Allowing suits when anticompetitive intellectual property practices are justified with sovereign immunity is key to unlocking competition in the life sciences industry.

Cecilia Cheng and Theodore T. Lee, “When Patents are Sovereigns: The Competitive Harms of Leasing Tribal Immunity,” The Yale Law Journal, 03-02-2018, https://www.yalelawjournal.org/forum/when-patents-are-sovereigns

In light of several recent cases that have acknowledged IPR immunity for the states, the Saint Regis Mohawk Tribe’s sovereign immunity theoretically could have also extended to IPR proceedings.45 In September 2017, the Tribe moved to use sovereign immunity as a shield during the IPR review process and dismiss IPR proceedings.46 If this strategy had succeeded, it would have funneled all patent challenges to Restasis towards the federal court system. As Judge Bryson stated in Allergan’s district court litigation in Allergan v. Teva, “Allergan’s tactic, if successful, could spell the end of the PTO’s IPR program.”47

However, in the most recent development of this case, a three-member PTAB panel denied the Tribe’s ability to invoke sovereign immunity in IPR proceedings.48 In so holding, the panel recognized that whether and in what circumstances tribal sovereign immunity applies in IPR proceedings remains unclear, because there is no controlling precedent or statute that addresses the question.49 The panel further recognized that tribal sovereign immunity is not necessarily analogous to state immunity,50 and that patent laws, including those involving IPR proceedings, are generally applicable laws that apply to tribes.51 The PTAB further suggested that, because the PTAB adjudicates the validity of patents and does not require the participation of patent owners, it does not exercise personal jurisdiction over the tribe.52

Further, the panel concluded in the alternative that the proceedings could continue without the Tribe’s participation. In making this pronouncement, it first held that Allergan was the “true owner of the challenged patents” because the license between Allergan and the Tribe transferred “all substantial rights” back to Allergan.53 The panel then decided that the Tribe was not an indispensable party because Allergan and the Tribe had the same interest in defending the patent.54

Despite this recent decision, however, the applicability of tribal sovereign immunity to IPR proceedings remains an open legal question. As the PTAB admits, there is no controlling legal authority on point. Moreover, the general counsel for the Tribe has already mentioned that the Tribe is considering an appeal. Thus, even though the PTAB has rejected the Tribe’s motion to dismiss IPR proceedings, it may not be the end of the story. The Federal Circuit and eventually the Supreme Court may review the question of when states and tribes have sovereign immunity before the PTAB.

Despite these uncertainties, it is clear that by prolonging and perhaps avoiding the Hatch-Waxman and IPR processes, companies with branded drug products have the potential to delay the entry of generics and reduce the number of generic competitors.55 By wielding sovereign immunity to dismiss patent challenges by generic competitors, Allergan may eliminate the possibility of patent invalidation through IPR and therefore increase the probability of maintaining its exclusive rights.56 If these IPR challenges would have otherwise led the PTAB to invalidate the patents, Allergan’s tactics may lead to a delay in the release of generic drugs, reducing competition and inflating consumer prices for longer periods of time.

Moreover, if this practice becomes commonplace, generic companies may be less likely to compete ex ante, because the litigation costs for challenging even weak patents would significantly increase. Even if tribal immunity is only successfully exercised in PTAB proceedings, generic companies whose expected benefit of challenging the IP falls between the costs of PTAB proceedings and full litigation would no longer have an incentive to dispute the patents. This outcome would undermine the specific incentives that the AIA IPR process is meant to create: a more streamlined, easier way of challenging patents without going through full litigation.

Allergan’s actions—and others that may follow—therefore have the potential to harm competition and consumers by significantly reducing the number of patent adjudications.