4.4 Analysis - construction of s 77 of the Patents Act
59 The scheme of Pt 3 of Ch 6 of the Patents Act provides that a patentee may apply for an extension of the term of a patent provided that the requirements of ss 70(2) - (4) are satisfied. It is to be noted that the term extension ultimately calculated under s 77 is for the patent as a whole, and not particular claims or particular substances.
60 The requirements under s 70(2) are that one or more pharmaceutical substances per se (or pharmaceutical substances when produced by a process that involves the use of recombinant DNA technology) must in substance be disclosed in the complete specification of the patent and in substance fall within the scope of the claim or claims of that specification. The requirements under s 70(3) are that two conditions must be satisfied in relation to at least one of those pharmaceutical substances: (a) goods containing or consisting of the substance must be included in the ARTG; and (b) the period beginning on the date of the patent and ending on the first regulatory approval date for the substance must be at least five years. The term "first regulatory approval date" is defined in s 70(5).
61 An application for an extension must be made by the patentee in the form required in s 71(1) and within 6 months of the latest of the three times identified in s 71(2). The first is the date the patent was granted. The second is the date of commencement of the first inclusion in the ARTG of goods that contain, or consist of, any of the pharmaceutical substances referred to in s 70(3). The third is the date of commencement of s 71.
62 Sections 74 and 75 address the acceptance of the application by the Commissioner, advertisement and opposition. Opposition is confined to the ground that one or more of the requirements of ss 70 and 71 are not satisfied; s 75(1). If the Commissioner is satisfied that the application is in accordance with these requirements, pursuant to s 76 the Commissioner must grant the extension. The term of the extension is determined by the formula set out in s 77.
63 The primary judge found that this section means what it says: the extension to be granted is equal to the period beginning on the date of the patent (here, 5 July 2002) and ending on the earliest first regulatory approval date (as defined in s 70) in relation to any of the pharmaceutical substances referred to in s 70(2). In the present case both sitagliptin and sitagliptin/metformin were substances per se referred to in s 70(2), but the earliest first regulatory approval date was for sitagliptin (16 November 2006) and not sitagliptin/metformin (27 November 2008). As a consequence, the term of the extension was 4 years, 4 months and 11 days, less 5 years, but not below zero, yielding an extension of zero.
64 In this context, the primary judge found that s 77(1) "inescapably" referred to s 70(2) and not s 70(3). In so doing, the legislature nominated that the "earliest" first regulatory approval date is the date on which (here) the first of the two substances obtained a first regulatory approval date.
65 The duty to resolve an issue of statutory construction is a text-based activity, although questions of policy can inform the Court's task of statutory construction; Alphapharm Pty Ltd v Lundbeck A/S [2014] HCA 42; 254 CLR 247 at [42] (Crennan, Bell and Gageler JJ); s 15AA of the Acts Interpretation Act 1901 (Cth). It is accordingly appropriate to consider policy considerations, but not insofar as they deflect from a consideration of the policy and purpose of the scheme by reference to the language of the legislation itself; Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41; 239 CLR 27 at [47] (Hayne, Heydon, Crennan and Kiefel JJ).
66 The primary judge noted that the underlying policy is explained in the Explanatory Memorandum as follows:
P3
Extensions of up to five years on the standard 20 year term are available for pharmaceutical patents in the United States, the European Union and Japan in recognition of the exceptionally long development time and regulatory requirements involved in developing and commercialising a new drug. The aim is to provide an 'effective patent life', or period after marketing approval is obtained during which companies are earning a return on their investment, more in line with that available to inventions in other fields of technology.
…
20
Section 77 sets out how the length of the extension of term is to be calculated. The maximum length of the extension will be 5 years. The length of the extension is equal to the period between the date of the patent and the date of the first regulatory approval less 5 years. For example, where the period between those two dates is 5 years or less, a patent will not be eligible for an extension of term, while a period of 10 years or more would allow a full 5 year extension.
67 MSD submits that apart from the present case and Ono, no decision has considered the circumstance where a single patent discloses and claims multiple substances. It contends that no legislative intention can be discerned from the Explanatory Memorandum that a patentee is adequately compensated where a patent discloses and claims multiple substances, one of which is included as a listed good on the ARTG within 5 years of the date of the patent. It submits that the primary judge erred in concluding that the legislature "had accepted that anything under 5 years from the date of grant until the ability of the patentee to exploit the patent (by inclusion in the ARTG) is acceptable". We disagree.
