Mohawks appeal PTAB denial of Sovereign Immunity defense

On April 18th, counsel representing the St. Regis Mohawk Tribe and the multinational pharmaceutical firm Allergan filed an appeal brief at the Court of Appeals for the Federal Circuit. The appellants are appealing from a series of inter partes review (IPR) proceedings at the Patent Trial and Appeal Board (PTAB) where the Board made the controversial decision to deny motions to dismiss the IPRs on a sovereign immunity defense raised by the St. Regis tribe. On appeal, St. Regis and Allergan asks the Federal Circuit to determine whether the PTAB erred either in holding that tribal immunity does not apply to IPR proceedings and in deciding that Allergan was the “effective patent owner,” enabling the IPRs to proceed in the St. Regis tribe’s absence even if tribal immunity applied.

The patent transaction between St. Regis and Allergan, in which Allergan assigned its patents covering the eye treatment RESTASIS to the tribe, paid the tribe a cash sum and is also offering quarterly royalty payments in exchange for an exclusive license to Allergan for the U.S. market, has itself been the target of some controversy; IPR petitioner Mylan had previously called the agreement a “sham transaction” during a telephone conference on the PTAB proceedings. The appeal to the Federal Circuit notes that the St. Regis tribe entered into the agreement to address economic disadvantages. The federally-recognized tribe has limited ability to generate taxes and must engage in commercial activities and the patent transaction, along with a growing focus on investing in innovative enterprises, was seen by the tribe as a way to ensure its long-term economic viability.

“In the face of over a century of precedent holding that a tribe is not subject to suit in federal or state court absent waiver or abrogation, the Board held that there was no ‘statutory authority or controlling precedent’ to permit the Tribe to invoke its immunity in an IPR,” the appeal brief reads. “This is a remarkable conclusion.” Counsel for appellants argue that the Board’s decision to deny tribal immunity because there was no statutory basis for applying tribal immunity flies in the face of legal precedent set in 2013 by the U.S. Supreme Court in Michigan v. Bay Mills Indian Community, where the Court ruled that tribal immunity is settled law and can only be abrogated by an act of Congress. (Such Congressional abrogation has been attempted.) This tribal sovereign immunity is supposed to hold in commercial disputes, including those involving off-reservation activities.

“As a sovereign, the Tribe is entitled to assert its immunity from suit, whether in a civil action in court or in an adjudication brought by a private party against the Tribe before an administrative body,” appellants argue. Appellants cite to the Federal Circuit’s 2016 decision in In re Magnum Oil Tools International where the appeals court referenced the “adjudicatory” nature of IPR proceedings. Appellants also cite to the Federal Circuit’s 2007 decision in Vas-Cath, Inc. v. Curators of University of Missouri where the court both recognized the applicability of sovereign immunity in administrative adjudications and determined factors which allowed an adjudication to be considered a lawsuit, including adverse parties, deposition discovery and other legal characteristics found in IPRs. The application of sovereign immunity in an administrative proceeding that “walks, talks, and squawks very much like a lawsuit” has further been upheld by the Supreme Court in its 2002 decision in Federal Maritime Commission v. South Carolina State Ports Authority.

“The Board failed to ask the proper question: whether there was any legal basis for failing to follow the Supreme Court’s authoritative decision in FMC and this Court’s decision in Vas-Cath. The answer is ‘no.’ The Board’s denial of immunity was based simply on its unwillingness ‘to hold for the first time that the doctrine of tribal immunity should be applied in inter partes review proceedings.’ But the Board’s unwillingness flies in the face of decades of precedent giving full recognition to tribal sovereign immunity.”

Appellants further challenge the PTAB’s finding that tribes don’t have immunity in “federal administrative proceedings” “used to enforce generally applicable federal statutes.” By conflating IPRs with other agency enforcement actions, the PTAB failed to address the St. Regis tribe’s point that IPRs aren’t agency-initiated, agency-prosecuted proceedings. While tribal sovereign immunity wouldn’t apply in a case where a federal agency brings an enforcement action against a tribe, IPRs don’t fall into that exception as proceedings are initiated by a petitioning party, not the government. “Indeed, ‘inter partes’ literally means ‘between the parties,’” the appeal brief reads. “As the Supreme Court recognized in FMC, there is a key difference between a case brought by a private party before a federal agency and a case brought by a federal agency.” The lack of a government attorney during IPR proceedings was another factor differentiating IPRs from agency enforcement actions which may be initiated by the National Labor Relations Board or the Occupational Safety and Health Administration, for example.

Appellants St. Regis and Allergan also argue that the PTAB erred in determining that Allergan was the “effective patent owner,” a term which doesn’t exist in the relevant statutes or regulations, after the PTAB applied the “all substantial rights” test stemming from the Federal Circuit’s 2007 decision in International Gamco Inc. v. Multimedia Games Inc. “No statute or regulation authorizes the Board to proceed with an IPR against the ‘effective’ patent owner in the absence of the actual patent owner—let alone one that is entitled to sovereign immunity,” the appeal brief reads. Appellants argue that the PTAB failed to give sufficient weight to the patent rights retained by the St. Regis tribe, including the rights to practice the patents in products unrelated to RESTASIS and to enforce the patents against products that don’t require approval from the U.S. Food and Drug Administration (FDA). The appeal brief notes the significant potential market for cyclosporin products, which are covered by the patents-at-issue, for uses other than dry eye, including fungal infection treatments or for preventing corneal transplant rejection. “The Tribe has the opportunity—partnering with physicians, research institutions, pharmaceutical companies, and others—to use its patent rights to explore and develop cyclosporin emulsions in commercially significant ways,” the appeal brief reads. Appellants also note that the St. Regis tribe retained the right to enforce the patents outside of Allergan’s field-of-use; the right to enforce the patents within Allergan’s field-of-use if Allergan declines to pursue an infringer; the right to join litigation pursued by Allergan to protect the interests of the tribe; and the right to defend the validity of the patents if Allergan declines to do so. The brief cites to multiple cases decided by the Federal Circuit where the court held that a licensee did not receive all substantial rights to patents when the patent owner retained similar rights to those held by the St. Regis tribe.

Even if the PTAB were to correctly identify Allergan as an “effective owner” of the patents, appellants argue that the Board still should have dismissed the IPRs on the sovereign immunity defense as the tribe is an indispensable party to the proceedings. By refusing to do so, the PTAB acted against precedent set by the Supreme Court in 2008’s Republic of the Philippines v. Pimentel, where the Court found that the case may not proceed “when a required-entity sovereign is not amenable to a suit.” The PTAB further failed to follow the reasoning stemming from the Federal Circuit’s 2010 decision in A123 Systems v. Hydro-Quebec, where the Federal Circuit found that proceeding without a sovereign posed a significant risk of prejudice as the sovereign could have lost rights without the opportunity to defend its interests.