Court Not Impressed With Sneaky Plan To Sell Patents To Native Americans To Avoid Review... But New Lawsuits Filed

from the and-on-and-on-and-on dept

A few weeks ago, we wrote about a hellishly sketchy plan by a drug company, Allergan, to avoid the process as known as "Inter Partes Review" of its weak patents. In the weeks since that post a bunch has happened, but before we catch you up, a refresher is important. One of the biggest problems of the patent system for years has been the US Patent Office's willingness to grant terrible patents. This is only partially the Patent Office's own fault -- as some of it is just the nature of how our patent system is designed. As it is, patent examiners have limited time to review patents, and all of the incentives are to approve them, rather than reject them (a rejection can be endlessly appealed, granting gets it off the examiner's plate and improves the "productivity" of the office). On top of that, there's no adversarial process -- an examiner only gets info on why the patent should be granted, and not reasons it shouldn't. In an age where unscrupulous patent attorneys push to patent absolutely everything and many view patents as a lottery ticket, you have a situation where an overwhelmed Patent Office is approving a ton of bad patents, and letting the courts deal with it down the road.

That, of course, has been a disaster for actual innovators who don't have time and money to waste in court fighting bogus patent lawsuits. In the last round of patent reform, the America Invents Act, in 2010, a small, but smart, change was added to the system: the IPR setup. The idea was that it was a way to get a tribunal at the patent office to take another look -- by creating the adversarial process that is lacking from the original patent review process. This enables third parties to raise issues about the patent to the tribunal -- called the Patent Trial and Appeal Board (PTAB) -- and lets the PTAB review whether the patent should have been granted in the first place. Many patent system supporters hate the whole IPR thing, because they don't like the fact that their bad patents can be more easily invalidated. It certainly cuts off one part of the patent troll shakedown game. The Supreme Court is currently considering a case right now to throw out the PTAB as unconstitutional, while Congress has been kicking around ideas to kill it as well.

In the meantime, though, some lawyers have come up with a truly sneaky, and truly awful "work around" that they've basically now productized. After a decision by the PTAB earlier this year to refuse to even hear an IPR request involving a patent held by the University of Florida after the University (a part of the state of Florida) argued "sovereign immunity", lawyers realized that anyone could get out of the IPR process if they just "sold" their patent to a government entity who could claim sovereign immunity. From there is was only a few logical leaps to realize that Native American nations could claim such sovereign immunity. Hence, the deal to "sell" Allergan's patents to the St. Regis Mohawk Tribe.

Basically everyone recognizes this is a sham sale. The St. Regis Mohawk Tribe has no interest in this patent. Or the other patents its now "buying." It just gets some cash, which the original patent holder finds worth paying because it helps them avoid the IPR process. Everything gets "licensed" back to the original patent holder anyway, so the actual transaction is quite clear: patent holders paying Native American tribes solely to avoid a review by the patent office of their sketchy patents.

When the Allergan deal became public, lots of people grew concerned. It seemed like such a naked attempt to game the system. The House Oversight Committee began investigating the issue, noting its serious concerns with what was happening.

On top of that, the issue flowed into the case involving the patents in question. Remember: the IPR process is handled at a special tribunal at the patent office. But there can still be lawsuits going on in parallel, and that's what was happening with Allergan in its patent fight against Teva Phramaceuticals (who is challenging the validity of Allergan's patents). The case still goes on no matter what happens with the IPR process, but Teva raised the issue of whether or not the Mohawk tribe now needed to become a plaintiff in the case too. After a pretty quick back and forth of papers flying in the court, the judge has, in fact, added the tribe as a plaintiff to the case, while issuing an order that raises serious concerns about this practice of laundering the patents through a Native American tribe to avoid IPR. While the court doesn't directly claim that the transfer is invalid, it certainly suggests the court does not look kindly on the practice:

The Court has serious concerns about the legitimacy of the tactic that Allergan and the Tribe have employed. The essence of the matter is this: 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. This is not a situation in which the patentee was entitled to sovereign immunity in the first instance. Rather, Allergan, which does not enjoy sovereign immunity, has invoked the benefits of the patent system and has obtained valuable patent protection for its product, Restasis. But when faced with the possibility that the PTO would determine that those patents should not have been issued, Allergan has sought to prevent the PTO from reconsidering its original issuance decision. What Allergan seeks is the right to continue to enjoy the considerable benefits of the U.S. patent system without accepting the limits that Congress has placed on those benefits through the administrative mechanism for canceling invalid patents.

If that ploy succeeds, any patentee facing IPR proceedings would presumably be able to defeat those proceedings by employing the same artifice. In short, Allergan’s tactic, if successful, could spell the end of the PTO’s IPR program, which was a central component of the America Invents Act of 2011. In its brief, Allergan is conspicuously silent about the broader consequences of the course it has chosen, but it does not suggest that there is anything unusual about its situation that would make Allergan’s tactic “a restricted railroad ticket, good for this day and train only.”...

Although sovereign immunity has been tempered over the years by statute and court decisions, it survives because there are sound reasons that sovereigns should be protected from at least some kinds of lawsuits. But 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 is 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.

