US embassy cable - 04WELLINGTON900

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 
------------------------ 
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