The biggest problem with Allergan’s St Regis Mohawk deal is that the tribe may not own the patents
The transfer of six patents underpinning Allergan’s dry-eye treatment Restasis to the Saint Regis Mohawk native American Indian tribe has electrified the US patent community. The move, designed to make use of the tribe’s sovereign immunity in order to avoid Patent Trial and Appeal Board (PTAB) scrutiny of the patents via inter partes reviews (IPRs) could, if successful, drive a coach and horses through the IPR regime – much to the delight of many and to the absolute chagrin of others. The big question now, of course, is will it work?
In an exclusive piece for the IAM blog, Zachary Silbersher, a partner with Kroub, Silbersher & Kolmykov in New York, argues that a key element to determining the answer lies in the nature of the transfer of the rights that took place – and, more specifically, any restrictions to the St Regis Mohawk’s freedom of action that the transfer agreement may contain. Is it credible, Silbersher wonders, that the pharma company has given the tribe a completely free hand to use the patents in any way that it wishes? If it hasn’t, are the restrictions that have been imposed enough for Mylan and others to argue that Allergan continues to exercise de facto control over them and that, for this reason, sovereign immunity should not apply? It’s thought-provoking stuff.
As a non-lawyer, I don’t have any views on the specifics of the Allergan Saint Regis Mohawk deal that are worth sharing – the technicalities are way above my pay grade – but it does seem reasonable to conclude that the nature of the agreement is one of the keys to this specific transfer. More generally, though, it strikes me that the over-riding issue here is whether a native American Indian tribe has the ability to argue sovereign immunity applies to patents that it owns and that, therefore, they cannot be subject to IPRs. If that does turn out to be the case, then in the end that is all that really matters. After all, even if there are particular reasons why the Allergan/St Regis Mohawk agreement cannot stand, if a native American Indian tribe is the real owner of patents and they cannot be subjected to IPRs, then ways will be found in future agreements to ensure that de jure and de facto a tribe’s ownership of the assets is not in doubt.
For example, knowing it can claim sovereign immunity and so disarm a major threat to a monetisation strategy, a tribe could go out and buy patents on the open market and then seek to license them. It might pay some kind of fee to, say, an NPE for its strategic advice – that fee perhaps being a cut of any ensuing royalties. With private equity and other investor money looking for patent opportunities, and with prices so low, such a buying programme might well lead to the acquisition of some very promising assets. There are people far smarter than me who will no doubt see many other angles if it does turn out tribal ownership of patents protects them from the PTAB. And if that is the case, then we might well have a totally unexpected game-changer on our hands.
But enough of my ruminations, here’s what Mr Silbersher has to say:
Allergan dropped a bomb on Friday 8th September when it announced the transfer of its Restasis patents to the St Regis Mohawk Tribe (hereinafter, the Tribe). The strategy is undoubtedly clever and potentially profitable for both parties. But for now what everyone wants to know is, will it work? The outstanding question is whether the Tribe actually own the patents. Because, if it does not, then the actual owner (Allergan) cannot assert the sovereign immunity defence to the IPRs. The answer to this lies in the agreement between Allergan and the Tribe, but that agreement has not yet been made public.
One could argue that Allergan’s press release announced that the Tribe “now owns” all the Restasis patents. And the assignment of the patents themselves from Allergan to the Tribe, which has been publicly filed in the IPR docket (see IPR2016-01129 Exhibit 2085), clearly states that Allergan has assigned all its “right, title and interest” in the patents to the Tribe. Shouldn’t that dispel any doubts about who actually owns the patents?
No, not under patent law. The question whether a patent was actually assigned from one party to another is often a hotly contested legal and factual question. It arises frequently in the context of whether a patent-plaintiff has standing to sue. The clear take-away from such cases is simple: just because the parties call it an assignment does not mean that an actual assignment has occurred.
Patents are best viewed as a bundle of sticks. Each stick represents a different right with respect to the patent. Those rights, among others, include the right to sue for infringement of the patent, the right to practise the patent, the right to sell the patent, the right to license the patent, the obligation to pay maintenance fees, the right to collect revenue from the patent, reversionary rights and so forth. You can transfer some sticks in a patent, but withhold others. To successfully assign ownership of your patent to someone else, you have to transfer enough sticks. Worse, some sticks are more important than others. Even worse, there are no bright line rules. That means, unfortunately, that the devil is in the details.
One of the existing precedents from the PTAB holding sovereign immunity is a defence to an IPR is a case in point. In Neochord Inc v University of Maryland, the university made a strong showing that even though it granted an exclusive licence to a third-party, it retained substantial rights in the patent. These rights included, among others, the right to practise the patent, the right to license to affiliates, the right to pre-approve litigation settlements and even the right to sue in certain instances.
