Missouri Senator Introduces Bill to Abrogate Native American Sovereignty for Inter Partes Review Petitions

S.1948 – A bill to abrogate the sovereign immunity of Indian tribes as a defense in inter partes review of patents. Allergan, Inc. and The Saint Regis Mohawk Tribe v. Teva Pharmaceuticals USA, Inc., Mylan Pharmaceuticals, Inc., and Akorn, Inc., Case No. 2:15-cv-1455-WCB (E.D. Tex. Oct. 16, 2017).

Sen. Claire McCaskill (D-MO) introduced Senate Bill 1948, titled “A bill to abrogate the sovereign immunity of Indian tribes as a defense in inter partes review (“IPR”) of patents,” earlier this month.  The bill is (most likely) in response to Allergan’s transfer of its patents on its more than one billion dollar a year revenue dry-eye drug Restasis to the Saint Regis Mohawk Tribe (“Tribe”).  Under the arrangement, Allergan will pay the tribe $13.75 million and in exchange the tribe will claim sovereign immunity to dismiss a challenge to the patents at the Patent Trial and Appeal Board (“PTAB”).  As part of the arrangement, the Tribe will exclusively license the patents back to Allergan and Allergan will pay the Tribe $15 million in annual royalties as long as the patents remain valid.  IPR proceedings have been an effective tool in invalidating claims of issued patents.  If Allergan is successful, many other patent owners may attempt to shield review of their patents by assigning them to Native American tribes.  The Tribe has recently filed suit against Microsoft asserting a different set of patents in the District Court for the Eastern District of Virginia.[1]  In a different patent case, the plaintiff Prowire recently assigned its patent rights to MEC Resources, which is wholly owned by the Mandan, Hidatsa, and Arikara Nation, also known as the Three Affiliated Tribes.[2]

Earlier this year, the PTAB held that patents assigned to a public university were shielded from review due to state sovereignty granted under the 11th Amendment.  In a 5-4 decision, the U.S. Supreme Court recently upheld tribal sovereign immunity rights against the state of Michigan concerning gaming rights on non-Indian lands.  See Michigan v. Bay Mills Indian Community.[3]  Unlike state sovereignty, which is memorialized in the Eleventh Amendment to the U.S.  Constitution.  Native American sovereignty is the product of Congressional enactment.  It can, therefore, be abrogated by federal statute.

Interestingly, the bill is limited to abrogating Native American sovereign immunity only for IPR proceedings under Chapter 31 of Title 35, United States Code.  The bill does not purport to abrogate Tribal immunity under Chapter 32 for post-grant review (“PGR”) of patents.  PGR provides broader grounds for invalidating patents at the PTAB but is limited to first-to-file patents and must be filed within nine months of the issuance of the patent.  The bill was referred to the Senate Committee on Indian Affairs.

Allergan and several generic pharmaceutical companies had been involved in ANDA litigation in the Eastern District of Texas at the time Allergan assigned its patents to the Tribe.  On June 3, 2016, Mylan filed six petitions for IPR against the patents-in-suit.  On January 6, 2017, Teva Pharmaceuticals USA Inc. filed six similar petitions for IPR against the patents-in-suit.  Also on January 6, 2017, Akorn Inc. filed six more similar petitions for IPR against the patents-in-suit.  On March 31, 2017, Teva and Akorn were joined with the corresponding Mylan proceedings.

After Allergan assigned the patents to the Saint Regis Mohawk Tribe, the Tribe moved to terminate the IPRs, invoking its sovereign immunity.  The IPR petitioners filed their opposition to the motion on October 13, 2017.  The Saint Regis Mohawk Tribe filed its reply on October 20, 2017, and the motion is currently pending at the PTAB.  However, on October 20, 2017, the Eastern District of Texas (Judge William Bryson) held that numerous claims of four of the six patents-in-suit were invalid for obviousness and this included all of the claims that Allergan was asserting pursuant to a court order limiting the number of claims that could be asserted.

During consideration of a Motion pursuant to Fed. R. Civ. P. 25(c) to join the Tribe as a necessary party to the ANDA case, the Eastern District of Texas expressed “serious concerns about the legitimacy of the tactic that Allergan and the Tribe have employed” effectively allowing Allergan “to rent – the Tribe’s sovereign immunity in order to defeat the pending IPR proceeding in the PTO.”  The Court also questioned whether Allergan transferred all substantial rights in the patents to be considered a patent owner because it retained the rights to receive royalties on the sale of Restasis.  The Court also cited Ninth Circuit precedent, holding that a Native American tribe waived sovereign immunity by intervening in a lawsuit.

The Eastern District of Texas ultimately decided that it did not need to resolve the validity of the assignment to the Tribe and ordered the joinder of the Tribe as a co-plaintiff as a precautionary measure to prevent any challenge to the judgment based on omission of a necessary party.

Bottom Lines: Observers give the McCaskill bill less than a 30% chance of enactment in its current form.  Meanwhile, the Supreme Court will address the constitutionality of post-grant proceedings during this term in Oil States Energy Services, LLC vs. Greene’s Energy Group, LLC.  Unless it invalidates these proceedings altogether, patent owners will continue to look for creative ways to shield their patents from what has become an effective tool for invalidating patent claims.  Although critics have challenged the legitimacy of the assignment to shield the patents from review, the Saint Regis Mohawk Tribe has argued that there is no substantive basis to distinguish its sovereign immunity rights from the Eleventh Amendment immunity rights afforded state universities.

[1] See SRC Labs LLC and Saint Regis Mohawk Tribe v. Microsoft, Case No. 1:17-cv-01172-LO-JFA (E.D. Va. Oct. 18, 2017).

[2] MEC Resources, LLC v. Apple Inc., Case No. 3:37-cv-05457 (N.D. Ca. Mar. 2, 2017).

[3] 134 S. Ct. 2024, 2026 (2014).