“To weep is to make less the depth of grief.” —William Shakespeare

The ability to shed tears is important for personal health, which is why there are medications for people who do not produce enough tears.

Allergan (a pharmaceutical company) is the manufacturer of Restasis, a prescription eye drop that is used to treat Chronic Dry Eye disease by increasing tear production. Restasis has been a commercial success, with sales in 2016 of approximately $1.5 billion, and Allergan's website states that its formulation has been “prescribed 6.4 million times since 2003.” Restasis is patented, and those patents received significant attention last month when they were sold to a Native American tribe—as a litigation strategy. The sale created a significant backlash both in court and from the U.S. Congress.

This controversy began as a litigation under the Hatch-Waxman Act (Hatch-Waxman). Hatch-Waxman provides a procedure whereby generic drug manufacturers can attempt to manufacture and sell generic forms of a patented product prior to the patent's expiration date. Availing themselves of this procedure, generic manufacturers Teva, Akorn, Mylan and Mylan Pharmaceuticals filed Abbreviated New Drug Applications (ANDAs), which included certifications that their proposed generic forms of Restasis would not infringe the patents, and that the patents were invalid. Upon receiving notice of the filing, Allergan responded to the ANDA filings with a patent infringement suit against the generic manufacturers. The defendants responded by asserting that the Restasis patents were invalid and not infringed.

Mylan Pharmaceuticals also filed a request for the U.S. Patent and Trademark Office to review the patentability of the patents in suit, in a process called inter partes review (IPR). IPR (as an alternative to or in combination with a suit in federal court) is a litigation-like proceeding in which the validity of patent claims is challenged. The Patent Office's Patent Trial and Appeal Board (PTAB) agreed to the request.

ANDAs and IPRs are very common in the patent world, but what happened next was quite unique.

In September of this year, it was announced that Allergan was selling the Restasis patents to the Saint Regis Mohawk Tribe. Under the deal, Allergan agreed to pay the tribe $13.75 million up front and up to $15 million in annual royalties in return for the tribe taking ownership of the patents and providing an exclusive license back to Allergan.

As a Native American tribe, the Saint Regis Mohawk Tribe possesses inherent sovereignty. The goal was to invoke the tribe's sovereign immunity so that the IPR would be stopped, and the Patent Office could not rule on the validity of the patents in suit. After the sale was announced, the tribe indeed filed a motion with the Patent Office for the IPR to be dismissed.

Thus, what Allergan was attempting to do was to derive all the benefits of the Restasis patents, while precluding an IPR review of those patents. The announcement of the patent sale set off a firestorm.

Sen. Maggie Hassan (along with Sens. Sherrod Brown, Bob Casey and Richard Blumenthal) requested the Senate Judiciary Committee to begin an investigation of Allergan's patent sale. In their letter to the committee, the senators stated that they are “alarmed by Allergan's efforts to circumvent the Congressionally established IPR process … “

U.S. Sen. Claire McCaskill introduced a bill in Congress (and wrote strong words) in response to Allergan's actions, and the assertion of tribal sovereign immunity. According to her website, her bill “explicitly states that tribal sovereign immunity cannot be used to block [Patent Office] review of a patent in a process known as inter partes review (IPR).” She remarked, “Congress never imagined tribes would allow themselves to be used by pharmaceutical companies to avoid challenges to patents, and this bill will shut the practice down before others follow suit.”

The Saint Regis Mohawk Tribe issued a statement that they were “outraged” by Sen. McCaskill's legislation: “[The legislation] specifically targets Indian tribes, yet exempts state universities and other sovereign governments engaged in the very same IPR process. The double standard that is being introduced by the senator as a solution for a perceived abuse of the IPR proceedings does nothing to solve the underlying problem.”

The tribe's statement about state universities refers to decisions in which IPR was dismissed because of state sovereign immunity. In January of this year, an IPR was dismissed when the University of Florida asserted state sovereign immunity (Covidien v. University of Florida Research Foundation, IPR2016-01274 (PTAB 2017)). In May of this year, the University of Maryland was successful in its motion to dismiss an IPR based on state sovereign immunity (NeoChord v. University of Maryland, IPR2016-00208 (PTAB 2017)). And in July the University of Minnesota was dismissed from an IPR after arguing state sovereign immunity (Reactive Surfaces v. Toyota Motor, IPR2017-00572 (PTAB 2017)). However, that IPR was permitted to proceed against Toyota, a co-owner of the patent.

