By Susan Decker, Bloomberg News
Despite a federal judge’s skepticism of a drugmaker’s attempt to shield patents by selling them to an Indian tribe, the tribe’s lawyer is inviting other organizations to take advantage of the idea.
He’s in talks with some state universities, historically black colleges and other Indian tribes with funding woes that may want a new source of revenue by using their sovereign immunity to inoculate patents from being challenged at the U.S. Patent and Trademark Office.
“It wasn’t controversial until a Native American tribe did it,” said Michael Shore, the Dallas lawyer who set up the deal between drugmaker Allergan Plc and the St. Regis Mohawk Tribe of upstate New York that was criticized in court earlier this week.
He said immunity has been granted to state, Indian and foreign institutions for hundreds of years, and “fairness has nothing to do with sovereign immunity.”
In the deal with Allergan and one with closely held SRC Labs LLC, the Mohawks are paid to take ownership of the patents.
In return, the tribe pledges to invoke sovereign immunity if there are validity challenges at the patent office’s Patent Trial and Appeal Board, arguing that the administrative agency doesn’t have authority over the tribal nation.
Circuit Judge William Bryson, while not ruling directly on the tactic, expressed concern in an Oct. 16 opinion. “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,” he wrote.
For the St. Regis Mohawks, the Allergan agreement brings in millions of dollars for a poor region with three unremediated Superfund sites, crumbling infrastructure, and health problems and a fishing economy damaged by decades of toxins polluting the local waters, according to a letter it sent to members of Congress.
Shore said only an “idiot” wouldn’t take advantage of the ability of Indian tribes or state universities to protect patents against the board, which has been dubbed a “death squad” for the high rate of invalidity rulings.
In Allergan’s case, the company transferred patents covering its Restasis dry-eye drug to the Mohawks, which then granted an exclusive license back to Allergan in exchange for a one-time payment of $13.75 million and $15 million a year in royalties as long as the patents are in force -- potentially through 2024.
In September, the tribe cited its sovereign immunity in a move to dismiss validity challenges filed by Mylan NV and Teva Pharmaceutical Industries Ltd. against the Restasis patents.
That case before the patent office is continuing even though Judge Bryson, in a parallel proceeding in district court, said the patents are invalid and questioned whether the change of ownership was a “sham.”
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“It is not an inexhaustible asset that can be sold to any party that might find it convenient to purchase immunity from suit,” Byron wrote.
His words aren’t binding on the patent office, but could be persuasive considering that, since 1994, he’s been on the U.S. Court of Appeals for the Federal Circuit in Washington, the court that oversees all patent cases, whether they originate in district court or the patent office. Bryson did say the patents are invalid, a decision Allergan pledged to appeal.
Allergan has to win in both the court and the review board to be able to use the patents to block competition, while the generic-drug makers only have to win in one, a key reason why Allergan says the process is unfair.
In the case of SRC, a successor to the firm founded by the late supercomputer inventor Seymour Cray, it’s looking to prevent anyone from filing petitions in the first place. The Dallas company and the Mohawks together filed patent- infringement lawsuits Wednesday against Amazon.com Inc. and Microsoft Corp. over data storage technology.
There’s reason to fear -- both tech companies are among the biggest users of the PTAB system. Microsoft has filed 117 petitions while Amazon.com has filed 41, according to the board’s database. Neither had comment on the suits or any plans to challenge the patents at PTAB.
While the review board has thrown out cases challenging patents owned by state universities based on sovereign immunity -- Shore was the first to make the argument there -- it’s unclear for now whether the Indian tribe will be successful.
The patent board was created under a sweeping overhaul of the U.S. patent system and was designed to be a fast-track way for the patent office to consider whether it erred in issuing a specific patent. Critics like Shore and the pharmaceutical industry say it’s instead become rife with abuse by companies that want a cheap way to ensure they don’t have to pay for using someone else’s inventions.
The Supreme Court is scheduled to hear arguments in November on whether the review system passes constitutional muster. Shore said it should, but only as long as there are dramatic changes to put the legal standard more in line with that of district courts.
Patents that go up before the board aren’t presumed to be valid as they are in court and the review judges look at them in the broadest way reasonably possible. That’s the standard used during the patent office’s initial review of patent applications, and it makes it easier to find information that could prove a patent doesn’t cover anything new.
Even under the more stringent standard, Allergan lost at the trial level. In a 135-page ruling, Bryson said the newer patents, which expire in 2024, were no different than ones that expired in 2014 and the company was “not entitled to renewed patent rights for Restasis in the form of a second wave of patent protection.”
Shore said he’s not going to debate whether patents unfairly keep drug prices high or if Allergan’s actions related to Restasis have hurt competition, as rival drugmaker Shire Plc, consumer groups and Congressional lawmakers have said.
Bryson, in his Allergan opinion, said the drugmaker made a bargain too.
“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,” he wrote.