Allergan’s Mohawk Gambit May Be Doomed – PTAB Rethinks the Scope of Sovereign Immunity

By Tom Engellenner
A few months ago, the Irish drug company Allergan moved to shield its key patents on its dry-eye drug Restasis from challenge at the Patent Trial and Appeal Board (PTAB) of the U.S. Patent Office by assigning these patents to the Saint Regis Mohawk Tribe in return for a commitment by the tribe, as new owner of the patents, to invoke “sovereign immunity” and request that the PTAB dismiss pending administrative challenges.

However, a recent decision in an unrelated case before the PTAB casts doubt on the viability of this strategy.  In Ericsson v. Regents of the University of Minnesota, IPR2017-01186 (Paper 16 PTAB Dec. 19, 2017), an expanded panel of seven PTAB judges denied the University of Minnesota’s motion to dismiss an inter partes review (IPR) proceeding on the basis of sovereign immunity.  According to the PTAB panel, by filing a patent infringement suit that asserted the challenged patent, the University had waived its immunity at least with respect to the defendants.  One of defendants in that suit, Ericsson, Inc., had initiated the IPR proceeding.

The Ericsson decision involved the questionable practice of “panel-packing” by the PTAB’s chief judge, David Ruschke.  In this instance, the Chief Judge added himself and three of his deputies to the original three judges assigned to the case for the purpose of deciding the University’s motion to dismiss, ostensibly to address the “exceptional nature of the issues presented.”

Two prior PTAB decisions by different panels of judges involving University-owned patents have upheld the sovereign immunity principle.  In Covidien LP v. Univ. of Fla. Research Found., Inc., Case IPR2016-01274 (PTAB Jan. 25, 2017) and NeoChord, Inc. v. Univ. of Md., Balt., Case IPR2016-00208 (PTAB May 23, 2017), prior panels of PTAB judges faced with this issue had found that an IPR proceeding was an adjudicatory proceeding of a federal agency from which state entities are immune.

Judge Ruschke’s opinion on behalf of the enlarged panel confirmed that the sovereign immunity defense was generally available to state universities (and, by implication, other sovereigns like native American tribes) but the immunity was not absolute.  By suing in federal court, Ruschke reasoned that University of Minnesota had waivered this immunity.  He distinguished the prior PTAB panel decisions dismissing IPR petitions on sovereign immunity grounds because they did not involve “a State that filed an action in federal court alleging infringement of the same patent.”  (The Covidien v. Florida case arose out of a licensing dispute in which the university had sued to enforce a patent license agreement and the disgruntled licensee then challenged the patent via an IPR petition.  The Neochord v. Maryland case likewise involved a licensing dispute.)

Nonetheless, Judge Ruschke’s opinion has a logical weakness.  The panel’s finding of a waiver appears to turn on the fact that an invalidity challenge to a patent in a federal infringement case is a compulsory counterclaim.  Because the invalidity challenge must be brought or “be forever barred from doing so, it is not unreasonable to view the state as having consented to such counterclaims.”  The opinion fails to explain why the counterclaim inherent in an infringement suit (i.e. a trial of the invalidity issue in the federal court) is not sufficient in and of itself or why the compulsory nature of the counterclaim should spawn a right to raise this issue in an alternative forum with significantly different (challenger-friendly) rules. 

Moreover, the opinion ignores the underlying principle behind compulsory counterclaims.  The requirement to plead and try such claims is designed so that all issues affecting the outcome of lawsuit can be decided in the single proceeding.  Judge Ruschke fails to explain why allowing a patent infringement defendant to try invalidity contentions in IPR proceedings and/or concurrent federal court litigation (with potentially different outcomes) serves the interests of judicial economy.

The opinion also gives short shrift to a substantial body of case law supporting the proposition that a waiver of sovereign immunity in one forum normally does not extend to other lawsuits in other forums even if the other cases involve the same issues.  The most pertinent precedent would appear to be Tegic Comm. Corp. v. Bd. Of Regents of Univ. of Texas Sys., 458 F. 3d 1335 (Fed. Cir. 2006).  In this case, the University of Texas (UT) sued 48 telecommunications companies in the Western District of Texas.  The defendants included customers and licensees of Tegic.  In response, Tegic filed a declaratory judgment (DJ) action against UT seeking to invalidate the patents-in-suit in a different federal district court (in Washington State).  The Federal Circuit agreed with UT that “its filing of the Texas action did not establish waiver as to this separate action. . . . Tegic’s recourse is to seek to intervene in the Western District of Texas.”

The Ericsson v. Minnesota opinion fails to explain why Ericsson should be allowed to initiate an alternative administrative invalidity proceeding when Tegic in a similar situation was denied an opportunity to do so via DJ action.

Interestingly, Chief Judge Ruschk’e resort to “panel packing” in this instance does not appear to have been necessary.  All seven members of the panel reached that same conclusion (that the University of Minnesota had waived sovereign immunity to IPR proceedings).  In fact, one of the original three panel members (Judge Jennifer Bisk) would have gone further and denied the applicability of the sovereign immunity doctrine altogether.  In a concurring opinion, Judge Bisk opined that “inter partes review is a circumscribed in rem proceeding.”  She explained that “allowing a State to secure monopoly rights from the Patent Office, while simultaneously foreclosing Patent Office reappraisal” would thwart the public interest.

Returning to the elephant in the room, namely the pending motions to dismiss in six IPR proceedings involving generic drug manufacturers and Allergan’s Restasis® patents, the Ericsson decision will certainly influence the PTAB panel facing the question of whether these proceedings should be dismissed on sovereign immunity grounds now that Allergan has assigned the patents-in-suit to the Saint Regis Mohawk Tribe.

Despite the (presently) non-precedential nature of the Ericsson decision and an entirely different panel of judges in the Restasis® cases, it is hard to imagine any panel reaching a decision that is contrary to Judge Ruschke’s opinion (especially when the Chief PTAB Judge can invoke Standard Operating Procedure 1, 2-5 (§§ II, III) (Rev. 14) and order another expanded panel to rehear the motion).  Look for a decision in early 2018 on these cases (Mylan Pharmaceuticals Inc., Teva Pharmaceuticals USA, Inc. and Akorn Inc. v Saint Regis Mohawk Tribe, 2017IPR-01127, -01128, 01129, -01130, -01131 and -01132).

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