inventions.’ In other words, embrace’. the public display of American • Thacher’s mission was made easier ingenuity in Vienna would destroy by the presence of other delegates the ability of the American inventor whose views aligned with his. from seeking patent protection 52

Naturally, coming from the patent • That said, and as has already been community these delegates were explained, even after Federation and sympathetic towards patent despite having its own diplomatic monopolies and so at the end of the status, until the early 1970s meeting a predictable resolution Australian patent law and policy was passed that called upon their was very much shaped by attitudes governments to accept: ‘the and policies in London. protection of inventions should be guaranteed by the laws of all civilized nations under the condition The Agreement on Trade Related Aspects of of a complete publication of the Intellectual Property same.’ • By the 1980s the attitude of the US • The Vienna meeting in 1873 was a Government of President Reagan watershed in the history of the towards WIPO had deteriorated patents. It provided the stimulus for sufficiently that it was actively the drafting of the world’s first seeking an alternative. The international patent, trade mark and multilateral nature of the WIPO, copyright treaty, the Paris particularly as it was a UN agency Convention for the Protection of by this time, was seen by US Industrial Property of 1883 (known companies such as Pfizer to be as the Paris Convention), which by frustrating US attempts to promote 1893 had led to the US-style intellectual property formation of United The US objective was, standards and their International Bureau according to a report of the enforcement in developing for the Protection of events published by countries. Developing Intellectual Property, Scientific American on 6 countries had become BIRPI. For members September 1873, ‘to increasingly important to the of the Paris Union, discuss the propriety of US economic strategy in that signatories to the establishing a uniform they provided US Paris Convention, patent law in Europe … corporations with cheap and also to suggest, to the the Bureau, labour and higher profit headquartered in several governments, the general principles and margins. Together with Berne, remained the features which such a law intellectual property laws, principal route ought to embrace’. US corporations were able to through which control product access to intellectual property their own internal market and would be discussed and those markets which had intellectual administered internationally. property laws of a similar standard. Eventually the Convention However, this was very difficult in Establishing the World Intellectual countries which did not, and the Property Organization (WIPO) was majority of countries (particularly signed in Stockholm on 14 July low labour cost countries) fell into 1967 and in 1974, in accordance this category. This approach, of with that Convention, the BIRPI course, was similarly being copied became the WIPO, headquartered in by the EEC and Japan. Geneva. The current head of WIPO is an Australian, Dr Francis Gurry. • Critical to the success of this strategy was the repatriation of • Today WIPO is an agency of the royalty revenues earned through the United Nations and administers a licensing of intellectual property to variety of international agreements companies that were either and conventions regarding subsidiaries of the multinational intellectual property. One of these is parent companies headquartered in the Patent Cooperation Treaty, 1970 the US, Europe and Japan or which facilitates the filing of patent associated to them as third party applications throughout the world. suppliers of various components or As such WIPO is an important as assemblers, distributors and source of data regarding patents. suppliers. 53

• Accordingly, while the GATT was the chief US negotiator blamed the not the right place, it was the only ‘deficiencies in protection of place in which to raise this issue intellectual property rights’ as the outside of WIPO, an organisation cause of a distortion of the ‘trade in which, as ANU Professors Peter goods’. It was the firm view of the Drahos and John Braithwaite, US that ‘the entire trading system as confirmed ‘was no longer a forum a whole will benefit from that could be trusted to deliver the eliminating trade distortions standards’ being demanded by the resulting from lack of adequate and US, Europe and Japan [Drahos, Peter effective protection of intellectual with Braithwaite, John (2002), Information property rights’. Feudalism, London UK: Earthscan Publications Ltd, 111] • The reaction of developing • Unfortunately, the GATT, which countries, many of whom were was the only agreement through worried that bringing intellectual which the post-WWII aspirations property law enforcement within the for free trade could be pursued, was GATT would inhibit their right to not a suitable vehicle because economic self determination, was intellectual property laws had been guarded. They believed that the deliberately excluded from the two Paris Convention provided agreements that were signed at flexibility and that WIPO, which Bretton Woods in July 1944. Thus, administered this and other in order to protect the balance of intellectual property treaties, was payments of the appropriate body to countries in which facilitate all international The multilateral nature of the discussion concerning the owners of WIPO, particularly as it was a leading-edge intellectual property. In UN agency by this time, was their view the GATT talks, technologies seen by US companies such reported their as Pfizer to be frustrating US which were mandated by revenues, it was attempts to promote US-style the Uruguay Ministerial imperative that all intellectual property Council, were narrowly forms of standards and their confined to trade-related intellectual enforcement in developing aspects of intellectual property become countries. property law, not to the part of world trade wholesale harmonisation discussions and so in the 1970s and enforcement of these Japan raised the issue of the laws. The Brazilian TRIPS counterfeiting of trade marked and negotiator complained: copyrighted goods in the GATT. For more than 500 years, This had nothing to do with patent the main objective of the law, but as the GATT secretariat protection of IPRs has eventually placed the issue of been the promotion of counterfeiting on the agenda, the industrial creativity to the US, EEC and Japanese trade benefit of a country's social negotiators were able to have the and economic development. Each State, agenda broadened to include patents therefore, recognises IPRs as well. according to well-defined • By 1984 all aspects of intellectual public interests. This basic property were on the agenda for the orientation guides, for next round of the GATT which was instance, the system established by the Paris to be held in Uruguay. Convention. It also • The vehicle used to progress this explains and justifies the further was the draft of the differences which naturally Agreement on Trade Related exist between various Aspects of Intellectual Property national laws dealing with the subject. (TRIPS). When the TRIPS negotiations opened in March 1987, 54

Australia’s role in the TRIPS negotiations and Australian policymakers to adjust the Impact of TRIPS on Australia ‘the length, strength and breadth of patent rights’ in Australia to the • Australia played a significant role in degree required to ‘maximise the these negotiations which social benefits and to minimise the commenced in 1987 and ended in social costs to Australians’. 1994. Having quickly aligned itself with US, EEC and Japan, the • Of even greater concern is why Australian TRIPS negotiators tried Australia’s TRIPS negotiators to mediate between the two sides. supported the specific drafts of the Why they did so, given that TRIPS agreement, which were put Australia was not a leading-edge forward by the EEC and the US, in technology producing country of light of an economic study that any significance (in fact on the basis concluded that ‘the benefit/cost of the patent statistics it was a ratio of the patent system in significant net importer of leading- Australia is negative, or at the very edge technology), is a matter of best, in balance’. It must be speculation. Indeed, according to emphasised that although the IPAC the IPAC Report, between 1979 and Report recommended retaining the 1984 over 90% of Australian patents patent system it did so with a had been granted to foreigners caveat, namely, that ‘there is (incidentally, according to WIPO, considerable economic justification today that figure is even higher). for policy action’ to modify patent Even more puzzling is why they laws so as to: persisted with this strategy when in …[provide for] stricter 1989, only two examination … years after the start For more than 500 years, the reducing the length of the TRIPS main objective of the protection of the term and the negotiations, the of IPRs has been the promotion scope of patent relevant Minister, of industrial creativity to the monopolies, and by Barry Jones, benefit of a country's social action to deal with explained in the and economic development. undesirable Australian restrictive practices in patent licensing. Parliament that the objective of the proposed new • Instead, under TRIPS, which came patent law, which he had introduced into effect in Australia on 1 January and which was drafted to take into 1995, the exact opposite result was account the IPAC 1984 report, was: achieved. First, the length of the … adjusting the length, patent term was increased from 16 strength and breadth of years by 4 years and fixed at 20 patent rights so as to years. Secondly, it would no longer maximise the social be possible for patent laws to benefits and to minimise discriminate against specific the social costs to technologies. Thirdly, the ability of Australians. government to use compulsory • Whether the Minister appreciated licensing was restricted. Fourthly, to that Australia’s TRIPS negotiators the extent that pre-grant patent were in favour of an international examination was made stricter, a agreement that directly contradicted series of court decisions reduced the this statement is a matter of effectiveness of the threshold for speculation; but, objectively, one ‘inventive step’, according to the must consider the possibility that, National Innovation Study, given that he would not deliberately Venturous Australia, ‘to the point of mislead parliament, he did not. vacuity’. Finally, the Australian However, it would have been Federal Court in two Full Court apparent to those advising the decisions interpreted Australia’s Minister that once TRIPS was a accession to TRIPS as an indication reality it would be impossible for of a new policy that no longer 55