In each case, the university that was a party to the IPR filed its motion to dismiss based on the sovereign immunity provision of the Eleventh Amendment. The U.S. Supreme Court previously ruled that the Eleventh Amendment extends to agency proceedings that “walk. talk, and squawkvery much like a lawsuit” (Federal Maritime Commission v. South Caroline State Ports Authority, 535 U.S. 743 (2002)).

While the Patent Office ruled in favor of each university's motion, the ruling was based on state sovereign immunity. Sovereign immunity based on Native American tribe ownership has never been considered by the Patent Office.

In a commentary that appeared in the Wall Street Journal, Allergan Chairman and CEO Brent Saunders explained his company's position: “Under the deal [with the tribe], my company transferred the patents … as a way of protecting the intellectual property from unfair challenges … The IPR process is stacked against biopharmaceutical patents, providing deep disincentives for innovation.”

In the related federal court lawsuit, the Saint Regis Mohawk Tribe motioned to be included as a party to the suit, and Judge William Bryson ordered the parties to submit briefs explaining “whether the assignment of the patents to the tribe should be disregarded as a sham.” Each party responded. Then, on Oct. 16, the judge ruled that the Allergan patent claims are invalid: “While Allergan has provided by a preponderance of the evidence that the defendants have infringed the asserted claims of the Restasis patents, the defendants have proved by clear and convincing evidence that the asserted claims of the Restasis patents are invalid for obviousness.” The judge also wrote about the sale of the patents in a separate memorandum opinion and order: “Allergan, which does not enjoy sovereign immunity, has invoked the benefits of the patent system … What Allergan seeks is the right to continue to enjoy the considerable benefits of the U.S. patent system without accepting the limits that Congress has placed on those benefits through the administrative mechanism for canceling invalid patents …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 responsibilities.”

Between the statements coming from Congress and the opinion from the federal court, the odds seem against selling a patent to a Native American tribe to avoid an IPR. While tribes have sovereign immunity, Congress has the plenary power to remove the tribes' immunity in patent law matters. Given the immediate history, it would not be surprising for that removal to take place.

Lawrence E. Ashery is a partner in the Philadelphia office of Caesar Rivise. He focuses his practice on all aspects of intellectual property law. He can be reached at [email protected].

“To weep is to make less the depth of grief.” —William Shakespeare

The ability to shed tears is important for personal health, which is why there are medications for people who do not produce enough tears.

Allergan (a pharmaceutical company) is the manufacturer of Restasis, a prescription eye drop that is used to treat Chronic Dry Eye disease by increasing tear production. Restasis has been a commercial success, with sales in 2016 of approximately $1.5 billion, and Allergan's website states that its formulation has been “prescribed 6.4 million times since 2003.” Restasis is patented, and those patents received significant attention last month when they were sold to a Native American tribe—as a litigation strategy. The sale created a significant backlash both in court and from the U.S. Congress.

This controversy began as a litigation under the Hatch-Waxman Act (Hatch-Waxman). Hatch-Waxman provides a procedure whereby generic drug manufacturers can attempt to manufacture and sell generic forms of a patented product prior to the patent's expiration date. Availing themselves of this procedure, generic manufacturers Teva, Akorn, Mylan and Mylan Pharmaceuticals filed Abbreviated New Drug Applications (ANDAs), which included certifications that their proposed generic forms of Restasis would not infringe the patents, and that the patents were invalid. Upon receiving notice of the filing, Allergan responded to the ANDA filings with a patent infringement suit against the generic manufacturers. The defendants responded by asserting that the Restasis patents were invalid and not infringed.

Mylan Pharmaceuticals also filed a request for the U.S. Patent and Trademark Office to review the patentability of the patents in suit, in a process called inter partes review (IPR). IPR (as an alternative to or in combination with a suit in federal court) is a litigation-like proceeding in which the validity of patent claims is challenged. The Patent Office's Patent Trial and Appeal Board (PTAB) agreed to the request.

ANDAs and IPRs are very common in the patent world, but what happened next was quite unique.

In September of this year, it was announced that Allergan was selling the Restasis patents to the Saint Regis Mohawk Tribe. Under the deal, Allergan agreed to pay the tribe $13.75 million up front and up to $15 million in annual royalties in return for the tribe taking ownership of the patents and providing an exclusive license back to Allergan.

