Sovereign immunity is the strongest internal link to anticompetitive life sciences and pharmaceutical practices.

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

The interaction between tribal sovereign immunity and patent law can lead to anticompetitive harms. In this Section, we start by canvassing the implications of sovereign immunity and the problems potential plaintiffs face when attempting to join a sovereign tribe in the patent context. The Section concludes by discussing the implications of pharmaceutical companies using tribal sovereign immunity to avoid the Hatch-Waxman and IPR processes.

Through the agreement with the Saint Regis Mohawk Tribe, Allergan seeks to take advantage of tribal sovereign immunity. This immunity protects federally recognized tribes from being sued in state and federal courts, and applies to all activity conducted by a tribe, including off-reservation commercial activity.31 The immunity can be waived only in two narrow circumstances: (1) “where Congress has authorized the suit” or (2) where “the tribe has waived its immunity.”32 By invoking tribal sovereign immunity, a pharmaceutical company like Allergan could dismiss a lawsuit in federal court and may remain immune even against counterclaims that the patents are invalid.33 Moreover, Allergan sought to avoid the IPR process entirely by transferring ownership of the patents to the Tribe, which has since moved to dismiss IPR proceedings on sovereign immunity grounds. The Tribe moved to dismiss IPR proceedings on this basis.34 Though the PTAB has denied this motion, this decision is likely to be appealed.35

In federal courts, potential plaintiffs often face problems joining tribes. Although the district court recently found Allergan’s Restasis patents invalid for non-obviousness in Allergan v. Teva,36 a Hatch-Waxman lawsuit initiated by generic companies, key questions still remain about whether it would be feasible for generic challengers to bring a federal lawsuit in other contexts. In Allergan v. Teva, the patent challenge was initiated prior to Allergan’s ownership transfer for the Restasis patents, and the Tribe chose not to invoke its sovereign immunity during the suit. The court therefore simply joined the Tribe as co-plaintiffs under Federal Rule of Civil Procedure (FRCP) 25(c)—but in doing so, the district court questioned whether the original patent transfer was valid at all, noting that the court joined the Tribe as a co-plaintiff only to ensure that the court’s judgment remains valid if the patent assignment to the Tribe is later upheld.37 Allergan and the Tribe have recently jointly appealed the patent invalidity judgment to the Federal Circuit, although they have yet to invoke sovereign immunity.38

While this most recent iteration of the battle has offered consumers and generic companies a respite, a key question remains unresolved: what would have happened if the tribe had invoked its tribal sovereign immunity in federal court? Although Judge Bryson’s district court opinion noted that tribal 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 responsibility,”39 future parties in suits against tribes will still have to face this challenge. Tribal sovereign immunity has been used in other contexts, such as payday lending, to shield companies from liability.40 Moreover, a number of patent-holding entities (known colloquially as “patent trolls” for their practice of extracting rents by accumulating patents and claiming infringement) have partnered with tribes to sue major tech companies such as Amazon, Apple, and Microsoft for patent infringement.41 In the words of one industry insider, “[t]here are dozens and dozens of tribes talking to law firms about this structure.”42

Accordingly, it is important to understand the procedural limitations plaintiffs face when attempting to join sovereign tribes in federal court. Generally, FRCP 19 requires plaintiffs to join all relevant parties who have an important stake in the lawsuit.43 If patent assignments such as Allergan’s are valid, and a tribe’s interests are implicated, a lawsuit seeking declaratory judgment on patent invalidity would likely be dismissed entirely, given the weight courts grant to tribal sovereign immunity. As noted by the D.C. Circuit, when dismissal of a suit is required by tribal immunity, the court is not simply confronted with “some procedural defect . . . . Rather, the dismissal turns on the fact that society has consciously opted to shield Indian tribes from suit without congressional or tribal consent.”44

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.