REVISED PATENT LAW WON'T HELP DRUG INDUSTRY IN

UNCLAS SECTION 01 OF 03 WELLINGTON 000900

SIPDIS

DEPARTMENT FOR EAP/ANP-TRAMSEY, EB/TPP/MTA/IPC-PACETO AND
EB/TPP/BTA/ANA-RARMSTRONG
STATE PASS TO USTR FOR BWEISEL
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/GPAINE
COMMERCE PASS USPTO

SENSITIVE

E.O. 12356: N/A
TAGS: KIPR ECON ETRD NZ
SUBJECT: REVISED PATENT LAW WON'T HELP DRUG INDUSTRY IN
NEW ZEALAND



1. (U) Summary: A proposed revision of New Zealand's patent law
will disappoint pharmaceutical companies by failing to extend the
effective patent life of drugs -- stuck at seven years on average
-- and prohibiting patents for methods of medical treatment.
U.S. pharmaceutical firms especially wanted a longer patent term,
which would increase the time they could profit from their
inventions before they faced competition from generics.


2. (SBU) U.S. pharmaceutical firm representatives we spoke with
suspect the New Zealand government is not extending the patent
term in order to retain a card to play in possible free-trade
negotiations with the United States. But, the decision also is
consistent with the government's efforts to hold down drug
prices. Policies supporting that objective already have caused
some pharmaceutical firms to leave the New Zealand market and
others to reduce their profile and investments in the country.
The proposed patent amendment will help sustain that trend. End
summary.

Joining the 21st century
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3. (U) Following Cabinet's instructions, the Ministry of Economic
Development is drafting legislation to revise the Patents Act

1953. The ministry hopes to publicly release the draft before
the end of the year, with the legislation to be introduced in
Parliament in early 2005, according to a ministry official.


4. (U) The revision is intended to bring New Zealand's patent law
into closer conformity with international standards. New Zealand
is one of the few countries that apply a "local novelty standard"
for granting a patent. As the patent law now stands, an
invention is considered new and therefore patentable if no
earlier publication or use had occurred in New Zealand before the
filing of the patent application. The revision would make
patents more difficult to obtain by requiring the invention not
only to be new -- anywhere in the world -- but also to involve an
inventive step, the ministry official said. Taking into account
technological and social changes since 1953, the amended law
would place New Zealand in harmony with its major trading
partners, Australia and the United States, in determining
patentability. The result is that overseas investors and
companies should face fewer barriers to commercial development of
their inventions. About 90 percent of New Zealand patents are
granted to overseas intellectual property owners.


5. (U) A review of the Patents Act was initiated in 1989, but was
put on hold in 1990 due to the indigenous Maoris' concerns for
protecting their cultural heritage, according to the ministry
official. The review was reopened in 2000. The resulting
proposed revisions would establish a Maori consultative committee
to advise the patents commissioner on whether an invention
involves traditional knowledge or indigenous plants and animals
or is contrary to Maori values. Patent protection could be
denied if commercial exploitation would be contrary to morality
or public order, to protect human or animal or plant, or to avoid
serious harm to the environment. These provisions could be
applied to genetic material, although such material is not
specifically excluded from patentability. The ministry official
said the exclusions would be allowed under Article 27(2) of the
Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS).

No patents for methods of treatment
--------------

6. (U) The proposed amendment also will exclude from
patentability human beings and methods of treating them.
Publicly, the government has cited ethical reasons for the
exclusions, contending that it would be immoral to constrain for
commercial reasons a doctor's ability to use the best available
methods to treat patients. Privately, the ministry official told
us a primary concern was that patents covering medical methods
could increase public health costs. He said the government was
not convinced that the benefits of such patents would outweigh
their costs.


7. (U) The methods-of-treatment exclusion is the government's
response to court decisions saying that the legislature -- not
the judiciary -- had to decide whether such methods could be
patented. In the most recent case, the New Zealand Court of
Appeal ruled June 28 against Pfizer by holding that the Patents
Act 1953 did not cover methods of treating humans. Such methods
thus were not patentable, nor could the court find a basis for
broadening the act's scope, as it had been asked to do by
Pfizer's attorneys.


