©2018. Published in Landslide, Vol. 10, No. 3, Janusry/February 2018, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
The America Invents Act (AIA) created new US post-grant patent challenge proceedings—including inter partes review (IPR). Conducted in the United States Patent and Trademark Office (USPTO), post-grant challenges are adjudicated by administrative patent judges (APJs) of the Patent Trial and Appeal Board (PTAB). Post-grant challenges have proved popular with patent challengers because: they are faster and cheaper than traditional district court litigation;1 the standard to invalidate a patent is lower than that employed by district courts;2 claim interpretation is broader—potentially opening up claims to a wider prior art pool;3 the ability to amend claims is practically nonexistent;4 and APJs are perceived as being more technologically savvy than judges and juries sitting in federal district courts.5
Patent quality is a perennial topic for the USPTO and the patent bar. Some stakeholders do not believe the way the USTPO conducts IPRs balances this imperative with the goal of having a strong patent system. Patents have been and are routinely invalidated in IPRs, leading some commentators to describe the PTAB panels as patent “death squads.”6 Many patent owners, if given the choice, would prefer to insulate their patents from USPTO IPR proceedings.
Eleventh Amendment Sovereign Immunity
Recently, several PTAB panels determined that state entities, such as public universities that are arms of a state, enjoy sovereign immunity to IPRs under the Eleventh Amendment of the US Constitution.7 This is an important development for at least the following reasons.
First, public universities hold significant amounts of valuable intellectual property since the Bayh-Dole Act, which allows patenting and licensing of inventions made with federal funds.8 And, in the face of declining federal funding,9 universities can create viable alternative revenue streams by licensing their intellectual property (e.g., patents and patent applications) to start-up companies.
Second, the Eleventh Amendment,10 as interpreted by panels of the PTAB, de facto creates two groups of patents: one protected from IPR challenges and one that is unprotected. All other things being equal, a protected patent is more valuable than an unprotected patent.
Sovereign Immunity as Applied to the State Entity: Covidien
In January 2017, the PTAB dismissed a trio of IPRs based on the University of Florida’s claim of sovereign immunity in Covidien LP v. University of Florida Research Foundation Inc.11 Covidien had filed three IPRs against patents owned by the University of Florida, and the PTAB concluded that state sovereign immunity applies to IPR proceedings and thus terminated them.12
First, the PTAB cited the Supreme Court decision Federal Maritime Commission v. South Carolina State Ports Authority and held that a state’s sovereign immunity could bar certain administrative agencies from adjudicating a private party’s complaint against a nonconsenting state.13 The PTAB concluded that IPR proceedings “implicate the immunity afforded to the States by the Eleventh Amendment.”14
The PTAB further noted that in Vas-Cath, Inc. v. Curators of the University of Missouri, the Federal Circuit held that the interference proceedings in the USPTO bear “strong similarities” to civil litigation.15 Relying on the observation that the IPR proceeding “largely mirrors that involved in an interference proceeding,” the PTAB concluded that “Eleventh Amendment immunity bars the institution of an inter partes review against an unconsenting state that has not waived sovereign immunity.”16
Non-State Licensee: NeoChord
After Covidien, another PTAB panel determined that sovereign immunity applies to the University of Maryland as a state entity and thus dismissed it from the IPR proceeding.17 The key question, however, was whether to terminate the IPR against the remaining non-state entity party, an exclusive licensee.
In NeoChord, Inc. v. University of Maryland, Baltimore, the PTAB noted that the university retained certain rights under the licensing agreement, such as the right to sue a third party for infringement if the licensee fails to do so, and therefore transferred less than “substantially all” rights to the licensee. Accordingly, the panel concluded that the university remained a “necessary and indispensable party” and thus terminated the proceeding.18 Under NeoChord, the dismissal of the state entity licensor can practically extend sovereign protection to the non-state licensee, as discussed in detail below.
Non-State Co-Owner: Reactive Surfaces
In Reactive Surfaces Ltd., LLP v. Toyota Motor Corp., the PTAB maintained an IPR even after dismissing the Regents of the University of Minnesota on sovereign immunity grounds.19 The panel stressed that, unlike the licensor-licensee relationship in NeoChord, the absent sovereign party and the remaining nonsovereign party are co-owners holding identical interests in the patent.20 It thus concluded that the IPR may continue because the remaining party would adequately represent the sovereign party’s interest in the patent.
