UPDATE: All Eyes on Allergan: Drug Company’s Unprecedented Move Raises Questions for Patent and Drug Law (Part I)

UPDATE: All Eyes on Allergan: Drug Company’s Unprecedented Move Raises Questions for Patent and Drug Law (Part I)

Legal Sidebari

UPDATE: All Eyes on Allergan: Drug
Company’s Unprecedented Move Raises
Questions for Patent and Drug Law (Part I)
Updated March 16, 2018
UPDATE 2, 3/16/2018: On February 23, 2018, the Patent Trial and Appeal Board (PTAB) denied the
Saint Regis Mohawk Tribe’s motion to terminate the inter partes proceedings based on tribal sovereign
immunity, holding (1) the doctrine of tribal sovereign does not apply to PTAB proceedings and (2) the
proceedings could continue “without the Tribe’s participation in view of Allergan’s retained ownership
interests in the challenged patents.” Appeals have been filed with the U.S. Court of Appeals for the
Federal Circuit with respect to both (1) the U.S. District Court for the Eastern District of Texas’s decision
invalidating the Restasis Patents (discussed in UPDATE 1 below) and (2) the PTAB’s denial of the motion
to terminate (Federal Circuit docket numbers 18-1130 and 18-1638, respectively).
UPDATE 1, 10/19/2017: In the latest development in a series of events that has surprised many, on
October 16, 2017, the U.S. District Court for the Eastern District of Texas issued an opinion and final
judgment in Allergan, Inc. v. Teva Pharmaceuticals USA, Inc., invalidating the Restasis Patents for
failure to meet the Patent Act’s “non-obvious” requirement for patentability. In tandem with the issuance
of this judgment, the court issued a second opinion granting Allergan’s motion to join the Saint Regis
Mohawk Tribe (the Tribe) as co-plaintiff based on the court’s concern that if it “decline[d] to join the
Tribe as a co-plaintiff and it is later determined that the Tribe is a valid owner of the patents, any
judgment entered by the Court could be subject to challenge on the ground that the owner of the patents
was not a party to the action.”
Allergan’s motion had been opposed by defendant Mylan—a generic drug manufacturer—who also raised
the issue of whether the Allergan-Saint Regis deal constituted a “sham” transaction. Just last week, the
district court issued an order requesting briefs that address “whether the Tribe should be added as a co-
plaintiff or whether the assignment transaction should be disregarded as a sham.” The Order indicated
that the briefs were due on October 13, 2017 at 2:00 p.m., after which “the Court [would] determine
by the close of business on October 13 whether a hearing will be needed,” which, if necessary,
would be held on October 16. Instead of ruling on that particular issue, the court invalidated the Restasis
Patents that day, resolving the entire case.
Furthermore, although the court stated it was “not required to decide whether the assignment of the
patent rights from Allergan to the Tribe was valid in order to resolve the question whether to add the
Congressional Research Service
https://crsreports.congress.gov
LSB10009
CRS INSIGHT
Prepared for Members and
Committees of Congress

