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Patent IPRs and Allergan’s Sovereign Immunity Defense

Posted in Agreements, Contracts, Law Suits, Mixed Bag of Nuts, Patents

In an age of rising healthcare costs, pharmaceutical companies can be an easy target in calls for patent reform.  Patent protection helps drug manufacturers recoup their investment in developing the new drug,.  It also prevents generic manufacturers from releasing the same drug formulation at lower cost.  The Hatch-Waxman Act provides a pathway for generic manufacturers to challenge branded drug patents, but this type of challenge requires costly litigation.

 

Inter Partes Review

Enter the Inter Partes Review.  An Inter Partes Review (IPR) is a procedure before the Patent Trial and Appeal Board (PTAB) for challenging the validity of a patent.  IPR proceedings provide an expedited and cost-effective alternative to litigation.  The IPR process was introduced in 2012, and since then, hundreds of patents have been invalidated using this process.  In the pharmaceutical industry, IPRs provide generic drug manufacturers with an additional or alternative path to challenge branded drug patents.

 

The Allergan Case

In 2016 and 2017, generic drug manufacturers filed IPR petitions seeking to invalidate patents owned by drug maker Allergan on its branded prescription eye drops, Restasis.  In response, and less than a week before a scheduled hearing before the PTAB, Allergan transferred its patents to the Saint Regis Mohawk Tribe.  Like states, Native American tribes have sovereign immunity, and therefore are not subject to private lawsuits.  The idea of sovereign immunity is codified in a Constitutional Amendment, and it stems from the basic notion that you cannot sue a monarch.

The Allergan-Tribe agreement provides for an initial payment of $13.25 million, plus an annual royalty of $15 million paid to the Tribe.  In exchange, the Tribe agreed to exclusively license the patent rights back to Allergan.

Shortly after the agreement was finalized, the Tribe moved to terminate the IPR proceedings on the basis of its sovereign immunity.

There are many opinions about both the legal and moral implications of this agreement, with some calling it a sham transaction.  In a highly unusual move, the PTAB authorized interested third parties to file amicus curiae briefs.  A total of 15 briefs from outside parties were filed, including some from other Native American Tribes.  Seven briefs were filed in support of the Tribe’s (and Allergan’s) sovereign immunity argument, while eight argued against it.  Briefs siding with the Tribe cited prior PTAB decisions recognizing sovereign immunity for states, and dismissing IPR proceedings initiated against state universities.  Briefs arguing against the Tribe’s motion cited a lack of precedent with respect to tribal-specific sovereign immunity, and asserted the question should be left for Congress.

 

The PTAB’s Sovereign Immunity Decision

Ultimately, the PTAB decided last month to deny the Tribe’s motion to terminate the proceedings.  See the decision here, courtesy of Patent Progress.  The PTAB differentiated tribal sovereign immunity from state sovereign immunity, and broadly held that tribal sovereign immunity does not insulate a patent from an IPR proceeding.  The Tribe and Allergan are seeking to appeal the decision.

What do you think?  Just as a matter of policy, should companies be permitted to transfer their IP to sovereign entities to avoid this type of challenge?  The PTAB’s distinction between tribal and state sovereign immunity suggests that if Allergan had made this same agreement with a state university instead of a tribe, the IPR would have been terminated.  Is that the right distinction to make?