A New Patent Loophole? Paying Off A Native American Tribe To Exploit Its Sovereign Immunity

If this tactic is allowed, it will be a big win for Big Pharma -- and a big loss for patients and consumers.

It’s no secret that large corporate rightholders are constantly seeking ways to protect and extend their monopolies using various legal tactics. In a new strategy that made quite a few headlines recently, a pharmaceutical company transferred its patents on a drug to a Native American tribe to shield the patents from validity challenges by claiming sovereign immunity.

Here’s the background: Since the America Invents Act was passed in 2011, patent challengers can bring inter partes review (IPR) actions before the United States Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB). This process makes the process of challenging and invalidating patents faster and far less expensive than challenges in federal district court. Patent holders hate this streamlined approach because it makes challenges easier, particularly for resource-strapped entities. In fact, patent holders are currently challenging the IPR process, asserting that it violates the Constitution as a taking of personal property rights without a jury; the Supreme Court of the United States has agreed to hear the case, Oil States Energy Services LLC v. Greene’s Energy Group LLC, this Term.

Two generic pharmaceutical companies brought a challenge to the patents on Restasis, a drug used to treat dry-eye, through the inter partes review system in December 2016. Then, earlier this month, Allergan, the pharmaceutical company that holds Restasis, transferred its six patents associated with the drug to the St. Regis Mohawk Tribe. The tribe has agreed to exclusively license the patent back to Allergan, which will continue to produce the drug. Allergan paid the tribe $13.75 million dollars, plus will continue to pay an additional $15 million each year of the patents’ validity.

Now, paying $15 million dollars a year to St. Regis Mohawk Tribe just to hold the patents on paper seems like a lot of money. And it is. But it’s only a fraction of what Allergan stands to lose if its patents on the drug are invalidated. Restasis pulls in well over $1 billion dollars a year; according to one report, “Restasis’s net revenues totaled $393.1 million globally in the fourth quarter [of 2016], with sales mostly in the U.S.” So, paying the St. Regis Mohawk Tribe $15 million dollars and keep raking in over $1 billion a year for the drug makes a lot of sense for a company like Allergan.

In transferring its patents to a Native American tribe, Allergan has effectively halted review before PTAB because the tribe is protected from these challenges by sovereign immunity; in a case involving patents held by the University of Florida, PTAB already ruled earlier this year that assertions of sovereign immunity can block inter partes review, though in that case University of Florida was the original patent holder. Do note that Allergan has stated that its transfer affects only jurisdiction before PTAB and should not affect the simultaneous actions to invalidate the patents taking place in federal courts.

Let’s be clear about what is happening here. The St. Regis Mohawk Tribe had nothing to do with development of the drug and isn’t going to be manufacturing it. The tribe is doing nothing more than holding a piece of paper that says they own the patents to Restasis. Allergan is going to continue to conduct its business regarding this drug exactly as it has in the past, except it’s now paying the St. Regis Mohawk Tribe to hold the patents. Nothing at all has changed except that Allergan is no longer concerned about IPR challenges to their patents. It’s a sham transfer and blatant attempt to shield the company from challenges before PTAB.

This is just the latest in a long line of legal tricks used by pharmaceutical companies to extend the periods of their monopolies, from lobbying for patent term extensions to participating in a practice known as “evergreening,” where a company makes minor changes to product formulations or dosing and claims a new patent. Sadly, the result is that unless Congress steps in to prohibit such deals (or a court—or PTAB—finds that sovereign immunity doesn’t actually apply in these cases where the original patent holder is clearly just gaming the system), what the America Invents Act’s inter partes review system really means is that patents are subject to review, unless a company pays off a Native American Tribe to use its sovereign immunity shield. Why wouldn’t other deep-pocketed patent holders follow suit, paying a tiny fraction of their annual revenues in order to keep their billion-dollar drugs out of the hands of generic competitors? Will we ever see another inter partes review for a blockbuster drug? Will this provision of the America Invents Act of 2011 become obsolete, allowing companies to exploit the sovereign immunity loophole and engage in sham transfers?

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At the end of the day, it’s a win for the big brand name pharmaceutical companies who can prevent their monopolies from expiring, at least for a few more years. It’s a win for the Native American tribes who engage in these deals and will see tens of millions of dollars of income. The losers in the case? That would be everyday patients and consumers. Without generic competition, drug companies can continue to price their medicines at whatever price they want and delay entry of affordable generic alternatives.


Krista L. Cox is a policy attorney who has spent her career working for non-profit organizations and associations. She has expertise in copyright, patent, and intellectual property enforcement law, as well as international trade. She currently works for a non-profit member association advocating for balanced copyright. You can reach her at kristay@gmail.com.

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