required IP Australia nor the courts fact remains that there had never to enforce the proviso in section 6 of before (nor since) been a major the Statute of Monopolies, namely, multi-disciplinary review of the that patents ‘be not contrary to the effect of patent monopolies on the law nor mischievous to the state by Australian economy. The simple raising prices of commodities at truth is that the reviews of patent home, or hurt of trade, or generally laws which have taken place to date inconvenient’. have either been instigated in response to amendments to UK • As a result Australia’s patent law in patent laws (as occurred in 1935 2009 is simply incapable of meeting and 1950) or conducted by the objectives which Barry Jones, Committees controlled or unduly the sponsor of the current influenced by patent lawyers and legislation, expressly promised the patent attorneys (as occurred in Australian Parliament and the 1984, 2000 and 2004). Australian people it would in 1989. To be frank, Australia’s patent law and the economic policies which According to the IPAC supposedly justify it should be the Report, between 1979 subject of a major multi-disciplinary and 1984 over 90% of and multi-expert review - one that Australian patents had takes into account the empirical been granted to evidence and the views of a range of foreigners stakeholders, not one that ignores the evidence and only takes into account the views of patent lawyers Australia’s patent law and the and patent attorneys (and indirectly economic policies which supposedly the views of their clients which are justify it should be the subject of a mainly foreign multi-national major multi-disciplinary and multi- corporations). Regardless of the expert review - one that takes into account the empirical evidence and existing international agreements the views of a range of stakeholders, that apply to Australia at the present not one that ignores the evidence and time, this Committee should only takes into account the views of consider calling for a wide ranging patent lawyers and patent attorneys Inquiry to investigate the Australian (and indirectly the views of their patent system and its relevance to clients which are mainly foreign multi- the Australian economy in the 21st national corporations). century. • Although TRIPS was not yet a reality when the AU Patents Act, 1990 became law, the TRIPS negotiations had been going for 3 years. The first draft of what was to become TRIPS was not circulated by the EEC until 29 March 1990, nine months after the Minister made his speech in the Australian Parliament about the legislation’s objectives; but even so, the Minister must have had a hunch that perhaps those objectives may ultimately have be incompatible with TRIPS. • Thus, even if the Minister did not deliberately mislead Parliament when the Patents Bill, 1989 was read a second time in the House of Representatives on 1 June 1989, the 56

10. Patentable Subject was “limited to a practical application in the technological Matter arts”, was “within the category of inherently patentable subject matter”. • Andrew Christie, the first holder of • This kind of reasoning, as was the Davies Collison Cave Chair of employed by the CAFC in State Intellectual Property Law at the Street, was not new nor confined to University of Melbourne, subscribes the technology in issue nor an to the view that Australian patent idiosyncratic example of US law has a very broad definition of jurisprudence and so, perhaps, patentable subject matter. So broad, Christie’s hypothesis is not so far in fact, that just about anything is fetched. Rather, the reasoning was capable of being made the subject of quite commonplace in some a patent monopoly. In his paper quarters of intellectual property and entitled Business Method Patents although not universally accepted, and Beyond: Why E=mc2 is the European Patent Office’s inherently patentable (at least in the administrative appellate bodies, the U.S. and Australia) Christie asserts Technical Board of Appeals, had that the ‘truism of patent law championed it since the early 1980s. throughout the world that abstract Even the Patents Court and the concepts such as “the laws of Court of Appeal in the UK had, on nature, physical phenomena and occasion, displayed some sympathy abstract ideas” are towards it, especially not inherently when the invention in the patentable’ is ‘not It is argued by proponents of patent in issue came true’. He argues gene patents that the ‘truism of patent law throughout the world within one of the that patent law in that abstract concepts such as categories of things that the US and “the laws of nature, physical were expressly excluded Australia did away phenomena and abstract ideas” by the European Patent with these are not inherently patentable’ is Convention as antiquated notions ‘not true’. ‘inventions’. Such things long ago. In include discoveries, support, he computer programs, specifically relies on ‘the practice of mental acts and business methods. the Patent Offices’ in these countries So whether the invention in issue and ‘to the decisions of the[ir] was the discovery of a human gene courts, in relation to computer as the cause of human illness, but programs, mathematical algorithms which was isolated and used in a and business methods.’ diagnostic (which was not new), or • Specifically, Christie relies on a a device which was itself not novel, decision of the US Court of Appeals but which when incorporating a for the Federal Circuit (CAFC), an computer chip performed a function appellate US Federal Court vested in accordance with a computer with exclusive jurisdiction over program (the computer program appeals from US Federal District being the only thing that was new), Courts concerning patent law, to the question became: is the support his argument. The decision invention as a whole something is State Street Bank v Signature excluded from the definition of Financial Group 149 F.3d 1368 ‘invention’? (Fed. Cir. 1998), and according to • Although State Street was a US Christie, the CAFC held that an court decision it was, according to algorithm which had been ‘“reduced Christie, good law in Australia to some type of practical because an Australian Federal Court application” so as to produce “a judge, Justice Heerey, had applied concrete, tangible and useful its reasoning in an Australian case, result”’, thus being something that namely, Welcome Real-Time SA v 57

Catuity Inc [2001] FCA 445. Thus, the US Supreme Court accept the concludes Christie, ‘the law in application it will probably be Australia is the same as the law in another 12 months, at least, before the US – namely, claimed subject we will know how the issue is to be matter is not inherently resolved at a judicial level, and even unpatentable merely because it then it is quite possible that the US concerns a method of doing Congress may amend the US business’. Patents Act, 1952 (the operative legislation) in response to that • Without going into the facts or the decision. merits of either State Street or Welcome Real-Time, the reason why • That possibility aside, it is this Committee should be wary of instructive for this Committee to be the kind of analysis undertaken by taken through the en banc decision Christie and the recent tendency of in Bilski. It does not involve Australian courts to look to the biotechnology nor gene patents, but United States for guidance with a business method. Irrespective of respect to patent law, is that the state the subject matter, the decision is of the patent law in the US helpful because it demonstrates just regarding patentable subject matter how important (and relevant) are the is highly controversial and far from statutory limits imposed on being settled. Moreover, it would patentable subject matter. seem that the kind •The decision consists of of reasoning “Whether a claim is drawn to 132 pages so it will be employed in State patent-eligible subject necessary to abridge its Street and, on matter ... is a threshold reasoning. The invention in some occasions, by inquiry, and any claim of an issue was ‘a method of other courts and application failing the hedging risk in the field of tribunals in other requirements ... must be commodities trading’. That parts of the world, rejected even if it meets all of is how Michel CJ is not only wrong the other legal requirements of described it. There was no but it displays a patentability.” doubt that it was artificial, particular view of useful, valuable and had an patent law which Chief Judge Michel of the US Court of Appeals for the Federal industrial or commercial seeks to expand the Circuit, In re Bilski, October 2008 application. Even so, the scope of patentable US Patent Office had subject matter to rejected the patent the point where, as Christie asserts, application on the ground that it was literally anything can be regarded as not an invention within s.101 US capable of being patentable subject Patents Act, 1952. According to the matter. patent examiner, ‘the invention is • Indeed, it must be brought to the not implemented on a specific Committee’s attention that only apparatus and merely manipulates recently an en banc panel of the [an] abstract idea and solves a CAFC, that is the CAFC consisting purely mathematical problem of the full complement of all 12 without any limitation to a practical judges, held by 10:2 that State Street application, therefore, the invention had been wrongly decided (although is not directed to the technological according to the Michel CJ it was an arts’. The US Board of Patent 11:1 decision against the patenting Appeals upheld the rejection. The of the claim to the business method patent applicant then appealed to the in issue [see webcast at http:// CAFC. www.wcl.american.edu/pijip/webcast.cfm#]). • Almost immediately, at page 4 of Not that this decision necessarily the judgment, Michel CJ confirmed settles the law in the US. The claim that patentable subject matter is the in question, In re Bilski, is now the primary threshold of patentability. subject of an application to appeal He stated: to the US Supreme Court. Should 58