If the distinction between NeoChord and Reactive Surfaces survives, it may be a logical approach for a co-owner to give up its ownership stake to a sovereign co-owner in exchange for an exclusive license on the patent.
Judicial Review of the PTAB Decisions
The Supreme Court held in Cuozzo Speed Technologies, LLC v. Lee that § 314(d) of the AIA bars judicial review of the USPTO’s preliminary decision to institute IPR.21 The Court, however, did leave the door open by stating that § 314(d) “may not bar consideration of a constitutional question.”22 A question of sovereign immunity under the Eleventh Amendment may be precisely what the Supreme Court envisioned.
Waive Sovereign Immunity in the USPTO by Filing Patent Infringement Suit?
Where sovereign immunity is present, a prospective patent challenger might consider waiting until the state entity files a patent infringement suit in a federal court, potentially waiving sovereign immunity. Indeed, the Covidien panel expressly declined to decide “whether the existence of such a case would effect a waiver of sovereign immunity.”23 However, in this regard, the Federal Circuit has shown reluctance to extend waiver of sovereign immunity from one suit to a separate suit, let alone one in a completely different forum.24 Accordingly, it is possible that sovereign immunity at the PTAB would remain intact even if a state entity filed an infringement suit in a federal court.
Tribal Sovereign Immunity: Allergan IPR
The question of the metes and bounds of sovereign immunity, in this case tribal sovereign immunity, is currently being tested by a global pharmaceutical company, Allergan, which owns six Orange Book–listed patents relating to the blockbuster drug Restasis. Competitors, looking to remove these barriers to entry, filed IPR challenges against all six patents.25 Aiming to protect its patents, Allergan transferred ownership of the patents to the Saint Regis Mohawk Tribe.26 In turn, the Tribe granted Allergan exclusive licenses.27 Under the agreement, the Tribe will receive $13.75 million and will be eligible to receive $15 million in annual royalties.28 As the owner of the patents, the Tribe announced plans to rely on the Covidien and NeoChord decisions in motions to dismiss the IPRs.29
Allergan is not alone. SRC Labs LLC, for example, has also transferred patent rights to the Tribe.30 Still, it is not clear whether tribal sovereign immunity will ultimately provide the same protection as state sovereign immunity, as the Supreme Court has held that state sovereign immunity is rooted in the Constitution, while tribal sovereign immunity is a creation of federal law.31
Patent owners are closely watching developments in this area.32 If Allergan’s approach succeeds, some may argue that the failure to counsel a client with valuable intellectual property to implement this or a similar approach could even constitute malpractice. This may be especially true if courts determine that tribal immunity prohibits attacking patents in district court on invalidity and inequitable conduct grounds, leaving noninfringement as the sole dispute at issue.
Practical Implications for PTAB Practice
First, many patent owners will likely make deals to insulate their patents against IPRs. Sovereign entities, such as public universities, Indian tribes, or entities owned by a foreign country, may also approach patent owners to propose similar arrangements. Lawyers will also increasingly counsel their patent owning clients to consider entering into these arrangements.
In particular, transaction counsel will look to include, in licenses to university and tribal patents, provisions specifically enumerating that there is no waiver, or only limited waiver under certain conditions, of sovereign immunity. In fact, based on the distinction between NeoChord and Reactive Surfaces, licensing agreements could become preferred to joint research agreements—provided the license is appropriately crafted and fully accounts for patent statutory provisions and considerations.
Second, licensing fees and running royalties paid to sovereign entities may result in product price increases that could be passed on to consumers.
Third, Congressional and USPTO oversight of the PTAB may become more hands-on, as some have opined that any unintended consequences of PTAB sovereign immunity decisions might lie not with the PTAB, but with its oversight.33
Finally, district court litigation would take on an increasing importance in adjudicating patent proceedings—perhaps with an emphasis on refereeing noninfringement arguments.
Many questions remain as authority on state and tribal sovereign immunity evolves. And the issues raised by state and tribal sovereign immunity might be an opportunity for a reset. For example, the USPTO might wish to consider (1) increasing director oversight of the PTAB, and (2) implementing the routine ability to amend claims during IPRs, as in European oppositions.
In any event, these cases surely will not be the final word on sovereign immunity for patent holders, as they arguably abrogate congressional intent expressed in the AIA. Of course, sovereign immunity from IPRs would be moot if the Supreme Court holds that IPRs are not constitutional.34 But one thing is certain: interested parties should keep abreast of the latest developments, regularly consult counsel, and be prepared to take appropriate legal action.
