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PTAB Finds that Tribal Sovereign Immunity Does Not Apply to Review Proceedings

The Patent Trial and Appeal Board (“the PTAB”) ruled last Friday, February 23, 2018, that tribal sovereign immunity does not apply to the Saint Regis Mohawk Tribe. The issue has been percolating for months. For more background on the issue, see these previous blog articles – Tribal Sovereign Immunity: The New Defense Against IPRs? and Recent Decisions Cast Doubt on the Fate of Tribal Sovereign Immunity at the PTAB.

In this case, to recap, Allergan transferred the patents for its dry eye drug, Restasis®, to the Saint Regis Mohawk Tribe (“the Tribe”) to take advantage of its sovereign immunity status and ward off challenges to the patents. Under the deal, the Tribe received an upfront payment of $13.75 million and will receive $15 million a year in royalties for the duration of the six Restasis® patents. But, it appears that Allergan’s efforts to shield its patents from PTAB review were unsuccessful.

In its analysis, the PTAB began by finding that the issue was one of first impression. Although state sovereign immunity has been applied at the PTAB, there was no decision applying tribal sovereign immunity. Though other cases applying tribal sovereign immunity were cited, the PTAB noted that it was not bound by those cases. The PTAB also noted that “the immunity possessed by Indian Tribes is not co-extensive with that of the States.” Kiowa, 523 U.S. at 756; see also Three Affiliated Tribes of Fort Berthold Reservation v. Wold Eng’g, 476 U.S. 877, 890 (1986) (“Of course, because of the peculiar ‘quasi-sovereign’ status of the Indian tribes, the Tribe’s immunity is not congruent with that which the Federal Government, or the States, enjoy.”).

The PTAB summarized its conclusion as follows: “In view of the recognized differences between the state sovereign immunity and tribal immunity doctrines, and the lack of statutory authority or controlling precedent for the specific issue before us, we decline the Tribe’s invitation to hold for the first time that the doctrine of tribal immunity should be applied in inter partes review proceedings.”

In reaching this conclusion, the Board made several observations. First, Congress enacted a generally applicable statute, making IPRs available for any patent. Second, the review proceedings, in addition to providing a forum for the parties to resolve a dispute, also serve an important public purpose of correcting the agency’s own errors in originally issuing the patent. The PTAB also distinguished cases cited by the Tribe and several amici, and further noted that IPR proceedings were not the type of suit that tribes would have been immune from at common law. The PTAB also observed that the tribe’s participation in the IPR was not required, and that in any event the PTAB did not exercise in personam jurisdiction over the Tribe for purposes of the IPR proceeding, but rather in rem jurisdiction over the challenged patent.

Finally, the PTAB concluded alternatively that, even if tribal immunity applies, the proceedings could continue with Allergan as the “true owner” of the challenged patents. Under well-established law regarding the ownership of patents, the PTAB found that the license agreement transferred “all substantial rights” back to Allergan, and  that the Tribe retained only an illusory or superficial right to sue for infringement of the challenged patents. The PTAB also concluded that “[b]ecause the claims of the challenged patents are directed to pharmaceutical compositions and methods used to treat human medical conditions, we find Allergan’s exclusive right to exploit the challenged patents ‘for all FDA-approved uses in the United States’ to be a substantial right.” The PTAB further found the license gave Allergan the right to sublicense, reversionary rights, substantial litigation or licensing proceeds, the right to pay maintenance fees and control prosecution and other PTO proceedings, and the right to assign. Given this, the PTAB found that Allergan remained the effective patent owner.

In conclusion, the PTAB’s decision states that tribal sovereign immunity does not apply in IPR proceedings, and that, even if it did, under the specific license of the challenged patents at issue, Allergan remains the effective patent owner. This is unlikely to be the last time the PTAB is faced with a sovereign immunity defense, and it will be interesting to see how the Federal Circuit responds when the issue is raised on appeal.  In the meantime, patent owners should continue to monitor this developing area of the law.