PTAB puts a stop to Allergan's tribal sovereign immunity gamble

Substance over form matters in RESTASIS IPR dispute
Back in September 2017, the AmeriKat posted about the transactional strategy executed by Allergan and the Saint Regis Mohawk Tribe to avoid the jurisdiction of the PTAB. 

Allergan transferred all of its Orange Book listed patents for RESTASIS® to the Saint Regis Mohawk Tribe who, in turn, exclusively licensed back its patents to Allergan. In exchange, the Tribe received $13.75 million upon execution and is eligible to receive $15 million in annual royalties. The purpose of this transactional manoeuvre was to put the patents beyond the reach of the Patent Trial and Appeal Board (PTAB).  Mylan had instituted inter partes review (IPR) proceedings against Allergan back in December 2016.  Mylan was later joined by Teva and Akorn.

The transactional move, argued Allergan, did not mean that their patents could not be challenged in federal court and it would have no effect on their pending abbreviated new drug application (ANDA) patent litigation (recently subject to a five day trial in the Eastern District of Texas).  Despite such assurances, the move caused quite a bit of debate in the press and in the Senate.

On Friday, the PTAB ruled that the Tribe could not claim sovereign immunity to avoid the IPR.  Although there was an interesting discussion on whether tribal immunity applied to IPRs, for the AmeriKat it was the finding that the deal structure meant that Allergan retained ownership interests such that the IPR could continue as Allergan being a "patent owner".  Mylan et al argued that the IPR could continue because Allergan was the "true owner of the challenged patents".

Substance matters more than form and if the substance of the transaction has a party retaining all substantial rights under the patent, then they are a "patent owner" irrespective of whether the transaction characterizes them as such (see Waterman v Mackenzie (1891); Speedplay v Behop (2000); Alfred E Mann Foundation v Cochlear Corp (2010)).  Although relevant, a party's intention in entering into the agreement is not dispositive (Azure Networks v CSR (2014)).  Instead, from factors set out in Azure, the courts examine the rights transferred and the rights retained as follows:
"(1) the nature and scope of the right to bring suit;
(2) the exclusive right to make, use, and sell products or services under the patent;
(3) the scope of the licensee’s right to sublicense;
(4) the reversionary rights to the licensor following termination or expiration of the license;
(5) the right of the licensor to receive a portion of the proceeds from litigating or licensing the patent; (6) the duration of the license rights;
(7) the ability of the licensor to supervise and control the licensee’s activities;
(8) the obligation of the licensor to continue paying maintenance fees; and
(9) any limits on the licensee's right to assign its interests in the patent."
The PTAB held that the terms of the licence-back between Allergan and the Tribe transferred "all substantial rights" back to Allergan.  They were thus the "patent owner" for the purposes of continuing the IPR.

In reaching its decision, the PTAB took the following factors into consideration:
  • Allergan retained the important and exclusive right to sue for patent infringement.  The courts have stated that this is a "key factor" in determining whether an agreement results in a transfer of ownership (Apex Eyewear v Miracle Optics (2006)).  This was the most important factor for the PTAB. 
  • Allergan retained rights to exploit the patents "for all FDA-approved uses in the United States".   Because the claims of the patents are directed to pharmaceutical compositions and methods used to treat human medical conditions, it was not shown that there could be any other commercially relevant ways to practice the invention without FDA approval.  Thus, Allergan's exclusive rights were not limited in any meaningful sense.  
  • The Tribe has no ability to control or veto Allergan's ability to sub-licence the patents.  
  • The Tribe has no reversionary rights - the rights granted to Allergan are "perpetual" and "irrevocable" continuing until the patents expire or until all the claims are held invalid in a non-appealable final judgment.  
  • The Tribe does not receive any proceeds from litigation or other licensing activities, it also does not have the ability to freely assign its interests in the patents.   
The PTAB also concluded that the Tribe was not an "indispensible party" to the IPR.  Accordingly, the Tribe's motion to terminate the IPRs was denied and that they could continue with Allergan as the patent owner.  The AmeriKat wonders whether, even assuming the Tribe could win on the sovereign immunity basis on appeal, the terms of the transaction are such that the point is rendered moot.  Has the PTAB thus effectively closed off this type of transaction in the future?   Is there a work-around that could ever make this type of transaction effective?

The news of the decision came later on Friday afternoon, so the AmeriKat has yet to see any published comments from either party (see Allergan press releases here and here).  But it is only a matter of time before we hear whether this fight will reach the federal courts. 
PTAB puts a stop to Allergan's tribal sovereign immunity gamble PTAB puts a stop to Allergan's tribal sovereign immunity gamble Reviewed by Annsley Merelle Ward on Sunday, February 25, 2018 Rating: 5

1 comment:

  1. "for the AmeriKat it was the finding that the deal structure meant that Allergan retained ownership interests such that the IPR could continue as Allergan being a "patent owner"."

    I completely agree.

    The only reservation that I had with the decision was that the PTAB did not come out and use the words: sham deal.

    By not doing so, it injects ambiguity, as it is the "sham deal" designation that carries the legal effect that the PTAB enacted.


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