Whether a claim is drawn allowable scope of patents to patent-eligible subject arose from an aversion to matter under § 101 is a the odious Crown practice threshold inquiry, and any of granting patents on claim of an application particular types of failing the requirements of businesses to court § 101 must be rejected favorites. 383 U.S. 1, 5 even if it meets all of the (1966). (Emphasis added) other legal requirements of patentability. (Emphasis • Ultimately, the en banc CAFC also added) rejected the patent application. • In further reinforcing the relevance • But what is particularly troubling of this threshold in the context of about Christie’s argument, an the subject matter, being a method argument that is often made by or process, the Chief Judge said: proponents of this kind of approach to patentable subject matter, is that Specifically, the [US it ignores the most fundamental Supreme] Court has held requirement of patent law: that a that a claim is not a patent- eligible "process" if it patent should only be granted in claims "laws of nature, respect to something that is natural phenomena, [or] inherently an ‘invention’ – the abstract ideas." … Such primary threshold of patentability. fundamental principles are Whether the definition of "part of the storehouse of ‘invention’ be the current Australian knowledge of definition in the AU all men . . . “The English practice in 1793, Patents Act, 1990 or the free to all men definition in s.101 of the and reserved imported into the American statutes, explicitly recognized a US Patents Act, 1952 or exclusively to some other definition none." limit on patentable subject matter.” which applies a series of • The Chief Judge exclusions to what is not summarised the Judges Dyk and Linn of the US an ‘invention’, such as issue before the Court of Appeals for the Federal does the European Patent Circuit, In re Bilski, October 2008 Court as ‘whether Convention, the fact Applicants are remains that there are seeking to claim a things that have never fundamental principle (such as an been and can never be ‘inventions’ abstract idea) or a mental process’. and this has been acknowledge by In other words, said the Chief the highest courts of appeal in Judge, ‘[t]he question before us then Australia, the US and the UK. is whether Applicants’ claim recites • At its most basic level, this is the a fundamental principle and, if so, issue that concerns this Committee whether it would pre-empt in terms of isolated or purified substantially all uses of that biological materials which are fundamental principle if allowed’. identical or substantially identical to (Emphasis added) those that exist in nature, and not • Two judges of the majority (Dyk only does the AU Patents Act, 1990 and Linn JJ) wrote a separate refer back to section 6 of the Statute judgment in which they affirmed: of Monopolies, but the High Court The English practice in of Australia has provided guidance 1793, imported into the on what the relevant parameters are American statutes, in terms of patentable subject explicitly recognized a limit matter. Accordingly, it is relevant on patentable subject that at no time has the High Court matter. As the Supreme of Australia endorsed the argument Court recounted in Graham subscribed to by Christie (and v. John Deere, the English others). It is simply nonsensical and concern about limiting the it has no merit whatsoever. 59

• As the Chief Judge in Bilksi said: virtually identical to the language of the issue is whether a patentee has art. 52.1 European Patent defined the invention in such a way Convention (EPC), an international that the patent monopoly, should it agreement which was originally be granted, includes ‘a fundamental drafted by Kurt Haertel in 1963. principle [which]… pre-empt[s] [Haertel was instrumental in persuading the West German government (as it was then) to remove substantially all uses of that the ban, which had existed since 1877, on the fundamental principle’. If that is the patenting of chemical substances. Thus his vision issue, then a patent which defines to eliminate all technological discrimination went from being a mere European condition to a the invention to be an isolated condition that today applies in all countries that biological material will, by are members of the WTO.] definition, ‘pre-empt substantially • Thus art. 52.1 EPC and art 27.1 all uses of’ that biological material TRIPS are inextricably linked. That because incorporated into the very said, the conditions of patentability essence of that biological material which are encapsulated in both of are ‘fundamental principles’ in the these provisions are identical to form of the nucleic acid (if it is a those that have existed in all gene) or the amino acid sequence (if common law jurisdictions, linked it is a protein), neither of which through history and jurisprudence, were invented by anyone. to section 6 of the Statute of Monopolies, 1623. Those TRIPS and Patentable Subject Matter conditions, as has already been stated, mean that a patent can only • Although TRIPS expressly imposes be granted in respect to something an obligation on WTO member that is: countries to have patent laws (as (a) an invention, primary condition well as other intellectual property laws) that conform to stipulated and then only if that parameters, thus making it invention is: impossible for countries like (b) novel, and Australia to use patent laws so as to (c) involves an inventive secondary ‘maximise the social benefits and to conditions minimise the social costs to step, and Australians’ in the manner that (d) is industrially applicable. } Barry Jones explained in 1989, it does nonetheless provide that patents be granted only in respect of • As the Chief Justice confirmed in ‘inventions’. Bilksi, regardless of whether the • Article 27.1 TRIPS states: subject matter of a patent meets the secondary conditions, unless it … patents shall be meets the primary condition, the available for any patent is invalid. inventions, whether products or processes, in • This is also the law in the UK (post- all fields of technology, EPC under the UK Patents Act, provided that they are new, 1977) as well as in Australia. Two involve an inventive step appellate court decisions confirm and are capable of this. The first, Genentech Inc’s industrial application. … [and] patents shall be Patent [1989] RPC 147 (Genentech) available and patent rights is a decision of the UK Court of enjoyable without Appeal which involved a patent discrimination as to the application that claimed an isolated place of invention, the field human protein, the corresponding of technology and whether human gene and a biotechnological products are imported or process that used the genetic locally produced. sequence of the human gene to • The language of art. 27.1 TRIPS is synthesised the protein in a isolated 60

