IP Information & News

The inter partes review legal loophole in the USA: a follow-up

Dr Jenny Smith

By Dr Jenny Smith

Patent Assistant

Back in November 2017, Dr Jenny Smith reported on an interesting situation in the USA where large organisations were seen to be exploiting a legal loophole in order to avoid their patents being challenged via the inter partes review (IPR) procedure.

In America, state, federal, and tribal governments are generally granted sovereign immunity from lawsuits. Recently this immunity has been exploited by multi-national companies such as the pharmaceutical company, Allergan. However, following a recent court decision, this tactic looks set to fail.

The legal loophole

Several companies, including Mylan Pharmaceuticals, Teva Pharmaceuticals and Akorn had challenged the US patents for Allergan's profitable dry eye drug, Restasis®. If successful, Allergan stands to lose its monopoly over Restasis® which would enable other pharmaceutical companies to manufacture generics of the drug.

In an attempt to avoid the IPR proceedings, Allergan assigned ownership of a number of its Restasis® patents to the Saint Regis Mohawk Tribe. Under the agreement, the New York-based Native American tribe then licenced the patents back to Allergan. The Tribe argued that due to its ownership of the patents, all pending and future IPRs should be dismissed based on the sovereign immunity provisions.

Whilst transfers of ownership and licence agreements are commonplace in the field of intellectual property, many parties saw this arrangement as a potential abuse of the patent system. Particularly because Allergan was reputed to have paid $13.75 million to the Tribe to acquire the patents and then agreed to pay a further $15 million per year to the Tribe in order to licence the patents back.

An important new ruling

The US Patent Trial and Appeal Board (PTAB) issued a ruling on Friday 23 February 2018 which appears to put a stop to Allergan's controversial plans.

In the ruling, the PTAB decided that tribal sovereign immunity doesn’t apply to IPR proceedings, because these are in fact federal administrative proceedings which do not trigger sovereign immunity.

The PTAB denied the Tribe's motion to terminate the IPR due to their sovereign immunity.

More interesting was the argument put forward by Mylan et al., that due to the structure of the deal between Allergan and the Mohawk Tribe, Allergan was the "true owner of the challenged patents". The PTAB agrees, finding that since Allergan had retained all substantial rights under the patent, irrespective of the transaction with the Tribe, Allergan should be deemed the patent owner.

The PTAB ruled that the most important factor in its decision was that Allergan had retained the important and exclusive right to sue for infringement. Under the transfer and licence agreement, Allergan had also retained its rights to exploit the patents for "all FDA-approved uses in the United States". Allergan had therefore not limited its own exclusive rights with respect to the meaningful intended use of the patents. In fact, the Tribe is barred from licencing the patent in any way that might result in a product capable of competing with Allergan's products.

Further, the PTAB said the following factors regarding the Mohawk Tribe were considered:

  • Under the transfer and licence agreements, the Tribe is not able to control Allergan's ability to sub-licence the patents.
  • The licence agreement granted rights to Allergan which are "perpetual" and "irrevocable" — which means they will continue until the patents expire or are held invalid.
  • The Tribe is not entitled to any proceeds from litigation or other licencing activities and cannot freely assign its interests in the patents. In other words, the role of the Tribe was solely to hold the patents and provide sovereign immunity.

As a result of these factors, Federal Circuit Judge Bryson said the transfer was a "rental" of sovereign immunity and that he had "serious concerns about the legitimacy" of the transaction.

What next?

The decision on immunity is appealable. However, even if the ruling on immunity is overturned, it seems the position on the terms of the transaction still results in Allergan being the "patent owner" for the purposes of the IPR.

Back when news of this new tactic came out at the end of last year, it had seemed that we would see Native American Tribes striking deals to acquire extensive patent portfolios all over America. However, it seems Allergan's thwarted attempt might put other companies off.

We'll keep you updated on how the Allergan case progresses.

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