The court doesn't go quite that far, noting that it doesn't need to determine this issue at this time, and the issue maybe better suited for the PTAB rather than federal court, but it certainly is noteworthy to see such strong language condemning the plan. Of course, that ruling was probably the least of Allergan's worries, as at the same time, the judge also invalidated the patents in question for obviousness. This post is about a different aspect of Allergan's sketchy plans, so we won't even bother digging into the 100+ pages in the judge's decision on this, other than to note that it appears to include even more sketchy behavior on the part of Allergan.

Of course, this is not stopping others from following in Allergan's footsteps. Just days after that court ruling, the very same "Mohawk Tribe" had magically teamed up with a company called SRC Labs, and filed a patent infringement case against Amazon and Microsoft. SRC Labs, if you're wondering, appears to be the estate of Seymour Cray, the founder of Cray Inc. (who was just involved in another important case unrelated to all of this). And, this is not the only such case.

It's hard to see this loophole lasting very long. Hopefully the IPR process survives the various challenges its facing, but on top of that, hopefully the PTAB and/or the courts, shut down this obvious gamesmanship for patent holders to avoid accountability.


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  • icon
    Vidiot (profile), 20 Oct 2017 @ 2:12pm

    Revenge is mine, sayeth the tribe

    The bitter memory of swapping Manhattan for $24 worth of beads is a powerful motivator; native tribes have learned well from their oppressors.

    reply to this | link to this | view in chronology ]

    • icon
      JoeCool (profile), 20 Oct 2017 @ 6:06pm

      Re: Revenge is mine, sayeth the tribe

      Good old US History... is all wrong. This is another one of those tall tales that SOMEHOW wound up in history books. The Dutch purchased Manhattan for the equivalent of 60 guilders, and it wasn't in beads. The purchase agreement for Manhattan has been lost in time, but considering how the Dutch paid for Long Island (whose agreement WASN'T lost), they paid in cloth, clothes (including boots), lead, axes, and modern muskets. At the time, the land was unimproved hunting grounds, so they got their money's worth.

      reply to this | link to this | view in chronology ]

  • icon
    Wyrm (profile), 20 Oct 2017 @ 2:14pm

    Pre-emptive attack

    If companies try to - so obviously - circumvent the IPR process, the PTO has an equivalent - and more obvious - reply available to them: stop granting patents, at least not so easily.
    If patent granting takes much longer and fails more often, companies might reconsider using such dubious tactics.
    They can start with more thorough evaluation of patents requests coming from companies that have already demonstrated this kind of behavior (Allergan, SRC) in the hope of just discouraging others.
    If that doesn't work, then let this be the default behavior.

    Of course, all this assumes the PTO is interested in solving the problem.

    reply to this | link to this | view in chronology ]

  • icon
    TKnarr (profile), 20 Oct 2017 @ 3:14pm

    The judge might consider something even more drastic: not only adding the tribe as a plaintiff but removing Allergan as a plaintiff. After all, according to Allergan's own claims they don't hold the patent and therefore don't have standing to sue the PTAB over the proceedings. They used to have standing, but they gave it up when they sold the patent and now they're merely a licensee. That should just make Allergan's day.

    reply to this | link to this | view in chronology ]

    • icon
      Bergman (profile), 20 Oct 2017 @ 5:12pm

      Re:

      It would be especially ironic if the court ruled that the patent remains in effect on the tribe's reservation because they have sovereignty there, but that outside those tribal lands, the patent is invalidated.

      That would allow everyone BUT the tribe to get the drug cheaply, while the tribe would be held to the license agreement, and the stupidly high prices Allergan charges.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 20 Oct 2017 @ 3:19pm

    Just give it some time before Congress and the President pass a bill into law banning this. Outrage is sure to set the American public on fire.

    reply to this | link to this | view in chronology ]

    • icon
      That One Guy (profile), 20 Oct 2017 @ 3:44pm

      Re:

      One has already been proposed in fact.

      Clocking in at a whopping two pages, the bill would neatly and precisely close the loophole being exploited here by making it clear that the sovereign immunity can not be used to dodge the IPR process.

      'SECTION 1. ABROGATION OF TRIBAL IMMUNITY IN CERTAIN PATENT CLAIMS.

      • (a) DEFINITION.—In this section, the term ‘‘Indian tribe’’ has the meaning given the term in section 4 of the Indian Gaming Regulatory Act (25 U.S.C. 2703).
      • (b) ABROGATION OF IMMUNITY FOR PURPOSES OF INTERPARTES REVIEW.—Notwithstanding any other provision of law, an Indian tribe may not assert sovereign immunity as a defense in a review that is conducted under chapter 31 of title 35, United States Code.'

      reply to this | link to this | view in chronology ]

      • icon
        Bergman (profile), 20 Oct 2017 @ 5:13pm

        Re: Re:

        It doesn't even require a law to be passed. The tribe's sovereignty ends at the border of their tribal lands. The fact they consider a patent valid has no legal weight a millionth of an inch past that border.

        reply to this | link to this | view in chronology ]

  • icon
    That One Guy (profile), 20 Oct 2017 @ 3:29pm

    Well if you're not willing to play by ALL the rules...

