If nothing else, pharmaceutical giant Allergan deserves points for creativity.

Facing a high-stakes patent validity proceeding at the U.S. Patent and Trademark Office, the company, assigned the IP rights being challenged to the Saint Regis Mohawk Tribe. Because hey—sovereign immunity!

In a sharply-worded order, a federal judge on Monday questioned the tactic, and added the tribe as co-plaintiffs in a parallel proceeding in the Eastern District of Texas, where sovereign immunity wasn't an issue. And then he invalidated the patents covering blockbuster eye drug Restasis on the grounds of obviousness anyway.

Barring appeal, the decision by Senior U.S. Circuit Judge William Bryson effectively ends the case. Still Bryson, sitting by designation in the Eastern District, left the door open for a strategy that he warned could make sovereign immunity via Native American tribes “a monetizable commodity that can be purchased by private entities as part of a scheme to evade their legal responsibilities.”

Allergan's novel bid to shield Restasis, which is used for treating dry eyes and had sales of $1.4 billion in 2016, attracted widespread interest. The New York Times, for example, ran a lengthy story in September headlined 'How to Protect a Drug Patent? Give It to a Native American Tribe.'

According to Bob Bailey, Allergan's chief legal officer, the IP transfer was the idea of the tribe and its counsel from Shore Chan DePumpo. “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,” he said in a September 8, 2017 news release.

The PTAB had recently tossed cases involving challenges to patents held by state universities on the grounds of sovereign immunity. So … might that reasoning extend to patents held by Native American tribes as well? Heck, why not?

Michael Shore of Shore Chan DePumpo in Dallas told the Wall Street Journal he went looking for a tribe to take advantage of the “arbitrage opportunity” he saw stemming from the rulings, and then scoured the PTAB docket to find a company on the hot seat.

Ireland-based Allergan (formerly known as Actavis) fit the bill, with six patents for Restasis under review.

Under the terms of the deal, the patent titles were assigned to the St. Regis Mohawk tribe, with Allergan as the exclusive licensee. The tribe was paid $13.75 million by Allergan upon execution, and was eligible to receive $15 million in annual royalties. In exchange, it promised not to waive sovereign immunity before the PTAB.

The rural, upstate New York-based tribe in a statement called it “a viable and sound opportunity … to enter into the patent, technology and research sector as part of our overall economic diversification strategy,” adding that “we realize that we cannot depend solely on casino revenues.”

Opposing counsel in the Texas litigation cried foul. “The alleged assignment of rights is indeed a sham,” wrote counsel for Teva Pharmaceuticals, represented by Sterne, Kessler, Goldstein & Fox; Mylan Pharmaceuticals, represented by Wilson Sonsini Goodrich & Rosati; and Akorn Inc.; represented by Sughrue Mion and Schiff Hardin.

The drug makers are all seeking to launch generic versions of Restasis before Allergan's patents covering the eye drops expire in 2024.

Allergan, represented by Fish & Richardson, sought a court order in Texas to stop them from doing so—litigation occurring in parallel with the PTAB review.

The company in court papers filed in Texas argued that “While defendants may not like the outcome of the transaction with respect to the proceedings in the PTAB, that does not render the transaction between the parties a sham.”

They also noted that the tribe pledged not to assert sovereign immunity in the Texas suit. “Far from preventing the adjudication of the validity of the patents-in-suit, the transaction between Allergan and the tribe specifically contemplates that this court will make such an adjudication,” wrote Fish & Richardson lawyers led by Jonathan Singer, head of the firm's life sciences practice, and Juanita Brooks, who in 2014 was named a litigator of the year by The American Lawyer.

Allergan also suggested that inter partes review is inappropriate in a Hatch-Waxman case like this one. “Congress did not provide for IPR review so defendants in Hatch-Waxman patent litigations could be afforded a second chance at pursuing the same invalidity arguments they pursued during a complete trial in an Article III court, but on a far less complete record and with different legal standards.”

(The defendants are quick to note Allergan had no such reservations when inter partes review helped thwart a competitor to one of its other big products, Botox.)

Allergan asked Judge Bryson to add the tribe as co-plaintiffs to the suit. On Monday, he made his reservations clear about doing so.

“The court has serious concerns about the legitimacy of the tactic that Allergan and the tribe have employed,” he wrote. “This is not a situation in which the patentee was entitled to sovereign immunity in the first instance. Rather, Allergan, which does not enjoy sovereign immunity, has invoked the benefits of the patent system and has obtained valuable patent protection for its product, Restasis. But when faced with the possibility that the PTO would determine that those patents should not have been issued, Allergan has sought to prevent the PTO from reconsidering its original issuance decision.”

Moreover, the judge continued, “If that ploy succeeds, any patentee facing IPR proceedings would presumably be able to defeat those proceedings by employing the same artifice. In short, Allergan's tactic, if successful, could spell the end of the PTO's IPR program, which was a central component of the America Invents Act of 2011.”

Still, he let the tribe join the suit as co-plaintiffs without determining whether the assignment-and-licensing transaction was a sham, noting that it doesn't bear on his power to hear the case.

His reasoning: He doesn't want to get flipped needlessly on appeal.

“This is more than a housekeeping matter of determining which names belong in the caption,” Bryson wrote. “If the court declines to join the tribe as a co-plaintiff and it is later determined that the tribe is a valid owner of the patents, any judgment entered by the court could be subject to challenge on the ground that the owner of the patents was not a party to the action.”

Besides, at this point the tribe is the owner of nothing. In a separate, 135-page decision issued the same day, Bryson concluded, “The defendants have proved by clear and convincing evidence that the asserted claims of the Restasis patents are invalid for obviousness.”

