Allergan’s Mohawk Gambit Fails at the PTAB

By Tom Engellenner
The Patent Trial and Appeal Board (PTAB) has not taken kindly to a move by the Irish drug company Allergan to shield its key patents on its dry-eye drug Restasis from challenge at 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.”  In a decision rendered last Friday (February 23, 2017), the PTAB panel handling these cases rejected the Tribe’s claim to immunity and denied the new patent owner’s motion to terminate.

However, the PTAB panel decision denying the motion to terminate in these IPR cases (Mylan Pharmaceuticals, et al. v. Allergan, Inc., PR2016-01127, etc.) is surprising because the panel declined to take the easy way out, that being to follow the reasoning of a recent PTAB ruling in another sovereign immunity case, Ericsson Inc. v. Regents of the University of Minnesota, IPR2017-01186.

The enlarged PTAB panel in the Ericsson case (which included the PTAB’s Chief Judge and three other additional panel members selected by the Chief Judge) found that sovereign immunity was waived when a Patent Owner chose to enforce its patent rights in a federal district court action.  The easiest resolution would have been to extend the Ericsson reasoning to find a waiver of immunity equally applies to sovereign assignees of patents already in litigation.

Instead, the panel in the Mylan cases chose a frontal assault on tribal immunity.  The Mylan panel held that the AIA was an act of Congress of general applicability and “general acts of Congress apply to Indians . . . in the absence of clear expression to the contrary.”  The panel also appears to have adopted the position that IPR trials are in rem proceedings, not exercises of personal jurisdiction over private entities holding private property rights – a theory that has not been embraced in any of the previous IPR decisions involving sovereign immunity claims asserted by state university patent owners.

The Mylan panel also found that, even assuming arguendo that the Mohawk Tribe was entitled to assert immunity, the proceedings can continue without the tribe’s participation because the Mohawks had granted essentially all rights under the patent back to the original owner, Allergan.  The Mylan panel stopped short of concluding that the transaction was a sham transaction, but essentially found that none of the rights retained by the Tribe following its exclusive license back to Allergan amounted to anything substantial and that the Tribe was not an indispensable party because “Allergan has at least an identical interest to the Tribe.”

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.  Continue reading “Allergan’s Mohawk Gambit May Be Doomed – PTAB Rethinks the Scope of Sovereign Immunity”

Mohawks To The Rescue? Can You Immunize Patents From PTAB Review By Assigning To A Native American Tribe?

By Tom Engellenner
In an unusual move to combat the perceived bias in favor of patent challengers at the U.S. Patent Office’s Patent Trial and Appeal Board (PTAB), the Irish drug company Allergan has decided to warehouse its key patents on the dry-eye drug Restasis with the Saint Regis Mohawk Tribe in upstate New York.  Allergan generates over a billion dollars in revenue annually from sales of Restasis worldwide.  By assigning ownership to the Mohawks, the company believes its patents will be exempt from PTAB review on the grounds of “sovereign immunity.”

Under the deal announced last week, Allergan will pay the tribe $13.75 million.  In exchange, the tribe will claim sovereign immunity should the patents be challenged at the PTAB.  The tribe will also exclusively license the patents back to Allergen and be eligible to receive $15 million in annual royalties for the remaining life of the patents.  According to Mr. Dale White, the general counsel for the 13,000 member tribe, the deal will further the tribe’s goal of being self-reliant.  The New York Times has reported that Mr. White was approached in April by a Dallas law firm that pitch the idea and that the tribe has taken ownership of patent portfolios for other companies as well.

The defense of sovereign immunity has already been accepted by the PTAB in cases where the owner of the patent is a state university. The leading cases are Covidien LP v. University of Florida Research Foundation Inc., IPR 2016-01274; -01275, and -01276 (PTAB January 25, 2017). and Neochord, Inc. v. University of Maryland, IPR2016-00208 (PTAB May 23, 2017). (See our analysis of the Covidien case here.)  In both cases the PTAB dismissed IPR proceedings against the universities based upon their claims of sovereign immunity – in particular, the Eleventh Amendment – that bars the proceedings unless the state-entity that owns the patent consents to jurisdiction.

The Eleventh Amendment provides that the “judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another state, or by citizens or subjects for any foreign State.” The Supreme Court has interpreted the Eleventh Amendment as a grant of immunity to the States against certain adjudicative proceedings brought against them by private parties.

The broader doctrine of “Sovereign Immunity” is rooted in common law and likewise prohibits actions against foreign states in federal courts and administrative tribunals. Although somewhat murky, the Supreme Court has held, as recently as 2014 in Michigan v. Bay Mills Indian Community, 572 U.S. 12-515, that native American tribes retain inherent sovereign authority and tribal immunity as “domestic dependent nations” and that such immunity extends beyond reservation land to commercial cases in the absence of Congressional action to the contrary.

The Times also reported on an interview last week with Brent Saunders, the chief executive of Allergan, during which he explained that the company made the move to avoid the “double jeopardy” of having the same issue heard in two venues (e.g., a federal district court and the U.S. Patent Office). “We did this to really make sure that we can defend these patents in only one forum,” he reportedly said.