Patent Board Sees Through Allergan Restasis Tribal Immunity Move

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By Greg Langlois

After the Patent Trial and Appeal Board gave the stink eye to Allergan Plc’s tribal sovereign immunity gambit, patent holders will be less likely to transfer ownership to circumvent validity challenges, legal observers say.

The Saint Regis Mohawk Tribe couldn’t invoke sovereign immunity to spike a review of Restasis dry eye drug patents, which Allergan gave to the tribe just before oral arguments in the case, the PTAB held. The board didn’t need to address tribal sovereign immunity, however, given that it also held in its Feb. 23 decision that Allergan retained enough rights in the patents to allow proceedings to continue against the company.

Sovereign immunity allows a government to avoid being sued unless it allows it. By giving its patents to the Saint Regis Mohawk Tribe, Allergan had hoped to take advantage the tribe’s immunity and protect the patents from being invalidated at the PTAB.

"[PTAB] likely thought it needed to answer the sovereign immunity question more generally so that tribes and patent owners didn’t continue to experiment with different transactional structures in the hope that they would find one that would pass muster with the board,” Goodwin Procter LLP partner William Jay told Bloomberg Law in a Feb. 27 interview. Jay testified before Congress on the issue on behalf of the Association for Accessible Medicines, a generic drugmaker group.

Allergan has been eager to thwart generic competition to Restasis (cyclosporine), which pulled in $1.4 billion in U.S. sales in 2016, according to its latest annual report. Its controversial attempt to avoid Mylan Pharmaceuticals Inc., Teva Pharmaceuticals USA Inc., and Akorn Inc.'s patent validity challenge by “renting” tribal sovereign immunity received widespread criticism and attention on Capitol Hill.

After the tribe moved to terminate the case, the PTAB allowed outside parties to submit friend-of-the court briefs, and 15 did so. The board set oral arguments for no later than April 6 and pushed back its deadline to issue a final decision to June 6.

No Immunity, No Real Transfer Anyway

The PTAB said tribal immunity doesn’t apply to inter partes review proceedings given that laws passed by Congress generally apply to tribes, absent limited exceptions that didn’t apply in the case. Inter partes review is a patent validity proceeding at the U.S. Patent and Trademark Office created under the America Invents Act of 2011. They’re often initiated by generic drug companies sued for patent infringement in court.

Congress has wide authority to regulate tribal immunity, the board noted, and it didn’t exclude tribes from the statute establishing PTAB proceedings.

Inter partes review is limited to assessing patent validity, the PTAB added, and the board can issue a decision even when a patent owner decides not to participate. The process also serves a broader purpose than just resolving immediate patent disputes, it said; reconsidering patents issued by the U.S. Patent and Trademark Office and correcting its mistakes provides “an important public service.”

The PTAB went on to say tribal immunity was irrelevant because the case could proceed against Allergan as the true patent owner. The company assigned its Restasis patents to the tribe, but the tribe, which received a $13.75 million lump sum and quarterly royalties, then gave Allergan an irrevocable license for all Food and Drug Administration-approved uses in the U.S. and the right to be the first to sue against generic infringers. This left Allergan with all substantial rights to the patents, the PTAB said.

“So the PTAB basically decided to use a belt-and-suspenders approach,” Jay said, “with the belt being that sovereign immunity does not protect an Indian tribe that is a patent owner from an IPR, the suspenders being that in this case the nature of the transaction left enough with Allergan that the IPR could not be terminated anyway.”

Validity Decision, Likely Appeal Next

The PTAB had never addressed tribal sovereign immunity before. Now that it has, it will turn to the merits—whether the patents are valid.

In a separate case, a federal court in Texas already has ruled Allergan’s patents are invalid. The standards for reviewing patent invalidity in court are different than with the PTAB, but the board likely will follow suit, McDonnell Boehnen Hulbert & Berghoff LLP partner Kevin Noonan told Bloomberg Law in a Feb. 26 interview.

“Absent some funny monkey-wrench kind of thing, I can’t imagine that they’ll say anything other than that they’re invalid,” he said.

Any appeal after the PTAB issues its decision would go to the U.S. Court of Appeals for the Federal Circuit.

Noonan, a Bloomberg Law advisory board member, said the higher courts will likely avoid addressing tribal immunity if possible. If the Federal Circuit agrees the tribe’s presence in the case isn’t necessary, it won’t need to confront “something that’s so controversial,” he said.

“If the Federal Circuit were smart, it would just address all the other stuff and not reach sovereign immunity and say it’s moot,” he said.

Buck Stops With Congress

If the issue reached the Supreme Court—which Noonan said is unlikely—the justices could demur by saying it’s Congress’s responsibility to address, he said.

The high court might say, “We don’t want anything to do with this,” according to Noonan. “This is Congress’ gig. Congress has plenary authority to decide whether or not they’re going to limit Native American tribal sovereign immunity. That is totally their call. And if you don’t like it, get Congress to pass a bill.”

Sen. Claire McCaskill (D-Mo.) has introduced a bill that would prevent tribes from asserting sovereign immunity in PTAB proceedings, Noonan pointed out.

“I think that if the Supreme Court grants cert on this issue, Congress will pass McCaskill’s bill in a heartbeat,” he said, given the outcry over Allergan’s move and fear the court might allow it.

Separately, the high court will decide this year whether the PTAB inter partes review procedure is constitutional altogether.

States Won’t Touch This?

In its decision, the PTAB also rejected the tribe’s argument that cases recognizing state sovereign immunity in administrative proceedings apply here, given that states enjoy more extensive immunity than tribes.

But state research universities, which can invoke state sovereign immunity, are likely to resist an Allergan-like offer, Carl Gulbrandsen, former managing director of the Wisconsin Alumni Research Foundation, said in a Feb. 27 interview. He also is a Bloomberg Law advisory board member.

“The universities are very concerned about their public image,” he said, “and they don’t want to be pulled into anything that looks like pure gamesmanship.”

During his time at WARF, a technology transfer organization that works with the University of Wisconsin-Madison, Gulbrandsen can remember only one patent given to the school—and that was from an estate, he said.

“It’s important for universities to have strong patents and be able to transfer the technology,” he said. “That is really more important to your main universities than making money on patents.”

The case is Mylan Pharmaceuticals, Inc. v. St. Regis Mohawk Tribe , P.T.A.B., IPR2016-01127, 2/23/18 .

To contact the reporter on this story: Greg Langlois in Washington at glanglois@bloomberglaw.com

To contact the editor responsible for this story: Randy Kubetin at rkubetin@bloomberglaw.com

For More Information

The decision is available at http://src.bna.com/wDr.

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