The Patent Trial & Appeal Board, an administrative panel created as part of the America Invents Act to take a second look at the validity of patents issued by the U.S. Patent & Trademark Office, has been at the center of two high-profile cases this year.  First, in Oil States v. Greene’s Energy Group, 138 S. Ct. 1365 (2018), the Supreme Court in a 7-2 decision upheld the constitutionality of the PTAB, finding that the PTAB may properly review disputes over patent validity because patent rights are akin to the grants of public franchises.  Second, in SAS Institute v. Iancu, 138 S. Ct. 1348 (2018), the Supreme Court in a 5-4 decision rejected the PTAB’s practice of instituting partial review of patents, finding that the PTAB’s statutory authority was limited to either reviewing all patent claims challenged by a petitioner or declining to institute review.  Coincidentally or not, the SAS majority opinion was written by Justice Gorsuch, who penned the dissent in Oil States.  The dual reasoning the Supreme Court used to uphold PTAB review of patents in Oil States but then limit the PTAB’s reviewing discretion in SAS is now on a collision course in a case currently before the Federal Circuit. 

On June 4, the Federal Circuit heard oral arguments in St. Regis Mohawk Tribe v. Mylan, No. 2018-1638 (Fed. Cir).  The Tribe owns a portfolio of patents originally filed by Allergan.  Allergan sued Mylan and two other drug makers in the Eastern District of Texas for attempting to market generic versions of Restasis eye drops.   The generic drug makers counterclaimed that the patents were invalid and then filed petitions for inter partes review at the PTAB of both the asserted patents and other patents in Allergan’s Restasis portfolio.  The Texas action proceeded to trial, with Federal Circuit Judge Bryson, sitting by designation, finding the patents invalid following a bench trial.  Judge Bryson’s judgment also included dicta expressing “serious concerns about the legitimacy of the tactic that Allergan and the Tribe have employed,” describing the “essence” of the transaction as follows: “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.”  Allergan, Inc. v. Teva Pharm. USA, Inc., No. 2:15-CV-1455-WCB, 2017 WL 4619790, at *2 (E.D. Tex. Oct. 16, 2017).  Judge Bryson, however, ultimately found that issue to be moot.  This judgment is currently on appeal.  

Shortly before the PTAB was set to hear Mylan’s petitions, Allergan assigned its patents to the St. Regis Mohawk Tribe. As part of the transaction, Allergan agreed to pay the Tribe $13.5 million upfront and $15 million annually in exchange for an exclusive field of use license to the Restasis patents.  The Tribe moved to terminate the PTAB proceedings, arguing that the doctrine of tribal immunity precluded PTAB review of its patents.  Indeed, the PTAB has found multiple times that universities and other state-related actors are entitled to claim state sovereign immunity, although it is generally undisputed that common law tribal immunity is somewhat narrower in scope and application than state sovereign immunity.  Allergan moved to withdraw from the PTAB proceedings on the basis that it no longer owned the challenged patents.

Mylan opposed both motions, arguing that the patent laws are generally applicable and not subject to sovereign immunity, and that Allergan was an indispensable party.  For the first time ever, the PTAB permitted amicus briefs, even though its rules do not contemplate amici participation.  In total, 15 briefs were filed, reflecting the extraordinary level of interest in this case, with 8 parties siding with Mylan and 7 parties siding with the Tribe and Allergan.  A common argument advanced by amici was that allowing patents to escape PTAB scrutiny by claiming tribal immunity undermined the America Invents Act’s intent of creating a non-litigation forum for invalidating patents. 

On February 23, 2018, the PTAB ruled in favor of Mylan and against the Tribe and Allergan, holding that “tribal immunity does not apply to inter partes review proceedings.”  Mylan Pharmaceuticals Inc. v. St. Regis Mohawk Tribe, Case IPR2016-01127 et al. (PTAB Feb. 23, 2018) (Paper 127).  Although no final judgment was entered and the PTAB proceedings were to continue, the Federal Circuit agreed to hear an appeal of the PTAB ruling under the collateral order doctrine--apparently recognizing that other patent holders will likely consummate similar transactions in an attempt to escape PTAB scrutiny. 

The parties’ briefing at the Federal Circuit raised a host of intricate questions about the scope of tribal immunity, whether the Tribe has waived or Congress has abrogated that immunity, whether Allergan retained substantial rights in the Restasis patents to be deemed a co-owner, and whether Allergan is an indispensable party under Fed. R. Civ. P. 19.  Both parties’ briefs were also peppered with accusations of bad faith--with Mylan accusing Allergan and the Tribe of engaging in a sham transaction, and Allergan and the Tribe accusing Mylan of forum shopping by preferring to adjudicate validity at the PTAB, which employs a preponderance of the evidence burden for proving patent invalidity than the district court which requires invalidity to be proved by clear and convincing evidence.  Those issues each require treatment that goes beyond the scope of this blog post.  Here, we highlight the explicit tension between Oil States and SAS

Mylan’s briefing argued that Oil States was controlling because it emphasized that “patents are ‘public franchises’ that the Government grants” subject to its reserved “authority to reexamine—and perhaps cancel—a patent claim in an inter partes review,” and that an administrative decision to cancel them is therefore not equivalent to an adjudication in court.  Allergan argued that SAS was controlling because it confirmed that IPRs use “court-like procedures” before “an adjudicatory body” composed of “judges” and include “some of the features of adversarial litigation.”

At oral argument on June 4, the Federal Circuit echoed these concerns: Both Judge Reyna and Judge Dyk cited Oil States in their questioning, suggesting that it resolved the sovereign immunity question in Mylan’s favor.  For example, Judge Reyna asked, “doesn’t the Supreme Court’s case in Oil States undermine [Allergan’s] position,” because “in Oil Sates, they decided that a patent is a public franchise” and that “when a patent is granted it is granted with the expectation that it could be subject to review and cancellation.”  Judge Moore, by contrast, invoked SAS repeatedly in her questioning and described the IPR process as a process that is as “close to civil litigation as she can imagine.”  She commented that Oil States and SAS “come to loggerheads here, in this exact instance . . . because it’s a hybrid proceeding,” so the question for this case is “which side of the line does it fall on and why.”  It thus seems that regardless of the outcome of this particular case, these unresolved issues and uneasy Oil States/SAS compromise may need to be revisited by the Supreme Court.

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This article reflects the authors’ opinions only and does not reflect the opinions of Wiley Rein or its clients.  Both authors have represented Mylan but were not involved in the cases discussed in this article.