68 Extension of term regimes have long formed a part of patent law. They were included in the Patents Act 1903 (Cth) and the Patents Act 1952 (Cth). The provisions under both of those Acts required consideration by the Court of whether or not a patentee had received inadequate remuneration for the patent during its normal term. The onus lay heavily on the patentee to establish this, and also that all of the circumstances, including the nature and the merits of the invention, warranted the grant of the extension. The grant of extensions was rare, and proceedings for extensions of terms were famously complex and expensive. As a result, extensions of term, and the need to balance the competing interests of patentees and the public (including competitors) became the subject of sustained policy debates in Australia and abroad for some 20 years, before a modern version of the Patents Act came into force; Alphapharm at [47] (Crennan, Bell and Gageler JJ).
69 The somewhat complex development of the present form of Pt 3 of Ch 6 of the Patents Act is summarised in Alphapharm at [49]-[57]. When the Patents Act originally replaced the Patents Act 1952 (Cth), it provided for the term of a standard patent to be 16 years. By amendment made in Act 154 of 1994, the term was extended from 16 to 20 years (s 67). The present extension of term scheme was instituted by the Intellectual Property Laws Amendment Act 1998 (Cth), the purpose of which was described in the Explanatory Memorandum to be to give effect to the government's decision to provide for an extension of term scheme for pharmaceutical patents whereby an extension of up to five years would be available; Alphapharm at [57]. The rationale was explained in the Explanatory Memorandum at 3-4:
The development of a new drug is a long process, estimated to average around 12 years, which requires a new chemical entity to be patented early in the process in order to secure its intellectual property rights. However, considerable research and testing is still required before the product can enter the market. As a consequence, patentees of new drugs usually have considerably fewer years under patent in which to maximise their return.
It is expensive to bring a drug to market, around US$380 million, and involves considerable risk. As such, research based pharmaceutical companies rely heavily on patents to generate the substantial cash flows needed to finance the development of new drugs from the discovery stage, through the pre-clinical and clinical development phases, to eventual marketing.
A country's patent system is also an important factor in contributing to a company's decision on whether to invest or not. If Australia has a weak patent system, relative to it's [sic] competitors, there is a risk that investment in research and development will be lost to those offering stronger patent protection.
The objective of this proposal is to provide an 'effective patent life' - or period after marketing approval is obtained, during which companies are earning a return on their investment - more in line with that available to inventions in other fields of technology. It is also intended to provide a patent system which is competitive with other developed nations.
70 In Alphapharm, the Court noted that the purpose of the extension of term scheme is to balance the competing interests of a patentee of a pharmaceutical substance whose exploitation of monopoly has been delayed (because of regulatory delay) and the public interest in the unrestricted use of the pharmaceutical invention (including by a competitor) after the expiration of the monopoly (that is, the term); Alphapharm at [60] (Crennan, Bell and Gageler JJ) and at [120] (Keifel and Keane JJ).
71 This conclusion is consistent with the recently introduced objects clause set out in s 2A of the Patents Act, which provides:
The object of this Act is to provide a patent system in Australia that promotes economic wellbeing through technological innovation and the transfer and dissemination of technology. In doing so, the patent system balances over time the interests of producers, owners and users of technology and the public.
72 The current form of the Patents Act is simplified by comparison with the previous law. As the majority noted in Alphapharm, the consideration of whether there had been inadequate remuneration for the patent during its normal term, and whether, in the Court's discretion, "other circumstances" warranted an extension were replaced so that:
48 … regulatory delay is now the proxy for inadequate remuneration and merit is now assumed for a pharmaceutical substance suitable for human use. Once the Commissioner is satisfied that the conditions in s 70 and the procedural time requirements in s 71 have been met (subject to opposition), the Commissioner can directly proceed to consider the date of the patent and the date of the first regulatory approval and apply s 77 to calculate an extension of term.
