This article was originally published on Law360 and is reprinted here.
You’ve probably already heard the story. Allergan PLC owns patents related to relieving dry eyes. These patents allegedly read on their drug Restasis. They expired in 2014, leading to a group of generic manufacturers getting ready to enter the market with generic versions of the drug. In order to block the generic companies, Allergan evergreened Restasis, obtaining new patents claiming minor variations of the drug that don’t expire until 2024. Allergan then sued the generics makers in the Eastern District of Texas.
Faced with these new patents and lawsuits, the generic manufacturers filed petitions for inter partes review (IPR) of the Allergan patents. In December of 2016, the U.S. Patent and Trademark Office agreed and instituted the IPRs, finding it reasonably likely that Allergan’s evergreened patents were invalid. The Patent Trial and Appeal Board then conducted the IPRs, eventually scheduling an oral hearing for September 2017, with a final decision on validity to follow shortly thereafter.
One week before the scheduled oral hearing, Allergan transferred the patents to the Saint Regis Mohawk Tribe, which promptly claimed that tribal sovereign immunity barred the IPR. Recently, in the district court lawsuit, Judge William Bryson ruled that some of Allergan’s patents were invalid. He also threw doubt onto the propriety of the transaction with the tribe.
So, what’s going to happen at the PTAB? To know that, we have to know if immunity applies here and if IPRs can proceed even despite immunity. And then there are the other, larger questions. The laundering of sovereign immunity that Allergan and the Saint Regis Mohawk have engaged in is new to patents, but it isn’t new overall — payday lenders, for one, have been using tribal sovereign immunity to avoid fair lending laws for quite some time now. If tribal immunity is embraced in the patent context, what impacts will it have (both in patent law and elsewhere), and how can the issue be addressed?
Does Tribal Sovereign Immunity Apply in Inter Partes Review?
This is the fourth sovereign immunity motion the PTAB has considered. Earlier this year, two state universities (the University of Florida Research Foundation and the University of Maryland) asserted sovereign immunity on behalf of licensees. In both cases, the PTAB determined that Eleventh Amendment sovereign immunity applied to the universities and dismissed the IPRs. In a third case, a patent co-owned by the University of Minnesota and Toyota was being reviewed. The university asserted sovereign immunity. The PTAB dismissed the university from the case, but continued the IPR, as Toyota was still present and would adequately defend the patent.
All three of the prior sovereign immunity cases are Eleventh Amendment cases in which state sovereign immunity was asserted. The Allergan case is the first time tribal sovereign immunity has been considered. While related, the two immunities derive from different sources and have different parameters, which could potentially have different results. However, the Eleventh Amendment cases at least provide a framework for how the PTAB may examine the Allergan case.
While the prior sovereign immunity cases suggest it does apply in the PTAB, there’s one major difference between the Allergan IPRs and the prior IPRs — timing. In each of the prior IPRs, the sovereign patent owner owned the patent before the IPR began. In contrast, the Saint Regis tribe purchased a patent already subject to IPR. One of the rationales for sovereign immunity is to prevent the sovereign from being hauled into court without its consent. This naturally leads to one of the exceptions to sovereign immunity — when the sovereign voluntarily enters into a legal dispute, it can’t claim sovereign immunity. Here, there’s no dispute that the tribe voluntarily acquired a patent with awareness that it was currently subject to a challenge. Essentially, the tribe bought the validity fight — and having done so, they could be seen as having consented to the dispute via their conduct.
That theory is untested, as sovereigns don’t seem to acquire assets subject to legal disputes. The PTAB might not view this as sufficient conduct to invoke the voluntary consent exception to sovereign immunity. If they don’t, it’s reasonably likely they’ll determine that sovereign immunity applies.
In addition, while tribes can claim sovereign immunity against private parties, they are not entitled to claim sovereign immunity against administrative action by agencies of the United States. While IPR is in some ways similar to an administrative adjudication, the fact that the PTAB can act in the absence of the petitioner and the ultimate remedy being an order issued to the director of the PTO makes clear that an IPR is also administrative action made by an agency of the United States. For this reason as well, the PTAB could choose not to dismiss the tribe.
There’s one more wrinkle to consider. Judge Bryson, the judge in the companion district court litigation, questioned the legitimacy of the transaction, particularly given that the Saint Regis Mohawk had yet to make an appearance in his courtroom. Briefing was filed on Friday, Oct. 13, and on Monday, Judge Bryson’s order showed that Friday the 13th was bad luck for Allergan and the tribe. In addition to ruling that Allergan’s patents are invalid, Judge Bryson outlined reasons he believes the transaction with the tribe might have been invalid. The PTAB will likely be reading this opinion, written by a senior Federal Circuit judge, with interest, and may well follow the analysis provided by Judge Bryson.
Even though four of Allergan’s patents were invalidated, the IPRs will likely continue. First, there are two additional patents subject to IPR that weren’t invalidated in court. Second, until such time as the Federal Circuit reviews the district court decision, it isn’t final and the PTAB is still be required to complete its own analysis. Finally, even if Judge Bryson’s decision is upheld on appeal (an outcome that seems likely), the PTAB is reviewing claims that were not asserted in court and therefore not ruled upon by Judge Bryson. As a result, the PTAB must complete their proceedings in order to determine the patentability of all challenged claims, including claims that Judge Bryson did not have an opportunity to review.