and pure form. The second, NV natural environment is not sufficient Philips Gloeilampenfabrieken v to justify the private appropriation Mirabella International Pty Limited of that genetic material and the (1995) 183 CLR 655 (Philips) is a removal from, what the US decision of the High Court of Supreme Court in Funk Brothers Australia which involved a patent Seed Co v Kalo Inoculant Co 333 for a light bulb that used a specific US 127 (1948) (Funk Bros) held to component. be, the body of knowledge that is ‘free to all men and reserved • In the context of this Inquiry into exclusively to none’. patents that claim, as inventions, isolated biological materials and the • Indeed, even deducing the function biotechnological processes for their of a specific human gene or using synthesis, it is critical that this the gene in a biotechnological Committee not be persuaded by process does not warrant the private submissions that use the argument appropriation of either the gene or made by Christie. Furthermore, the the product of that process, whether Committee should accept that the the product be a protein in a purified common heard phrase that form, or information which can be Tissue Plasminogen ‘anything under the sun made by used in the prognosis of a disease or Activator (t-PA) man is patentable subject matter’, a biological reaction. Judicial It is a protein that is often bandied about, out of context, support for this position is also to be produced naturally by by proponents of gene patents is not found in post-EPC British patent the human body to to be interpreted literally. That law jurisprudence. For instance, the dissolve blood clots. phrase was UK Court of Appeal in originally made by Genentech held that a “Claims 1 to 6 all refer to the For more information: PJ Federico, a US final protein product in one patent which claimed a patent law form or another and prepared patent monopoly over the http://en.wikipedia.org/ academic in 1951 by one method or another. In human gene which coded wiki/ and referred to my judgment these are not for the protein tissue Tissue_plasminogen_act favourably by the inventions …” plasminogen activator (t- ivator US Supreme PA), the use of that human Court in 1980 in Lord Justice Purchas gene in biotechnological Diamond v processes and the product Chakrabarty, and of those biotechnological although the Court upheld the processes, purified t-PA, was validity of the patent over a invalid. In so doing the Court held genetically modified organism that the claim which defined the (GMO), it did so only because that patent monopoly to be over GMO performed a useful function ‘recombinant human tissue that was unknown to nature, namely, plasminogen activator essentially it degraded crude oil. free of other protein of human origin’ was not valid because it was • The Court did not hold that any directed to something that was not level of human intervention was an ‘invention’ within s.1(1) UK sufficient to transform a product of Patents Act, 1977 (which was nature into a product of mankind. equivalent to art. 52(1) EPC) being Rather, it emphasised that the level expressly excluded by effect of s. of human involvement needed in 1(2)(a), namely, that it was ‘a that process of transformation had discovery’. Lord Justice Purchas to be significant. Moreover, the held: Court it did not repudiate the long held caveat against the patenting of Claims 1 to 6 all refer to ‘laws of nature, physical the final protein product in phenomena and abstract ideas’; in one form or another and fact, it reemphasised it. prepared by one method or another. In my judgment • What this means is that the mere act these are not inventions … of isolating a human gene from its • Accordingly, as isolated and 61

purified biological materials do not environment be a human being, an qualify as ‘inventions’ within the animal, a plant, a virus or some meaning of that word in TRIPS, it other organism. would not be a contravention of • The ‘purified biological materials’ Australia’s obligations under TRIPS means biological materials from for the Australian Parliament to pass which all (or nearly all) extraneous legislation to expressly exclude material has been removed. isolated biological materials from patentability. Biotechnological Processes Isolated or Purified Biological Materials • There are many kinds of biological processes used to manufacture • The United States Patent and products, one of the oldest, going Trademark Office (USPTO) back to 6,000 BC, is used in the provides guidance as to the meaning brewing of beer. Thus the use of the term ‘biological materials’. biological processes is not new. There is a requirement to make a However, as human knowledge has deposit of biological materials increased and a deeper which are to be made the subject of understanding of our world has been a US patent. In this context, the achieved, those processes have been USPTO states [http://www.uspto.gov/web/ modified, improved and, in some offices/pac/mpep/documents/2400_2403.htm]: cases, new ones developed. The term biological The term material shall The UK Court of Appeal in •Louis Pasteur, the famous ‘isolated include material Genentech Inc’s Patent French chemist and biological that is capable of held that a patent which microbiologist, was material’ means self-replication claimed a patent monopoly granted two US patents biological either directly or over the human gene which over an improved beer material that indirectly. coded for the protein tissue making process. The first, has been Representative plasminogen activator (t- US 135,245, was granted PA), the use of that human removed from examples include on 28 January 1873. its natural bacteria, fungi gene in biotechnological environment, processes and the product Entitled ‘Improvement in including yeast, Brewing Beer and Ale’, in whether that algae, protozoa, of those biotechnological environment be eukaryotic cells, processes, purified t-PA, one and a half pages it a human being, cell lines, was invalid. provided details of a an animal, a hybridomas, process that improved ‘the plant, a virus or plasmids, viruses, capacity of some other plant tissue cells, lichens unchangebleness’ of beer and organism. and seeds. Viruses, enabled it to be ‘transported without vectors, cell organelles and detriment or deterioration’. He was other non-living material also granted a second US patent, US existing in and reproducible 141,072, on 22 July 1873. Entitled from a living cell may be ‘Improvement in the Manufacture deposited by deposit of the of Beer and Yeast’, in a little over host cell capable of reproducing the non-living two pages it provided details of a material. (Emphasis process and drawings of an added) ‘apparatus’ which, when used together, would: ‘eliminate and • On this basis DNA or RNA, prevent the multiplication [of] … generally called ‘nucleic microscopic organisms … in acids’ (nucleotides), and proteins “brewers” yeast, worts, and beer’. (polypeptides) come within the According to Pasteur, it was definition of ‘biological materials’. ‘pernicious germs’ that were • The term ‘isolated biological responsible for ‘changing the material’ means biological material condition of the product’. In other that has been removed from its words, microbes caused beer natural environment, whether that brewed using traditional methods to 62

spoil. His process involved the remains the universal template heating and cooling of the ‘wort’ for the modern biotechnology/ Deoxyribonucleic and the use of ‘pure alcohol yeast’, pharmaceutical industry. acid (DNA) thereby destroying the microbes and • That is not to suggest that new Is a nucleic acid producing a beer that could be biological processes which are that contains the ‘preserved without the aid of ice’ significantly different to the genetic and ‘made in hot as well as cold Cohen/Boyer process have not instructions used climates, as summer as in winter.’ been developed. They most in the development Indeed, modern beer manufacturers and functioning of certainly have. However, they and consumers must be grateful to all known living key to recombinant protein Pasteur. organisms and synthesis remains the same – the some viruses. •One hundred years later, Stanley use of DNA or RNA that codes Cohen, an associate professor of for the protein. For more medicine at Stanford University, information: and Herbert Boyer, a biochemist at the University of California, San The Genetic ‘Gold’ Rush http:// Francisco, discovered that it was en.wikipedia.org/ possible to cut DNA from the • So while the process which they wiki/DNA genome of one organism and splice had developed was something it into the genome of another (called capable of being an ‘invention’, a plasmid) and once it had been published have that plasmid (which by the produce the In 1973 Stanley Cohen, an mid-1970s it had been) the protein (consisting associate professor of only thing that stood in the of amino acids) medicine at Stanford way of its use were the University, and Herbert Boyer, patent monopolies granted coded by that a biochemist at the University recombined DNA. to Stanford University of California, San Francisco, (Stanford) (Cohen and Their discovery, discovered that it was possible like Pasteur’s to cut DNA from the genome of Boyer had assigned their discovery of one organism and splice it into interests in the invention to ‘pernicious the genome of another (called Stanford). Fortunately, germs’, was so a plasmid) and have that Stanford licensed the revolutionary that plasmid produce the protein invention on a non- it forever changed (consisting of amino acids) exclusive basis. Thus, scientific thinking, coded by the recombined DNA. subject to entering into a license with Stanford, it contributing to a Ribonucleic was possible for anyone body of knowledge acid (RNA) that finally enabled scientists to to synthesise just about any adapt nature’s processes to the protein. What was needed before Similar to manufacture of biological materials this was possible, however, was DNA except in vast quantities and with a purity the DNA or RNA which coded for that it contains that was hitherto thought the protein of interest (whether ribose not impossible. They were that be insulin, erythropoietin or t- dioxyribose and acknowledged as inventors on a US PA). has the base patent, US 4,237,224, granted on 2 ‘uracil’ instead • Like the gold miners of California of ‘thymine’. It December 1980 entitled ‘Process and Victoria in the 19th century is usually single For Producing Biologically staking claims over land which stranded Functional Molecular Chimeras’. they hoped would yield gold (whereas DNA •Since then Cohen and Boyer’s nuggets or large seams of gold, is usually process has been modified and biotechnology companies were double- stranded). improved but the essence of their established, mainly by molecular biotechnological process (that used biologists in partnership with venture capitalists, staking claims For more genetically modified cells, such as information: yeast, bacteria, animal and human over the DNA or RNA that coded cells, to synthesise proteins in for whatever the target protein http:// industrial quantities as pure as those was. For Amgen Inc, this was en.wikipedia.or produced by natural processes) erythropoietin. For Genentech it g/wiki/DNA 63

