The PTAB's Allergan / St. Regis Mohawk Decision: Explained

Zachary Silbersher

The PTAB has issued its much-anticipated decision on whether Allergan managed to pull off it’s scheme to avoid IPRs of its Restasis® patents by “selling” the patents to the St. Regis Mohawk Tribe.  On February 23, 2018, the PTAB denied the Tribe’s motion to terminate the IPRs on the ground based on its tribal sovereign immunity.  What were the PTAB’s reasons for denying the Tribe’s motion to terminate the IPRs?  And what are the ramifications for similar deals in the future?

First, the PTAB held that there is no controlling precedent for whether tribal sovereign immunity immunizes IPR challenges to a tribe’s patents.  This is not a minor point.  As we recall, Allergan’s press release announcing its agreement to transfer its patents to the Tribe touted earlier precedent from the PTAB.  Allergan claimed that that precedent, including the Covidien  and the Neochord cases, showed that the PTAB had previously “dismissed IPR proceedings against universities upon their claims of sovereign immunity.”  Here, however, the PTAB held that those cases are not controlling because those cases applied to sovereign immunity held by States, rather than tribes.  Importantly, the PTAB found there is no statute holding that tribal sovereign immunity is applicable to IPRs.  In sum, this allowed the PTAB to consider the question of whether tribal sovereign immunity can be asserted as a defense to an IPR as one of first impression, thereby unconstrained by any earlier precedent.

Second, freed from the constraints of any earlier precedent (including those that held that a State’s sovereignty can immunize IPR challenges,) the PTAB categorically held that tribal sovereign immunity cannot be asserted as a defense to an IPR.  This is a big holding.  It was not one limited to the particular facts of this case, but rather one of general applicability.  The PTAB has essentially crushed the commercial prospect of renting tribal sovereign immunity to avoid IPRs. 

The PTAB’s reasoning was that the subject matter of IPRs is essentially the patents, rather than a dispute between two parties.  There is no monetary or injunctive relief that can be granted in an IPR, and even if the parties settle, the PTAB retains discretion to continue the IPR proceeding on its own.  Given that, the PTAB found that an IPR is not the typical sort of “suit” to which common law tribal sovereign immunity would apply.  (The interesting thing about the PTAB’s line of reasoning here is that it echoes the argument in favor of the constitutionality of IPRs, which the Supreme Court is currently deciding in the Oil States case.  Depending on how the Supreme Court decides that issue could, in theory, the Tribe’s chances of successfully appealing this decision.  It is also not entirely clear that the PTAB’s line of reasoning sufficiently excludes tribal sovereign immunity, but includes State sovereign immunity.  To the extent this decision will be appealed to the Federal Circuit, which is almost certain, expect more discussion on this point.)

Third, the PTAB found that Allergan, rather than the Tribe, remains the true owner of the patents.  We previously discussed this weakness in Allergan’s strategy.  In short, the PTAB found that Allergan wanted to have its cake and eat it too.  The PTAB confirmed that, just because you call it an “assignment” of all patent rights, does not mean that an assignment actually took place.  Rather, the PTAB found that the Tribe retained nominal and negligible rights in the patents, whereas Allergan retained substantial rights with respect to sue, the right to use the patents, the right to license them, as well as other rights.

This is also an important holding that will likely dissuade other brand pharmaceutical companies from following Allergan’s lead.  In short, even if tribal sovereign immunity was theoretically applicable to IPRs, the pharma companies risk too much by transferring too many rights in their patents to a tribe.  The risk is that, if the tribe gets too many of those unfettered rights, then it could theoretically turn around and cut a deal with the very generics the brand company is seeking to avoid.  Yet, on the other hand, without transferring enough rights in the patents to a tribe, then the brand pharma company remains the true owner of the patents, and assertion of tribal immunity becomes futile.  This is what happened in Allergan’s case. 

Finally, the PTAB found that, putting aside all of the previous arguments, the Tribe is not an indispensable party.  In other words, the Tribe argued that under certain rules of procedure, it must be joined to adequately protect its interest.  Yet, the PTAB essentially turned Allergan’s tactic against it of waiting until the eleventh hour in the IPR proceedings to cut a deal with the Tribe.  It found that doing so diluted the Tribe’s argument that Allergan cannot adequately protect its interests in the patents, and thus countered the Tribe’s argument that it is an indispensable party.   

 In sum, Allergan’s grand strategy of renting the Tribe’s immunity as an escape hatch at the eleventh hour from the Restasis® IPRs failed.  And it failed on many fronts.  It was heavily criticized by the Judge in the parallel Hatch-Waxman district court action, as we previously discussed.  That critique was itself notable because the Judge in that case, the Honorable William C. Bryson, is a Federal Circuit Judge sitting by designation in the Eastern District of Texas.  Now, the PTAB has also rejected the strategy as well, on multiple grounds.  It held that tribal sovereign immunity is inapplicable to IPRs, and even if it was, the transaction between a brand pharma company and tribes are likely to risky to pull off. 

All that said, this is unlikely the last word on this topic.  The PTAB’s long decision issued last Friday is likely to be appealed by the Tribe.  The Federal Circuit, and possibly even the Supreme Court, will soon weigh in.