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Federal Circuit: No Tribal Sovereign Immunity in IPRs

On Friday, July 20, 2018, the Federal Circuit, in a precedential opinion, affirmed the Patent Trial and Appeal Board’s (“PTAB’s”) decision that tribal sovereign immunity does not apply in inter partes review (“IPR”) proceedings and that the U.S. Patent & Trademark Office (“USPTO” or “the Office”) has the authority to decide the validity of several patents that had been transferred by Allergan to the St. Regis Mohawk tribe after they were challenged by generic drug companies.

As discussed here, Allergan transferred the patents for its dry eye drug, Restasis®, to the Saint Regis Mohawk Tribe (“the Tribe”) in an attempt 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. Although state sovereign immunity has been applied at the PTAB, there was no PTAB decision applying tribal sovereign immunity. In finding that the Restasis® patents were not immune from IPR, the PTAB recognized differences between state sovereign immunity and tribal sovereign immunity doctrines.

Citing several recent Supreme Court decisions, the Federal Circuit explained that an IPR is neither clearly a judicial proceeding instituted by a private party nor clearly an enforcement action brought by the federal government. It is a “hybrid proceeding” with “adjudicatory characteristics” similar to court proceedings, but in other respects it “is less like a judicial proceeding and more like a specialized agency proceeding.”[1] The court explained that the government’s central role in an IPR and the Office’s role in protecting the public interest made the Director of the USPTO politically responsible for the decision of whether or not to institute,[2] and the adjudicatory aspects involve the petitioner’s role in defining the contours of the proceeding[3].

The court cited several factors supporting the idea that an IPR proceeding is more like an agency enforcement action than a civil suit brought by a private party.

First, the court stated that it is the Director, a politically appointed executive branch official, and not a private party, who ultimately decides whether to proceed against a sovereign party. It distinguished IPR proceedings from civil suits and other agency proceedings where, absent immunity, a private party could unilaterally hale a sovereign before a tribunal.

Second, the court noted how IPR proceedings may continue in the absence of either the petitioner or the patent owner. This, the court stated, reinforced that the agency is acting to reconsider its own grant of a public franchise.

Third, the court pointed to the differences between the Federal Rules of Civil Procedure and the rules governing IPR proceedings, such as: the ability of plaintiff to make significant amendments to a complaint in civil litigation (petitioner may only make clerical or typographical corrections to petitions); a patent owner’s ability to amend its patent claims during IPR proceedings (unavailable in civil litigation); and the limited discovery available in IPR proceedings.

Finally, the court noted that just because more inquisitorial reexamination proceedings exist in which immunity does not apply does not necessarily mean that immunity applies in a different, more adjudicatory type of proceeding before the same agency.

Thus, the Federal Circuit concluded that “[t]he Director’s important role as a gatekeeper and the Board’s authority to proceed in the absence of the parties convinces us that the USPTO is acting as the United States in its role as a superior sovereign to reconsider a prior administrative grant and protect the public interest in keeping patent monopolies ‘within their legitimate scope.’”[4]

The court explicitly limited its holding to whether tribal immunity applies in IPR proceedings and left open the question of whether the same reasoning applies to state sovereign immunity in IPR proceedings.

Judge Dyk concurred with the panel opinion but wrote separately to describe the history of USPTO review proceedings, reinforcing that IPR proceedings are fundamentally an agency reconsideration assisted by third parties rather than an adjudication of a private dispute.

The interpretations and applications of the Supreme Court’s recent Oil States and SAS Institute decisions in this opinion will undoubtedly have implications on state and foreign sovereign immunity claims, as well as other procedural aspects of IPRs. There is also a good chance that the Supreme Court will review this decision and address the question of whether an IPR proceeding is limited to the Director exercising jurisdiction over the patent itself as distinguished from exercising jurisdiction over the sovereign tribe through its property.

It will also be interesting to see what effect the decision will have on the “PACED Act” introduced this past March by Senator Tom Cotton (R-AR) and Senator Claire McCaskill (D-MO), along with Senators Pat Toomey (R-PA), Joni Ernst (R-IA), and David Perdue (R-GA).  Senator Cotton released a statement today on the Federal Circuit’s decision: “The Federal Circuit struck a blow for patients today by ruling drug companies can’t jack up prices by shielding dubious patents from scrutiny. Now Congress should follow up this victory by passing my bill, the PACED Act, so the loophole Allergan tried to exploit will be closed once and for all.”[5]

[1] Citing Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2143–44 (2016).

[2] Citing Oil States Energy Services v. Greene’s Energy Group, LLC, 138 S. Ct. 1365 (2018).

[3] Citing SAS Institute Inc. v. Iancu, 138 S. Ct. 1348 (2018).

[4] Quoting Cuozzo, 136 S. Ct. at 2144.

[5] https://www.cotton.senate.gov/?p=press_release&id=983