was insulin. For Chiron is was the by the late 1980s it was becoming causative agent of non-A, non-B obvious that the UK courts were not hepatitis (now called hepatitis C going to be as accommodating as virus). For Biogen, Inc is was the proponents of gene patents had hepatitis B virus. Mostly led by hoped. Indeed, the European Patent American scientists and Office (EPO), which was entrepreneurs, their determination developing its own case law through caused great excitement on both the appellate tribunals of the EPO sides of the Atlantic (indeed the (and which was, under the EPC, to whole world) as venture capitalists, be accorded some weight by scientists, institutional investors, national courts) was on a collision governments and even mums and course with British patent law dads all sought to generate wealth jurisprudence. Within a decade of through biotechnology – an exciting the EPC coming into operation, a new science. Patent monopolies patent schism over biotechnology were increasingly seen to be crucial had opened up. The EPO was of the assets. Venture capitalists were opinion that isolated biological attracted to them because they materials were patentable subject provided a vehicle through which matter. The UK courts, as they justified the investment of their Genentech shows, were not. client’s money. But Cohen/Boyer’s •In the United States the process was entire issue was avoided already known – so The problem was that in the because proponents of gene in the absence of rush to patent these patents argued that the US any other biological materials, no one in Supreme Court decision in alternative, the the US had time to consider Diamond v Chakrabarty genes and proteins whether this was even was all that mattered – themselves became possible. More to the point, it genetically modified the subject of would be years before the organisms were patentable patents. first of these patents would be granted and even longer subject matter, therefore • The problem was before they would be tested in any genetically modified that in the rush to the courts. What were the organism and any resulting patent these patent offices to do in the product were deemed biological meantime, while patent equally patentable. This materials, no one in attorneys filed thousands of suited the patent attorney the US had time to patent applications over profession and the isolated biological materials? consider whether scientists and venture this was even capitalists that had started possible. More to up biotechnology the point, it would be years before companies. The USPTO, the first of these patents would be unfortunately, conceded the point granted and even longer before they and adopted a policy that was would be tested in the courts. What consistent with this position. Thus if were the patent offices to do in the there were patent disputes over gene meantime, while patent attorneys patents, those dispute were over filed thousands of patent which patent applicant (‘inventor’) applications over isolated biological had priority. Naturally, as there is materials? only one gene and many gene hunters (biotech companies), inevitably arguments arose over The Invention/Discovery Conundrum who was entitled to a US patent over the gene, especially as in the • Different patent offices took US, only the ‘first and true different approaches, but the general inventor’ was entitled to a US approach appears to have been to patent. In the midst of resolving allow the patents until such time as these ‘battles over turf’, as the the courts said otherwise. However, presiding judge described the fight 64

between Amgen, Inc and Genetics Australian patent (AU Patent Institute, Inc [Amgen, Inc v Chugai 624,105) which granted Chiron a Pharmaceutical Co and Genetics Institute, Inc Australian patent monopoly over (1989) 706 F. Supp. 94, 95] over the nucleotides (DNA) and erythropoietin (a human protein), polypeptides (proteins) of the US patent attorneys argued that hepatitis C virus in a ‘isolated’ or DNA was just another chemical and ‘purified’ form. This case will be just as chemicals were patentable so discussed later in much greater was DNA. The problem was that no detail, but for the time being it US Supreme Court had ruled that suffices to know that that the parties isolation of a gene was a sufficient came to a worldwide settlement in nexus to patenting any gene. Indeed, August 1996 before the trial had no US Supreme Court has yet ruled concluded. Accordingly, there was on this point. never a court decision. To date no • Indeed in an attempt to influence Australian court has ruled on the the UK Court of Appeal in issue. Genentech while the appeal was • In the UK the growing disquiet being argued, in June 1988 the EPO, caused by the patent schism USPTO and the Japanese Patent between the EPO and the UK Office (JPO) issued a joint courts, criticised by the European statement which read as follows: biotech industry as being against the Purified natural products best economic interests of the are not regarded as European Union, was starting to products of nature or influence some British judges discoveries because they toward accepting the EPO’s do not in fact approach. The most notable exist in nature in The US Supreme Court has example involving the an isolated form. not ruled that the isolation hepatitis C virus. In Chiron Rather, they are of a gene is a sufficient Corporation v Organon, regarded for nexus to permit the patent purposes Murex and UBI (Chiron) patenting a gene. as biologically Aldous J held that a claim to active isolated nucleotides and substances or chemical polypeptides of hepatitis C virus compounds and eligible for was an invention under s.1(1) UK patenting on the same Patents Act, 1977. The UK Court of basis as other chemical Appeal supported the reasoning of compounds. [ALRC Report 99, Aldous J. The House of Lords para 6.36] granted Murex leave-to-appeal, an • That attempt failed, but the indication that the Lords were not protagonists who favoured the EPO/ convinced that the lower courts had USPTO/JPO approach began to got the law right, but the Lords lobby the European Commission, never heard the appeal as it was the administrative arm of the dismissed as part of the worldwide European Union (as the EEC had settlement between Murex and become) for ‘clarification’ on the Chiron. This was indeed state of the law. Thus began the unfortunate. work towards the first European • By the time the House of Lords Biotechnology Directive. delivered their decision in Biogen • In Australia it was not until 1994 Inc v Medeva PLC [1997] RPC 1 that the first court action to raise the (Biogen) in October 1996 it was issue of patentable subject matter in obviously too late to have any effect respect of an isolated nucleotide and on the UK Court of Appeal in polypeptide took place. That case, Chiron, but it nonetheless confirmed Murex Diagnostics v Chiron that the Lords were not happy with Corporation [NSW Federal District the judicial olive branch that Aldous Registry: NG 106 of 1994] J had extended in the Chiron challenged the validity of an decision. In what was a clear rebuff, 65 the Lords, one of whom was Lord the enquiry by looking Mustill (one of the two majority outside the four conditions. judges in Genentech and elevated The traditional law of from the UK Court of Appeal), patents is, however, in the invalidated a patent granted to course of adapting itself to new technologies, beyond Biogen by the EPO over the contemplation when the hepatitis B virus. In delivering their foundations of that law decision (which was written by were established. This Lord Hoffmann), Lord Mustill took process is not without the opportunity to reinforce the strain, and I believe that in views that he had previously some instances a close expressed in Genentech. He said: conceptual analysis of the nature of patentability will There is however one not be a waste of time. matter which I should Such a case was mention: namely, the Genentech Inc's Patent necessity or otherwise for a where the claim was for a valid patent to product already concern an “The traditional law of patents existing in nature, a invention, as subject far distant well as is, however, in the course of adapting itself to new from the mechanical satisfying the and chemical conditions technologies, beyond contemplation when the inventions to which expressed in so much of paragraphs (a) foundations of that law were established. This process is not traditional patent law to (d) of section relates. There may 1(1) of the Act. without strain, and I believe that in some instances a close well be others in the This question future. was not conceptual analysis of the contested nature of patentability will not •Despite the need, as Lord before the be a waste of time. Such a case Hoffmann emphasised, for House, was Genentech Inc's Patent the UK courts to take where the claim was for a although some judicial note of the reference was product already existing in nature, a subject far distant decisions of the EPO’s made to it in appellate board, the House debate, for it from the mechanical and was agreed chemical inventions to which of Lords in this instance (rightly in my so much of traditional patent rejected the reasoning of opinion) that it law relates. There may well be the EPO and came to a has no bearing others in the future.” contrary result – the patent on the present was invalid in the UK. Lord Mustill appeal. My • reason for House of Lords, Biogen v Medeva, Then in 1998 the 1996 referring to it is European Parliament simply to make passed the European clear that in concurring with Biotechnology Directive (EBD) all your Lordships in the after the first attempt, in 1995, reasons for dismissing the failed. According to art. 5.2 EBD: appeal I should not be taken to accept, without full An element isolated from argument, that the need for the human body or an invention would always otherwise produced by be academic, or that no means of a technical such need is expressed by process, including the the words of section 1(1): sequence or partial nor indeed do I understand sequence of a gene, may my noble and learned constitute a patentable friend as advancing any invention, even if the conclusion to that effect. structure of that element is Certainly, in the great identical to that of a natural majority of cases, there will element. be no need to complicate • While the EBD imposed an inter- 66

