Sovereign Immunity in IPR Proceedings
Written for the San Francisco Bay Area Inn of Court
February 2018 - Program on Sovereign Immunity
The 11th Amendment shields States from lawsuits filed by private parties
The Eleventh Amendment(1) provides a State immunity from lawsuits filed by private parties. Assuming a State has not waived its Eleventh Amendment rights, a lawsuit against it will be dismissed if the State is found to be an indispensible party under FRCP 19(b); this sovereign immunity also extends to adjudicative administrative proceedings. Federal Maritime Commission v. South Carolina State Ports Authority, 535 U.S. at 754, 759 and 769 (2002).
State-run universities have successfully asserted sovereign immunity in IPR proceedings
To date, there have been three IPR decisions involving sovereign immunity claims made by state run universities. In two of these cases—one involving the University of Florida(2) and the other involving the University of Maryland(3)—the PTAB dismissed pending IPRs after rejecting arguments that the States had waived their Eleventh Amendment rights by obtaining patents (in both cases), by failing to raise objections earlier in the proceedings (in the University of Maryland case), or by licensing their patents to a third party while retaining “substantial rights” in those patents (also in the University of Maryland case).
The third IPR involved a patent jointly owned by Toyota Motor Corporation and the University of Minnesota(4); here, the PTAB dismissed the University but did not dismiss the proceedings against Toyota, reasoning that because Toyota and the University had “identical interests” in the patents, Toyota could adequately represent the University’s interests in its absence.
The Patents at issue in tonight’s program cover Allergan’s Restasis drug
Allergan has many patents on Restasis, a drug that treats a condition known as “dry eye;” several of these patents are now expired. Allergan’s theory in prosecuting the patents at issue here (which are not expired) was that its newly claimed Restasis formulation—although falling within the scope of a now expired Restasis patent—surprisingly produced “exceptionally good results.”
The dispute over Restasis began when Allergan filed suit in EDTX against several generic drug makers(5), who then countered with IPR petitions(6). Judge Bryson (sitting by designation) found the patents invalid as obvious over an expired Restasis patent, explaining that Allergan has presented the PTO with misleading evidence that the newly claimed Restasis formulation provided “exceptionally good” and “surprising” results.
The St. Regis Mohawk Tribe’s patent acquisition and its motion to dismiss the IPRs
Last September, Allergan transferred the Restasis patents to the St. Regis Mohawk Tribe, which—in exchange for an upfront payment and annual royalties of several million dollars—gave Allergan an exclusive license to sell products covered by the patents. Later that fall, Allergan moved to add the Tribe as a co-plaintiff in the EDTX litigation; the Tribe then moved to dismiss the pending IPRs on sovereign immunity(7) grounds, but did not move to dismiss the litigation.
In deciding whether to add the Tribe as a co-plaintiff, Judge Bryson discussed the possibility that Allergan’s patent sale might be void as a sham, and criticized the motion to dismiss the IPRs as a subversion of the AIA(8). But Bryson ultimately decided to add the Tribe as a co-plaintiff, reasoning that “at some point the assignment might be held valid.”
At the PTAB, the Tribe made both legal and policy arguments to support its motion to dismiss. On the legal front, the Tribe said that its sovereign immunity had neither been waived nor unequivocally abrogated by Congressional action; that the entire action should be dismissed because Allergan—which did not hold identical interest in the patents—could not adequately represent the Tribe’s interests before the Board; and that the Petitioners would not be prejudiced because they had challenged the patents in EDTX. On the policy side, the Tribe said that because it is limited in its ability to levy taxes, it needs other sources of revenue to provide services for its citizens(9); and one reasonable way to generate revenue is to adopt the business model already used by State universities—which have sovereign immunity.
For their part, the IPR petitioners made the case that the patent transfer was a sham—pointing out that the value of the Tribe’s interest as patent owner amounts to only four days of revenue from the sale of Restasis; and that even if the patent sale was legitimate, the Tribe is not an indispensible party because Allergan (which has a far more valuable stake in the patents) could adequately represent the Tribe’s interests before the PTAB.
Senator McCaskill’s bill to abrogate sovereign immunity in IPRs
Calling sovereign immunity claims in IPRs “one of the most brazen and absurd loopholes I’ve ever seen,” Senator McCaskill of Missouri drafted a bill to abrogate this immunity—but only as to Indian tribes(10):
Notwithstanding any other provision of law, an Indian tribe may not assert sovereign immunity as a defense in a review that is conducted under chapter 31
of title 35, United States Code.
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1 “Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.”
2 Covidien LP v. University of Florida Research Foundation, Inc., IPR2016-01274, -01275, and -01276 (PTAB Jan. 25, 2017).
3 NeoChord Inc. v. University of Maryland, Baltimore et al., IPR2016-00208 (PTAB May 23, 2017).
4 Reactive Surface Ltd. v. Toyota Motor Corp. et al., IPR2016-01914 (PTAB July 13, 2017).
5 Allergan, Inc., and the St. Regis Mohawk Tribe v. Teva Pharmaceuticals USA, Inc. et al., Case No. 2:15-cv-1455-WCB.
6 Mylan Pharmaceuticals, et al. v. Allergan, Inc., IPR Nos. 2016-01127-01132.
7 Tribal sovereign immunity is not identical to States’ Eleventh Amendment rights; US v. Wheeler, 435 US 313, 322-23 (1978).
8 “The essence of the matter is this: Allergan purports to have sold the patents to the Tribe, but in reality it has paid the Tribe to allow Allergan to purchase—or perhaps more precisely, to rent—the Tribe’s sovereign immunity in order to defeat the pending IPR proceedings in the PTO. *** But sovereign immunity should not be treated as a monetizable commodity that can be purchased by private entities as part of a scheme to evade their legal responsibilities.” [Doc. 522, p. 4.]
9 The Tribe went on to say that “All revenue generated by the Office of Technology, Research and Patents will go into the Tribal General Fund and be used to address the chronically unmet needs of the Tribal community, such as housing, employment, education, healthcare, cultural and language preservation.” [Motion to Dismiss, p. 6.]
10 Congress cannot abrogate States’ Eleventh Amendment sovereign immunity; Florida Prepaid Postsecondary Ed. Expense Bd. v. College Savings Bank, 527 US 627 (1999).