Congressional Research Service
2
Tribe as a co-plaintiff,” the court included a lengthy critique of the nature of the Allergan-Saint Regis
deal in its opinion. Citing the Second Restatement on Contracts, the court stated: “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 . . . 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.”
Allergan reportedly will be appealing these decisions, an appeal that would be heard by the Federal
Circuit, as noted in Part II.
The original post from October 12, 2017, is below.
In a move that took many in the pharmaceutical and patent fields by surprise, brand-name drug
manufacturer Allergan, Inc. announced that it assigned its rights to six patents covering its dry-eye drug
Restasis (Restasis Patents) to the Saint Regis Mohawk Tribe (Tribe). The company seemingly intends to
benefit from the Tribe’s sovereign immunity in a patent validity challenge pending before the U.S. Patent
and Trademark Office (PTO). Allergan’s move was perhaps an effort to manage the ticking clock on the
Restasis Patents, all of which expire in August 2024. The Allergan-Saint Regis deal, however, has broader
implications across industries if the validity of issued patents can no longer be challenged before the PTO.
For instance, commentators have speculated as to whether other drug companies will similarly seek to
transfer their patents to entities that can claim sovereign immunity in order to render their patents
incontestable, which could, in turn, affect drug pricing.
Part I of this two-part Sidebar provides background on the Allergan-Saint Regis deal and tribal sovereign
immunity. Part II then explores the potential immediate and long-term outcomes of the deal, before
analyzing the arrangement in the broader contexts of patent law and sovereign immunity, while
highlighting the unresolved questions it raises.
The Allergan-Saint Regis Deal
The Allergan-Saint Regis deal is comprised of two separate transactions. First, Allergan and the Tribe
entered into a patent assignment agreement on September 8, 2017, under which Allergan assigned “all of
[its] right, title and interest in, to and under the [Restasis] Patents.” In turn, the Tribe agreed that it “will
not waive its sovereign immunity . . . in relation to any inter partes review or any other proceeding in the
[PTO].” Inter partes reviews, administrative proceedings created by the Leahy-Smith America Invents
Act, allow any person (other than the patent holder) to challenge a patent’s validity based on earlier
patents or printed publications (the so-called “prior art”) that disclose the claimed invention. (For more on
these types of proceedings, and patent law generally, see this CRS Report). Second, the Tribe
concurrently granted to Allergan an exclusive field-of-use license limited to “all FDA-approved uses in
the United States” in exchange for a payment of $13.75 million and eligibility for annual royalties of $15
million. While the Tribe reportedly already owns certain technology patents, this appears to be the Tribe’s
first deal involving pharmaceutical patents.
Notably, at the time the Allergan-Saint Regis deal was reached, the Restasis Patents were the subject of
proceedings pending in federal court and before the PTO. Specifically, on August 24, 2015, Allergan filed
suit in the U.S. District Court for the Eastern District of Texas (Allergan, Inc. v. Teva Pharm. USA, Inc.,
case number 2:15-CV-1455-WCB) against several generic drug manufacturers. Allergan alleged patent
infringement based on the generic drug manufacturers’ applications to the U.S. Food and Drug
Administration for approval to market generic versions of Restasis under certain provisions of the Drug
Price Competition and Patent Term Restoration Act (i.e., the Hatch-Waxman Act). Several of the
defendants raised counterclaims alleging that the Restasis Patents are invalid. A five-day trial as to the

