'; Allergan’s Sovereign Immunity Adventure Continues After Federal Circuit Rejection

Allergan’s Sovereign Immunity Adventure Continues After Federal Circuit Rejection

October 5, 2019

The question of whether tribal sovereign immunity can be used to avoid inter partes review (IPR) proceedings continues to work its way through the courts. Drugmaker Allergan’s novel – and heavily criticized – attempt to protect its patents for Restasis, its $1.5 billion dry-eye drug, from IPRs by transferring them to New York’s St. Regis Mohawk Tribe was rejected in July by a panel of the U.S. Court of Appeals for the Federal Circuit. In August, however, the tribe petitioned the Federal Circuit for rehearing en banc on the issue.

The ruling by the Federal Circuit panel in St. Regis Mohawk Tribe v. Mylan Pharmaceuticals Inc. that sovereign immunity does not apply to IPRs affirmed the conclusion of the Patent Trial and Appeal Board (PTAB) that “reconsideration of the patentability of issued claims via inter partes review is appropriate without regard to the identity of the patent owner.”

A reversal of the panel’s decision by the full Federal Circuit could open the floodgates for similar gambits by patent holders hoping to avoid IPRs they see as stacked against them, says Steven H. Sklar, a member in Leydig’s Chicago office.

“Any patent holder would be remiss not to consider strategies to avoid IPR attacks on their patent, especially if the patent has potentially significant validity concerns,” Sklar says. “While the public perception of assigning a patent to an Indian tribe could potentially be unfavorable, the desire to maximize corporate profits might prevail.”

The concept of sovereign immunity shields tribes like the St. Regis Mohawk from lawsuits by private parties in federal court. Such immunity does not, however, apply to agency-initiated enforcement proceedings. On appeal, the tribe argued that tribal immunity applies to IPRs because IPRs are contested adjudicatory proceedings between private parties in which petitioners, rather than the U.S. Patent and Trademark Office (PTO), defines the parameters of the action.

In rejecting the tribe’s argument, the Federal Circuit panel held that an IPR “is more like an agency enforcement action than a civil suit brought by a private party,” because the PTO “is acting as the United States in its role as a superior sovereign to reconsider a prior administrative grant and protect the public interest in keeping patent monopolies within their legitimate scope.”

Allergan’s deal with the St. Regis Mohawk caused controversy and a congressional backlash from the moment Allergan announced it in fall 2017. A district court decision that invalidated the patents on unrelated grounds also criticized the move, stating that sovereign immunity "should not be treated as a monetizable commodity that can be purchased by private entities as part of a scheme to evade their legal responsibility."

Whether the tribe (and Allergan) will continue to seek a judicial seal of approval on its creative use of tribal immunity remains to be seen. Shoshana G. Marvin, an associate in Leydig’s Washington, D.C., office, believes that if the full Federal Circuit or the Supreme Court were to find such a tactic to be a permissible way to sidestep IPRs, the outcry might be sufficient to spur a legislative response.

“After Allergan’s deal became public, a bill was introduced in the U.S. Senate to specifically strip tribes of sovereign immunity in patent-related proceedings, including IPRs,” Marvin notes. “If subsequent decisions find these arrangements to be valid, there’s every reason to believe that Congress will step in, as they see such tactics as a way to delay generic competition that could lower drug prices.”

Steven H. Sklar