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The PTAB’s latest sovereign immunity decision leaves open as many questions as it answers.

Zachary Silbersher

In the latest twist in the saga pitting sovereign immunity against inter partes review, the PTAB issued a decision on December 19, 2017 that potentially jams a spoke into the wheels of future partnerships between brand pharma and Tribes.  The matter involves a series of IPRs between Ericsson and the University of Minnesota.  (See IPR2017-01186, among others.)  What does this decision bode for Allergan’s Restasis® deal with the St. Regis Mohawk Tribe?  What are the consequences of this decision?

First, the decision itself.  The University of Minnesota commenced a patent litigation against Ericsson.  In that case, the University asserted numerous patents.  In response, Ericssion filed numerous IPRs.  As a defense to those IPRs, the University asserted its State sovereign immunity, and moved to dismiss them.  That was far from an untenable position give that the PTAB has previously dismissed IPRs based upon assertion of sovereign immunity by States.  The two most notable decisions to date are, NeoChord, Inc. v. Univ. of Md., Balt., Case IPR2016-00208 (PTAB May 23, 2017) (Paper 28) and Covidien LP v. Univ. of Fla. Research Found. Inc., Case IPR2016-01274 (PTAB Jan. 25, 2017).  Indeed, Allergan’s press release initially announcing its transaction with the St. Regis Mohawk Tribe cited to these decisions.

Yet, the Board denied the University’s motion to dismiss.  The Board held that by asserting infringement of its patents in district court litigation against Ericsson, the University waived its right to assert an immunity defense in the parallel IPRs.  This is also not a totally untenable position, even if it is a bit surprising.  Every time you bring a lawsuit, you expose yourself to potential counterclaims.  Counterclaims are essentially the defendant suing you back—on anything potentially related to the same transaction on which you sued first.  This principle is not limited to patents.  In fact, under the Federal Rules of Civil Procedure, if you are sued in a lawsuit, and there exist counterclaims that arise out of the same transactions, you are obligated to assert them, at risk of forever losing them.  For this reason, numerous courts have held that a party that affirmatively brings a lawsuit waives sovereign immunity for any counterclaims.

That’s the thread on which the PTAB held the University waived its immunity defense in the IPRs.  Under the Patent Statute, a party sued for patent infringement has only one year to commence an IPR petition, otherwise later IPRs will be time-barred.  Because of that, the PTAB reasoned that a Patent Owner commencing a lawsuit for patent infringement starts the clock on the defendant’s time to file an IPR, at the risk of losing the right to do so.  Because of that, the Board held, “it is reasonable to view a State that files a patent infringement action as having consented to an inter partes review of the asserted patent.”

On its face, that logic lines up, even if there is little precedent for it.  What is a little unusual about this decision is that, whereas counterclaims are commenced in the same court as the original action, and indeed in the same litigation, an IPR is technically a wholly, separate proceeding than a district court patent infringement action.  Indeed, an IPR occurs at a different court, before different judges, under different rules.  Yet, the Board nevertheless found that while sovereign immunity waiver is typically constrained to a single forum, it is not a bright line rule.  And more importantly, according to the Board, it would be unfair for a State to be allowed to avail itself of a district court to assert infringement of its patents, while selectively asserting immunity in different, but wholly expected forums, to stave off defenses. 

Another unusual aspect of the Board’s decision in the University of Minnesota case is that it is not entirely clear how it adds up with the Covidien decision.  In Covidien, Covidien filed IPRs against patents owned by the University of Florida.  But those IPRs were themselves a response to a litigation commenced by the University of Florida.  That suit claimed that Covidien had breached a license agreement related to the patents, and Covidien counterclaimed for non-infringement of those patents.  Is breach of a patent license agreement substantively different than assertion of patent infringement in the absence of a license agreement?  It’s not clear the answer is yes, given that most patent litigations that resolve typically end with a license agreement.

