We have previously discussed antitrust implications of pharmaceutical companies’ efforts to maximize patent protection for their drugs. Consumers and generic drug makers, for instance, have alleged antitrust violations based on “product hopping” and “pay-for-delay” settlements. Recently, a patent owner’s creative technique to avoid possible invalidation of its patent by the Patent and Trademark Office has drawn sharp criticism from lawmakers and one district court.
Inter partes review proceedings before the PTO allow a petitioner to challenge the patentability of one or more claims in a patent. (The procedure is currently subject to constitutional challenge in a case that will be argued before the Supreme Court in November.) Allergan recently moved to dismiss IPR challenges to the patents for its dry-eye drug Restasis. It explained that, after the generic manufacturer Mylan initiated the proceedings, Allergan assigned its patents to the Saint Regis Mohawk Tribe—a federally recognized American Indian tribe that enjoys sovereign immunity from IPR challenges. Allergan paid the tribe $13.5 million to complete the transaction and will pay an ongoing royalty for an exclusive license to use the patents.
Several senators, led by Senator Maggie Hassan, are calling for an investigation by the Judiciary Committee of, in their words, Allergan’s “a blatantly anti-competitive attempt to shield . . . patents from review and keep drug prices high.” In a decision on Monday, the federal judge presiding over an infringement case brought by Allergan in the Eastern District of Texas against Mylan, Teva, and Akorn (all of whom are IPR petitioners against the Restasis patents) similarly did not mince words in criticizing Allergan’s maneuver.
After Allergan transferred ownership of the patents to the Tribe, Allergan sought to add the Tribe as a plaintiff in the action. The court, having requested briefing on “whether the assignment transaction should be disregarded as a sham,” ultimately granted that motion, finding it the “safer course” to allow the validity of the assignment to be decided in the IPR. But before doing so, the court expressed “serious concerns about the legitimacy of the tactic,” comparing it to “abusive tax shelter transactions” and calling it a “ploy” that “could spell the end of the PTO’s IPR program, which was a central component of the America Invents Act of 2011.” Sovereign immunity, the judge explained, “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.”
Nevertheless, the court allowed the addition of the Tribe as plaintiff since its presence or absence in the case was not dispositive of any issue. (Moreover, not adding the Tribe could subject further proceedings to challenge on the ground that the patent owner was not a party.)
This proved to be a pyrrhic victory for Allergan: On the same day it allowed the Tribe to join the case, the court held that the defendants, though they infringed the patent, had proven that the asserted claims of the Restasis patents were invalid. Allergan announced that it will appeal the ruling. In the meantime, the fate of the IPR proceeding (including whether the PTO will resolve the assignment issue) is not yet clear.
The tactic employed by Allergan is likely to see continued scrutiny in any event. In August, plaintiff Prowire was replaced by MEC Resources in a patent infringement suit against Apple. As reported by ArsTechnica, MEC Resources is wholly owned by the Mandan, Hidatsa, and Arikara Nation. Meanwhile, on Tuesday, Senator Hassan questioned a representative of the Pharmaceutical Research and Manufacturers of America about whether Allergan’s “anti-competitive” conduct is consistent with the trade group’s standards. Her website notes that she was not provided a yes-or-no answer.
This episode is a replay, in stark terms, of a riddle that surfaces in many areas of the law: where do legitimate efforts to take advantage of existing law end and improper evasions—whether of tax obligations, structuring of cash transfers, or otherwise—begin. It is a conundrum that can arise wherever the law draws lines, creates intentional loopholes, or confers immunities on actors who otherwise would be liable for their actions. And, however the Allergan case turns out, we suspect that even a Congress that cannot agree on much anything may come together to rewrite the patent laws to forestall another replay of this case.