Drug company hands patents off to Native American tribe to avoid challenge

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If tribes can avoid patent challenges, will “patent trolls” flock to them next?

On Friday, Allergan disclosed that it gave six patents covering its top-selling dry eye drug Restasis to the St. Regis Mohawk Tribe in Northern New York. The deal will provide the tribe with $13.75 million immediately and an annual royalty of $15 million as long as the patents are valid. The new deal was soon reported in both The New York Times and The Wall Street Journal. 

Allergan made the unprecedented move because it will prevent any meaningful challenge to the company’s patents at the Patent Trial and Appeal Board, or PTAB. Challenging patents at the PTAB in a process called “inter partes review” (IPR) was authorized by the America Invents Act of 2011, and the IPR process has significantly changed the patent landscape since then. While invalidating a patent in district court typically costs millions of dollars, invalidating a patent via IPR can happen for the relative bargain of a few hundred thousand dollars.

Lawyers for Allergan and the tribe expect that the concept of “sovereign immunity,” which bars lawsuits against certain types of government entities, will protect patents owned by St. Regis from any IPR proceeding. In fact, university patents have already been found to be immune to IPR under the concept of sovereign immunity. That will give Allergan a major edge as it clashes with generic drug companies who are trying to knock out the patent so they can produce a cheaper generic version.

“The Saint Regis Mohawk Tribe and its counsel approached Allergan with a sophisticated opportunity to strengthen the defense of our RESTASIS intellectual property in the upcoming inter partes review proceedings before the Patent Trial and Appeal Board,” Allergan Chief Legal Officer Bob Bailey said in a statement.

Given the potential power of the move, there’s little doubt that tech companies, or the “patent trolls” that harangue them, will be next in line. In fact, at least one technology patent-holder has already done so. A lawyer for the St. Regis Mohawk Tribe told The New York Times that even before the Allergan deal, the tribe agreed to hold patents for a “technology company,” which he declined to name.

“Sovereign immunity” is a legal concept that predates the American republic and stems from the basic notion that you can’t sue a monarch, like, say, the King of England, in a court of law. It’s codified in the 11th Amendment to the US Constitution, which prohibits “any suit in law or equity, commenced or prosecuted against one of the United States” by an individual.

While the amendment was written to apply to US states, Native American tribes enjoy the same immunity. So do state-owned universities, which have been able to use their own patents to extract settlements and verdicts without worrying about being subject to accusations of patent infringement.

And there’s worry the matter could go beyond just stopping IPRs. Allergan CEO Brenton Saunders gave an interview to Reuters in which he said that the move “only affects the flawed IPR process,” but tribal immunity has applied in federal court in other situations.

Josh Landau of the Computer and Communications Industry Association, a longtime patent reform advocate, said in a blog post yesterday that he’s not sure the strategy will work. A Supreme Court case from last term called Lewis v. Clarke found that tribal commercial activity wasn’t necessarily immune.

But more important than whether or not it will work, Landau argues that it shouldn’t work. Hiding the patents with “sovereign” entities will simply allow people who own shaky patents to assert them more easily, without fear of IPRs. The rule shouldn’t be that “the validity of your patents is subject to review, unless you pay off some Indian tribe,” he writes.

St. Regis’ general counsel, Dale White, told the Times that the royalty payments will be a significant boost to the tribe’s annual budget, which is about $50 million.

The idea was broached to the tribe earlier this year by a Dallas law firm, Shore Chan DePumpo, White said.