government solution to the patent though making use of the same gene schism, behind the scenes there was sequence, synthesised the purified considerable unease in some erythropoietin in a different way so quarters of the EU, notably the as not to infringe Amgen’s patent. Italian, French, German, Belgian • This finding frustrated Amgen. It and Dutch governments who were had argued from the very beginning concerned that the EBD had gone that the key to the production of too far. Consequently, the deadline purified erythropoietin was the for transposing the EBD into human gene sequence which its national patent law came and went scientist, Dr Lin, had deduced. with 8 of the 15 EU member Indeed it would be fair to say that countries refusing to comply. Even Amgen pursued a line of argument in the UK, a country which did to the effect that the scope of the comply, the judicial tensions were patent monopoly of the primary not eased as it became abundantly process claim in the patent captured clear when Amgen, Inc’s appeal, the synthesis of purified concerning the first of its European erythropoietin howsoever made. patents over erythropoietin, came Dissatisfied, Amgen appealed. before the House of Lords in July 2004. [Kirin-Amgen Inc v Hoechst Marion • The resulting House of Lords Roussel Ltd and others [2005] 1 All ER 667] decision, however, did not please • In the decision appealed to the Amgen. Lords, the UK Court of Appeal had • First, to make matters even worse stated that it had drawn ‘comfort for Amgen, the Lords found that the from the claims to isolated Directive’ erythropoietin were accepting that an The House of Lords held in Kirin- Amgen v Hoechst (2004) that the invalid because ‘even isolated when isolated, biological claims to isolated erythropoietin were invalid because ‘even when [erythropoietin] was not material could isolated, [erythropoietin] was not new’. Naturally, it was be taken to be an new’. not new because invention under erythropoietin is a the EPC. naturally occurring Certainly that was an appropriate substance and the Lords understood comment given that the European that its isolation or purification did Parliament had endorsed this view not alter that fact. through the EBD and its ruling that ‘[t]he patentee could not • Secondly, the Lords were critical of monopolise the gene per se as that the trial judge’s finding that ‘the existed in nature’ but could whole thrust of the specification, monopolise ‘the DNA sequence and, indeed with commercial encoding for DNA when isolated’, common sense, indicates that the was consistent with the EBD (and patentee is getting at the production the EPO’s approach). That said, the of erythropoietin’. Clearly, the trial Court of Appeal held that Amgen’s judge (Neuberger J) had accepted patent had not been infringed Amgen’s assertion that the because the scope of its patent disclosure of the gene sequence in monopoly to the isolated DNA Table VI (a document referred to in sequence of the human the patent which described the erythropoietin gene was not as human gene sequence) was the key broad as Amgen had asserted. to the invention and thus it was Despite its primary claim to the entitled to the benefit of a broad invention of biotechnological patent monopoly. But the Lords process that utilised the isolated disagreed, because to have accepted gene sequence to synthesise purified this argument would have been to erythropoietin, the Court ruled that permit the patenting of human genes the Respondent’s biological process, and, having rejected the rationale that isolation was a point of 67

distinction, they could not allow (Metabolite) was just beginning and this. Lord Hoffmann explained: this was to have ramifications for I think that the Court of gene patents in the US. Indeed, it Appeal was right in saying was one of a number of patent cases that Table VI could not which the US Supreme Court have been the invention. accepted during the 2006-2007 Standing alone, it was a term; an indication that the Court ‘discovery...as such’ within was not prepared to leave the the meaning of section 1(2) development of US patent law of the Act: see Genentech solely to the CAFC. Inc’s Patent [1989] RPC 147, per Purchas LJ at p • The dispute in Laboratory 204 and per Dillon LJ at p Corporation of America v 237. Metabolite Laboratories (LabCorp) involved a US patent that gave a • But Amgen was very fortunate to patent monopoly to Metabolite for have retained a partially valid patent the diagnosis of a vitamin at all because had the Lords deficiency based upon the measure accepted its argument that the of a naturally occurring amino acid, ‘invention’ was the gene sequence homocysteine, in the human body. (in Table VI) and that therefore the Although it was not raised as an patent monopoly of the primary issue in the lower courts, in an process claim captured application for leave to appeal to the erythropoietin howsoever produced, US Supreme Court, LCA the Lords would argued that the patent was have had to “I think that the Court of Appeal invalid because the invalidate the was right in saying that [the DNA invention was not entire patent. sequence of the isolated human patentable subject matter, Thus in taking a gene to erythropoietin] could not namely, that it was ‘a narrow approach have been the invention. Standing alone, it was a monopoly over a basic - defining the ‘discovery...” scientific relationship’. ‘invention’ to be a This was a consequence specific Lord Hoffmann of the lower courts biotechnological House of Lords, Kirin-Amgen v having granted and process, not the Hoechst, 2004 upheld an injunction that isolated gene – enjoined LCA from using the Lords were any tests ‘that would lead the able to avoid reopening the patent doctors to order diagnostic tests for schism by partially maintaining measuring homocysteine’. What Amgen’s patent (a patent which the was controversial about this result Technical Appeal Board of the EPO was that the association of had upheld as valid in its entirety), homocysteine levels in a person’s while at the same time criticising body and a vitamin deficiency, a the EBD’s central rationale – that mental action that any doctor could used isolation to distinguish perform, was, in effect, made the between something naturally subject of a patent monopoly. occurring from something patentable. • Clearly, the patent was not a gene patent, but it is relevant for this • In the United States, however, Committee to understand that the Amgen was having a better time in parameters of what is and what is its patent litigation against the same not patentable subject matter are Respondents, mainly because the very important and the litigation never reached the US consequences to society and the Supreme Court. But, a patent case economy can be severe if those that would reach the US Supreme boundaries are transgressed. Court in 2006 between Laboratory Corporation of America (LCA) and • Unfortunately, having been granted Metabolite Laboratories leave to appeal, the US Supreme 68

