Mylan calls Allergan’s patent deal with Indian tribe a “sham” transaction in PTAB hearing on sovereign immunity defense

By Steve Brachmann
September 13, 2017

On Monday, September 11th, counsel representing multiple parties involved in an inter partes review (IPR) proceeding challenging patents covering the eye treatment Restasis marketed by multinational pharmaceutical company Allergan (NYSE:AGN) called in to a telephone hearing regarding the case at the Patent Trial and Appeal Board (PTAB). During the call, counsel representing the IPR petitioners challenging validity of the Restasis patents voiced its opposition to legal challenges posed by the recent sale of those patents to the St. Regis Mohawk Tribe, a sovereign nation which crosses the border between New York State and Canada.

Representing the St. Regis tribe was Michael Shore, partner at Shore Chan DePumpo LLP, who opened the call by informing the board that the tribe was seeking a stay on all IPR proceedings involving the Restasis patents they recently acquired from Allergan. The tribe is raising a sovereign immunity defense in the case as the tribe is a sovereign entity which is not amenable to a suit unless it consents or Congress abrogates its immunity. Shore argued that the sovereign immunity defense is based on binding Supreme Court precedent. “It would frankly be unprecedented for the board to deny the tribe the right to seek a dismissal before conducting the hearing on the merits,” Shore said.

Representing petitioner Mylan Pharmaceuticals was Richard Torczon, counsel at Wilson Sonsini Goodrich & Rosati, who voiced Mylan’s concerns over the patent sale and the tribe’s sovereign immunity defense. Torczon raised objection to the fact that Allergan didn’t pursue a meet and confer leading up to the call, arguing that the tribe has known about the issue since April. On seven occasions during the call, Torczon called the sale of the patents to the St. Regis tribe a “sham” transaction, arguing that the tribe didn’t purchase the patents but rather were paid to take them. Torczon drew parallels between the patent sale and racketeering cases in the context of lending fraud. “So facially this transaction is a sham. There’s no reason to believe that it will lead to any success,” he said.

Despite Mylan’s claims, sovereignty as a defense has been successful in overcoming IPR challenges instituted at the PTAB. A final written decision issued this January by a panel of administrative patent judges (APJs) found in favor of a sovereign immunity defense raised by the University of Florida Research Foundation under the 11th Amendment, finding that the amendment prevented Covidien as a private entity from pursuing federal claims against a state entity. The St. Regis tribe isn’t afforded 11th Amendment protections but the tribe has a similar sovereign immunity defense as the patent owner.

“Sovereignty is clearly a policy issue,” Torczon said during the hearing. “Destroying IPRs with sham transactions is a policy pattern.” Of course, Mylan is perfectly fine with any policy patterns which help its own cause, such as stacking the panel of APJs on a particular IPR trial in order to reach an outcome preferred by the director of the U.S Patent and Trademark Office. Mylan wanted to suggest that the PTAB expand the panel of APJs on the trial, despite the fact that the board has refused such expanded panel requests in the past:

“Mylan strongly suggests that if the board decides to authorize this motion that it do so in a manner that allows the director to play the director’s policy role and speak on how the director’s institution powers would be used in this context.”

Shore responded and pushed back on some of Torczon’s assertions, including the argument that the tribe had been contemplating the patent purchase since April. Shore noted that the tribe and Allergan didn’t talk to each other until August. “So this is not just something that anyone is sitting on their hands about at all,” Shore said. Although Shore acknowledged that petitioner’s counsel likely needed more time to get prepared on the tribal law issues but he maintained that tribal sovereign immunity only allowed an opposing party to make counterclaims for recoupment, and the tribe hasn’t filed an action against Mylan.

“I think that the more facts they have, I think their minds will be put at ease there’s no racketeering here or anything like that going on. And I understand it is a concern, but I think the more he knows, the more his mind will be put at ease this is a legitimate transaction.”

At the end of the call, the PTAB set an initial briefing schedule on the tribe’s sovereign immunity defense motion. The St. Regis tribe has a filing deadline of September 22nd with petitioners having until October 13th to file a 25-page response brief. The tribe will then have until October 20th to file a 15-page reply.

