Sovereign Immunity Shielding Patents from Legal Challenges

10 Oct Sovereign Immunity Shielding Patents from Legal Challenges

Some time ago, we discussed the fact that you can’t sue a state government for patent or copyright infringement. This is because of legal protection conveyed by the Eleventh Amendment of the Constitution, which states that the American court system doesn’t have the standing to handle lawsuits filed against the individual states, as well as “Citizens or Subjects of any Foreign State.”

This immunity is known as “sovereign immunity,” and protects state governments and a variety of state entities from most lawsuits. If you have ever heard of the sovereign citizen movement, their rationale for being immune to the laws of the United States is rooted in the protections offered by this amendment.

Sovereign immunity is an issue that frequently crops up in patent courts, particularly when it comes to state universities. Many universities with well-funded research programs in various disciplines often hold large portfolios of patents which generate enormous amounts of revenue. As with patents owned by private parties, they’re often subject to challenges over the viability of these patents. But because of the power of sovereign immunity that these universities have due to the Eleventh Amendment, these patent lawsuits against are almost always dismissed.

When trying to file a patent lawsuit against an organization that potentially has sovereign immunity—or any other patent holder—or defending against allegations from such an entity, the best defense is a good offense. You need to ensure that you have as many enforceable intellectual property rights as you can. You want to be aggressive enough that the opposite side recognizes that they will likely be cutting you a check when all is said and done. To achieve this strength, you need the assistance of an experienced patent attorney, such as Michael O’Brien. For more information on how the Law Office of Michael O’Brien can help you, call us at 916-760-8265, or send us an email using our contact form.

Now, a drug company has enlisted a New York Native American tribe to try and shield their patents with legal challenges.

Lawyers for the drug company Allergan have found a creative means of exploiting sovereign immunity to protect their patents on the dry eye medication Restatis, which represents about 10% of the firm’s total annual sales. Recently, Allergan had filed a lawsuit against a competitor, Mylan N.V., as well as several other firms, alleging that their generic alternatives to Restatis infringed on their patents. Mylan in turn filed a counter-claim, asking the USPTO to examine the viability of Allergan’s patents.

To sidestep this legal challenge, Allergan came up with a novel scheme. On September 8th the company announced that it was transferring ownership of the six patents covering the medication to the St. Regis Mohawk tribe. In an agreement with the tribe, Allergan would be granted a license on the patents in exchange for a $13.75 million initial payment to the tribe, as well as $15 million in annual royalties.

The deal is predicated on the assumption that because the tribe is considered by the United States to be a sovereign nation, they are immune from legal challenges to the patents, much as state universities are. On September 27th, the tribe asserted its right to sovereign immunity to the U.S. Patent Trial and Appeal Board, which is handling the proceedings regarding Mylan’s appeal.

Predictably, this has elicited a great deal of outrage, and not just from the drug companies challenging the patents. Senators Richard Blumenthal, Bob Casey, Sherrod Brown, and Maggie Hassan penned a letter to the Senate Judiciary Committee, asking them to investigate the deal. In the letter, they described the arrangement as a “blatantly anti-competitive attempt to shield its patents from review and keep drug prices high.”

The issue with exploiting this loophole in patent law is that it almost certainly endangers the loophole itself.

This is only the latest case in which defendants are too clever by half. We recently discovered another such instance of this is the use of fake patent claims to undermine competitors.

Our legal institutions are not particularly fond of litigants who find cute and clever ways to work around statutory schemes. When this happens, Congress begins to ask questions, hearings are held, and the laws can change. The protections afforded by sovereign immunity only exist until Congress decides they don’t, or it’s found that the Constitution doesn’t compel sovereign immunity in such a case.

In the meantime, while the law finds an appropriate way to respond, litigants will start to find ways to circumvent such schemes. For instance, a competing drug company that had cause to believe that one of the patents now owned by the tribe might just decide to go ahead and introduce a generic version into the drug market. This would then compel Allergan and the Mohawk tribe to assert—rather than defend—their patents. But to do this, the Mohawk tribe would have to waive their sovereign immunity in order to file a lawsuit, which would open the door for an invalidity counterclaim. In addition, the counterclaim wouldn’t be able to take advantage of the less costly inter partes review (IPR) process unless the tribe consented, so it would quickly turn into a costly quagmire for all involved.

Allergan is unlikely to enjoy long-term success from their legal gambit, and may end up paying long-term as Congress—whose members are well funded by institutions who value the ability to assert and defend their intellectual property—turns their attention on the company’s actions. In the meantime, it’s imperative to have legal counsel when dealing with any patent litigation involving potential claims of sovereign immunity. The Law Office of Michael O’Brien can help. To learn more, give us a call at 916-760-8265, or send us a message using our contact form.