Private entities use sovereign immunity to protect patents from PTAB review

Inter partes review proceedings have become a popular method for challenging the validity of patents since they became available on September 16 2012 with the implementation of the America Invents Act. Inter partes review proceedings are conducted before the US Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) and are generally faster and more economical than having patent validity adjudicated in a federal court. Moreover, the standards and presumptions that apply in inter partes reviews generally favour the party challenging the validity of the patent.

Under the principle of sovereign immunity, the PTAB is precluded from conducting inter partes reviews of patents held by a non-consenting state. A ‘state’ in this context includes foreign countries, US states and their related entities. In patent cases, sovereign immunity has been successfully raised by public universities as a means for having inter partes review proceedings dismissed. However, a new strategy developed by the multinational pharmaceutical company Allergan may upend the notion that sovereign immunity cannot benefit private entities.

Mylan Pharmaceuticals filed several petitions before the PTAB for inter partes reviews against patents relating to Allergan's Restasis eye drops. However, rather than defend the patents in those proceedings, Allergan concocted a strategy under which Allergan would continue to receive the financial benefit from the patents while insulating them from inter partes review. Pursuant to that strategy, Allergan transferred title in the patents to the Saint Regis Mohawk Tribe. The tribe then licensed back to Allergen – for a licensing fee – the commercial rights to the patents. Under existing law, it appears that sovereign immunity applies to the tribe. Thus, the patents that Allergan transferred to the tribe appear to be insulated from inter partes review unless the tribe consents. Indeed, the tribe has indicated to the PTAB that it will seek to have the petitions against the patents dismissed on the basis of sovereign immunity. Mylan has responded that it believes that the transactions are a sham and should be ignored by the PTAB. The parties' briefs on the issue are due to the PTAB on or before October 20 2017, and a decision is likely to be rendered shortly thereafter. Any PTAB decision will be subject to review in a federal court.

While many commentators have noted that Allergan appears to be taking advantage of a legal loophole to stymie competition, others have noted that inter partes review proceedings are inherently unfair to patent owners due to their unfavourable standards and presumptions. Indeed, the Supreme Court recently agreed to hear a case that challenges the constitutionality of the entire inter partes review process on the basis that it extinguishes private property rights through a non-Article III forum without a jury.

If Allergan ultimately prevails in insulating its patents from inter partes review, companies with valuable patents will want to consider implementing similar strategies. Protecting valuable patents from the unfavorable standards and presumptions in inter partes reviews may provide significant benefits to patent holders and their shareholders. As a Native American tribe's sovereign immunity can be limited by Congress through legislation, patent owners will want to assess the possibility of congressional action should Allergan succeed.