Court subsequently withdrew that has impacted upon gene patents in leave. That it did so is unusual, but as much as the inventive step of the majority believed that this step gene patents, as the Amgen was warranted because LCA had not argument before the House of Lords raised the issue before the lower demonstrated, is often the genetic courts. This was a tactical omission sequence itself. Of course, if the deliberately made by LCA and so it inventive step is the gene sequence, was punished. then how can the application of that gene sequence in a technology that • Regardless, Justices Breyer, Stevens is itself not novel and is obvious, and Souter were keen to take the give rise to a ‘patentable invention’? opportunity to remind the lower courts that patentable subject matter • That is precisely the question which is an important patentability confronted the US Board of Patent parameter. In referring to the Appeals and Interferences (BPAI) in principle of US patent law which the case of In ex parte Kubin and ‘excludes from patent protection … Goodwin (Kubin) after the US laws of nature, natural phenomena Supreme Court had overruled the and abstract ideas’, they not only CAFC in KSR and, in the process, confirmed that ‘this principle finds took the opportunity to criticise two its roots in both English and of its decisions handed down in the American law’ mid-1990s concerning but confirmed The principle that ‘excludes gene patents. Applying that its existence from patent protection … laws of KSR, the BPAI explained ‘does not lie in nature, natural phenomena and that the ‘“problem” facing any claim that abstract ideas ... finds its roots in those in the art’, namely “laws of nature” both English and American law... molecular geneticists, is are obvious, or [and] the reason for the the limited number of that their exclusion is that sometimes too methodologies available discovery is easy, much patent protection can to isolate the cDNA (that or that they are impede rather than ‘promote the encoded the disputed not useful …. to Progress of Science and useful Natural Killer Cell the contrary’. Arts’”. Activation Inducing While conceding Justices Breyer, Stevens and Souter, Ligand polypeptides that ‘research into US Supreme Court, Laboratory Corp (NAIL)) provide them such matters may v Metabolite Laboratories (2006). ‘with the reasonable be costly and expectation that at least time consuming; one would be successful’. monetary incentives may matter; As a result the BPAI concluded that and the fruits of those incentives isolating NAIL cDNA was ‘the and that research may prove of great product not of innovation but of benefit to the human race’, they ordinary skill and common sense’ reemphasised that ‘the reason for and this in turn meant that ‘NAIL the exclusion is that sometimes too cDNA [was] not patentable as it much patent protection can impede would have been obvious to isolate rather than “promote the Progress it.’ of Science and useful Arts”’. • Thus if one accepts that the step of (Emphasis added) isolation is not sufficient to • Bearing this in mind, the next patent distinguish a natural gene from an case which the US Supreme Court artificial gene (House of Lords in dealt with was not about patentable Amgen) and that the ‘isolation’ of subject matter at all, but was about genetic material is obvious (BPAI in the test to be applied in assessing Kubin) and a non-inventive step, a inventive step - a secondary patent over an isolated biological condition of patentability. [KSR material that is identical to or International Co v Teleflex Inc (2007) 127 S Ct substantially identical to a naturally 1727] Nonetheless, it is relevant to occurring biological material is this discussion because the decision neither an ‘invention’ nor 69

‘patentable’. • In other words, an isolated human gene is still a human gene even when removed from its natural environment or synthesised using a biotechnological process when the step of isolation is obvious and not inventive. • Incidentally, Kubin is now on appeal to the CAFC. It may eventually reach the US Supreme Court. Which ever way one looks at the issue, to suggest, as the ALRC did in its 2004 report, that the patenting of isolated biological materials is an internationally accepted and settled practice is both mischievous and untrue. 70

11 An example of a Gene keep it for the purpose of . doing any of those things; Patent which has been or granted in Australia which claims as an (b) where the invention is a invention ‘isolated method or process—use biological materials’ the method or process or . do any act mentioned in paragraph (a) in respect of a product resulting from • It will be necessary for this such use. Committee to have a thorough • Note: there is no express exclusion understanding of gene patents, for ‘experimental use’. The word particularly those that were granted ‘make’ includes any activity that by IP Australia and which were also comes within the meaning of that the subject of patent litigation in word regardless of whether it is this country. The reason for this is commercially motivated or not. twofold. First, it is important that the Committee understand the structure of these kinds of patents, AU Patent 624,105 entitled NANBH namely, how they are written and Diagnostics and Vaccines what they typically claim. The claims are particularly important • This patent was granted by IP because these define the boundaries Australia to Chiron Corporation of the patent monopoly. They are (Chiron) in September 1992. The like land title deeds – just as patent monopoly commenced on 18 landownership November 1988 and confers exclusive Anything that is done by a expired on 18 November rights to occupy third party that is an 2008. The subject of the land, so a patent exploitation and which comes patent, in general terms, confers the within the scope of the patent was the hepatitis C virus exclusive right to monopoly interferes with the (HCV) and, as the title exploit the patentees right. suggests, included the invention described exploitation of the in the claims. biological components of Therefore, anything that is done by the virus in all diagnostic and a third party that is an exploitation therapeutic applications, including and which comes within the scope in a prophylactic vaccine that was of the patent monopoly interferes capable of inducing permanent with the patentees right. Secondly, immunity to HCV infection. patent litigation is a good barometer of the impact which the patent has • Previously known as non-A, non-B on the economy. There are millions hepatitis (NANBH), the causative of patents, but those that make it agent of NANBH became known as before the courts are the ones that HCV after it was identified and are the most valuable and, therefore, characterised by scientists at the ones that are most likely to Chiron. The Chiron team was impact on the economy in headed by Dr Michael Houghton measurable and significant ways. and he was named as one of the The following is one example. inventors. The other named inventors were his Chiron • The word ‘exploit’ is defined in the colleagues, Dr George Kuo and Dr AU Patents Act, 1990 as follows: Qui-Lim Choo. That said, there was (a) where the invention is a some controversy over the issue of product—make, hire, sell inventorship as Chiron were or otherwise dispose of the formally collaborating with the US product, offer to make, sell, government agency, the Centres for hire or otherwise dispose Disease Control (CDC), and a team of it, use or import it, or headed by Dr Daniel Bradley from 71

the CDC that had worked closely patent would have had to rely on the with the Chiron scientists for over patent claims as applied for. In this fours years when the crucial case, however, there was almost no breakthrough occurred. That came difference – the claims as applied in January 1987 when five clones of for and the claims as originally HCV were detected in an granted were virtually identical. experiment conducted at Chiron’s The Original Patent Claims (as laboratories. In the period 1983 to granted) 1987 the value of the publicly funded research undertaken by the • There were 39 claims originally CDC in accordance with the granted. These included the collaboration with Chiron was following claims to isolated or estimated in 1988 to be about $US8 purified biological materials that are million. identical or substantially identical to HCV as it occurs in nature: • US patent applications were then filed in the USPTO, the first, filed Claim 1: A purified HCV on 18 November 1987, marked the polynucleotide earliest priority date against which Claim 2: A recombinant the novelty and inventive step of the HCV polynucleotide patented invention would be Claim 4: A recombinant assessed and the final, filed on 14 polynucleotide encoding an November 1988, became the basis epitope of HCV. of the Australian patent application which was filed in accordance with Claim 10: Purified HCV. the Paris Convention on 18 Claim 12: A purified HCV November 1988 – the date which, polypeptide. when the patent was granted, would Claim 14: A recombinant signify the beginning of the patent HCV polypeptide. term in Australia (which by virtue of amendments to the AU Patent Claim 16: A recombinant Act, 1990 made in accordance with polypeptide comprised of TRIPS, was 20 years). an HCV epitope. • Thus it is important for the • Then there are claims to the use of Committee to understand that these materials in various although IP Australia did not applications including protein actually grant the patent until production, diagnostics and September 1992, the exclusive therapeutics (such as vaccines). For rights of the patent owner example: effectively commenced some 4 Claim 32: A vaccine for years earlier. What this means is treatment of HCV infection that even though Chiron’s legal comprising an right had not crystallised until then, immunogenic polypeptide between the time that the patent containing an HCV epitope application became known (or open wherein the immunogenic polypeptide is present in a for public inspection) and the pharmacologically effective sealing of the patent, the patent dose in a pharmaceutically owner had the right to acceptable excipient. retrospectively sue in respect of anything done within Australia that Claim 33: A vaccine for would have amounted to an treatment of HCV infection comprising inactivated infringement of the patent once HCV in a granted. Of course, that would not pharmacologically effective have been easy to gauge, as the final dose in a pharmaceutically claims would not be known to third acceptable excipient. parties until the grant of the patent, so those that may have been Claim 34: A vaccine for treatment of HCV infection tempted to infringe the ungranted 72