    Seems that if the troll wants to avoid one part of the law with regards to patents they shouldn't be allowed to enjoy the other parts either. If they don't want their patents to fall under the law with regards to the IPR process then it seems only fair to say that it doesn't fall under the rest of the patent law, and is therefore immediately invalidated, as though the patent had never been granted in the first place.

    reply to this | link to this | view in chronology ]

  • identicon
    Andrew D. Todd, 20 Oct 2017 @ 9:01pm

    Phony Sovereign Immunity

    I think the soundest approach to Sovereign Immunity in patents is to argue that the defense of patent invalidity is actually a counter-suit which the defendant brings against the United States Patent Office., for a declaration that there is no such patent. That said, the patent holder is not properly a party. The patent office, out of its institutional laziness chooses not to defend such patents, and allows the patent holder to do so, but that does not make the patent holder a party. That said, the states do not have the constitutional power to grant copyrights, patents, and trademarks. The granting of a patent, and, by extension, its re-examination is inherently a federal matter. That said, the patent office's various boards are not exactly disinterested entities. The patent office has a long tradition of intentionally working with patent trolls, amounting to racketeering.

    State Sovereign Immunity, as defined in the Eleventh Amendment, of 1795, does not say that a state cannot be sued, only that it must be sued within its own courts, or else that its own citizens may sue it in federal court. The amendment fits into a pattern found in other parts of the "framer's" constitution," restricting the application of federal power to designated federal purposes. The Eleventh Amendment was substantially impaired by the Fourteenth Amendment, with its guarantees of civil rights independent of state law.

    The Eleventh Amendment grew out of Chisholm vs. Georgia (1792), an attempt by Alexander Chisholm, in South Carolina, to collect monies owed by the State of Georgia. Georgia was only sixty years old in 1972, whereas South Carolina was a hundred and twenty years old, old enough to have capitalists who could afford to lend money to state governments, and wait twenty yearts or more for repayment. Under the Eleventh Amendment, Chisholm's remedy would have been to sell the debts to some Georgian, who would have had every right to pursue them in both state and federal court. One can assume that Chisholm had many friends and relatives who had moved to Georgia and Alabama, because that was the way settlement was flowing. Payment of government debts arising from the Revolutionary War was a very touchy subject at the time, and there might have been a sense that it was best resolved locally. There were lots of Tories in the British West Indies who would have liked to sue the state of Georgia for estates which have been forfeited because they were Tories. There were a lot of British merchants , wanting to sue Southern planters for bad debts from before the Revolutionary War. People on the frontier didn't like paying debts to people back in "civilization." Saying that someone local had to be involved in collecting debts, one way or another, was a reasonable and pragmatic compromise. Now, a company which is being sued by a state university for patent infringement can presumably find a local entity which does have the right to sue the state university in federal court fro patent invalidity.

    https://en.wikipedia.org/wiki/Eleventh_Amendment_to_the_United_States_Constitution

    https:/ /en.wikipedia.org/wiki/Chisholm_v._Georgia

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 21 Oct 2017 @ 2:13am

    I'm surprised Ronald J. Riley hasn't been showing up in these threads. East Texas no longer being the haven that it is, he must be getting pretty antsy.

    reply to this | link to this | view in chronology ]

    • icon
      JoeCool (profile), 21 Oct 2017 @ 8:58am

      Re:

      He's probably moving to Delaware - I'm sure the courts there are in a bidding war to get his services for all the companies incorporated there.

      /wish I were joking...

      reply to this | link to this | view in chronology ]

  • identicon
    Douglas Coulter, 21 Oct 2017 @ 9:11am

    Some changes were very bad in "patent reform"

    As someone who sometimes uses the patent system for my own real inventing...

    The change from "first to invent" to "first to file" totally favors companies who can afford to patent every brain-fart that anyone ever had, in hopes that someone will actually make a working version of that brain-fart, and be available, with profits for $BigCorp to sue them for, even if $BigCorp didn't do squat with the invention, or even make it work.

    In my fusion work, I started a forum/website to publish my work freely - which would have been (and was) fine under the first to invent doctrine - I had no intention of milking it for bucks, and with my proof of prior art, I could prevent some troll from patenting my work and profiting at the expense of the innocent.

    That changed..As it stands now, $BigCorp/MIC can steal my work, patent it, charge you for using it, even admit they stole it from me (and the world) and that's just fine with the law..

    In case you haven't been watching as long as my 64 years, this isn't a partisan thing...the color of a politician's tie has nothing to do with the best government money can buy.

    This leaves me with the option of giving my work to evil trolls, or spending another $20k or so I can't easily spare so as to give away the work I already spent much time, effort, and yes, $$$ to create. I don't like that.

    reply to this | link to this | view in chronology ]

    • identicon
      Wendy Cockcroft, 24 Oct 2017 @ 5:46am

      Re: Some changes were very bad in "patent reform"

      I feel for you, Douglas. Is there any advantage in collaborating on an open source basis? That way you can benefit from other people using your work and still make money from it because the license means that anyone can do so.

      reply to this | link to this | view in chronology ]


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