The Author

Steve Brachmann

Steve Brachmann is a writer located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He has become a regular contributor to IPWatchdog.com, writing about technology, innovation and is the primary author of the Companies We Follow series. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 12 Comments comments. Join the discussion.

  1. xtian September 13, 2017 8:51 am

    Litigation assistance needed –

    Under what authority (subject matter jurisdiction) will the board be acting under to adjudicate whether the tribe’s sovereign immunity claim is an appropriate shield to the IPR?

  2. Jersey Mike September 13, 2017 10:39 am

    Whether you like the PTAB or not, this is a complete sham.

  3. Anon September 13, 2017 10:48 am

    As to “sham” (and interestingly: “On seven occasions during the call, Torczon called the sale of the patents to the St. Regis tribe a “sham” transaction, arguing that the tribe didn’t purchase the patents but rather were paid to take them. Torczon drew parallels between the patent sale and racketeering cases in the context of lending fraud. ‘So facially this transaction is a sham. There’s no reason to believe that it will lead to any success,’ he said.

    Sham is a legal term of art, and in that legal context, the “other blog” has already started a discussion on the matter.

    For convenience, I am copying the reply to the assertion of sham here:

    Your point on “sham” is indeed a valid counter point to raise.

    Thank you dcl, for applying some critical thinking (and making Malcolm look even more the arse for his unthinking snipe).

    As to whether the alienable property has been transacted as to present a sham or not is, of course, a different calculus.

    Proving a sham has typically been a somewhat high hurdle. Here, that proof would likely need to show that one or both sides did not obtain some benefit of the bargain.

    I do not think that such could be shown.

    Did the tribe benefit? Surely. They obtained property at a great price.
    Did the previous property owner benefit? Just as surely***.

    Since there is benefit on both sides, the charge of “sham” will not likely stick.

    ***(provided of course, that their aim holds – others have raised interesting counter points that may throw some doubt on that)

    I note three things here:

    First, the fact that the sale price was relatively cheap is not a factor for showing sham. Instead, it plays the opposite role as it it the lever by which benefit for both sides was obtained.

    Second, the fact that a benefit (outside of tax) is the reason for the transaction is ALSO not a factor for showing sham. Such may be deemed “unpalatable” or “tricky” but such emotive feelings are not within the LEGAL calculus for sham.

    Third, There is no fact pattern here to apply the other indicators of sham. This is just not a fact pattern of bankruptcy, tax, or antitrust. The fact of the matter in that the transaction DOES have a role in trying to avoid the effect of a law is not dispositive. Otherwise, ALL “deals” that have tax consequences (including notably one mentioned here involving the very same party) would have to be reversed.

    Interestingly enough, “sham transaction” has a very specific (read that as limited) meaning. The online version of Black’s law dictionary lists that meaning as:

    A transaction that serves no purpose and provides no benefit economically but it used for the purpose of tax evasion.

    Law Dictionary: What is SHAM TRANSACTION? definition of SHAM TRANSACTION (Black’s Law Dictionary) – see link to thelawdictionary.org

    As I noted – both sides DO obtain economic benefit AND this transaction has NOTHING to do with taxes.

    I will also note that your follow-on merely reflects a fact of the circumstances of which particular ownership of property – through other laws than patent laws – have their natural wrinkles. Such “oddities” are not considered “illegal,” and are not a basis for “sham” consideration.

    I will also note that sometimes “sham” is defined more broadly.
    See link to kessler.co.uk for an excellent discussion of the broader view.

    Please recognize that this may not be binding US law and is shared merely to take the point of view that “sham” might be considered more broadly than that which Black’s Law dictionary indicates.

    I would daresay that even under such a broader view, the charge of “sham” – in its legal sense – will not stick.

    The Black’s Law dictionary link: http://thelawdictionary.org/sham-transaction/

    The foreign expanded sham discussion link: http://www.kessler.co.uk/wp-content/uploads/2012/04/Kessler_What_is_and_what_is_not_a_sham.pdf

  4. Brad September 13, 2017 11:46 am

    How is this a sentence?