But why would Allergan want to hold back any sticks, or rights, with respect to the Restasis patents? Why not just make a clean sale so there is no confusion? Because if the Tribe owns all rights with respect to the patents (all sticks in the bundle), then it can presumably do whatever it wants with those patents, including selling them to someone else. Allergan’s press release indicated that the Tribe will be paid $13.5 million and up to $15 million in annual royalties. But there are companies probably prepared to beat that price to buy the patents, including Mylan, Teva and any other generic who has filed an ANDA for Restasis. Indeed, there is a scenario where the generics would drive up the price by bidding against each other.
Would Allergan risk that the Tribe sells the patents forward at a better price to the very generics it wants to keep out of the market? It’s hard to imagine so. That suggests that Allergan wisely included provisions in the agreement that proscribed the Tribe’s right to sell. Or perhaps, the agreement provides that the patents can only be sold if Allergan consents to the buyer (so that Allergan can protect the patents from falling into the hands of the generics). But therein lies the rub. The more Allergan did to prevent the Tribe from selling the patents freely to whosoever it chooses, the more Allergan risks a court finding an assignment of the patents did not actually take place.
Another critical stick in the bundle is the right to sue for infringement. What does Allergan risk by granting the Tribe the right to do this? The short answer is, a lot. If the Tribe has the right to choose who to sue for infringement, then it can also choose who not to sue. It can also choose to withdraw pending suits. That means, for the right price, the Tribe could agree not to sue the generics, or to withdraw the pending lawsuits against Teva, Mylan or the others. If the generics can buy comfort to launch without being sued on the Restasis Orange Book patents, then they will launch.
If Teva or Mylan can buy a covenant-not-to-sue from the Tribe that might run afoul of the exclusive licence the Tribe has granted back to Allergan. But risk nevertheless remains for Allergan if the generics can structure a side-deal with the Tribe that includes a joint-venture or revenue-sharing that could have the effect of a covenant-not-to-sue without actually implicating a licence. To avoid that risk completely, Allergan presumably held back the right to sue exclusively. Again, the more Allergan contracted with the Tribe in a manner that fettered the Tribe’s freedom and discretion to sue, the more it risks undermining the transaction being deemed an assignment to the Tribe.
There is another way to look at this. Allergan announced that it transferred ownership of the patents to the Tribe, but acknowledged that it took back an exclusive licence to the patents. To avoid the risks already discussed, namely that the Tribe can sell the patents to the generics or cut side-deals not to sue them, Allergan probably held onto those rights as the exclusive licensee. Indeed, it is not uncommon for an exclusive licensee to hold all substantial rights in a patent, including the right to sue for infringement, the right to sell, the right to license and so forth. Basically, it is not unusual for an exclusive licensee to hold everything but title. In fact, when that happens, the Federal Circuit has held the exclusive licensee is “deemed the effective ‘patentee’” (see Luminara Woldwide LLC v Liown Elecs Co Ltd, 814 F3d 1343, 1349 (Fed Cir 2016)).
But that raises a deeper question. If Allergan remains the “effective patentee” under Federal Circuit law, despite a purported sale of the patents to the Tribe, can sovereign immunity really attach to the patents? Does it make sense that the Allergan can hold all substantial rights in a patent and yet still claim the privilege of immunity by virtue of the Tribe holding nothing but title? Does the Eleventh Amendment (or any applicable common law immunity privilege) sanction such gratuitous elevation of form over substance? Are you actually allowed to rent out your sovereign immunity? Is this bomb going to reverberate throughout the entire judicial system? Will all patent lawsuits, or even civil lawsuits, now be settled against the market price for immunity, rather than actual damages exposure or the cost of litigation?
On Monday, 11th September, the USPTO convened a conference call among Allergan, the Tribe and Mylan in connection with Mylan’s pending IPRs of the Restasis patents. The purpose of the call was to determine whether the oral argument in the IPRs should be postponed pending the Tribe’s motion to dismiss. During the discussion, Mylan argued that it will need discovery to determine if the IPRs should be dismissed due to the Tribe’s sovereign immunity.
But what sort of discovery would Mylan want to seek? Most importantly, Mylan probably wants discovery of Allergan’s deal with the Tribe. The short-form assignment of the patents has been made publicly-available (see IPR2016-01129 Exhibit 2085). But the short-form assignment states that it is subject to the “terms, obligations, and conditions” of a “Long Form Agreement”. Mylan will presumably ask what those “terms, obligations, and conditions” are. That “Long Form Agreement” does not appear yet to be public.
During Monday’s conference, the Tribe also stated that, after it files its motion to dismiss, Mylan is “not going to have any of these concerns” about discovery. Undoubtedly, there’s nothing more reassuring than hearing from opposing counsel that all your worries and concerns will be soundly put to bed in their upcoming brief. That said, as argued in this post, Allergan had to carefully thread a needle to make sovereign immunity attach to the Restasis patents without risking they fall into the wrong hands. Without knowing how Allergan actually threaded that needle, it remains an outstanding question whether Allergan and the Tribe can pull this off.