8. (U) Pfizer had filed two patent applications in 1998 for
methods of treating psychotic disorders using a new compound.
Turned down by the patents office, the company took the case to
court. Pfizer had offered to the Court of Appeal to include a
disclaimer relinquishing its right to sue doctors, who otherwise
might face a decision to withhold treatment or risk being sued
for breach of patent. The court said the disclaimer was
inadequate.


9. (U) Pfizer has been joined by other drug companies in
contending that the exclusion of methods of treatment from patent
protection could further hinder medical research and development
in New Zealand. With less profit incentive to research
alternative uses of existing drugs, pharmaceutical companies may
forgo the pursuit of other applications in New Zealand.

No change in patent term
--------------

10. (U) The revised law also would keep the maximum patent term
in New Zealand at 20 years, as established by legislation enacted
in 1994. That law, which also abolished patent extensions,
brought New Zealand into line with its TRIPS agreement
obligations. However, of all OECD countries, only New Zealand
and Canada do not provide for patent extensions. Because the
time required to review patent applications is included in the 20-
year term, the pharmaceutical industry contends that the
effective patent life of drugs in New Zealand is about seven
years.


11. (U) The industry also points to another provision in New
Zealand law that shortens the time that a company can benefit
from exclusive rights to pharmaceutical products. A December
2002 amendment to the Patents Act allows generic competitors to
engage in "springboarding," or to prepare their product for
market while a proprietary drug is still under patent. This
provision has allowed generic products to enter the market on the
heels of a patent's expiration. No change is expected under the
revised patents law.


12. (U) The Cabinet decided in December 2002 to include the issue
of patent term extension for pharmaceuticals in the Patents Act
review. However, in mid-2004, Cabinet -- without explanation --
dropped the issue from an economic study of the Patents Act. The
official from the Ministry of Economic Development told us the
new patents bill would not address the issue.


13. (SBU) Although officials have declined to comment on why the
Cabinet nixed a patent extension for pharmaceuticals, some in the
industry have suspicions. Representatives from two U.S.
pharmaceutical companies in August separately told the Consul
General in Auckland that there was strong speculation, backed by
their discussions with high-level government staff, that the
study of pharmaceuticals' patent life had been sidetracked to
give New Zealand "something to trade away" when, or if, New
Zealand was asked to enter free-trade negotiations with the
United States. As it now stands, New Zealand will not even
undertake an analysis of the possible benefits of an extended
patent term for drugs, the drug company representatives
complained.


14. (U) The pharmaceutical industry group, Researched Medicines
Industry Association (RMI),asserts that adequate intellectual
property protection is critically important to nurture researched-
based industries in New Zealand. Lesley Clarke, RMI's chief
executive officer, said the length of the patent term is an
important factor weighed by pharmaceutical multinationals in
deciding where to invest in research and site their laboratories.

Comment
--------------

15. (U) Cost control has long been a primary aim of the New
Zealand government's approach to providing health care to its
citizens. As a result, New Zealand ranks 20th of the 30 OECD
countries in terms of per-capita spending on health. It has
managed to control medical costs in large part by restricting
access by its doctors and their patients to newly introduced
pharmaceuticals and cutting-edge medical treatments. Access has
been limited by slowing the inclusion of new and expensive
pharmaceuticals to a tightly controlled list of approved drugs
for which the government subsidizes costs. The net effect to
drug companies is to hamper their ability to profit from their
inventions. The government's decisions not to extend patent life
or allow patents on medical treatment give the industry yet
another reason to reduce its stake in the country.


16. (SBU) Meanwhile, the government has identified the
biotechnology industry as a critical component of its plan for
long-term, sustainable economic growth. At some point, it seems
likely that the government will need to resolve the often
conflicting objectives of its tight-fisted controls on medical
practice and its encouragement of a biotechnology industry.
Until that day arrives, the two goals will share an uneasy co-
existence.

SWINDELLS