73 The primary judge was correct to note at J[48] that the legislature contemplated the circumstance that where the period between the date of the patent and the date of the first regulatory approval date is less than 5 years, a patent will not be eligible for an extension of term. As much is expressly stated in the Explanatory Memorandum. Whilst that document does not focus on any distinction between patents involving only one pharmaceutical substance and those involving more than one pharmaceutical substance, there is no reason to suppose that the statement set out was not an expression of general policy.
74 More importantly, the text of s 77 provides support for this approach. First, because s 77(1) refers in terms to s 70(2) and not s 70(3). Secondly, because s 77(1) explicitly contemplates that an extension of term may be zero, but not less than zero. Thirdly, because s 77(1) identifies that the relevant calculation takes into account the "earliest" first regulatory approval date. We develop these points below.
75 MSD criticises the primary judge's construction as failing to take into consideration the scheme of Pt 3 of Ch 6 of the Patents Act. It submits that an application for an extension must be made within 6 months of the three dates identified in s 71(2), and notes that a valid application may satisfy s 71(2)(b) if any one of the pharmaceutical substances identified in s 70(2) satisfies the two requirements of s 70(3). In the present case this meant, as the primary judge found, that a valid application for an extension was made on the basis of the sitagliptin/metformin substance. The application was duly accepted by the Commissioner pursuant to s 74 and the extension granted under s 76, yet at the final hurdle the primary judge found that the term of the extension was zero, because goods containing sitagliptin were included in the ARTG at an earlier point in time, and before the effluxion of five years from the date of the patent. MSD submits that this produces an odd result that Beach J described in Ono "as absurd".
76 As the primary judge explained, the reference in s 77(1) to s 70(2) was not an obvious error, and accordingly s 77(1) must be understood to refer to the superset of pharmaceutical substances that may be identified as pharmaceutical substances per se disclosed in the complete specification that in substance fall within the scope of the claims, rather than the subset identified in s 70(3). On appeal, MSD does not challenge the finding that the reference to s 70(2) was not an error, but submits that the reference in s 77(1)(a) to s 70(2) relates to pharmaceutical substances in the context of the patent that is being extended. Section 77 deals only with the length of an extension after grant, being where a substance is contained in goods that have met the conditions of s 70(3). The definition of the term of the extension should be characterised by reference to that subset falling within s 70(2) that would be eligible for extension by reference to goods satisfying the condition in s 70(3). In this way, MSD contends that the reference in s 77(1) to the "earliest first regulatory approval date (as defined by section 70) in relation to any of the pharmaceutical substances referred to in subsection 70(2)" must be confined to those pharmaceutical substances identified by reference to s 70(3).
77 However, the language of s 77 does not support MSD's approach. By making reference to s 70(2), attention is drawn to any of the pharmaceutical substances per se that may fall within the superset of s 70(2). The construction that MSD propounds would have the reference to s 70(2) read down by reference to s 70(3) such that only pharmaceutical substances in respect of which goods were included in the ARTG "at least 5 years" after the date of the patent would be under consideration. However, that is not what s 77(1) says.
78 Nor does that construction make allowance for the fact that s 77(1) expressly contemplates that an extension of term can be zero or, were it not for the words "but not below zero", below zero. An extension of term could not be zero or theoretically below zero unless the ARTG listing was obtained within five years of the date of the patent. As the primary judge said at J[57], those words expose the fact that a zero term of an extension is within the contemplation of the statutory scheme. That could only be the case if s 77(1) meant what it said, namely that any extension of term is to be calculated by reference to the earliest first regulatory approval date in relation to any of the pharmaceutical substances referred to in s 70(2). The construction propounded by MSD is not only contrary to a straightforward reading of s 77(1), it would also render the words "reduced (but not below zero)" redundant.
79 Where, as in the present case, more than one pharmaceutical substance per se is in substance disclosed and claimed in the relevant patent and there are multiple regulatory approvals for goods that contain or consist of those substances, the length of the extension is to be calculated from the earliest first inclusion in the ARTG of goods relating to any of those substances. That is in accordance with a policy objective of achieving a balance between the competing interests of a patentee of a pharmaceutical substance whose exploitation of monopoly has been delayed, and the public interest in unrestricted use of the pharmaceutical invention.