Could the IPR Proceed Even Without the Tribe’s Participation?
Even if the PTAB determines that the tribe’s purchase of the patents was a legitimate transaction, assertion of sovereign immunity might not require dismissal of the IPR. Determining whether sovereign immunity applies is only a threshold issue. The other question is whether the IPR can continue because the IPR can still be decided after dismissing the Tribe as a party.
In the first two sovereign immunity decisions, the PTAB took a shortcut on the proper analysis, simply holding that the application of sovereign immunity mandated dismissal. Fortunately, in the most recent case, the Toyota IPR, the PTAB applied the complete framework, as illustrated by the Federal Circuit in the recent University of Utah case. The University of Utah case shows that a patent owner is a necessary party but not necessarily indispensable under Federal Rules of Civil Procedure Rule 19(b). Under Rule 19, even if a party is necessary, you still need to analyze whether they’re also indispensable in order to determine whether to dismiss the proceeding. The PTAB, while noting that Rule 19 does not specifically apply to PTAB proceedings, did examine it as a guideline. (They simultaneously noted that the PTAB can continue cases that Rule 19 would not allow continuance of.)
Rule 19(b) requires examination of four factors: (1) the extent to which judgment might prejudice the absent party or the existing parties, (2) the extent to which that prejudice can be avoided in the proceedings, (3) whether the judgment would be adequate absent the party, and (4) whether an adequate remedy would exist if the action was dismissed.
The first factor favors dismissal. While the petitioners would be harmed by a failure to dismiss, the tribe could be prejudiced in the event of a judgment without their presence. However, that prejudice might be limited by Allergan’s defense of the patent. Allergan would certainly strongly defend the patent’s validity, helping to avoid any prejudice. The sole prejudice possible at this juncture is the invalidation of the patent, an outcome that Allergan would strongly resist. However, Allergan is no longer the patent owner, but only a licensee, according to both Allergan and the tribe. Given that they are no longer the patent owner, they are barred from participating in the inter partes review; the statute and rules only allow for the petitioner and patent owner to participate, not licensees. In other words, if the tribe is dismissed, no one will be present to defend the patent. That said, it’s worth remembering that the PTAB can decide an IPR without the participation of the petitioner and patent owner, meaning that this factor can easily be overcome. This means that this factor should be weighted more lightly, as the statutory scheme clearly envisions determinations being made against patent owner interests without their participation, limiting the prejudice that can be found from such a situation.
The second factor favors dismissal of the IPR, with similar caveats regarding Allergan’s defense and the limits on their participation.
The third factor weighs against dismissal. A complete judgment can be rendered without the presence of any parties, since the eventual order issuing from a PTAB proceeding is an order to the director of the PTO to correct the claims of the patent, not an order that binds any parties to the proceeding. Invalidation of a patent via IPR binds everyone.
Finally, there’s the question of whether an adequate remedy would exist if the action was dismissed. This also weighs against dismissal. The Hatch-Waxman Act was designed based on the assumption that generic companies could affirmatively challenge the validity of drug patents. While there’s still the potential of a validity challenge in district court, the tribe has yet to appear in district court, meaning that the patent owner wouldn’t formally be bound by a district court order if one were to issue. And while there is a pending district court case, the tribe could choose to simply drop that case. Since sovereign immunity would also prevent the generic companies from affirmatively challenging the validity of the patents in district court, the generic companies would then be forced to choose between getting ready to launch without any certainty regarding the patent (with the possibility that the tribe would renew their litigation in another forum or at another time), or not launching their generic at all. Neither option is appealing, and the second option results in harms to consumers as well, as generic drugs would be less likely to become available.
The Rule 19 factors thus weigh, if lightly, in favor of continuing the case.
Can We Fix This?
While the tribe may succeed in their motion at the PTAB, Congress itself could weigh in and render this whole debate moot. Tribal sovereign immunity can be limited by congressional action. And Sen. Claire McCaskill, D-Mo., has introduced a bill (S. 1948) that would eliminate tribal sovereign immunity to inter partes review. As a result of her bill, the Saint Regis Mohawk Tribe has accused Sen. McCaskill of a double standard. Specifically, the tribe accuses her of targeting Native Americans and ignoring the universities that have claimed state sovereign immunity in order to obtain dismissal of IPRs.
The tribe’s criticism is either disingenuous or simply ill-informed. It’s well-understood that Congress can abrogate tribal sovereign immunity if it wishes to. But Congress can’t abrogate state sovereign immunity with respect to patents as a whole. They already tried. Congress’ attempt even remains in the statutes, codified at 35 U.S.C. § 271(h). But in a case called Florida Pre-Paid, the U.S. Supreme Court determined that Eleventh Amendment sovereign immunity, as possessed by the states, generally cannot be abrogated by Congress, and specifically not with respect to patent law. At most, they might be able to do something like conditioning future federal research funding on waiving sovereign immunity with respect to patent challenges.
But tribal immunity, the kind asserted by the Saint Regis Mohawk Tribe in the Allergan IPR, doesn’t stem from the Eleventh Amendment. Congress can (and should) act here, in order to avoid a world in which tribes sell their sovereignty to the highest bidder. And drug manufacturers should be seriously considering whether they want to adopt this kind of legal maneuver.
After all, it’s hard to hold yourself out as a respectable pharmaceutical manufacturer when you’re imitating the legal tactics of payday lenders.