Sovereign Patents: pharmaceutical company partners with Native American tribe

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Patents are hard to obtain and can be even harder to defend from challengers. In the past, challengers had to go through the federal district courts to begin challenging a patent—an expensive route that would deter some from taking on a patent holder. The America Invents Act of 2011 made the process much simpler for challengers. Instead of going through the federal courts, challengers can now file a petition for inter partes review before the United States Patent and Trademark Office’s newly created Patent Trial and Appeal Board.

“It’s pretty much known as the patent death squad.”

Patent holders despise the Board, saying it allows for challengers to repeatedly file new petitions and drain money from patent holders. Michael Shore, a patent lawyer with Shore Chan DePumpo, LLP in Dallas told North Country Public Radio, an NPR affiliate, “It’s pretty much known as the patent death squad.” The question of the Board’s constitutionality will be heard before the Supreme Court in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC when it determines whether the Board violates the Seventh Amendment’s right to a jury trial.

Generic pharmaceutical company Allergan had two challengers to patents regarding its brand of eye drops known as Restasis. Restasis brought Allergan $336.4 million in the second quarter of 2017, second only to Allergan’s best-selling product, Botox. Rather than trying to defend its patent in court or before the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board, Allergan chose a different way to avoid challengers. Allergan sold six of the patents protecting Restasis to the Saint Regis Mohawk Tribe of northern New York. All six patents are set to expire in August 2024.

The Saint Regis Mohawk Tribe is one of six nations in the Iroquois Confederacy. Its culture stretches thousands of years into the past. The tribe consists of 13,000 members with a current budget of $50 million. Allergan’s payments would help meet the tribe’s needs, such as housing, education, and healthcare. Dale White, general council for the Saint Regis Mohawk Tribe, states that the tribe wishes to be “self-reliant.”

By placing the patents with the Mohawks, the patents, in theory, are outside of the jurisdiction of U.S. Patent and Trademark Office’s Patent Trial and Appeal Board and the federal court system.

As a recognized Native American tribe, the Saint Regis Mohawk Tribe has a great deal of autonomy as a sovereign within another sovereign nation. They have their own government, laws, and court system. Their sovereignty, like all other Native American tribes, however, can be altered by the federal government. Previously, such alteration manifested in forcibly removing tribes from their sacred lands to other portions of the U.S. More recently, the federal government has restricted Native American sovereignty by statute or when in conflict with state law.

Allergan saw the Mohawk’s sovereignty as a loophole in the America Invents Act, and in U.S. patent law in general. By placing the patents with the Mohawks, the patents, in theory, are outside of the jurisdiction of U.S. Patent and Trademark Office’s Patent Trial and Appeal Board and the federal court system. Allergan paid the tribe $13.75 million to own the patents, and in exchange, the tribe agreed to exclusively license the patent back to Allergan so that the company can continue to produce Restasis. The Mohawk tribe will also receive $15 million each year the patent remains valid.

Meanwhile, courts have struggled to apply sovereign immunity to Native American tribes.

Native American tribal sovereign immunity is different from state or federal sovereign immunity. The Eleventh Amendment of the Constitution states, “The 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.” Sovereign immunity protects state governments and the federal government from lawsuits filed by its citizens.

Sovereign immunity extends to entities that are considered branches of a state, including state universities that own patents. In January 2017, The University of Florida Research Foundation successfully sidestepped a patent challenge from Covidien, an Irish healthcare product manufacturer. The U.S. Patent and Trademark Office’s Patent Trial and Appeal Board found that the Eleventh Amendment protects the University of Florida’s patent. Because Florida ultimately controls the University of Florida, the school falls within the state’s sovereignty and immunity.

Meanwhile, courts have struggled to apply sovereign immunity to Native American tribes. According to Professor Gregory Ablavsky of Stanford University School of Law, writing for the Stanford Lawyer Magazine blog, “The lower courts have instead crafted an ‘arm of the tribe’ test to determine if an entity may benefit from the tribe’s immunity, looking toward whether the entity is chartered under tribal law, whether its proceeds serve to further the aims of tribal self-governance, and whether the tribe intended to confer its immunity.” For example, casinos are not generally allowed in most states. A Native American tribe, however, may choose to build a casino on their own lands, despite being within the geo-political borders of a non-gambling state, since the tribe chose to build it to gain revenue.

“It’s a massive loophole and you could drive a Mack truck through that.”

The recent patent agreement has come with many critics. Senator Sherrod Brown (D-OH) stated the agreement “rips off consumers” who may pay more for prescriptions in the future. Mylan NV, an American global pharmaceuticals company, filed petitions against Allergan soon after the agreement was made public. As reported by Bloomberg, the U.S. Patent and Trademark Office “previously determined that Mylan has established a ‘reasonable likelihood’ of winning its arguments that the patents are invalid, though a hearing on the case is scheduled for next week in Alexandria, Virginia.” Teva Pharmaceuticals, an Israel based pharmaceutical company, released a statement saying, “Today’s news from Allergan is a new and unusual way for a company to try to delay access to high-quality and affordable generic alternatives.”

For Native American tribes, future patent or trademark deals may provide a way to thrive. According to a statement from the Saint Regis Mohawk Tribal Council, “[T]he Tribe’s goal is to diversify its revenue streams to support tribal programs, community services and provide for the long-term economic good of our community.” As Professor Ablavsky notes, “Popular imagination might envision casino riches, but Indian gaming revenue is spread very unevenly, with only a handful of well-situated tribes bringing in large sums.” This legal battle may be a true test of their sovereignty in the 21st century.

For patent holding companies, the idea that a patent may be completely protected from federal law is a tempting option with an uncertain future. Attorney Brad Wright, a patent attorney with Banner & Witcoff in Washington D.C., discussed the legal consequences with the Seattle Times: “If [Allergan] can do it, other drugmakers can do it, and not just other drugmakers but other companies. It’s a massive loophole and you could drive a Mack truck through that.” If successful, corrective measures within patent law will have to change or risk becoming obsolete.

For consumers, arrangements like the one between Allergan and the Mohawk tribe may drive the price of generic and brand-name drugs up. Patent protection allows people and companies to protect their ideas and designs. Complete immunity from any challenge weakens the marketplace, decreasing competition and innovation. The ultimate winners and losers of these sovereign patents will have great impacts not only for patent law, but also for Native American tribes for years to come.