80 The primary judge correctly observed that there is a degree of oddity about a statutory scheme that would permit an application to be made within s 71 but which is nonetheless resulted in an extension of term under s 77 of zero. However, the choice is between the language chosen by the legislators and conjecture as to a policy said to be discerned not from the language used but rather vague notions about what a sensible construction should be. In the present case, the primary judge rightly chose the former, observing that it may be understood that the legislature inferred that a patentee would not make an application under s 71(1) at all if the term of the extension would be zero.
81 Policy considerations further support the approach of the primary judge. One may be demonstrated from the facts of the present case. MSD has been able to exploit its monopoly in respect of sitagliptin since 16 November 2006, when that substance was included in the ARTG. As the High Court noted in Alphapharm at [48], regulatory delay is now the proxy for inadequate remuneration and merit is assumed for a pharmaceutical substance suitable for human use. The period from the date of the patent until the date of inclusion of sitagliptin was less than five years. At that point the regulatory delay had been less than five years. It was not until MSD obtained inclusion in the ARTG of the composition sitagliptin/metformin, more than five years from the date of the patent (on 27 November 2008), that it became eligible under s 70(3) to apply for an extension of term. However, the effect of the extension would be to extend the monopoly rights under the patent not only for the composition sitagliptin/metformin but also for sitagliptin and indeed any other pharmaceutical substance disclosed and claimed in the patent.
82 Another example might be where a single patent disclosed ten pharmaceutical substances per se within s 70(2). For six of those, goods containing the substances were included in the ARTG within s 70(3)(a) but all within a period of less than five years from the date of the patent. For a seventh, goods containing the substance were included in the ARTG more than five years from the date of the patent. On the basis of the constructions propounded by MSD, a term extension within s 77 would be available on the basis of the ARTG registration for the seventh pharmaceutical substance. However, the effect of the extension would be to extend the term of the patent generally, with the result that the monopoly protection afforded in respect of all of the earlier six substances would also receive the benefit of the extension.
83 Nor do we consider that the 'practical consequence' of filing a divisional application to avoid the substantive effect of this construction would produce the absurd outcome predicted by MSD. The consequence of the grant of an extension under s 77 is that the term of the whole of the patent is extended, not only insofar as it concerns the substance included in goods that are included within the ARTG more than five years after the date of the patent within s 70(3). As a result, the narrower the disclosure of the specification and the scope of the claims of the patent, the more likely the patentee is to benefit from the extension. In the present case, had MSD filed a separate patent - whether divisional or otherwise - wherein a combination of sitagliptin/metformin was disclosed and claimed but not sitagliptin, then it could have had the benefit of an extended term, but the patentee would not also have had the benefit of an extended term in respect of claims that covered sitagliptin alone. That outcome would appear to us to meet the balance that Parliament sought to achieve between the interests of the patentee and the public interest, including by a competitor, in the unrestricted use of a pharmaceutical invention.
84 Accordingly, we see no policy reason to divert from the language of s 77(1) in determining the term of the extension.
85 MSD relies on the reasoning of Beach J in Ono to support its primary construction and, in particular, that s 77 should not be read literally because absurd results follow if different substances might be used for the purposes of s 71 and s 77. Ono was concerned with the proper construction of ss 70(3) and 71(2)(b) of the Patents Act, not s 77 as such. In that case, Beach J reasoned that, implicitly, s 77 must operate on an anterior choice, made by the patentee, as to which pharmaceutical substance can be used for the purpose of applying the timing requirement of s 71(2)(b). That choice, made with respect to the pharmaceutical substance or substances that satisfy the conditions of s 70(3), would identify the goods to which s 71(2)(b) refers. The consequence of his Honour's reasoning is that s 77 would not operate with respect to approval dates for pharmaceutical substances that do not satisfy both conditions stipulated in s 70(3), even if such pharmaceutical substances satisfy s 70(2). His Honour's reasoning with respect to the proper construction of ss 70(3) and 71(2)(b), permitting choices to be made by patentees, has now been found to be erroneous: Commissioner of Patents v Ono Pharmaceutical Co. Ltd [2022] FCAFC 39. Thus, Ono cannot provide the support for which MSD contends.
86 For the reasons set out above, the primary judge was correct to conclude that the Register of Patents should be rectified to record an extension of term of the patent of zero.