By Kevin E. Noonan --
The 11th amendment to the Constitution reads:
The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state.
The application of this principle in patent cases has been controversial, both in litigation (see "The Wall Street Journal's Problem with the U.S. Constitution") and as a shield against inter partes review, by states and in particular state universities claiming the immunity as "arms of the state" (see Covidien LP v. University of Florida Research Foundation Inc. and Neochord, Inc. v. University of Maryland). Nonetheless, immunity is well established as to the several States. Last week, Allergan creatively availed itself of this immunity by assigning patents challenged in IPR proceedings to the St. Regis Mohawk Nation (SRMN), which also has the capacity to invoke the protection of sovereign immunity against suit.
The Orange Book-listed patents, Nos. 8,629,111; 8,633,162; 8,642,556; 8,648,048; 8,685,930, and 9,248,191, protect Allergan's RESTASIS® (Cyclosporine Ophthalmic Emulsion 0.05%), used for chronic dry eye. Allergan paid SRMN $13.75 million upon transferring these patents, which SRMN licensed to Allergan for $15 million per year until the patents expire on August 27, 2024. The benefits to both Allergan and SRMN can be appreciated by the estimates of revenues for RESTASIS®:
(Chart obtained here.)
Allergan is not alone in entering into such arrangements; in August SRC (Cray) Labs LLC transferred patent rights to the tribe, and "dozens and dozens of tribes" are pursuing such arrangements, according to David Pridham, chief executive of Dominion Harbor Group as quoted by Reuters (see "Tech entity has tribal patent deal similar to Allergan's").
The concept of sovereign immunity stems from British common law, banning lawsuits against the king. Although not explicitly stated in the Amendment, the Supreme Court has interpreted 11th Amendment immunity to extend to actions of a citizen against the state in which she resides. Hans v. Louisiana, 134 U.S. 1 (1890). The rationale behind the immunity conferred by the Amendment is that the "States entered the federal system with their sovereignty intact," Blatchford v. Native Village of Noatak, 501 U.S. 775 (1991), and that "the sovereign immunity of the States neither derives from nor is limited by the terms of the Eleventh Amendment. Rather, . . . the States' immunity from suit is a fundamental aspect of the sovereignty which the States enjoyed before the ratification of the Constitution, and which they retain today," Alden v. Maine, 527 U.S. 706 (1999). However, the immunity is not absolute. It can be waived, and many states (as well as the federal government) have waived sovereign immunity in suits for tort and contract. Certain U.S. Constitutional provisions trump the immunity, such as the Bankruptcy Clause and the 14th Amendment. However, patent law does not fall within any federal law exemption, and the Supreme Court has decided expressly that States enjoy sovereign immunity against suits for patent infringement. Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999).
The various tribes of Native Americans have also been held to enjoy sovereign immunity, albeit with certain limitations that do not apply to the States. The immunity stems from common law rather than by statute or Act of Congress, Turner v. United States, 28 U.S. 354 (1919), and has been applied both to state action and private suit. United States v. United States Fidelity & Guaranty Co., 309 U.S. 506 (1940); Puyallup Tribe, Inc. v. Department of Game of State of Washington, 433 U.S. 165 (1977); and Kiowa Tribe of Oklahoma v. Mfg. Technologies, Inc., 523 U.S. 751, 755 (1998).
Congress has the power to abrogate tribal sovereign immunity, under the Supreme Court's decision in United States v. Lara, 541 U.S. 193, 200 (2004), that "the Constitution grants Congress broad general powers to legislate in respect to Indian tribes, powers that we have consistently described as 'plenary and exclusive.'" However, Congress can do so only if the intent is "clear and unambiguous" or "unequivocally expressed." Santa Clara Pueblo v. Martinez, 436 U.S. 49 (1978); see also Michigan v. Bay Mills Indian Cmty., 134 S.Ct. 2024 (2014).
For some this development, while on its face consistent with the law, rankles. In earlier sovereign immunity cases the inventors (usually university personnel) were obligated (inter alia, under the Bayh-Dole Act) to assign their inventions to the university and state universities were readily recognized as arms of the state for whom the immunity applied. Here, Allergan is unabashedly obtaining the benefit of tribal sovereign immunity in a commercial transaction. While such a transfer is well within Allergan's rights to alienate these patents as a private property right, avoidance of IPR as not only a consequence but the express intent of the transfer distinguishes this use of sovereign immunity from other instances. (And of course it remains to be seen whether patents are exclusively a private property right or more in the nature of a government grant, see Oil States Energy Services, LLC v. Greene's Energy Group, LLC).
Recent history suggests that, at a minimum, Congress will want to hear from the parties on this arrangement. But in light of earlier controversies like Mylan's Epi-Pen cost increase and the Martin Shkreli affair at a Turing Pharmaceuticals, as well as more general concerns about patent quality and validity and increasing drug costs, it is likely that there will be some effort in Congress to prevent maneuvers such as this one. The courts have made it clear that any limitation on SRMN's sovereign immunity is solely within the "plenary power" of Congress. But passage of such a measure must remain in doubt in the current political climate, given the inability of Congress to pass legislation its members seem to be much more committed to than such an esoteric question as sovereign immunity, no matter how relevant the issue may be to their constituents' access to affordable drugs.
Allergan issued a press release on the transfer.