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Will the Federal Circuit’s tribal immunity decision in St. Regis Mohawk Tribe v. Mylan make it to the Supreme Court?

Zachary Silbersher

The Federal Circuit has sided against the Tribe and Allergan.  On July 20, the Court affirmed the decision by the Patent Trial and Appeal Board that denied the motion by St. Regis Mohawk Tribe to terminate a series of inter partes review proceedings commenced by Mylan ($MYL) against patents listed in the Orange Book for Allergan’s ($AGN) drug Restasis®.  What are the takeaways from this decision?

Overview of the decision

The Court’s principle holding is that tribal sovereign immunity cannot be asserted as a defense to an IPR proceeding.  The Court began with the principle that tribes are generally immune from suit.  Although that immunity does not generally extend to actions brought by the federal government, there is no blanket rule that tribal immunity can never apply in federal government proceedings.  Rather, the Court examined the IPR proceeding itself to determine whether it was more like a civil lawsuit between private parties, in which case immunity would likely apply, or more like a federal enforcement action, in which immunity would not likely apply.

The Court found that IPRs are a “hybrid proceeding,” with hallmarks of both private disputes as well as specialized agency proceedings.  Interestingly, the Court observed that two of the most recent Supreme Court cases addressing patent issues highlighted this tension in IPRs.  Whereas Oil States showcased IPRs as simply a reconsideration of the Patent Office’s grant of a public franchise, SAS Institute emphasized the adjudicatory aspects of IPRs that mirror civil litigation. 

Despite recognizing the hybrid nature of IPRs, the Court nonetheless held that IPRs more accurately resemble an agency enforcement action that civil litigation.  First, unlike civil litigation, where discretion to commenced the suit resides primarily with a private party, the decision to institute IPRs resides with the Director of the Patent Office, who bears political accountability for determining which IPRs should proceed.  Second, unlike civil litigation, the Board has discretion to continue an IPR proceeding even if the parties have settled.  Third, IPR procedure does not mirror that of the Federal Rules of Civil Procedure, and likewise lacks a host of discovery and procedural options afforded to civil litigants.  Finally, just because reexamination co-exists with IPRs, and reexamination is less adjudicatory, that does not translate to the conclusion that IPRS must, by contrast, make room for tribal sovereign immunity.

Will this case reach the Supreme Court?

The interesting thing about this decision is that the Court made any decision whatsoever about the applicability of tribal sovereign immunity to IPRs.  The Court did not need to reach this issue.  On the contrary, the Board previously denied the Tribe’s motion to terminate on multiple separate grounds.  The first ground held that tribal immunity does not apply to IPR proceedings.  Yet, the Board denied the Tribe’s motion on another ground, which was more limited to the facts of this case.  The Board held that even if tribal immunity could be asserted in IPRs, the transaction between Allergan and the Tribe failed to grant the Tribe substantial enough rights in the patents to deem the Tribe the effective owner of those patents.

Courts typically refrain from making broad, sweeping policy decisions when a case can be decided on grounds limited to the facts of a particular case.  Here, the Federal Circuit had that choice.  The terms of the transaction between Allergan and the Tribe were unique, and the Court could have affirmed the Board’s decision on that ground alone, without reaching the bigger questions about the applicability of tribal immunity to agency proceedings at the Patent Office. 

That is especially so for two reasons.  First, one would think the Federal Circuit would be wary of weighing in on the contours of tribal sovereign immunity, which is a somewhat politically-charged issued that the Federal Circuit, as a specialized Circuit with limited subject matter jurisdiction, is not typically faced with deciding.  And second, and perhaps more importantly, the Court’s decision did not turn as much upon the nature of tribal sovereign immunity as it did on the nature of IPRs.  Indeed, the Court just issued a big decision not just about the contours of tribal immunity, but about the very nature of IPRs—they are more like agency enforcement actions than civil litigation. 

The Court did not need to necessarily make this decision, given that it could have decided this entire case on grounds limited to the actual contract between Allergan and the Tribe.  And it remains unclear, right now, what the eventual consequences of that doing so will be.  And it is more curious that the Court made this rather sweeping decision after recognizing that recent Supreme Court precedent itself has wrestled with this very question—is the central actor in an IPR the government (Oil States), or is it the private parties to the dispute (SAS Institute)?

Indeed, as we previously discussed, the oral argument in this case preceded this decision.  Much of that oral hearing focused on the question of whether IPRs are more like agency proceedings versus civil disputes, and the Court did not ask any questions directed to the nature of the transaction between Allergan and the Tribe. 

That said, the fact that the Federal Circuit weighed in on the applicability of tribal immunity to IPRs increases the likelihood that more appeals are in store.  It increases the likelihood that Court will hear this case en banc.  It also increases the likelihood that this case will be taken up by the Supreme Court.  Had the Court decided this case on facts limited to this particular case (the transaction between Allergan and the Tribe,) that would less likely have created a decision with broader policy consequences that the Supreme Court would want to weigh in on.

Indeed, it almost feels as if the Federal Circuit wanted to weigh in on the meat of this case.  Undoubtedly, Allergan’s transaction with the Tribe was one of the hottest issues in the patent world in the past year (to the extent any patent issue can be adequately characterized as “hot”.)  There was much criticism of the strategy both inside and outside the pharm industry.  Also, the panel deciding this case was technically not the only the Federal Circuit judge to have weighed in on it.  The Honorable William C. Bryson sat by designation in the district court Restasis® case, and previously admonished Allergan for being “conspicuously silent about the broader consequences of the course it has chosen.”  (Allergan v. Teva, Dkt. 522 at 4-5).  

