December 17, 2017

Will the Supreme Court or Native Americans Come to the Rescue of the U.S. Patent System?

The drug company Allergan has transferred its dry-eye drug Restasis patents to the Saint Regis Mohawk Tribe in upstate New York in an attempt to avoid a challenge to the validity of the patents in an Inter Partes Review before the United States Patent and Trademark Office. Allergan apparently will pay $13.75 to the tribe in exchange for the tribe claiming sovereign immunity as grounds to dismiss the challenge to the validity of the patents before the USPTO brought by Mylan. The tribe will lease the patents back to Allergan and receive $15 million in annual royalties so long as the patents remain valid. Allergan also is waiting for a decision from a federal district court in the Eastern District on the validity of the same patents, but by transferring the patents to the Tribe, the company hopes to avoid having the same issue heard in two venues. Allergan’s actions may not be as far-fetched as they appear at first blush: the USPTO has ruled, in a case involving the University of Florida, that challenges to the validity of patents held by the University should be dismissed. As an arm of the state of Florida, the university should be granted sovereign immunity.

Allergan’s actions have been criticized as an end-run around a program that was implemented by Congress in 2011 as part of the America Invents Act. In a telephone hearing on the St. Regis Tribe’s motion to dismiss the IPRs at the PTAB, Mylan’s counsel called the patent transfer a “sham transaction” on seven occasions.

At the time the AIA was enacted, most of the analysis of the Act’s impact was focused on the change from the first to invent to the first to file. However, in the subsequent six years, the biggest change was the introduction of a number of post-grant patent procedures that allow for potential infringers to attack the validity of issued patents through the Inter Partes Review (IPR) and post grant review conducted by the Patent Trial Appellate Board of the USPTO. Ostensibly the intent of this procedure was to remove defective patents or claims that were mistakenly issued. Unfortunately, it has resulted in nothing less than the destruction of the patent system.

While the USPTO “promotes misleading statistics the erroneously suggest the impact of IPR has been minimal, the truth on the ground in the real world is quite different.” From experience, many patent owners do not bring legitimate patent infringement actions out of concern that they simply cannot afford to defend an IPR that can cost upwards of $250,000. Plaintiff lawyers who previously may have brought a patent infringement action on a contingency fee basis prior to the enactment of the AIA and IPR are now put off by the almost certainty that their client will face an IPR, and a likely stay of the infringement action in federal court Moreover, there is the very high probability that the patent that is being asserted or at a minimum, a number of the claims of the patent will be held to be invalid by the PTAB. In short, there is a big difference in value between a patent that is subject to an IPR and one that is not.

According to the leading patent blog, IPWatchdog, “only 4 percent of all PTAB petitions end with a final written decision in which all claims are upheld as patentable! … Of the 1,556 patents for patent review proceedings at the PTAB that have reached final written decisions only 16 percent of those final written decisions left all claims upheld. Of the remaining percent of cases, a full 69 percent (1,076 petitions) have led to findings of all claims unpatentable; with 15 percent of final written decisions a mixture of claim findings in which at least some claims have been invalidated… The numbers move even more significantly tilted when adding in both pre- and post-institution settlements; … only 8 percent of petitions reach a final written decision of all claims upheld.”[i] Accordingly, it is not surprising that Allergan has chosen this unconventional approach to avoid the PTAB.

Fortunately, there may be hope for patent owners other than having to transfer their patents to an entity with sovereign immunity. The Supreme Court is set to hear Oil States v. Greene’s Energy, which that will consider the constitutionality of post-grant patent validity challenges in an administrative venue, as opposed to proceeding in federal district court. The question faced by the Supreme Court concerns is whether patents should be considered exclusive private property with the attendant rights that, and cannot be taken away in an administrative proceeding. In other words, to determine whether there is a private property right in one’s invention and that it cannot simply be taken away by the PTAB.

As many of the amicus curiae briefs demonstrate, there is “a striking unanimity in the judicial decisions construing decisions as private property rights,” and that the Federal Circuit is wrong in its decision that patents are “public rights.” For example, one of the briefs cites Chief Justice John Marshall from an 1813 circuit case (Evans v. Johnson) that found that “[a] patent was certainly required to make the property right enforceable, but the right itself ‘was vested in the inventor, from the moment of discovery,’ but the right itself ‘was vested in the inventor, from the moment of discovery,’ was an ‘indefeasible property in the thing discovered,’ and was being merely ‘perfected by the patent.’” According to another brief, the Supreme Court recently reiterated this understanding in Board of Trustees of Leland Stanford Junior University v. Roche Molecular Systems, where the court cites the 1890 patent case Solomons v. U.S., “whatever invention [an inventor] may thus conceive and perfect is his individual property.”

Despite the strength of the position that patents are private property rights, there is no assurance that the Supreme Court will accept this view, especially in light of the Supreme Court’s confused and confusing recent patent law decisions. But hopefully, the Court will find that patents are private property and are protected by the same due process and substantive rights as any other individual right or property. Otherwise, there are more than 500 tribes in the United States and state universities that may be interested in exploring transactions such as the one entered into by the St. Regis Tribe. Many patent owners, not just pharmaceutical companies, will undoubtedly be interested in being able to enforce their rights without the risk of having to face an IPR.

[i]  http://www.ipwatchdog.com/2017/06/14/90-percent-patents-challenged-ptab-defective/id=84343/ (June 14, 2017).

 

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