    Although Shore acknowledged that petitioner’s counsel likely needed more time to get prepared on the tribal law issues but he maintained that tribal sovereign immunity only allowed an opposing party to make counterclaims for recoupment, and the tribe hasn’t filed an action against Mylan.

  5. Bemused September 13, 2017 4:26 pm

    Brad@4: What’s the issue with that sentence? I read it to mean that Allergan’s counsel was telling the panel that Mylan’s sole recourse (as a result of tribal immunity) was to make a counter-claim against Allergan (actually, the assignee which is the St. Regis Tribe). Not to file a petition for inter partes review with the PTAB.

  6. Patent Prophet September 13, 2017 8:21 pm

    A few comments:

    1. I’m jealous I did not think about this. Creativity in the legal space is rare. It will be interesting to see how others respond if this ends up working.

    2. The CAFC has labelled some arrangements “shams” in other contexts (see Cyrix v. Intel discussing Shell-Dupont case and impermissible sublicenses). This doesn’t look like a “sham” to me, but I’d say the same thing if I were Mylan’s lawyer.

    3. It will be interesting to see if “all substantial rights” issues will factor in to this. And if so how the agreements addressed them.

  7. Eric Berend September 14, 2017 11:43 am

    Some steep irony to see the term “sham” bandied about with such outraged fervor; when, the whole IPR process of the PTAB promotes endless bites at the apple, against a Constitutionally established “secure” right “for a “limited time”.

    This hypocrisy is manifest, surreal and breathtaking, in its immense scale and vicious contempt.

  8. Patent Prophet September 14, 2017 12:01 pm

    I also just read an interesting post that suggests certain predicate issues in Oil States may affect the sovereign immunity argument as well. In particular, whether IPRs are in fact judicial proceedings from which sovereign entities are immune.

    Lots to unpack.

    And, lastly, you know the PTAB is broken when a company like Allergan feels compelled to do a deal like this.

  9. CP in DC September 14, 2017 1:32 pm

    This reminds me of the pay-for-delay cases, you know, cases where alleged infringers were paid by the brand pharma to delay entry into the market. That’s right, the accused infringer was paid to settle. The Supreme court found this interesting in Actavis and did away with the practice. It took the FTC a decade to get a split in circuit courts.

    Consumer Watchdog v WARF was one of the first cases to give immunity to state universities (11th amendment). University of Florida got it at the PTAB (same grounds).

    Here, the tribe takes 13.75 million to “accept” the six patents (patents that are making 1.3 billion a year) and then get paid an additional 15 million/year for licensing back to Allergan.

    Delay tactics in ANDA litigation are nothing new. District courts proceedings are in the Eastern District against several generics Teva, Mylan, etc.

    Seeking immunity from IPR is just another way to extend patent protection. I got to give it to them, it’s creative. Apparently the tribe is also holding patents for other companies.

  10. Joachim Martillo September 16, 2017 12:05 am

    I suspect any patent issued under 35 U.S. Code § 145 — Civil action to obtain patent — would also be immune to Inter Partes Review.

  11. Joachim Martillo September 16, 2017 12:15 am

    Brad@4
    Bemused@5
    The following is not a sentence.

    Although Shore acknowledged that petitioner’s counsel likely needed more time to get prepared on the tribal law issues but he maintained that tribal sovereign immunity only allowed an opposing party to make counterclaims for recoupment, and the tribe hasn’t filed an action against Mylan.

    The following is meant.

    Although Shore acknowledged that petitioner’s counsel likely needed more time to get prepared on the tribal law issues, but he maintained that tribal sovereign immunity only allowed an opposing party to make counterclaims for recoupment, and the tribe hasn’t filed an action against Mylan.

  12. Invention Rights September 16, 2017 6:16 pm

    xtian @1 raises a good question. Do we really have a situation where 3 non-judges are the proper authority to address this question? How presumptuous of them!

    Or perhaps the unelected, unappointed, and unconfirmed person performing the functions and duties of the undersecretary of commerce is calling this one.

    It is a lawless body, accountable to no one other than their corporate infringer handlers.

Post a Comment

Respectfully add to the discussion.

Name *
Email *
Website