On September 8, 2017, the multi-billion dollar pharmaceutical company Allergan announced that it “sold” its patents relating to its eye drops “Restasis” to the Saint Regis Mohawk Tribe. But this was not a usual “sale.” The Tribe doesn't appear to have paid anything in exchange for becoming the legal owner of Allergan's patents. Instead, Allergan paid the Tribe $13.75 million, and also agreed to pay the Tribe up to $15 million more each year in exclusive licensing fees.
In other words, Allergan just paid out millions to give its patents away, and will pay millions more to license them back.
Why would a company pay a Native American tribe to take ownership of patents? Simple: to make those patents harder to invalidate.
Inter Partes Review
In 2011, Congress passed the America Invents Act, which created new procedures at the Patent Office to challenge patents on “inventions” that don’t seem new or nonobvious. Those challenges are heard by an expert panel and, if a challenger can show “by a preponderance of the evidence” that the patent should not have issued in the first place, can lead to the patent’s cancelation.
This procedure, known as inter partes review or IPR for short, has been controversial. Some patent owners claim that IPRs make it too easy to invalidate patents. EFF and others have supported the IPR process, because it provides an efficient alternative to litigation for companies threatened by bad patents.
Some patent owners have tried various tactics to undermine IPRs. There’s a pending Supreme Court case over whether the procedure is constitutional, and bill in the Senate that would gut them. (Fortunately, that bill appears to be going nowhere). At least for now, however, IPRs remain a viable option to challenge bad patents.
The Allergan deal presents a new tactic: transfer patents to a Native American tribe. As Allergan explicitly highlights in the press release announcing the “sale,” the Tribe has “sovereign immunity.” The company hopes that the Tribe’s sovereign immunity will allow it to prevent IPR proceedings.
In general, sovereign immunity is a legal doctrine that protects “sovereigns” (in this case, the Tribe) from suit unless the sovereign has agreed to be sued. It is a complicated area of law, and like many legal doctrines, is the subject of significant debate.
In January 2017, the Patent Office ruled that patents held by public universities could not be challenged in IPRs unless the state consents because of state sovereign immunity. Although state sovereign immunity law is different than tribal sovereign immunity law, Allergan and the Tribe believe that since the Tribe is now the owner of the Restasis patents, the patents can no longer be challenged in an IPR, as the Tribe has not consented to being sued. The parties are currently in the process of presenting arguments on this issue to the Patent Office.
If Allergan’s strategy succeeds, any party will be able to buy their way out of an IPR challenge to a patent by “selling” their patents to a Native American tribe. Allergen’s move is similar to a transfer of software patents previously owned by SRC Labs, LLC.
The Danger: We Lose a Crucial Check on Bogus Patents
To understand why this tactic throws off the balance of the patent system, it’s worth considering why IPRs were created in the first place. The Patent Office does a terrible job at reviewing patent applications. There is some justification for (some of) this terrible review at the outset though. The Patent Office receives over 600,000 patent applications per year. The vast majority of these patents will never be valuable and will never be asserted against others. Given that it is hard to tell during the application phase which patents are going to become economically important, it makes some sense to focus energy on more closely reviewing patents only when they do become important. IPRs allow for that “second look” to make sure the Patent Office didn’t make a mistake in issuing a patent, and are generally only brought to challenge patents that have become economically valuable.
But if Allergan’s strategy is successful, a company can take advantage of the more-than-lax Patent Office examination to get a patent, and then prevent that “second look” that was part of the bargain (at least for any patent issued today). To be clear, if Allergan (or any other patent owner who tries this strategy) asserts a patent in court, the alleged infringer almost surely would be allowed to argue that the patent is invalid. Sovereign immunity is generally waived when a suit is brought. But arguing invalidity in court is much harder. There’s a higher evidentiary standard, for example, and the alleged infringer has to make its case to lay jurors rather than an expert panel. And of course it’s much more expensive.
Tribal sovereignty is a complex issue with implications for Native American self-determination and justice far beyond the scope of this post. But we are concerned to see pharmaceutical companies and patent trolls try to use sovereign immunity as an end-run around a process that’s meant to limit patent abuse. We’ll watching the Patent Office closely to see whether it will allow it.