Intellectual Property

IPR Loophole... Closed For Now

As far as IPRs are concerned, it doesn’t matter who owns a patent, whether the owner be an Indian tribe or a group of kindergarten students.

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This past Friday was a big day at the Federal Circuit. As I wrote last week, the two biggest questions facing patent litigators and their clients are “patent eligibility/Alice and the PTAB/IPR regime.” While trying to predict how potential Supreme Court justices may vote on key patent issues is fun, it is important to keep in mind that the reach of the Supreme Court on patent issues is limited. In contrast, the Federal Circuit’s exclusive jurisdiction over patent appeals lends much more immediacy to their rulings. Last Friday was a doozy, as the Federal Circuit opined on both of the big patent issues, in separate rulings that have already generated a lot of commentary — with more to come as the patent bar and academics digest the rulings.

On patent eligibility, the big talking point was Judge Plager’s concurrence/dissent in Interval Licensing v. AOL, lamenting the dysfunctional state of the law with respect to the concept of “abstract ideas” as applied to eligibility determinations. But that is fodder for a different column. The bigger news, perhaps with more immediate interest, was the highly-anticipated decision in Saint Regis Mohawk Tribe v. Mylan, better known as Allergan and the Indian Tribe v. the Generics. For a good review of the issues in that dispute, as well as an analysis of the oral argument in the appeal, I commend my partner Zach Silbersher’s write-up on our Markman Advisors blog.

For those with no time for blog posts (other than this one), the short story about the case is as follows. Allergan has a blockbuster eye treatment called Restasis. The drug makes billions. Generic companies want to charge slightly less and make hundred of millions themselves selling the drug. Restasis is protected by a number of patents; all were invalidated as obvious in the District Court (a decision on appeal now). The generics — like many sophisticated contemporary patent defendants — also filed a series of IPRs on the patents protecting the drug. Right before “trial” (e.g., oral argument in the IPR), Allergan transferred rights in the patents to an Indian tribe, the Saint Regis Mohawks. And then moved to dismiss the IPRs on the grounds that tribal sovereign immunity precluded the IPRs continuing. After a round of briefing, the PTAB disagreed, holding that tribal sovereign immunity did not apply. The appeal decided Friday ensued.

While the appeal was pending, there was a host of commentary on the propriety of Allergan’s tactics. As patent debates go, things got a little heated, with allegations of racism against Indian tribes thrown around along with a general bemoaning of Big Pharma’s tactics in defending their overpriced monopolies. Put another way, the term “sham” featured prominently. From a legal perspective, there were two levels of questioning that seemed most pertinent: first, whether the PTAB was correct that IPRs are not adversarial proceedings subject to tribal immunity and second, whether the specific transaction between Allergan and the tribe did enough to effectuate a valid transfer of patent rights. As Zach noted in his analysis of the Federal Circuit’s oral argument: “If the Court’s questions during the oral argument are any indication, however, then the Court is prepared to render a decision on the applicability of tribal immunity in the context of IPRs.  The Court did not entertain any discussion of the ‘substantial rights’ issue specific to the transaction between Allergan and the Tribe.” Unsurprisingly, Friday’s decision focused squarely on the former issue while ignoring the latter.

The Federal Circuit’s decision went right to the heart of things. Because IPRs are closer to agency reviews than civil Article III proceedings, tribal sovereign immunity does not apply. While the panel opinion left little room for debate, Judge Timothy Dyk also decided to write a concurrence to really drive the point home. In his words, an IPR is simply “an executive proceeding that enlists third-party assistance.” For such a proceeding, therefore, it doesn’t matter who owns the patents, whether they be an Indian tribe or a group of kindergarten students. The same patent office that granted the patents has the right to review the grant of those very same patents. And you can’t call that review the equivalent of a district court trial, at least as far as this Federal Circuit panel is concerned. Even if the proceedings use the term “trial” and are clearly adversarial with briefing and at least some discovery.

As can be expected, this latest decision is being hailed in some quarters and vilified in others. Already, commentators have taken to handicapping the odds of this decision being reviewed by the Supreme Court, or being extended to cover the immunity granted by the PTAB to state institutions like university patent holders in earlier decisions. For me, however, this decision makes plain that at least this panel of the Federal Circuit buys into the central conceit of the Supreme Court’s IPR jurisprudence — namely, that a patent owner can never really be sure of the validity of their patent until the PTAB has its say. No one said owning patents was an easy proposition.

Plus, this was all by design. Congress created IPRs in the America Invents Act. The executive agency has since decided that nearly all patent owners must face IPRs brought by third-parties — a political decision that is unlikely to change, despite the heavy lobbying of the pharmaceutical industry for exemption from these types of proceedings. And now an Article III court has signed off on the actions of the agency, after the Supreme Court found the IPR system constitutional. Separation of powers at work, with a purported loophole available to desperate patent owners now closed — for the time being at least. Like it or hate it, that is the current state of play.

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Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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