Pay-to-Play for Sovereign Immunity? A New Strategy Employed by Drug Patent Holders


By Seth Parent

In May the Supreme Court decided TC Heartland, requiring patent infringement claims be brought where the defendant either “resides” or has an “established place of business” (rather than in the notoriously patent-holder friendly Eastern District of Texas). This change has led patent-holding companies to search for new strategies to increase the efficiency of their business model, and in turn, their profits.

These patent-holding companies, or “patent trolls,” as they are often referred to, may have just unveiled one such strategy. Following news of Allergan’s announcement that it was transferring title of six different pharmaceutical patents to the St. Regis Mohawk Tribe in September, patent holding company SRC Labs has now elected to pursue a similar strategy. Not only did these deals transfer the patents to the St. Regis tribe, they also provided the tribe with several million dollars upfront in addition to several million per annum.

So, why are companies like Allergan and SRC Labs paying large sums of money to the St. Regis tribe simply for the tribe to hold on to patents? As it turns out, Allergen and SRC Labs are hoping to use the tribe’s sovereign immunity to avoid inter-partes review of these patents at the Patent Trial and Appeals Board (PTAB).

The inter partes review process (IPR) was established by the America Invents Act of 2011. Inter partes review is a process by which a third party may challenge the validity of a patent on limited grounds in an expedited proceeding before the PTAB. This process has been heralded by some for its efficiency as compared to federal court proceedings. Invalidating a patent via IPR can be millions of dollars cheaper than invalidating a patent in federal court. However, IPR is not without its critics; some argue that the process is detrimental because it allows parties to submit unlimited petitions for review, essentially allowing the “harassment” of an otherwise legitimate inventor or patent holder. Others claim that allowing the PTAB to extinguish patents in a non-Article III forum violates the due process clause of the Constitution. In fact, the Supreme Court will soon be weighing in on the constitutionality of the entire IPR procedure, recently granting certiorari in Oil States v. Greene’s Energy Group, et al.

Regardless of one’s views on the merits of IPR, it remains true that over 70% of patents challenged before the PTAB end in a final written decision that all of the patent’s claims are invalid. It is likely this very statistic that has Allergan and SRC Labs turning over their patents to the St. Regis tribe. The St. Regis tribe is now asserting that its sovereign immunity precludes any challenge to its patents via IPR before the PTAB. Allergan and the St. Regis Tribe are not without precedent to support this assertion, either.

The PTAB has allowed the dismissal of at least two patent invalidation efforts when the patent holder, a state university, asserted its 11th Amendment sovereign immunity. However, the sovereign immunity that Native American tribes enjoy is not derived from the 11th Amendment; rather, it is explicitly granted to them by Congress. Because of this minor difference, it is unclear whether the PTAB would allow dismissal based on St. Regis’ claim of sovereign immunity (although some view Native American sovereignty as being stronger than a State’s).

As luck may have it, we did not get an answer on this issue because Allergan’s patents were invalidated by Judge Bryson in the Eastern District of Texas before the sovereign immunity issue arose. However, Bryson was not silent on the deal struck between Allergan and St. Regis, leaving some harsh words for the lawyers of both parties. Bryson noted that the court had “serious concerns about the legitimacy” of the deal and spoke to the inherent unfairness of Allergan wanting to take advantage of the U.S. patent system without its patents being subjected to the same rigor as everyone else’s.

So, where does this leave us? As this story has gained traction, the U.S. Senate has also taken notice. Five senators authored a letter to Allergan’s CEO stating their disapproval of the deal with the St. Regis tribe. The senators called the deal an attempt to “shield [Allergan’s] patents from review,” but Allergan reiterated that it is happy to defend its patents in federal court and only wishes to avoid “double jeopardy” via a potentially problematic IPR process.

Overall, there seems to be an inherent moral issue with the prospect of increasing the strength of a patent simply because its owner can afford to “rent sovereign immunity.” However, it appears we will continue to see deals like these, as Apple has also recently been sued by another Native American tribe that will likely employ a similar strategy. On the other hand, the St. Regis tribe has noted that partnering with patent holders in this way has allowed them to diversify their economy and provide much needed social programs for its people. This will certainly be an interesting strategy to follow, especially once we see how (or if) the Supreme Court’s decision in Oil States v. Greene changes the IPR process.

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