Decision Stands as Firm Rejection of Strategy of Transferring Patents to an Indian Tribe to Protect Them from Challenge
On February 23rd, 2018, a panel of the Patent Trial and Appeal Board (PTAB or “Board”) decided that: (1) Indian tribal sovereignty did not apply to post-grant proceedings established under the America Invents Act (AIA) and (2) licensing agreements between a tribe and a third party that confer numerous rights to the third party can allow for post-grant proceedings to proceed without the participation of the Indian tribe. Mylan Pharmaceuticals, Inc. v. Saint Regis Mohawk Tribe, IPR2016-01127, Paper 129. The decision stands as a firm rejection of Allergan’s strategy of transferring its patents to an Indian tribe to protect them from challenge in the PTAB. While not binding on other PTAB panels, the lengthy and thorough decision comes after fifteen individuals and organizations submitted amicus briefs. It suggests that the PTAB will likely view future tribal sovereign immunity arguments with skepticism.
Tribal Sovereign Immunity
Indian tribal sovereign immunity is a doctrine borne out of the Eleventh amendment of the U.S. Constitution and Supreme Court case law. Under this doctrine, a tribe “possess[es] the same common-law immunity from suit traditionally enjoyed by sovereign powers.” Michigan v. Bay Mills Indian Community, 134 S. Ct. 2024, 2043–44 (2014). Like the U.S. or state governments, a federally recognized Indian tribe is generally immune from civil suit or criminal prosecution. This immunity is not absolute; it can be relinquished by the tribe through waiver or abrogated by Congress through statute. See Okla. Tax Comm’n v. Citizen Band Potawatomi Indian Tribe of Okla., 498 U.S. 505, 510 (1991).
On June 3, 2016, Mylan Pharmaceuticals, Teva Pharmaceuticals, and Akorn, Inc. (collectively, “Mylan”) filed a series of inter partes reviews (IPRs) challenging a set of patents owned by Allergan relating to its “Restasis” product line. Restasis is a medicated eye drop formulation to treat chronic dry eye. After Allergan filed preliminary patent owner responses in each of the IPRs, the Board instituted each proceeding on various grounds of invalidity.
Just days before the IPR oral hearing was to take place, Allergan entered into a patent assignment agreement with the Saint Regis Mohawk Indian Tribe, a federally recognized Indian tribe from New York. In the agreement, Allergan assigned a portfolio of patents to the Tribe that included the patents at issue in the IPRs. On the same day that the assignment agreement was executed, the Tribe and Allergan also entered into a licensing agreement giving Allergan an exclusive license to the challenged patents that was “irrevocable, perpetual, [and] transferrable.” In exchange for the license, Allergan paid the Tribe $13.75 million upfront and agreed to pay the Tribe $3.75 million quarterly (i.e., $15 million annually).
After executing the assignment and licensing agreements, Allergan and the Tribe notified the PTAB of the change in patent ownership, and the Tribe filed a motion to terminate the proceedings on the grounds that the PTAB lacked jurisdiction due to tribal sovereign immunity. In particular, tthe Tribe argued that Mylan could not challenge the patents in the PTABbecause the Tribe was immune from any post-grant proceedings. In its motion to terminate, the Tribe relied on several earlier PTAB decisions holding that patents owned by public state universities could not be challenged in the PTAB due to the state’s sovereign immunity.
In response to the Tribe’s motion, the Board postponed the scheduled oral hearing to allow for briefing on the motion. Furthermore, in an unprecedented action, the Board invited third parties to file amici curiae briefs arguing for or against the applicability of tribal sovereign immunity to PTAB proceedings.
PTAB Decision on Motion to Terminate
In a per curiam opinion, the PTAB panel denied the motion to terminate the proceedings, deciding that tribal sovereign immunity did not apply to PTAB proceedings such as IPRs. The Board further decided that, due to the nature of the licensing agreement between the Tribe and Allergan, the proceeding could continue with only Allergan representing the interests of the patent owner.
Examining the case law governing sovereign immunity, the Board determined that there was no controlling precedent or statutory basis requiring that tribal sovereign immunity apply to PTAB proceedings. The Board thus concluded that this case was a case of first impression.
The Board then concluded that tribal sovereign immunity did not apply to post-grant proceedings established under the AIA. Citing Supreme Court case law, it reasoned that tribal sovereignty was subject to Congress’s superior control and that general laws passed by Congress apply to Indian tribes absent a clear expression to the contrary. The Board pointed to the various sections of the U.S. Code establishing that any patent is subject to the conditions and requirements of the Patent Act, regardless of ownership. The Board also found no evidence that Congress intended to exempt Indian tribes from AIA post-grant proceedings.
The Board concluded that it is not exercising personal jurisdiction over the patent owner in AIA post-grant proceedings, but over the patents themselves. Moreover, post-grant proceedings by their nature do not allow a petitioner to seek any form of monetary or injunctive relief from the Tribe. Accordingly, post-grant proceedings are not the type of “suit” to which an Indian tribe would traditionally enjoy immunity under the common law.
Although the Board’s decision that tribal sovereign immunity does not apply to post-grant proceedings effectively ended Allergan’s and the Tribe’s attempt to terminate the IPRs, the Board’s decision went further. The Board ruled that, even if the Tribe were immune from suit, the proceeding could continue with Allergan’s involvement due to the nature of the licensing agreement between the parties. The Board reasoned that, despite the assignment, Allergan was still effectively the patent owner. This is because the licensing agreement between Allergan and the Tribe conferred substantially all of the rights associated with the patents to Allergan. The Board noted that the licensing agreement gave Allergan: (1) the right to sue for infringement of the patents, (2) the right to make, use, and sell products or services under the patents, (3) the right to sublicense the patent, (4) perpetual and irrevocable rights to the patent; (5) the right to litigation or licensing proceeds stemming from the patents (6) the primary right to prosecute and maintain the challenged patents, and (7) the right to assign their interests in the patents.
In light of Allergan’s expansive rights under the licensing agreement, the Board held that the Tribe was not an indispensable party to the proceedings. The Board reasoned that the Tribe would not be significantly prejudiced if it chose not to participate based on its assertion of tribal immunity, as Allergan could effectively represent its interests.
Patent holders have tried to emulate Allergan’s tribal immunity strategy in several recently filed suits by entering into similar assignment and licensing deals. While the tribe may decide to appeal the Board’s decision to the Federal Circuit upon conclusion of the IPRs, defendants in these cases can look to the Board’s decision in Mylan as potentially permitting them to challenge patents “owned” by Indian tribes in the PTAB.