A few weeks ago, we wrote about a hellishly sketchy plan by a drug company, Allergan, to avoid the process as known as "Inter Partes Review" of its weak patents. In the weeks since that post a bunch has happened, but before we catch you up, a refresher is important. One of the biggest problems of the patent system for years has been the US Patent Office's willingness to grant terrible patents. This is only partially the Patent Office's own fault -- as some of it is just the nature of how our patent system is designed. As it is, patent examiners have limited time to review patents, and all of the incentives are to approve them, rather than reject them (a rejection can be endlessly appealed, granting gets it off the examiner's plate and improves the "productivity" of the office). On top of that, there's no adversarial process -- an examiner only gets info on why the patent should be granted, and not reasons it shouldn't. In an age where unscrupulous patent attorneys push to patent absolutely everything and many view patents as a lottery ticket, you have a situation where an overwhelmed Patent Office is approving a ton of bad patents, and letting the courts deal with it down the road.
That, of course, has been a disaster for actual innovators who don't have time and money to waste in court fighting bogus patent lawsuits. In the last round of patent reform, the America Invents Act, in 2010, a small, but smart, change was added to the system: the IPR setup. The idea was that it was a way to get a tribunal at the patent office to take another look -- by creating the adversarial process that is lacking from the original patent review process. This enables third parties to raise issues about the patent to the tribunal -- called the Patent Trial and Appeal Board (PTAB) -- and lets the PTAB review whether the patent should have been granted in the first place. Many patent system supporters hate the whole IPR thing, because they don't like the fact that their bad patents can be more easily invalidated. It certainly cuts off one part of the patent troll shakedown game. The Supreme Court is currently considering a case right now to throw out the PTAB as unconstitutional, while Congress has been kicking around ideas to kill it as well.
In the meantime, though, some lawyers have come up with a truly sneaky, and truly awful "work around" that they've basically now productized. After a decision by the PTAB earlier this year to refuse to even hear an IPR request involving a patent held by the University of Florida after the University (a part of the state of Florida) argued "sovereign immunity", lawyers realized that anyone could get out of the IPR process if they just "sold" their patent to a government entity who could claim sovereign immunity. From there is was only a few logical leaps to realize that Native American nations could claim such sovereign immunity. Hence, the deal to "sell" Allergan's patents to the St. Regis Mohawk Tribe.
Basically everyone recognizes this is a sham sale. The St. Regis Mohawk Tribe has no interest in this patent. Or the other patents its now "buying." It just gets some cash, which the original patent holder finds worth paying because it helps them avoid the IPR process. Everything gets "licensed" back to the original patent holder anyway, so the actual transaction is quite clear: patent holders paying Native American tribes solely to avoid a review by the patent office of their sketchy patents.
When the Allergan deal became public, lots of people grew concerned. It seemed like such a naked attempt to game the system. The House Oversight Committee began investigating the issue, noting its serious concerns with what was happening.
On top of that, the issue flowed into the case involving the patents in question. Remember: the IPR process is handled at a special tribunal at the patent office. But there can still be lawsuits going on in parallel, and that's what was happening with Allergan in its patent fight against Teva Phramaceuticals (who is challenging the validity of Allergan's patents). The case still goes on no matter what happens with the IPR process, but Teva raised the issue of whether or not the Mohawk tribe now needed to become a plaintiff in the case too. After a pretty quick back and forth of papers flying in the court, the judge has, in fact, added the tribe as a plaintiff to the case, while issuing an order that raises serious concerns about this practice of laundering the patents through a Native American tribe to avoid IPR. While the court doesn't directly claim that the transfer is invalid, it certainly suggests the court does not look kindly on the practice:
The Court has serious concerns about the legitimacy of the tactic that Allergan and the Tribe have employed. The essence of the matter is this: Allergan purports to have sold the patents to the Tribe, but in reality it has paid the Tribe to allow Allergan to purchase—or perhaps more precisely, to rent—the Tribe’s sovereign immunity in order to defeat the pending IPR proceedings in the PTO. This is not a situation in which the patentee was entitled to sovereign immunity in the first instance. Rather, Allergan, which does not enjoy sovereign immunity, has invoked the benefits of the patent system and has obtained valuable patent protection for its product, Restasis. But when faced with the possibility that the PTO would determine that those patents should not have been issued, Allergan has sought to prevent the PTO from reconsidering its original issuance decision. What Allergan seeks is the right to continue to enjoy the considerable benefits of the U.S. patent system without accepting the limits that Congress has placed on those benefits through the administrative mechanism for canceling invalid patents.
If that ploy succeeds, any patentee facing IPR proceedings would presumably be able to defeat those proceedings by employing the same artifice. In short, Allergan’s tactic, if successful, could spell the end of the PTO’s IPR program, which was a central component of the America Invents Act of 2011. In its brief, Allergan is conspicuously silent about the broader consequences of the course it has chosen, but it does not suggest that there is anything unusual about its situation that would make Allergan’s tactic “a restricted railroad ticket, good for this day and train only.”...
Although sovereign immunity has been tempered over the years by statute and court decisions, it survives because there are sound reasons that sovereigns should be protected from at least some kinds of lawsuits. But sovereign 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 responsibilities. It is not an inexhaustible asset that can be sold to any party that might find it convenient to purchase immunity from suit. Because that is in essence is what the agreement between Allergan and the Tribe does, the Court has serious reservations about whether the contract between Allergan and the Tribe should be recognized as valid, rather than being held void as being contrary to public policy.
The court doesn't go quite that far, noting that it doesn't need to determine this issue at this time, and the issue maybe better suited for the PTAB rather than federal court, but it certainly is noteworthy to see such strong language condemning the plan. Of course, that ruling was probably the least of Allergan's worries, as at the same time, the judge also invalidated the patents in question for obviousness. This post is about a different aspect of Allergan's sketchy plans, so we won't even bother digging into the 100+ pages in the judge's decision on this, other than to note that it appears to include even more sketchy behavior on the part of Allergan.
Of course, this is not stopping others from following in Allergan's footsteps. Just days after that court ruling, the very same "Mohawk Tribe" had magically teamed up with a company called SRC Labs, and filed a patent infringement case against Amazon and Microsoft. SRC Labs, if you're wondering, appears to be the estate of Seymour Cray, the founder of Cray Inc. (who was just involved in another important case unrelated to all of this). And, this is not the only such case.
It's hard to see this loophole lasting very long. Hopefully the IPR process survives the various challenges its facing, but on top of that, hopefully the PTAB and/or the courts, shut down this obvious gamesmanship for patent holders to avoid accountability.
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