The future of sovereign immunity deals after Allergan ruling

Late last week, the Patent Trial and Appeal Board (PTAB) rejected a Native American tribe’s attempt to dismiss inter partes reviews (IPRs) based on the tribe’s sovereign immunity claims.

And, although the decision has been appealed, lawyers say the PTAB’s finding that tribal sovereign immunity doesn’t apply to IPRs could have an impact on other similar deals involving patent licences and sovereign immunity.

Allergan paid the Saint Regis Mohawk Tribe $13.75 million in September last year to acquire dry-eye treatment Restasis (cyclosporine ophthalmic emulsion). The tribe then granted Allergan an exclusive licence to the treatment.

“Companies will likely take a wait and see attitude until a final ruling on appeal, but generally this opinion and the University of Minnesota cases certainly reduce or eliminate immunity for hire,” explained Tina McKeon, partner at Kilpatrick Townsend & Stockton.

In December last year, the PTAB took aim at sovereign immunity, ruling that the University of Minnesota must defend against challenges brought against five of its patents because it had lost the right to argue sovereign immunity when it sued for infringement.

The PTAB, in its latest decision, said: “We conclude that reconsideration of the patentability of issued claims via IPR is appropriate without regard to the identity of the patent owner. We, therefore, determine that the tribe’s assertion of its tribal immunity does not serve as a basis to terminate these proceedings.”

McKeon noted that, if this is the case, then the identity of a state entity (such as a state university) should “equally be immaterial, despite the fact that state sovereign immunity has a constitutional basis”.

But that’s not all—the PTAB also found that the IPRs against Restasis could continue without the tribe’s participation in view of “Allergan’s retained ownership interests in the challenged patents”.

According to the board, the licence agreement transferred “all substantial rights” in the challenged patents back to Allergan.

If the US Court of Appeals for the Federal Circuit (on appeal) chooses to affirm the PTAB’s finding that Allergan is the effective patent owner, then other companies may try to use different contractual terms to try to achieve immunity for hire, explained McKeon.

“Nonetheless, such immunity for hire would have limited value if the new patent owner waived immunity by suing for infringement in federal court,” she noted.

Kevin Noonan, partner at McDonnell Boehnen Hulbert & Berghoff, added that the decision provides a “roadmap of what not to do in licensing if you want to maintain the immunity”.

In a blog post on Patent Docs, Noonan notes that, importantly, the PTAB did not comment on whether the licence constituted a “sham” transaction.

A comment on the post stated that: “A more solid decision would have come from using the words ‘sham deal’ and not touching the sovereign immunity question at all.”

Jonathan Stroud, chief IP counsel at Unified Patents, noted that the law firm responsible for this tactic (of licensing patents to a tribe in an attempt to protect the patents from IPRs)—Shore Chan DePumpo—has been heavily promoting this type of agreement.

According to Reuters, technology company SRC Labs transferred around 40 patents to the tribe in early August 2017.

Stroud believes a better approach for patent owners is to always vet and assert strong patents and then defend them on the merits.

On the PTAB’s decision, he said: “When a company is so brazenly trying to avoid the merits of their patent—issuing press releases and transferring rights after a lengthy government proceeding and on the eve of judgment in both the district court and before the issuing agency—this seems like a reasoned, just response.”

Speaking in a personal capacity, Michael Shore, partner at Shore Chan DePumpo, said that the decision was intended to help the PTAB “protect its power over the patent system” and that this would not stand on appeal.

The Saint Regis Mohawk Tribe appealed against the decision yesterday, February 28.

He said: “The PTAB system is going to die because it is being revealed as not just unfair, but damaging to the US innovation economy.”

Shore added that until IPRs are removed from the equation, there will be plenty more transactions of this kind.

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