Congressional Research Service
3
validity of the Restasis Patents ended on September 1, 2017, and a decision is forthcoming. Interestingly,
when Allergan informed the court of the deal, it stated that it did “not anticipate that [the patent]
assignment will have any impact on the litigation or the issues before the Court, other than [Allergan]
expects to join the Tribe as a co-plaintiff.”
In addition, between June 3, 2016 and January 6, 2017, three generic drug manufacturers petitioned the
PTO for inter partes reviews of the Restasis Patents to determine whether some or all of the patents’
claims are invalid for failure to meet the Patent Act’s requirements for patentability. A trial before the
PTO’s Patent Trial and Appeal Board (PTAB) was scheduled for September 15, 2017 in the consolidated
case (Mylan Pharm., Inc. v. Allergan, Inc., case number IPR2016-01127), and the statutory deadline for
completion of the review (i.e., the PTAB’s issuance of a final written decision) is December 8, 2017.
After the Allergan-Saint Regis deal was announced on September 8, however, the PTAB held a hearing on
September 11 to determine the effects of the deal on its proceedings. The Tribe then filed a motion to
dismiss based on tribal sovereign immunity, postponing further proceedings concerning the validity of the
Restasis Patents. If granted, the Tribe’s motion would end the proceedings. The PTAB has indicated that it
will likely hear oral arguments before issuing a decision on the sovereign immunity issue.
Tribal Sovereign Immunity
As characterized by the Supreme Court in Michigan v. Bay Mills Indian Community, Native American
tribes are considered “domestic dependent nations” with “inherent sovereign authority.” Accordingly,
tribes possess “common-law immunity from suit traditionally enjoyed by sovereign powers” as “a
necessary corollary to Indian sovereignty and self-governance.” Thus, tribes are immune from suit unless
(1) Congress has expressly abrogated their sovereign immunity or (2) a tribe has expressly waived its
immunity. Consequently, the courts have dismissed suits against tribes involving, inter alia, alleged patent
and copyright infringement, gaming, payday lending, and third-party debt collection on sovereign
immunity grounds.
Sovereign immunity, moreover, generally exists in judicial proceedings in the courts, as well as in
adjudicative proceedings before administrative agencies. As the Supreme Court explained in Federal
Maritime Commission v. South Carolina State Ports Authority, “if the Framers thought it an
impermissible affront to a State’s dignity to be required to answer the complaints of private parties in
federal courts, we cannot imagine that they would have found it acceptable to compel a State to do
exactly the same thing before the administrative tribunal of an agency.” In the context of inter partes
reviews, on January 25, 2017, the PTAB declined to initiate a proceeding involving a patent owned by the
University of Florida on state sovereign immunity grounds in Covidien LP v. University of Florida
Research Foundation, Inc. The PTAB’s decision relied explicitly on an opinion issued in parallel district
court litigation in University of Florida Research Foundation, Inc. v. Medtronic PLC (case number
1:16CV183-MW/GRJ), wherein the Northern District of Florida dismissed patent counterclaims against
the University on sovereign immunity grounds six months before the PTAB decided the issue. Allergan
has acknowledged that the PTAB’s decision in the University of Florida case was the impetus for the
Allergan-Saint Regis arrangement.
Four months after the PTAB issued its decision in the University of Florida case, the PTAB dismissed an
inter partes review involving a patent owned by the University of Maryland based on state sovereign
immunity grounds in Neochord, Inc. v. University of Maryland, Baltimore. And in a third decision issued
in July 2017, Reactive Surfaces Ltd. v. Toyota Motor Corp., the PTAB similarly dismissed the University
of Minnesota from an inter partes review proceeding. As discussed extensively here, the line of decisions
involving universities issued by the PTAB over the past nine months may have a measurable impact on
patent law going forward, particularly by incentivizing non-sovereign-entity patent holders to insulate
their patents from invalidation proceedings through strategic alliances with entities claiming sovereign
immunity.

Congressional Research Service
4

The pending inter partes review of the Restasis Patents appears to be the first time the PTAB has had to
consider dismissal based on tribal, as opposed to state, sovereign immunity. Significantly, tribal sovereign
immunity differs from state sovereign immunity. While state sovereign immunity finds its source in the
Constitution’s Eleventh Amendment, tribal sovereign immunity “is subject to the superior and plenary
control of Congress” and may be abrogated through legislation so long as legislation doing so
“unequivocally express[es] that purpose.” In Bay Mills, for example, the Supreme Court examined a
provision of the Indian Gaming Regulatory Act (IGRA), 25 U.S.C. § 2710(d)(7)(A)(ii), and concluded
that “IGRA partially abrogates tribal sovereign immunity in § 2710(d)(7)(A)(ii) . . . . The provision . . .
authorizes a State to sue a tribe to ‘enjoin a class III gaming activity located on Indian lands and
conducted in violation of any Tribal–State compact.’” By contrast, after Congress attempted to abrogate
state sovereign immunity for purposes of the Patent Act, the Supreme Court struck down the statutory
provisions in Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, holding
that Congress lacked the power to compel states to surrender their sovereign immunity for purposes of
patent infringement suits.
For a detailed discussion of the potential immediate and long-term outcomes of the Allergan-Saint Regis
deal, as well as an analysis of the arrangement in the broader contexts of patent law and sovereign
immunity, proceed to Part II of this post.

Author Information

Kevin J. Hickey

Legislative Attorney

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

LSB10009 · VERSION 8 · UPDATED