Intellectual Property Update October 2009

Australian book publishers and authors face interesting times

The Australian book publishing and printing industries may be successful in their efforts to preserve parallel import restrictions (PIRs), with the Federal Government set to reject the Productivity Commission’s recommendation to lift those restrictions. It remains to be seen how those industries will cope with the threat of digital distribution, which makes the current debate about PIRs look so last century.

The business model for much of the Australian book publishing industry is based around re-packaging and ‘localising’ foreign content. That model relies on PIRs. That is, if an authorised local edition of a book is released within a 30-day window of its first publication overseas Australian copyright law can generally be relied on to prevent local booksellers from sourcing cheaper, and in many cases better quality, foreign versions of the book than the local authorised version.

This model, which clearly benefits the local publishing and printing industries and authors, also—according to the Productivity Commission (Commission)—results in economic inefficiencies and ‘a significant transfer of income from Australian consumers to overseas authors and publishers’.

And it is potentially under threat from the grey market and digital distribution.

The grey market

If the Federal Government were to listen to the Commission, PIRs would be phased out over the next few years. Books would then be treated in the same way as other cultural artefacts such as disks containing music or computer games, for which PIRs were abolished many years ago (although DVDs containing movies and TV shows would remain in a privileged copyright position).

The Federal Government seems unlikely to do any such thing—for now. Books are a significant cultural good and any change that might be seen to impact on the production and consumption of local books could prove unpopular. For the prosecution, it will be claimed that it is not just the Australian industry but our cherished cultural heritage that is at stake: if local publishers stop publishing local authors, or our works become increasingly homogenised for a global market, we will all lose.

None seriously deny the cultural value of books, and the Commission (whilst noting that J. K. Rowling may have done more to encourage Australian children to read books than any Australian author) does not doubt the legitimacy of promoting the production of culturally significant Australian works. The Commission sees PIRs as a blunt and inefficient instrument to pursue that goal: these do not discriminate between local and foreign publishers and authors apply regardless of whether the work is of  cultural significance. And consumers pay a high price. The Commission would prefer the government, on efficiency grounds, to create incentives to produce culturally significant works by offering direct subsidies to local authors.

The debate about lifting PIRs is emotive, generating more heat than light. The justification of our current copyright laws on preservation of culture grounds appears difficult, given the matters raised by the Commission. For the Federal Government, it is likely that they are more concerned not to damage the local printing and publishing industries.

But the government cannot protect those industries from the future, and digital distribution is the elephant in the room in the current debate.

Digital distribution

Google has spent several years digitising vast numbers of books, and defending a class action copyright claim brought on behalf of affected US author and publisher interests. Google was recently reported as having reached a provisional settlement in the matter. It is still not out of the woods, as it faces the prospect of claims on behalf of copyright interests (such as non-US rights holders) who will not be bound by the settlement. However, it is clear that its ambitious model of digital storage and distribution of books will increasingly threaten more traditional models in the industry—including Amazon’s now ‘traditional’ model of distributing physical books over the Internet.

The physical book is a resilient medium. One would be foolish to predict its imminent demise. However, the view that digital distribution of books will not pose any existential threat to traditional book publishing in the foreseeable future, especially in niche markets such texts and other reference books, may be too sanguine. The latest generation of e-book readers is already changing the way Americans consume the written word. Amazon has achieved some success with its ‘Kindle’ e-book reader in the US market, and have just made the product available in Australia this month. Presumably competitors such as Sony, (which in August 2009 released a new ‘Sony Reader Daily Edition’ which can read e-books published in the open EPUB format—a format adopted by Barnes & Noble and Google) will also enter the local market in the short term. With the money being invested in e-book readers and digitisation of books, who can predict what the market will look like in 10 years?

