Patents and Sovereign Immunity

Oct 4, 2017 Phoenix, AZ

Recently, Allergan PLC struck a licensing deal with the Saint Regis Mohawk Native American tribe in what appears to an attempt to shield its patents for its eye drug Restasis from review at the Patent Trial and Appeal Board (“PTAB”). This agreement is being scrutinized by the legal community, the PTAB and Congress.

Allergan sold its Restatis patents to Saint Regis Mohawk, who in turn licensed the patents back to Allergen. The Saint Regis Mohawk Tribe, like a state university (as an arm of a state), has sovereign immunity. Thus, Allergan asserts that it is immune to patent challenges in inter partes review at the PTAB.

Drug companies who make generic drugs have sharply criticized Allergan’s attempt to avoid reviews by the PTAB. Various members of Congress in rare bi-partisan fashion have expressed serious concerns about this process, claiming that because of the sovereign status of these types of patent owners, it will create difficulties and expand the scope and time for patent challenges, which could ultimately prevent companies from unveiling new, cost-effective generic drugs to the pharmaceutical market.

And it is not just drug companies that are creating these sell/lease deals with sovereign parties. SRC Labs LLC recently transferred numerous patents that once belonged to SRC Computers to Saint Regis Mohawk; and tech company Prowire LLC recently transferred its patent rights for technology currently the subject of a dispute with Apple to a group of North Dakota tribes. Some legal observers fear this practice could lead to a widespread abuse of trying to shield patents from PTAB review.

The pressure is mounting to properly address this growing phenomenon. Just last week, a group of Senators urged a Senate committee to investigate the recent Allergen deal with Saint Regis Mohawk. citing the deal’s anti-competitive attempt to prevent PTAB review and to keep drug prices high. Allergen posits that the focus should be on the Intellectual Property Rights (“IPR”) process and how Congress has failed to protect innovation, not its deal with Saint Regis Mohawk, and points to the Oil States Energy Services LLC v. Greene’s Energy Group LLC case that the Supreme Court is hearing this fall (a case that addresses the constitutionality of IPRs).

Of course, the sovereign immunity concept is not simple, and does not offer any guarantees. In the case of Native American tribes, while they possess inherent sovereignty, Congress can modify and eliminate it. There is also the question of the legitimacy of the true ownership of the transferred patents. When companies “sell” patents to parties with sovereign immunity, what rights are they actually giving up? Let’s face it, these companies want to retain as many rights as they can in their patents and to retain as much control over their patents as they can (in particular, not having the sovereign party be able to sell the patent to another party or terminate the licensing agreement). This undoubtedly will lead to courts questioning whether the sovereign party truly owns the patent and therefore whether it can assert immunity from PTAB challenges.

The legal and ethical challenges to this relatively new trend of companies selling their patents to parties with sovereign immunity are just beginning. One thing is certain, the recent Allergen deal is causing the legal community and Congress to take a profound look at state and tribal sovereign immunity and how it should relate to intellectual property law.

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