IP Information & News

Tribes, trolls and legal loopholes

Dr Jenny Smith

By Dr Jenny Smith

Patent Assistant

A new tactic sees a US company transferring its patent ownership to a Native American tribe which can claim sovereign immunity from lawsuits. Many see this exploitation of a legal loophole as an abuse of the patent system.

How does this loophole work?

Back in 2011, a United States federal statute was passed known as the Leahy-Smith America Invents Act (AIA). Amongst other changes, the AIA revised post-grant opposition procedures by enacting the inter partes review (IPR) procedure.

The IPR procedure is used to challenge the validity of a US patent after the patent has been granted. A third party who brings an IPR lawsuit against a patent holder must show that there is a reasonable likelihood that their challenge of the patent at issue would prevail in the dispute.

The process of IPR takes place before the Patent Trials and Appeal Board (PTAB), rather than the district courts. The process is faster and cheaper than the district courts and is therefore an efficient way to challenge the validity of a patent.

Under the Eleventh Amendment to the United States Constitution, state, federal, and tribal governments are generally granted immunity from lawsuits. Patent trolls (companies that make money entirely through licensing patents and suing anyone who infringes them) have realised that this creates a loophole for them to exploit; the trolls are using the sovereign immunity of Native American tribes to avoid the US Patent Office performing an IPR that might invalidate their patent.

A company can simply assign ownership of their US patent to a Native American tribe, then the tribe licences the patent back to the company. The tribe, acting as a patent holding company, can then argue that it is protected by sovereign immunity and ask that all pending and future IPRs are dismissed in relation to its patents.

Who are the patent trolls?

A multinational pharmaceutical company named Allergan has recently transferred ownership of its patents for a drug treatment for dry eyes, Restasis, to the New York based Saint Regis Mohawk Tribe. The drug brings in an annual revenue of around $1.5 billion and although the patents protecting the drug expired in 2014, Allergan has filed follow-on patents in order to keep out generic competition until 2024. The tribe reputedly received $14 million for acquiring these new patents, and has now licenced them back to Allergan for $15 million a year. The company that initiated the IPR against Allergan's patents has called the deal a "sham transaction" and intends to fight any decision to dismiss the IPR. The Saint Regis Mohawk tribe has already sued Microsoft and Amazon on behalf of a technology firm for which it now holds patents and has acknowledged that it wants to make money from the use of these patents in lawsuits.

A different patent holding company, owned by the Mandan Hidatsa and Arikana Nation tribes, recently filed a lawsuit against Apple.

Could this affect you?

If you were thinking of initiating an IPR in order to invalidate a US patent then yes, for the time being, this method of IPR avoidance could affect you.

However, since the exploitation of this loophole has come to light, many people have expressed their concern that the validity of patents should be subject to review and not based on a dishonest relationship between the original patent owner and a Native American tribe.

US Senator Claire McCaskill has now introduced a bill to prevent Native American tribes from using sovereign immunity as a defence in IPR proceedings, however the bill does not prevent the assertion of immunity in post-grant review proceedings and covered business method proceedings. There are also worries that the bill unfairly discriminates against Native Americans.

Also likely to affect US post-grant procedure is the petition held by the US Supreme Court on 27 November 2017, Oil States Energy Services v Greene's Energy Group. The Court will decide whether IPRs are unconstitutional, due to the process lacking judicial review. The result of this decision, expected in 2018, has the potential to affect patent dispute outcomes from the previous five years.

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