Patent Sales to Borrow Tribal Sovereignty Raise Ire in Congress

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By Malathi Nayak

Deals like the one struck between Allergan Plc and a New York Indian tribe to shield the drugmaker’s patents from validity reviews could undermine legitimate patent challenges, House lawmakers said Nov. 7.

“If successful, these private companies will be able to enforce their patents against others, while exploiting the tribes’ sovereign immunity to prevent legitimate challenges to those patents at the Patent and Trademark Office,” House Judiciary Chairman Robert W. Goodlatte (R-Va.) said at a Courts, Intellectual Property and the Internet Subcommittee hearing.

Allergan’s deal could kick off a worrying trend if other private companies adopt the practice of paying to “rent” the sovereign immunity of Native American tribes to protect their intellectual property, Goodlatte said.

Allergan Plc announced in September that it transferred patent rights for its dry eye medication Restasis to the Saint Regis Mohawk Tribe in upstate New York. The tribe has asked the PTO’s Patent Trial and Appeal Board to dismiss a challenge by Mylan NV to the Restasis patent, arguing that its tribal sovereign immunity protects it from the challenge. The PTAB, whose less stringent standards make it easier to invalidate patents compared to litigation in district courts, is considering whether to grant the tribe’s motion to dismiss.

The U.S. District Court for the Eastern District of Texas Oct. 16 ruled that Allergan’s Restasis patents were invalid, but that isn’t binding on the PTO until an appeal by Allergan is complete.

Rep. Darrell Issa (R-Calif.), the subcommittee chairman, said the Allergan patent deal is a “sham” made to evade PTO patent validity review. Rep. Jerrold Nadler (D-N.Y.), the subcommittee’s ranking member, called the deal a “cynical ploy” to circumvent congressional authority.

Representatives of Allergan and the Saint Regis Mohawk tribe declined to attend the hearing, Issa said. He pointed to news reports that cited the Saint Regis Mohawk tribe spokesman commenting that the tribe is open to more such deals.

Mark Marmur, director of corporate affairs for Allergan, said, “We are pleased to see that Congress is engaging in a productive discussion on the inherent issues in and potential reforms of the IPR process,” in an emailed response to a request for comment from Bloomberg Law.

PTAB Challenges

Hearing witness Philip Johnson, former vice president of intellectual property policy and strategy at drug company Johnson & Johnson, told lawmakers that the PTAB patent validity review process, which he believes is friendlier to patent challengers than owners, should be changed to remedy conditions that lead to deals like the Allergan-tribal arrangement, according to his prepared testimony.

Disparities between validity review procedures and standards at the PTAB and the federal courts need to be addressed, Johnson told lawmakers. For instance, the “broadest reasonable interpretation” standard for patent claims in the PTAB’s rules is more likely than in federal court challenge to lead to a finding of invalidity because a patent is obvious or not novel.

This issue is already moving beyond the pharmaceutical industry and into other patent disputes. The Saint Regis Mohawk Tribe, along with SRC Labs LLC, which assigned patents to the tribe, has filed lawsuits against Microsoft Corp. and Amazon.com Inc. for infringement. The companies can defend themselves in court, but they can’t avail themselves of trying to get the patents invalidated at the PTAB because the tribe can claim immunity from that challenge.

“We are extremely concerned about the proliferation of this kind of arrangement,” witness Christopher Mohr, general counsel of Software and Information Industry Association, a trade group representing software companies, told lawmakers. “We believe it is destructive.”

Witness William Jay, partner at Goodwin Procter LLP representing the Association for Accessible Medicines, a generic drug industry trade group, pushed for legislation abrogating tribal sovereign immunity in PTAB review proceedings. Such deals do not create a level playing field and may hinder companies from bringing to market lower-cost generic alternatives to brand-name drugs, he told lawmakers.

State, Universities and Tribal Rights

The states and state universities get sovereign immunity from the U.S. Constitution, and American Indian tribes from statute. If parties with such immunity file a lawsuit or a PTO petition, they have voluntarily, partly waived their sovereign immunity. However, they can also use their immunity as respondents in federal court or PTO cases.

“The issue is complicated, particularly if you are concerned about stopping this kind of transaction with the states, it’s going to require careful study,” Mohr said.

States are allowed to exploit the full range of remedies as intellectual property owners but may also be immune from damages when infringing the intellectual property of others, be it patents, copyrights or trademarks, he said in written remarks.

Issa asked witnesses at the hearing to submit suggestions on potential improvements to the PTAB process. The committee would consider their submissions before it proceeds to draft legislation, he told Bloomberg BNA after the hearing.

To contact the reporter on this story: Malathi Nayak in Washington at mnayak@bna.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bna.com

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