As a Native American tribe, the Saint Regis Mohawk Tribe possesses inherent sovereignty. The goal was to invoke the tribe's sovereign immunity so that the IPR would be stopped, and the Patent Office could not rule on the validity of the patents in suit. After the sale was announced, the tribe indeed filed a motion with the Patent Office for the IPR to be dismissed.

Thus, what Allergan was attempting to do was to derive all the benefits of the Restasis patents, while precluding an IPR review of those patents. The announcement of the patent sale set off a firestorm.

Sen. Maggie Hassan (along with Sens. Sherrod Brown, Bob Casey and Richard Blumenthal) requested the Senate Judiciary Committee to begin an investigation of Allergan's patent sale. In their letter to the committee, the senators stated that they are “alarmed by Allergan's efforts to circumvent the Congressionally established IPR process … “

U.S. Sen. Claire McCaskill introduced a bill in Congress (and wrote strong words) in response to Allergan's actions, and the assertion of tribal sovereign immunity. According to her website, her bill “explicitly states that tribal sovereign immunity cannot be used to block [Patent Office] review of a patent in a process known as inter partes review (IPR).” She remarked, “Congress never imagined tribes would allow themselves to be used by pharmaceutical companies to avoid challenges to patents, and this bill will shut the practice down before others follow suit.”

The Saint Regis Mohawk Tribe issued a statement that they were “outraged” by Sen. McCaskill's legislation: “[The legislation] specifically targets Indian tribes, yet exempts state universities and other sovereign governments engaged in the very same IPR process. The double standard that is being introduced by the senator as a solution for a perceived abuse of the IPR proceedings does nothing to solve the underlying problem.”

The tribe's statement about state universities refers to decisions in which IPR was dismissed because of state sovereign immunity. In January of this year, an IPR was dismissed when the University of Florida asserted state sovereign immunity (Covidien v. University of Florida Research Foundation, IPR2016-01274 (PTAB 2017)). In May of this year, the University of Maryland was successful in its motion to dismiss an IPR based on state sovereign immunity (NeoChord v. University of Maryland, IPR2016-00208 (PTAB 2017)). And in July the University of Minnesota was dismissed from an IPR after arguing state sovereign immunity (Reactive Surfaces v. Toyota Motor, IPR2017-00572 (PTAB 2017)). However, that IPR was permitted to proceed against Toyota, a co-owner of the patent.

In each case, the university that was a party to the IPR filed its motion to dismiss based on the sovereign immunity provision of the Eleventh Amendment. The U.S. Supreme Court previously ruled that the Eleventh Amendment extends to agency proceedings that “walk. talk, and squawkvery much like a lawsuit” ( Federal Maritime Commission v. South Caroline State Ports Authority , 535 U.S. 743 (2002)).

While the Patent Office ruled in favor of each university's motion, the ruling was based on state sovereign immunity. Sovereign immunity based on Native American tribe ownership has never been considered by the Patent Office.

In a commentary that appeared in the Wall Street Journal, Allergan Chairman and CEO Brent Saunders explained his company's position: “Under the deal [with the tribe], my company transferred the patents … as a way of protecting the intellectual property from unfair challenges … The IPR process is stacked against biopharmaceutical patents, providing deep disincentives for innovation.”

In the related federal court lawsuit, the Saint Regis Mohawk Tribe motioned to be included as a party to the suit, and Judge William Bryson ordered the parties to submit briefs explaining “whether the assignment of the patents to the tribe should be disregarded as a sham.” Each party responded. Then, on Oct. 16, the judge ruled that the Allergan patent claims are invalid: “While Allergan has provided by a preponderance of the evidence that the defendants have infringed the asserted claims of the Restasis patents, the defendants have proved by clear and convincing evidence that the asserted claims of the Restasis patents are invalid for obviousness.” The judge also wrote about the sale of the patents in a separate memorandum opinion and order: “Allergan, which does not enjoy sovereign immunity, has invoked the benefits of the patent system … What Allergan seeks is the right to continue to enjoy the considerable benefits of the U.S. patent system without accepting the limits that Congress has placed on those benefits through the administrative mechanism for canceling invalid patents …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 responsibilities.”

Between the statements coming from Congress and the opinion from the federal court, the odds seem against selling a patent to a Native American tribe to avoid an IPR. While tribes have sovereign immunity, Congress has the plenary power to remove the tribes' immunity in patent law matters. Given the immediate history, it would not be surprising for that removal to take place.

Lawrence E. Ashery is a partner in the Philadelphia office of Caesar Rivise. He focuses his practice on all aspects of intellectual property law. He can be reached at [email protected].