Exactly why the Court chose to answer the big questions, when it could have stuck to the smaller ones, is not clear—at least on the face of the decision.  But presumably, the Court wanted to both nip this issue in the bud as well as potentially tee-it-up for review by the Supreme Court.  Had the Court parried the question of whether tribal immunity applies to IPRs, and limited its decision to the facts of this particular case, that would have likely spawned scores of more cases trying to define the precise type of transaction wherein a tribe could successfully side-step IPRs.  The Federal Circuit put a nail in that coffin, and by doing so, effectively protected the IPR process from being plagued by satellite litigation over the terms of side-transactions with tribes.  While the Court did not state that to be its intention, it will be interesting if that comes out at all in the en banc process.

Will this decision survive the Supreme Court?

In many ways, the Federal Circuit’s decision was an extension of Oil States, which held that the government has a central role in IPRs, which are merely a reconsideration of the Patent Office grant of a public franchise.  Given that, if this case reaches the Supreme Court, Oil States will likely provide a firm foundation for the Supreme Court to affirm the Federal Circuit’s decision. 

Some commentators have already identified fault with the Court’s decision.  For instance, they argue that the Director of the Patent Office does not, in fact, decide whether to institute IPRs.  Rather, that discretion is exercised by the Administrative Patent Judges at the PTAB.  Yet, the fact that the Director has delegated this authority to administrative judges does not eviscerate the discretion employed by the Director.  On the contrary, like many other areas in law, it is simply deemed to be exercised by the Director by virtue of delegating that authority to judges who can be hired and fired pursuant to the Director’s discretion. 

Another purported fault with the Court’s reasoning is that the Court, like the PTAB, wrongly concludes that the PTAB has authority to continue to an IPR proceeding even if the parties settle because the PTAB exercises jurisdiction over the patents itself, rather than the parties.  The purported fault in the Court’s reasoning is that the PTAB is allegedly not capable of exercising in rem jurisdiction over the patent because, “a decision does not settle rights as to all persons in the designated property, but rather only at best extinguishes invalidity arguments available to the challenger and their privies.” 

Yet, that is not entirely clear either.  A Final Written Decision in an IPR does, arguably, affect the rights of all persons with respect to the invalidity arguments raised by the Petitioner.  Even if subsequent petitioners can raise the same invalidity arguments in an IPR, which the PTAB has discretion to reject, the PTAB does not have authority to reassess those same invalidity arguments based upon facts unique to the nature of the new petitioner. 

Even so, these arguments from commentators criticizing the Federal Circuit’s decision—which we recognize to be very good arguments on which reasonable minds can differ, or at the very least, on which reasonable minds could more thoroughly debate—speak to the deeper tension underlying the Federal Circuit’s decision.  Namely, who are patents for?  Are they for the government or for the holder?  Is a patent a public right or a private right?  Is it a public franchise or a personal interest?  The Honorable Kimberly A. Moore, who authored this latest tribal decision, recognized this very tension at play in the reasoning between Oil States and SAS Institute

The consequences of this tension continue to rebound—in very practical ways apart from the convoluted legal mechanics underling the question.  Patent holders remain increasingly incessant that despite pouring considerable resources into procuring, defending and maintaining patents, their value is diminishing.  For instance, if I am a patent holder, and yet patents are deemed a public right, then why am I paying so much money to get the patent, enforce the patent and maintain the patent when the government can willy-nilly step in and reconsider the whole thing under its own purported discretion?  Why am I as a business investing so much based upon the presumption that I will be able to enforce my patent, when the right itself is arguably not mine alone?  And if I lose my patent, shouldn’t I at least get my maintenance fees back?  These questions are particularly important for the brand pharmaceutical industry as well as for tech-startups plagued by efficient infringers, which unlike the myth of the patent troll, some have suggested to be true “scourge” of the patent system. 

On the other hand, the reality of the patent thicket, and the fact that it is in many cases nearly impossible to gain meaningful freedom to operate before product launch is what encourages policies of efficient infringement.  And those policies diminish the public perception of patents, which further mitigates their value.  Indeed, the Honorable Timothy B. Dyk’s dissent in the St. Regis Mohawk opinion highlights what a lot of people are thinking, if not saying.  He indicates that IPRs grew out of inter partes reexamination, which themselves evolved from ex parte examination, which grew out of the public’s skepticism that patents were valid.  And IPRs today serve the same purpose.  The Patent Statute may say that patents are to be presumed valid, but many purportedly think that the Patent Office’s resources are too taxed for that to be true.  Thus, practically-speaking—for both accused infringers and courts as well—many of them think that the presumption of validity does not attach until a patent survives an IPR. 

In my view, this tension is not resolved at the level of post-grant review.  The problem is not IPRs, or alleged “patent trolls”, or efficient infringement, or the Eastern District of Texas, or other venue issues.  The heart of this, like many problems with patents, is in the examination process.  Realistic patent reform (assuming Congress had any interest, let alone appetite for it,) must address the examination process itself.  For the public’s faith in patents to be restored, in its most simplest terms, patents should be more difficult to obtain, but much easier to enforce.

This case grew out of a bold, but probably too-clever strategy, employed by a pharmaceutical company that was trying to circumvent a series of IPRs threatening early generic entry for a single drug.  But, as evident by the Federal Circuit’s decision, which had very little to say about the initial underlying dispute, this case has now grown into a much larger debate about the nature of IPRs—and ultimately, the true nature of patents, and what role they play in our economy.  The Federal Circuit has just issued a rather sweeping decision on the nature of IPRs that may have larger consequences on how patents are used, or not used at all, in the future.  What those consequences will be remains to be seen.