• Critics say drugmaker’s ‘rent a tribe’ ploy games the system • Tech companies say case may doom patent-challenge process

Technology companies, banks and insurers say that allowing drugmaker Allergan Plc to to use an American Indian tribe’s sovereign immunity to avoid competition from generics could undercut a system to weed out bad patents.

Industry groups filed arguments with the U.S. Court of Appeals for the Federal Circuit in Washington ahead of oral arguments Monday. The court is considering whether patents for the company’s blockbuster dry-eye drug Restasis can still be challenged despite being transferred to a tribe that claims sovereign immunity.

“If Allergan’s ‘rent-a-tribe’ strategy is ultimately successful, it could doom the entire” review process, said Brad Wright, a patent lawyer with Banner & Witcoff in Washington. “Patent owners of all types -- not just pharmaceutical companies -- would be able to circumvent the process by asserting sovereign immunity.”

Allergan paid the St. Regis Mohawk Tribe and transferred its Restasis patents last year in a move designed to quash challenges filed by rival drugmakers at the U.S. Patent and Trademark Office. The medication, a treatment for chronic dry eye, brought in $1.5 billion in sales last year or 9 percent of Allergan’s revenue.

The tribe says that it’s a sovereign nation and has immunity from the review process carried out by the Patent Trial and Appeal Board. In February, that board disagreed and refused to dismiss challenges to the validity of those patents brought by generic-drug makers including Mylan NV. Even if the tribe wasn’t subject to the board’s review, Allergan retained enough rights that it could step in and defend the patent, the board said.

Allergan appealed to the Federal Circuit.

The Mohawk tribe has since reached a similar agreement with another company, SRC LLC, and together they sued Amazon.com Inc. and Microsoft over patents for high-speed computing. Apple Inc. was sued over a patent owned by three North Dakota tribes, though the case was settled.

The goal is to avoid a review of issued patents before the patent board, which has an easier legal standard to cancel issued patents and is a favorite among tech and financial companies. The U.S. Supreme Court in April rejected claims the administrative reviews were unconstitutional.

Among the companies that filed legal arguments against Allergan’s tactics are Microsoft; a group of tech companies whose members include Alphabet Inc.’s Google, Amazon and Oracle Corp.; and Askeladden, a group set up to address patent issues by the Clearing House, a payments company owned by the biggest U.S. banks.

Should the appeals court side with the Mohawks and Allergan, any patent owner “would be able to exploit the sovereign immunity of a state or a tribe to avoid the Congressionally mandated ‘second look’ at the validity of patents,” the Software and Information Industry Association said in a filing in the Allergan case.

“Allergan’s immunity-renting transaction with the Tribe is the first of its kind, but if the gambit succeeds, it is sure not to be the last,” said the Association for Accessible Medicines, the generic-drug industry’s trade group. It “would harm not only the patent system but the health care system as well.”

Drugmakers have been accused of jacking up prices on old drugs, keeping generic-drug makers from getting the information they need to make copycat medicines and tweaking drug treatments so they can obtain new patents and extend their rights. Health insurers have also weighed in against Allergan in the case.

“This case presents an alarming example of the lengths that some companies will go to improperly prolong their monopolies,” wrote America’s Health Insurance Plans, a trade group whose members include Anthem Inc., Cigna Corp. and Kaiser Permanente. “Allergan’s conduct -- although perhaps unusually creative and brazen -- is but one of many tactics used by pharmaceutical manufacturers to prevent the timely entry of generic drugs into the marketplace.”

For Allergan, the case may be a moot point -- the patents were ruled invalid by a trial court judge in Texas who also questioned the legitimacy of the tribe’s agreement, but stopped short of calling it a “sham.” That case is on appeal before the same appeals court that’s considering the sovereign immunity issue.

The Federal Circuit, the nation’s top patent court, has put the patent office review on hold until it hears the arguments, but is expected to rule quickly. The court could duck the whole immunity debate by agreeing with part of the patent board’s ruling -- that Allergan retained enough rights that it could be considered the patent owner for purposes of the review, said Kevin Noonan, biotechnology lawyer with McDonnell Boehnen Hulbert & Berghoff in Chicago.

He said the Allergan agreement instead highlights criticisms of the patent board, which has been seen as hurting the value of patents and making it cheaper to use someone else’s patented inventions without permission.

Noonan said Native American tribes need the money, and there’s no harm to the system because the courts can handle disputes. If there are more deals with tribes, “you’ll have a net transfer of wealth from tech companies and pharma companies to Native Americans. Is that a bad thing?” Noonan said. “I’m not really going to worry about a company that has decided to infringe, especially if they are using the PTAB as a cudgel to help them do it.”

The Trump administration sides with the generic-drug makers, saying that Allergan retained “substantial rights” and thus remained the de facto owner of the patent. If Allergan has the right to sue a third party, thus exposing the patent to invalidity claims in court, then it can defend the patent in the review board, too.

“In no real-world sense do these patents belong to the St. Regis Mohawk Tribe,” the government said.

More broadly, the government said in its filing with the court that neither states nor American Indian trumps are immune from proceedings instituted by agencies of the federal government.

The drug and biotechnology industries, which say the process is unfair to patent owners, isn’t stepping into this legal debate.

“The real issues in this case have nothing to do with biotech or drugs or even patents,” said George Goodno, a spokesman for the Biotechnology Innovation Organization. “This case is about how one should acknowledge the sovereignty of Native American tribes in the U.S. legal system, relative to States and other governments. These are complicated and foundational legal questions that should be discussed by constitutional and human rights scholars, not by companies or health insurance purveyors.”

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Elizabeth Wasserman