CAFC Determines Sovereign Immunity Does NOT Preempt Patent Suits Involving Indian Tribes

On July 20, 2018, the Federal Circuit decided that patents owned by Native American tribes are not immune from challenge by inter partes review (IPR).[1]

The Background

The patents at issue all relate to the drug RESTASIS, marketed by Allergan.  The active ingredient of RESTASIS – cyclospoprin A – was originally discovered by scientists at Sandoz in 1972.[2]  It was first approved for medical use by the FDA in 1980 as an anti-rejection medication for organ transplant patients.  In 2003, Allergan obtained FDA approval for cyclosporine ophthalmic emulsion, 0.05%.[3]  Allergan subsequently obtained approval for a multi-dose packaging.[4]

In 2016, Mylan Pharmaceuticals, Inc. filed IPRs against 6 patents assigned to Allergan:

• US 8,629,111 B2 and US 8,642,556 B2, covering various topical ophthalmic emulsions comprising cyclosporin A;
• US 8,633,162 B2, US 8,648,048 B2, US 8,685,930 B2, and US 9,248,191 B2, covering methods of treating various eye conditions comprising topically administering an emulsion of cyclosporine A to the eye.

After the USPTO decided to institute the IPRs, Allergan assigned the patents to the St. Regis Mohawk Tribe (“the Tribe”) for $13.75 million and agreed to pay annual royalties to the tribe of up to $15 million.[5]  Shortly thereafter, the Tribe moved to dismiss the IPRs, arguing that “[t]he Tribe is a sovereign government that cannot be sued unless Congress unequivocally abrogates its immunity or the Tribe expressly waives it.”[6]  The PTAB denied the motion,[7] and the Tribe and Allergan filed an interlocutory appeal to the CAFC.

What is “sovereign immunity”

Stated simply, sovereign immunity is the principle that the state cannot be sued without its consent.  The Federal government[8], states[9], foreign governments[10], and Native American tribes[11] all enjoy sovereign immunity.  This means that a private citizen would be unable to force a sovereign into court (or other quasi-judicial proceeding), unless Congress specifically abrogated the immunity or the sovereign has waived its immunity.[12]  However, sovereign immunity does not apply to suits initiated by a superior sovereign.[13]

The Decision

The question before the Court was whether sovereign immunity prohibited the PTAB from continuing an IPR that was instituted against patents owned by the tribe.  The Court relied primarily on FMC[14], in which SCOTUS held that sovereign immunity precluded the Federal Maritime Commission from adjudicating private party complaints against state-owned ports because of the “FMC proceedings’ overwhelming similarities with civil litigation in federal courts.”[15]  According to the CAFC, FMC distinguishes between “adjudicative proceedings brought against a state by a private party” (in which immunity applies) and “agency-initiated enforcement proceedings,” in which immunity is inapplicable.[16]  The Court’s analysis thus centers on whether IPRs are more like private actions or agency enforcement actions.

The CAFC found IPRs to be more like agency-initiated enforcement proceedings.  Several factors swayed the Court’s opinion:

• The Director of the USPTO has “complete discretion” to decide whether or not to institute the IPR alleviates the concern that “absent immunity, a private party could unilaterally hale a sovereign before a tribunal, presenting an affront to the dignity of the sovereign;”[17]
• Because the Board may choose to continue an IPR even after the petitioner drops out, the IPRs should be viewed as “an act by the agency in reconsidering its own grant of a public franchise[18];” and
• IPR procedures do not mirror the Federal Rules of Civil Procedure, thus further distinguishing the action from private litigation.

In sum, the Court found that an IPR is merely an exercise of “the United States in its role as a superior sovereign to reconsider a prior administrative grant and protect the public interest in keeping patent monopolies within their legitimate scope.[19]”  Because sovereign immunity does not “bar a suit by a superior sovereign,” sovereign immunity could not be relied upon to compel dismissal of the IPR.[20]

So what?

The immediate impact of this case is that sovereign entities, including Federal agencies, states, foreign governments, and tribes, likely cannot rely on their sovereign immunity to insulate their patents from attack at the USPTO.  The Court did leave an opening, however.  By highlighting the Director’s “complete discretion” over institution of IPRs, the Court seems to be signaling that the Director would have the discretion to deny a petition on the basis of sovereign immunity.  Whether such discretion will ever be exercised remains to be seen.

Although Allergan’s gambit was ultimately unsuccessful, this case does highlight the criticality of knowing who owns the patents that you may be attacking, acquiring, or licensing.  Federal and state agencies, foreign governments, tribes, and tribal corporations all can enjoy sovereign immunity in some circumstances, which could severely restrict your remedies should the relationship go south.  It is important in these cases to know whether the entity that you are dealing with possesses immunity, whether it is possible for immunity to be waived, and the proper procedures for doing so.

[1] St. Regis Mohawk Tribe v. Mylan Pharmaceuticals Inc., Dkt. Nos. 2018-1638, 2018-1639, 2018-1640, 2018-1641, 2018-1642, 2018-1643, slip op. (Fed. Cir. July 20, 2018) available at http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/18-1638.Opinion.7-20-2018.pdf.

[2] Laupacis et al., Cyclosporin A: a powerful immunosuppressant, CMA J., Vol. 126, 1041–46 (1982).

[3] New Drug Application 21-023, available at https://www.accessdata.fda.gov/drugsatfda_docs/nda/2003/21-023_Restasis_Approv.PDF

[4] Allergan Press Release Oct. 28, 2016, available at https://www.allergan.com/news/news/thomson-reuters/allergan-introduces-restasis-multidose-cyclospori

[5] Lydia Ramsay, ‘That should be illegal’: Lawmakers are taking aim at pharma giant Allergan over an unusual deal with a Native American tribe, http://www.businessinsider.com/allergan-mohawk-tribe-patent-deal-2017-10 (October 10, 2017).

[6] See, e.g., IPR2016-01127, Corrected Patent Owner’s Motion To Dismiss For Lack Of Jurisdiction Based On Tribal Sovereign Immunity, filed Sep. 22, 2017.

[7] See, e.g., IPR2016-01127, Decision Denying the Tribe’s Motion to Terminate (PTAB Feb. 23, 2018).

[8] Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 411-12 (1821).

[9] Alden v. Maine, 527 U.S. 706 (1999); US Constitution 11^th Amendment

[10] The Schooner Exchange v. McFaddon, 11 U.S. (7 Cranch) 116 (1812)

[11] Kiowa Tribe of Oklahoma v. Manufacturing Technologies, Inc., 523 U.S. 751 (1998).

[12] Kiowa, 523 U.S. 751 (1998).

[13] Miccosukee Tribe of Indians of Fla. v. United States, 698 F.3d 1326, 1331 (11th Cir. 2012)

[14] Fed. Maritime Comm’n v. S.C. State Ports Auth., 535 U.S. 743, 754–56 (2002)

[15] St. Regis, supra, at 6.

[16] Id.

[17] Id. at 8–9.

[18] Id. at 9.

[19] Id. at 11.

[20] Id.