Joff Wild

Allergan may just have driven a coach and horses through the inter partes review process at the Patent Trial and Appeal Board. The company’s agreement to transfer the six patents underpinning its dry-eye treatment Restasis to the Saint Regis Mohawks has been widely reported since it was announced on Friday. Under the deal, the Native American tribe will receive a one-off payment of $13.75 million from Allergan, then annual royalties of $15 million. Over the lifetime of the assets concerned that could represent a total of over $100 million – a sum which demonstrates just how valuable the pharma company believes those patents to be and how important it is they are kept away from the eyes of PTAB judges.

The transaction is made possible because, like most officially recognised Native American tribes, the Saint Regis Mohawks are regarded as a sovereign government entity in the US. Entities that qualify for sovereign immunity are shielded from many types of legal action, seemingly including - since the PTAB’s 2016 decision in Covidien LP v University of Florida Research Foundation IncIPR proceedings.

Notably, Allergan was approached on behalf of the tribe by Dallas law firm Shore Chan DePumpo, which had previously represented UFRF in the Covidien case. The firm’s lawyers will probably know as much about the interaction between patent ownership and sovereign immunity as any in the country, while there is no doubt that Allergan would have looked at the issue very closely - so we can fairly safely assume that a large amount of very detailed, high-cost legal work was done before the company’s board signed-off on the agreement. Nevertheless, the Covidien case is highly controversial and the issue is far from settled. The pressure to find some certainty around the topic will undoubtedly now intensify.

Because make no mistake, what is at stake here is not just the fate of six Allergan patents and some others owned by US universities, but the entire future of the PTAB as a viable tool for defendants to challenge patents asserted against them, or ones that they fear may be asserted in the future. Put simply, if Allergan can reach an agreement with a Native American tribe to protect its assets from PTAB scrutiny, so can every other patent owner in the US, operating in any kind of industry.

If you were running an NPE, for example, a deal with a Native American tribe might remove a great deal of uncertainty from your business planning. The same is true of any start-up or company approaching an IPO with a relatively small, but significant, portfolio. It’s hard to believe that people would not pay for that; not the amounts that Allergan is forking out, perhaps, but pretty decent sums - maybe percentages of future royalty streams, for example.

As a defendant, if your ability to use or maybe even just to threaten the PTAB is taken away, then you lose a lot of the current leverage you have when approached for a licensing deal. Many big technology companies, as well as service providers such as Unified Patents, have used the PTAB as a means of taking down inconvenient patents – either through revocation in part or in whole, or through the threat of cost-sapping multiple challenges that might not be successful, but which will leave the patent owner on its knees financially. Without such power, the incentive to do a deal grows significantly, even if you will still have a shot at the patent owner in court. The same applies to third party service-providers, hedge funds and anyone else who sees business opportunities in the PTAB. Take IPRs out of the equation and the US starts to look a whole lot more comfortable for patent owners once more.

Anecdotally, there is a lot of investor money currently looking closely at the patent space in the US. According to one prominent VP of IP at a major operating company I spoke to recently:There is a ton of private equity liquidity in the market right now. Many of the large institutions and the bulk of the family funds are looking at IP as a way to diversify their portfolios.”

If Allergan’s deal with the Saint Regis Mohawks stands up to legal scrutiny – even in part – those looking at opportunities, but concerned about the current risks the PTAB poses, are likely to become a lot more comfortable about the investment equation. Of course, patent owners in the US have been here before in recent times, seeing hope before having it snatched away, but as things stand we could be looking at a potential game-changer coming from an entirely unexpected direction: one that would force a legislative rethink and, at a minimum, the chance to rework the IPR regime. Hold onto your hats, things could be about to get very interesting.