If nothing else, pharmaceutical giant Allergan deserves points for creativity.

Facing a high-stakes patent validity proceeding at the U.S. Patent and Trademark Office, the company, assigned the IP rights being challenged to the Saint Regis Mohawk Tribe. Because hey—sovereign immunity!

In a sharply-worded order, a federal judge on Monday questioned the tactic, and added the tribe as co-plaintiffs in a parallel proceeding in the Eastern District of Texas, where sovereign immunity wasn't an issue. And then he invalidated the patents covering blockbuster eye drug Restasis on the grounds of obviousness anyway.

Barring appeal, the decision by Senior U.S. Circuit Judge William Bryson effectively ends the case. Still Bryson, sitting by designation in the Eastern District, left the door open for a strategy that he warned could make sovereign immunity via Native American tribes “a monetizable commodity that can be purchased by private entities as part of a scheme to evade their legal responsibilities.”

Allergan's novel bid to shield Restasis, which is used for treating dry eyes and had sales of $1.4 billion in 2016, attracted widespread interest. The New York Times, for example, ran a lengthy story in September headlined 'How to Protect a Drug Patent? Give It to a Native American Tribe.'

According to Bob Bailey, Allergan's chief legal officer, the IP transfer was the idea of the tribe and its counsel from Shore Chan DePumpo. “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,” he said in a September 8, 2017 news release.

The PTAB had recently tossed cases involving challenges to patents held by state universities on the grounds of sovereign immunity. So … might that reasoning extend to patents held by Native American tribes as well? Heck, why not?

Michael Shore of Shore Chan DePumpo in Dallas told the Wall Street Journal he went looking for a tribe to take advantage of the “arbitrage opportunity” he saw stemming from the rulings, and then scoured the PTAB docket to find a company on the hot seat.

Ireland-based Allergan (formerly known as Actavis) fit the bill, with six patents for Restasis under review.

Under the terms of the deal, the patent titles were assigned to the St. Regis Mohawk tribe, with Allergan as the exclusive licensee. The tribe was paid $13.75 million by Allergan upon execution, and was eligible to receive $15 million in annual royalties. In exchange, it promised not to waive sovereign immunity before the PTAB.

The rural, upstate New York-based tribe in a statement called it “a viable and sound opportunity … to enter into the patent, technology and research sector as part of our overall economic diversification strategy,” adding that “we realize that we cannot depend solely on casino revenues.”

Opposing counsel in the Texas litigation cried foul. “The alleged assignment of rights is indeed a sham,” wrote counsel for Teva Pharmaceuticals, represented by Sterne, Kessler, Goldstein & Fox; Mylan Pharmaceuticals, represented by Wilson Sonsini Goodrich & Rosati; and Akorn Inc.; represented by Sughrue Mion and Schiff Hardin.

The drug makers are all seeking to launch generic versions of Restasis before Allergan's patents covering the eye drops expire in 2024.

Allergan, represented by Fish & Richardson, sought a court order in Texas to stop them from doing so—litigation occurring in parallel with the PTAB review.

The company in court papers filed in Texas argued that “While defendants may not like the outcome of the transaction with respect to the proceedings in the PTAB, that does not render the transaction between the parties a sham.”

They also noted that the tribe pledged not to assert sovereign immunity in the Texas suit. “Far from preventing the adjudication of the validity of the patents-in-suit, the transaction between Allergan and the tribe specifically contemplates that this court will make such an adjudication,” wrote Fish & Richardson lawyers led by Jonathan Singer, head of the firm's life sciences practice, and Juanita Brooks, who in 2014 was named a litigator of the year by The American Lawyer.

Allergan also suggested that inter partes review is inappropriate in a Hatch-Waxman case like this one. “Congress did not provide for IPR review so defendants in Hatch-Waxman patent litigations could be afforded a second chance at pursuing the same invalidity arguments they pursued during a complete trial in an Article III court, but on a far less complete record and with different legal standards.”

(The defendants are quick to note Allergan had no such reservations when inter partes review helped thwart a competitor to one of its other big products, Botox.)

Allergan asked Judge Bryson to add the tribe as co-plaintiffs to the suit. On Monday, he made his reservations clear about doing so.

“The court has serious concerns about the legitimacy of the tactic that Allergan and the tribe have employed,” he wrote. “This is not a situation in which the patentee was entitled to sovereign immunity in the first instance. Rather, Allergan, which does not enjoy sovereign immunity, has invoked the benefits of the patent system and has obtained valuable patent protection for its product, Restasis. But when faced with the possibility that the PTO would determine that those patents should not have been issued, Allergan has sought to prevent the PTO from reconsidering its original issuance decision.”

Moreover, the judge continued, “If that ploy succeeds, any patentee facing IPR proceedings would presumably be able to defeat those proceedings by employing the same artifice. In short, Allergan's tactic, if successful, could spell the end of the PTO's IPR program, which was a central component of the America Invents Act of 2011.”

Still, he let the tribe join the suit as co-plaintiffs without determining whether the assignment-and-licensing transaction was a sham, noting that it doesn't bear on his power to hear the case.

His reasoning: He doesn't want to get flipped needlessly on appeal.

“This is more than a housekeeping matter of determining which names belong in the caption,” Bryson wrote. “If the court declines to join the tribe as a co-plaintiff and it is later determined that the tribe is a valid owner of the patents, any judgment entered by the court could be subject to challenge on the ground that the owner of the patents was not a party to the action.”

Besides, at this point the tribe is the owner of nothing. In a separate, 135-page decision issued the same day, Bryson concluded, “The defendants have proved by clear and convincing evidence that the asserted claims of the Restasis patents are invalid for obviousness.”