Earlier this month, Allergan Plc and the St. Regis Mohawk Tribe made a patent deal, where the pharmaceutical company transferred its patents on dry eye medicine Restasis to the tribe, which has agreed to license the patents back to the company in exchange for ongoing payments.

This deal takes advantage of the fact that the tribe is treated as a sovereign entity immune to civil lawsuits, which could mean that the Restasis patents would no longer be subject to review by the U.S. Patent Trial and Appeal Board and could circumvent inter partes reviews. Additionally, St. Regis holds 40 patents from a technology company and acknowledges it plans to make money from using those patents in lawsuits. So, many are concerned that if St. Regis can bypass IPRs, the patent system would weaken and might inspire others to engage in similar deals with tribes.

Greenspoon Marder's Todd Langford and Mayer Brown's Brian Nolan, who focus their practices on high-stakes trade secret, patent and other intellectual property disputes, sat down with Inside Counsel discuss the emergence of Native American tribes using their sovereign immunity to circumvent IPRs.

In two IPRs that involved state universities, the board handling those IPRs concluded that the states' sovereign immunity, which flows from the 11th Amendment to the Constitution, divested the Board of jurisdiction to review patents owned by those state entities unless they did not object on sovereign immunity grounds. As both state universities objected, the Board in those IPRs dismissed the IPRs without substantively reviewing the patents.

The Supreme Court has recognized that, as a domestic dependent nation, a Native American tribe can raise a sovereign immunity claim. That claim should be respected by a court unless the tribe waives its sovereign immunity or an act of Congress disallows the assertion of sovereign immunity in that type of dispute. Therefore, to the extent that a tribe has not waived sovereign immunity or an act of Congress has not foreclosed the assertion of sovereign immunity in the IPR context, a tribe that owns a patent may assert sovereign immunity, and the Board handling the IPR may dismiss the patent challenge without reviewing the substances of the Petitioner's claim.

“This was apparently in an attempt to employ Native American sovereign immunity to shield its patents from invalidity challenges before the USPTO,” explained Langford. “If such a strategy is successful, it could create a market for purchasing (or renting, so to speak) sovereign immunity from Native American tribes to insulate patents from invalidity challenges before the USPTO.”

The 11th Amendment limits the “judicial power of the United States” so that it does not “extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State,” which has been interpreted by the Supreme Court to include many administrative proceedings. The Federal Circuit has previously held that a state's sovereign immunity allows it to avoid interference proceedings before the USPTO.

Likewise, per Langford, should Tribal Nation Sovereign Immunity apply to IPR proceedings, patents owned by Native American tribes may be immune from these invalidity challenges. By transferring the Restasis patents to the Saint Regis Mohawk Tribe, the sovereign immunity of that tribe could prevent the USPTO from invalidating the Restasis patents; the USPTO would be unable to take away the rights or property of the Tribe. The Saint Regis Mohawk Tribe, however, granted to Allergan an exclusive license to the patents. So, if Allergan's strategy is successful, it will prevent the USPTO from invalidating its patents while potentially still allowing it to collect royalties and exert exclusive control over the patent rights.

“If such a strategy is successful, it could create a market for purchasing sovereign immunity from Native American Tribes to insulate patents from invalidity challenges before the USPTO,” he said. “Entities that are concerned that their patents may be invalidated before the USPTO could rent a tribe's immunity for the desired period of time. Given the differences between the USPTO and the courts, these immunized patents may end up stronger than before.”

The deal appears to seek to have Allergan and the tribe argue for an extension of the board's decisions in the state university cases, to have the board reviewing the Restasis patents dismiss the pending IPRs, according to Nolan. In fact, it is believed that a petitioner will have an easier burden to invalidate a patent in an IPR setting because the Board in an IPR applies a claim construction standard—broadest reasonable interpretation—that may lead to broader claim scope compared to the district court standard and the board requires a petitioner to carry its burden by a preponderance of the evidence as opposed to the clear and convincing evidentiary standard applied in a district court.

“If the St. Regis tribe could assert sovereign immunity in the IPR, it would allow Allergan and the St. Regis tribe to limit the review of the patents to a forum that they likely think is more favorable to achieving a successful defense of the patents. In the end, the district court concluded that the claims of the four patents that proceeded to trial were invalid as obvious,” he explained. “But, Allergan and the tribe may still benefit from the Federal Circuit reviewing the district court decision as opposed to an IPR because on appeal the Federal Circuit will review the 'correctness' of the district decision keeping in mind the clear and convincing evidentiary standard.”

The board has held in cases involving state universities that it cannot exercise jurisdiction to review patents owned by a state unless the state has waived the right to assert sovereign immunity. According to Nolan, the board may come to a similar conclusion for patents owned by a Native American tribe unless the Board could find that the tribe had waived its claim from sovereign immunity or an act of Congress foreclosed the assertion of sovereign immunity in the IPR setting. Ownership of a patent by a tribe could prevent the PTAB from invalidating that patent in an IPR because the tribe could have the IPR dismissed before the Board ruled substantively on the Petitioner's arguments.

He added, “If the board allows the Allergan and St. Regis tribe agreement to divest the PTAB jurisdiction, people are concerned that any patent owner could insulate their patents from an IPR challenge by assigning the patents to a Native American tribe and exclusively licensing back all the rights necessary to commercialize a product. IPR and the other post-grant proceedings created by the America Invents Act were considered an important aspect of the AIA when it was passed.”

Amanda G. Ciccatelli is a Freelance Journalist for Corporate Counsel and InsideCounsel, where she covers intellectual property, legal technology, patent litigation, cybersecurity, innovation, and more.