In sum, the Board’s reasoning was heavily guided by a fairness principle with which many stakeholders and scholars will likely agree.  Indeed, a cogent argument can easily be made that it is unfair for anyone to avail itself of the courts to collect a benefit, only to selectively assert immunity when convenient to do so.  Indeed, permitting that type of selective assertion of immunity is what opens the door to transactions like that between Allergan and the St. Regis Mohawk Tribe, which at least one district court Judge suggested is against public policy.  Whether you agree with the Board’s reasoning or not, however, it remains to be seen whether that reasoning is consistent with the Eleventh Amendment.  Expect more weigh-in from higher Courts, including the Supreme Court.

So, what are the ramifications of this decision for Allergan’s deal with the Tribe in connection with Restasis®?  At first blush, it appears to doom that transaction.  Allergan affirmatively asserted its patents against the generics in district court litigation.  The IPRs filed by Mylan, and the other generics, were in response to those litigations.  Thus, under the University of Minnesota decision, Allergan’s deal with the Tribe appears to be a rather cut-and-dry case that renting sovereign immunity at the eleventh hour will never work.

There is one wrinkle, however, and potential distinction that Allergan is likely to make.  Allergan can argue that it did not, in fact, affirmatively puts its patents at issue by commencing district court litigation.  Unlike the University of Minnesota, Allergan asserted its patents against the generics only after those generics filed ANDAs (Abbreviated New Drug Applications.)  The Hatch-Waxman Act makes the filing of an ANDA an act of infringement, and if the generic files a Para. IV certification against any of the patents, then the brand must commence suit within 45 days.  In short, pharmaceutical patent litigation is technically different than normal patent litigation.  Thus, there is a tractable argument that Allergan, or even any brand pharma company can make.  They can say, essentially: “We didn’t start it – they started it.”  If that is the case, there is potentially no waiver.

The Board also put a spike into one of Allergan’s arguments in its Restasis® fight.  In that case, the Tribe argued that one reason the IPRs should be dismissed is because the generics will still have recourse to arguing invalidity of the patents in district court.  The Tribe argued that the generics will still have their day in court, and will still have the opportunity to argue the patents are invalid.  In the University of Minnesota decision, however, the Board took the opposite side of the coin.  It found that be even though companies sued for patent infringement can challenge the validity of the patents in district court, an IPR is a fundamentally different proceeding.  Thus, according to the Board, it would be unfair to allow Patent Owner’s to pursue patent litigation in district court, but selectively leverage immunity to bar IPRs at the PTAB.

Indeed, while Allergan moved to join the Tribe to the district court Restasis® litigation, the Tribe deliberately chose not to assert its immunity in that case.  That decision—not to assert sovereign immunity in the Restasis® district court litigation—was presumably because the Tribe wanted to avoid the district court finding that it waived its immunity by commencing the district court litigation, and then having Mylan and the other generics argue that that waiver carried over to the IPRs.  The irony, now, is that the waiver may nevertheless carry over to the IPRs, even though the Tribe refrained from asserting immunity in the district court case.

Finally, the Board’s decision in the University of Minnesota matter does not depart from earlier precedent holding that States may assert their sovereign immunity under the Eleventh Amendment as a defense to IPRs.  This is not wholly irrelevant.  Allergan chose to partner with a Tribe to wedge immunity against IPRs filed by generics moving in on Restasis®.  Technically, the immunity asserted by States, which is pursuant to the Eleventh Amendment, is the not the same as the immunity asserted by Tribes, which is not necessarily under the Eleventh Amendment.  While the University of Minnesota decision stands for the proposition a State can waive its immunity as a defense to IPRs, it nevertheless confirmed that sovereign immunity remains a defense to IPRs.  A future blog post will address whether brand pharma can still take advantage of sovereign immunity, either through Tribes or perhaps States, while circumventing the pitfalls of waiver, which befell the University of Minnesota. 

All that said, the University of Minnesota decision also included a concurring opinion that disagreed that IPRs are subject to sovereign immunity.  That question—whether sovereign immunity can be asserted as a defense to IPRs—remains a question that requires resolution by the Supreme Court before there is any pragmatic business certainty can be settled in this arena.