From the perspective of copyright law, what we can be confident of (ironically given all the hand-wringing over the Commission’s report) is that in the digital domain it is irrelevant whether the Federal Government removes PIRs, because territorial copyright will apply to digitally distributed works. Just as we in Australia cannot lawfully download TV shows from Apple’s US iTunes store, we cannot download e-books for the Kindle from Amazon’s US store. Seen in this light, the debate we are having about territorial copyright seems very 20th century.

Digital distribution will allow publishers to control secondary markets. The second hand sale of a physical book will not infringe Australian copyright laws provided the book was initially sold lawfully in Australia. However, a digitally distributed book cannot be further distributed or sold (other than, perhaps, with the original media on which it is stored) without infringing copyright.

Digital distribution creates opportunities as well as challenges for book publishers (although they will face similar challenges to the music and film industries in persuading users to pay a reasonable price for content they may be able to get for free). However, these opportunities may provide cold comfort to that part of the local industry whose profits largely derive from marketing and distributing foreign literary works in expensive, and sometimes weighty, physical containers. Digital distribution of that foreign content is likely to mean lower prices for content, and a less significant role for local publishers who are not generating their own IP.

Happily for Australian consumers, in meeting the threats of the grey market and digital distribution, it will be more important than ever for Australian publishers to be able to source and market compelling new Australian content.

This article was written by Campbell Thompson, Partner, Melbourne.

Escitalopram v Clopidogrel: Two enantiomer patents, two different results on validity in the Federal Court

On 29 September 2009, the Full Federal Court handed down its decision in Apotex v Sanofi-Aventis. The Full Court held that the claims of the clopidogrel enantiomer patent were invalid for reasons of novelty and obviousness. This is in contrast to the other recent decisions of the Full Court concerning the validity of an enantiomer patent, the escitalopram patent in Lundbeck v Alphapharm and the related first instance decision in Alphapharm v Lundbeck.

Please click here to view the full text of this article.

Round two, Wyeth v Alphapharm: Patent infringement urgent injunction application

On 25 August 2009, the Federal Court ordered Alphapharm to stop marketing and supplying the anti-depressant Enlafax-XR pending the final hearing and determination of the patent proceedings between Alphapharm and Wyeth. Earlier this year, the Federal Court granted a similar interlocutory injunction against Sigma in relation to corresponding patent proceedings between Sigma and Wyeth (the Sigma proceedings).¹

The Federal Court’s grant of these two interlocutory injunctions in favour of Wyeth continues the current trend of an originator pharmaceutical company being able to successfully obtain an interlocutory injunction against a generic pharmaceutical company. In both cases, it was notable that the Federal Court was willing to grant an interlocutory injunction notwithstanding the offer of an undertaking in each case from the generic pharmaceutical company which in effect meant that the generic pharmaceutical company would not seek listing on the Pharmaceutical Benefits Scheme (PBS), thereby preventing the automatic 12.5 per cent price reduction which follows the listing of the first generic product on the PBS.

Background

As in the Sigma proceedings, the interlocutory injunction application concerned Wyeth’s patent for a method of treating patients using a single daily dose formulation of venlafaxine hydrochloride, which is used in the treatment of depression (Patent).

Wyeth markets an extended release formulation of venlafaxine hydrochloride in Australia under the brand name Efexor-XR. On 30 April 2009, Alphapharm obtained registration of an extended release formulation of venlafaxine hydrochloride on the Australian Register of Therapeutic Goods under the brand name Enlafax-XR on the basis of bioequivalence to Efexor-XR. At the time the proceedings were commenced, Alphapharm intended to begin supplying Enlafax-XR from 1 September 2009.

Alphapharm commenced proceedings in June 2009 seeking revocation of the Patent. Wyeth cross-claimed alleging that Alphapharm’s intended supply of Enlafax-XR would infringe the Patent.

As in the Sigma proceedings, Justice Jagot of the Federal Court was required to consider three issues in determining whether to grant the interlocutory injunction:

1. whether Wyeth had made out a prima facie case (or a serious question to be tried)
2. whether Wyeth would suffer irreparable harm for which damages would not be an adequate remedy, unless the interlocutory injunction was granted, and
3. whether the balance of convenience favoured the granting of the interlocutory injunction. 