comprising attenuated producing any meaningful scientific HCV in a data to support the claims. The lack pharmacologically effective of data was confirmed by the UK dose in a pharmaceutically Patents Court when the UK acceptable excipient. equivalent patent was litigated in • This inquiry is primarily concerned 1993. There Aldous J invalidated with claims of the first kind –the the claims to the HCV vaccines. He question being: are these things or held: should these things be ‘inventions’ The law requires the for the purposes of the AU Patents specification to be Act, 1990? sufficiently detailed so that • However, the inquiry is also the skilled man can produce a vaccine without concerned with claims of the second undue experimentation. If kind, for although it can be the description was conceded that these things generally sufficient, I would have meet the threshold of patentable expected a company with subject matter (that is, they are the Chiron's expertise to be kind of things that are likely to be able to produce a trial ‘inventions’), it is important (a) that vaccine without the need the ‘invention’ be sufficiently clear for 30 man years of to a person of ordinary skill in the qualified scientific work. relevant technology so that that The plaintiffs did not person can dispute that in normal cases the need to understand and “Chiron claim a monopoly to the expend 30 man make the years of work invention vaccine and they have only given a description in the specification would indicate that without undue which, if followed, would be likely to the description experimentation take another company 30 man years was insufficient, and (b) that the of scientific research and but submitted that inventive step development ... ” this was an not be so exceptional case elementary as to Justice Aldous, Chiron Corp v Organon where length of be obvious to & Others, UK Patents Court, 1993 time was not an that person. indication of insufficiency. I • The latter kinds of claims are accept that in this case, a important for two reasons: substantial time may be needed to test a vaccine, • First, if by way of example, one but 30 man years to looks at the claims to the use of achieve animal testing HCV biological materials in a seems excessive. vaccine, one would expect to find The actual way that Chiron information in the patent which have produced their would direct a person of the vaccine has been kept requisite skill to be able to make an confidential to ensure that HCV vaccine without the need for others will have to go undue experimentation. Thus, through the same testing whether there was sufficient procedure that Chiron have information for this to happen carried out. No doubt that should have been fairly obvious to a is commercially wise. patent examiner. Yet IP Australia However Chiron claim a granted an Australian patent with monopoly to the vaccine and they have only given a such a claim (as did the British description in the Patent Office which granted a specification which, if British Patent GB 2,212,511). It is followed, would be likely to mentioned at this point merely to take another company 30 illustrate how easy it is for a man years of scientific patentee to obtain a patent without research and development 73

to arrive at a stage where done with the HCV virus is successful trials could be covered by this patent and carried out on all research and chimpanzees. I believe development on the virus that such a description is is subservient to it.” The insufficient issue can also be stated in scientific terms. This patent • So another 30 man years was going essentially does not to be required before an HCV distinguish between vaccine would be available. Well, genotype and phenotype, here we are, more than 20 years has whereas geneticists are passed since the discovery of HCV very aware that such a and there is no HCV vaccine, nor is distinction should be made. there any on the horizon. It is the reductionism argument taken to the • One has to ask why this is so? extreme and it is not Perhaps Prof Baruch Blumberg supported by the great (winner of the Nobel prize in weight of the history of medicine in 1976 for his discovery scientific discovery in of the hepatitis B virus and the biology and medicine. To development of the HBV vaccine) the extent that this extreme provides the answer. He said this in view is backed-up by broad his affidavit which was filed in the claims, which it is in this patent, the effect will likely Australian Federal Court be inhibition of research on proceedings in Murex Diagnostics v HCV. Chiron Corp NSW Federal Court Registry NG 106 of 1994: Based on the unusually broad nature of the patent, I have reviewed Chiron's if I were a research director Australian Patent No. for anti-virals and had the 624105 for the purposes of option of working on these proceedings. In my several viruses, the opinion, the claims in this existence of this patent patent are very broad. would weigh against my These claims represent a deciding to undertake HCV view in scientific thought, research. A company, or i.e., that knowledge of the even an academic nucleotide sequence of the laboratory, might well be virus genome, let alone deterred from conducting part of it, tells one all that research on HCV because needs to be known about the patent is, in effect, the functions of the intimidating. With the proteins produced by the patent as it stands, any virus and hence all that investigator, particularly in needs to be known about commercial laboratories the virus. I do not (where much of the work subscribe to this view. on hepatitis has been Such a view infers that all done) would have to other information about the seriously consider that proteins and their effects, Chiron would bring an including post-translational action against them if they changes in the gene- attempted any produced proteins, commercialization of interactions of viral anything related to HCV. proteins with each other, interactions of the viral • In this respect, claims to the isolated gene products with the or purified biological materials are host, the biology of the critical because they provide the virus and its host, patentee with patent rights over demonstration of what is the foundation of anything effectiveness, etc. is that can be made with the use of redundant. It states in those materials, including vaccines. effect: “Anything that is 74

• “Based on the unusually broad nature of The question that Prof Blumberg the patent, if I were a research director for raised is this: why should anyone anti-virals and had the option of working invest in the research needed to on several viruses, the existence of this produce an HCV vaccine when patent would weigh against my deciding ultimately someone else will control to undertake HCV research.” the biological material that is used in that vaccine? Thus the Prof Baruch Blumberg downstream technological (winner of the Nobel prize in medicine in 1976) developments, which are more important in terms of human health, are made subservient to the patentee that has the patent rights over the primary biological materials – and why should this be so? • Secondly, some of the downstream applications are so elementary as to be obvious. For instance, there are claims to the use of these materials in diagnostics. But even in 1987 it was obvious to a person of ordinary skill in the manufacture of immunoassays or nucleic acid (DNA) tests that the HCV proteins and genetic materials could be used Part 2 of this submission in these ways. Rather than requiring will provide details of the 30 man years, as in the case of vaccines, developing HCV impact which this patent diagnostics was relatively simple and other gene patents once the genetic sequence of the have had on the provision virus (which is a discovery) was in the public domain (which is what of healthcare in Australia. happens when scientists publish a scientific paper about their experiments). This is normally how science works. • Indeed Chiron knew that this was the case because it deliberately delayed publication of the HCV genome until such time as its patent position was protected. That, in effect, delayed publication by some 17 months. • Apart from which, once that information was made available, any competent molecular biologist would have been capable of making an HCV diagnostic assay. Yet, IP Australia, as did the British Patent Office, granted Chiron claims to the use of these materials in all manner of diagnostics. The result for Australia was particularly grave. End of Part One