1. Am. Intellectual Prop. Law Ass’n (AIPLA), 2015 Report of the Economic Survey 37, 43 (2015).
2. See 35 U.S.C. §§ 282(a), 316(e).
3. Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2134 (2016).
4. Patent Trial and Appeal Board Motion to Amend Study, USPTO (Apr. 30, 2016), https://www.uspto.gov/sites/default/files/documents/2016-04-30%20PTAB%20MTA%20study.pdf.
5. Jennifer R. Bush, Administrative Patent Judges: Not Your Typical Federal Judge, Fenwick & West LLP (July 10, 2014), https://www.fenwick.com/publications/pages/administrative-patent-judges-not-your-typical-federal-judge.aspx.
6. Rob Sterne & Gene Quinn, PTAB Death Squads: Are All Commercially Viable Patents Invalid?, IPWatchdog (Mar. 24, 2014), http://www.ipwatchdog.com/2014/03/24/ptab-death-squads-are-all-commercially-viable-patents-invalid/id=48642.
7. Sovereign Immunity: A Post-Grant Tool for Patent Owners?, PTAB Rev. (Wilson Sonsini Goodrich & Rosati, Palo Alto, Cal.), June 2017, at 4, https://www.wsgr.com/email/PTAB-Review/2017/June/PTAB-Review-June-2017.pdf.
8. 35 U.S.C. §§ 200–212.
10. U.S. Const. amend. XI (“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.”).
11. Nos. IPR2016-01274, 01275 & 01276, Paper No. 19 (P.T.A.B. Jan. 25, 2017).
12. Id. at 39.
13. Id. at 5–8 (citing Fed. Mar. Comm’n v. S.C. Ports Auth., 535 U.S. 743, 753–61 (2002)).
14. Id. at 24.
15. Id. at 3 (citing Vas-Cath, Inc. v. Curators of the Univ. of Mo., 473 F.3d 1376, 1383 (Fed. Cir. 2007)).
16. Id. at 25, 27.
17. NeoChord, Inc. v. Univ. of Md., Balt., No. IPR2016-00208, Paper No. 28 (P.T.A.B. May 23, 2017).
18. Id. at 19–20.
19. No. IPR2016-01914, Paper No. 36 (P.T.A.B. July 13, 2017).
20. Id. at 15.
21. 136 S. Ct. 2131, 2134 (2016).
22. Id. at 2136.
23. Covidien LP v. Univ. of Fla. Research Found., Nos. IPR2016-01274, – 01275 & – 01276, Paper No. 19, at 26 n.4 (P.T.A.B. Jan. 25, 2017).
24. See A123 Sys. Inc. v. Hydro-Quebec, 626 F.3d 1213, 1219–20 (Fed. Cir. 2010) (holding immunity waiver “does not extend to an entirely separate lawsuit, even one involving the same subject matter and the same parties”); Biomedical Patent Mgmt. Corp. v. Cal., Dep’t of Health Servs., 505 F.3d 1328, 1339 (Fed. Cir. 2007) (same).
25. Wilson Sonsini Goodrich & Rosati represents Mylan Pharmaceuticals Inc., a petitioner, in this matter.
26. Press Release, Allergan plc, Allergan and Saint Regis Mohawk Tribe Announce Agreements Regarding RESTASIS® Patents (Sept. 8, 2017), https://www.allergan.com/news/news/thomson-reuters/allergan-and-saint-regis-mohawk-tribe-announce-agr.
29. Katie Thomas, How to Protect a Drug Patent? Give It to a Native American Tribe, N.Y. Times, Sept. 8, 2017, https://www.nytimes.com/2017/09/08/health/allergan-patent-tribe.html?mcubz=0&_r=0.
30. Jan Wolfe, Tech Entity Has Tribal Patent Deal Similar to Allergan’s, Reuters (Sept. 12, 2017), https://www.reuters.com/article/us-allergan-patents/tech-entity-has-tribal-patent-deal-similar-to-allergans-idUSKCN1BN35X.
31. Kiowa Tribe of Okla. v. Mfg. Techs., Inc., 523 U.S. 751, 756 (1998).
32. Thomas, supra note 29.
34. See Oil States Energy Servs., LLC v. Green’s Energy Grp., LLC, 639 F. App’x 639 (Fed. Cir. 2016), cert. granted, 137 S. Ct. 2239 (2017).