In line with Justice Sundberg’s reasoning in the Sigma proceedings, Justice Jagot ultimately granted the interlocutory injunction against Alphapharm on the basis that the balance of convenience (including the question of the adequacy of damages) weighed in Wyeth’s favour.

Serious question to be tried

Unlike in the Sigma proceedings, Alphapharm did not concede that there was a serious question to be tried as to infringement, alleging that the use of hydrogel tablet technology in Enlafax-XR was excluded from the Patent. Justice Jagot rejected this argument and found that Wyeth had a reasonably strong prima facie case on infringement.

As regards Alphapharm’s challenge to the validity of the patent, Justice Jagot took the same approach as Justice Sundberg in concluding that Alphapharm had a prima facie case on invalidity in relation to the inventive step and manner of manufacture requirements. Justice Jagot also found that Alphapharm had a prima facie case on invalidity on the ground of false suggestion or misrepresentation.

However, as in the Sigma proceedings, Justice Jagot did not consider that Alphapharm’s case for invalidity was sufficiently strong to qualify the overall conclusion that Wyeth had a serious question to be tried as to infringement. Accordingly, it was necessary to turn to the question of the adequacy of damages, the balance of convenience and other discretionary matters.

Adequacy of damages and balance of convenience

Justice Jagot considered the question of the adequacy of damages as part of the weighing of the balance of convenience.

Consistent with Justice Sundberg’s reasoning in the Sigma proceedings, Justice Jagot considered that Wyeth was more likely to suffer from a disturbance of the status quo than Alphapharm. Alphapharm’s losses were likely to be calculable since Enlafax-XR was not yet on the market, Wyeth’s losses would be impossible to calculate as Alphapharm’s entry on the market would have an unpredictable and irreversible effect. Accordingly, Justice Jagot accepted Wyeth’s contention that, if an interlocutory injunction was not granted, it would suffer irreparable harm for which damages would not be an adequate remedy on the basis that:

• it was not possible to know the effect on the market of Alphapharm’s (and, consequently, Sigma and other generic suppliers) entry, and so their effect on Wyeth’s sales of Efexor-XR, given the likelihood of rapid and aggressive competition for market share
• it was not possible to know whether and to what extent Wyeth might have to discount Efexor-XR to retain some market share, in circumstances where Alphapharm’s proposed undertaking to maintain full accounts and proceeds of sale of Enlafax-XR could not compensate Wyeth for such a price reduction, and
• it was unlikely that, if Wyeth was ultimately successful, the sales price of Efexor-XR could simply revert to its current price.

Alphapharm had sought to counteract Wyeth’s arguments in relation to of irreparable harm and patient confusion by pointing to Wyeth’s recent introduction of a new anti-depressant (under the brand name Pristiq) onto the market that was likely to compete with Efexor-XR. However, Justice Jagot did not accept Alphapharm’s contention that Wyeth was attempting to switch patients from Efexor-XR to Pristiq as Wyeth’s intensive marketing strategy for Pristiq was consistent with the usual approach to a new product that is intended to have a broader market.

Further, while Alphapharm contended that, unlike Sigma, it had not proceeded with its ‘eyes wide open’, Justice Jagot considered that the risk that the market may alter to Alphapharm’s detriment only existed because Alphapharm was insufficiently diligent about maintaining a watch over Wyeth’s patents. In any case, Alphapharm had continued to take steps for the launch of Enlafax-XR even after it became aware of the Patent in March 2009 and the likelihood of an infringement claim by Wyeth.

This article was written by Helen MacPherson, Senior Associate and Steve Wong, Solicitor, Sydney.

Endnotes

1. For more information please see our article ‘Round one, Wyeth v Sigma: Patent infringement urgent injunction application’

More information

For information regarding possible implications for your business, contact a member of the Intellectual Property team.