Federal Circuit Rejects Indian Tribe’s “Sovereign Immunity” Argument Regarding A Validity Challenge To A Patent It Acquired From Allergan, Inc.
On July 20, 2018, the United States Court of Appeals for the Federal Circuit held that tribal sovereign immunity cannot be asserted in inter partes review (IPR) proceedings before the Patent Trial and Appeal Board (“Board”). Saint Regis Mohawk Tribe et al. v. Mylan Pharmaceuticals Inc. et al., Appeal No. 2018-1638 (Fed. Cir. July 20, 2018).
In 2015, Company A sued Company M and others for infringement of patents related to Company A’s Restasis product. On June 3, 2016, Company M petitioned for IPR of those patents (challenging their validity) before the Board. The Board instituted the IPRs (a preliminary determination in favor of Company M) and scheduled a consolidated oral hearing for September 15, 2017.
Before the hearing, Company A transferred title of the challenged patents to the Saint Regis Mohawk Tribe (“Tribe”), which was recorded with the U.S. Patent and Trademark Office on September 8, 2017, just a week before the scheduled hearing. The Tribe then moved to terminate the IPRs, arguing that it is entitled to assert tribal sovereign immunity, and Company A moved to withdraw. The Board denied both motions and Company A and the Tribe appealed to the Federal Circuit.
The Federal Circuit held that tribal sovereign immunity cannot be asserted in IPR proceedings. Under Supreme Court precedent, sovereign immunity generally does not apply where the federal government acting through an agency engages in an investigative action or pursues an adjudicatory agency action. Notwithstanding this general rule, the Supreme Court has held that immunity applies where the agency proceeding has “overwhelming” similarities with civil litigation, and has drawn a distinction between adjudicative proceedings brought against a state by a private party and agency-initiated enforcement proceedings (which are not subject to sovereign immunity).
The Appellants argued that tribal sovereign immunity applies in IPR proceedings since they are contested, adjudicatory proceedings about a patent’s validity that bear some of the hallmarks of civil litigation. Appellees disagreed, arguing that “the Board is not adjudicating claims between parties but instead is reconsidering a grant of a government franchise.”
In affirming the Board’s rulings, the court reasoned that IPRs are a type of “hybrid proceeding” with “adjudicatory characteristics” but that in some respects is like a specialized agency proceeding. The court cited two other recent Supreme Court cases—Oil States Energy Services and SAS Institute—that together held that IPRs are a “simply a reconsideration” of the PTO’s original grant of a public franchise, yet are “party-directed” and “adversarial” in nature. With this background, the court reasoned that IPR proceedings are more like agency-initiated cases mainly because the PTO Director has discretion whether to institute the proceeding as presented by the challenging party, and/or whether to continue them absent patent owner participation, which discretion can be exercised for any number of reasons (including political reasons).
This decision, absent further appeal, will likely end a relatively new approach taken by certain pharmaceutical companies seeking to insulate their patents on blockbuster drugs from validity challenges at the PTO, which, statistically speaking, have resulted in higher invalidation rates than validity challenges in district court.