As readers of this blog are aware, there has been a great deal of publicity generated by the recent patent sale and assignment by Allergan to the St. Regis Mohawk Tribe. A transaction ostensibly targeting the America Invents Act and designed to avoid the “killing fields” of the Patent Trial and Appeals Board (PTAB). The irony should not go unnoticed that Native Americans who historically had their property and rights taken away by egregious and discriminatory action by the United States government, are now the very same people rescuing inventors who are today losing their property and rights to egregious and discriminatory action by the very same government. Indian tribes are acquiring patents and using tribal sovereign immunity to preclude unjustified takings of patents by the discriminatory and corrupt PTAB, thus saving inventors from losing their private property rights.
Yet, this emerging business model by Native American tribes has proven to be controversial, with critics even going so far as to allege these are sham transactions. But interestingly, these very same critics didn’t seem to have any problem when the University of Florida (a public university of the state of Florida) asserted its sovereign immunity to preclude PTAB review of university-owned patents. Why is it now alleged that Native American tribes who are doing the very same thing – using their sovereign immunity to preclude PTAB review of their intellectual property – are engaging in inappropriate or fraudulent behavior or somehow gaming the system?
Tribes are sovereign in a similar way that states are sovereign, but there are important differences. Tribal lands are held in trust by the federal government and thus cannot be collateralized for investment and development, and tribes do not have a tax base to speak of. So by treaty the majority of funding that runs tribal governments and supports their native members comes from the federal government. This federal funding and other programs are intended to help the tribes become economically independent. With these funds and programs, a few tribes have been able to start tribal businesses owned by the tribe to create an economic engine that can at least partially support the tribe. Overall, these tribal businesses are successful at bringing economic development and jobs to Indian Reservations.
Most people only know about the casinos and tax free cigarette shops, but tribal businesses go far beyond those stereotypical businesses. Tribal businesses are involved in many sectors including electronics, oil & gas, manufacturing, distribution, logistics and much more. Many employ not only natives on the reservation but others across the country. Tribal businesses contribute millions of dollars to the economies of reservations and of the US. States, on the other hand, get their funding by taxing their people and some even attempt to tax the tribes in one way or another.
I met recently with one such tribal enterprise in North Dakota, Mandaree Enterprises LLC, which is owned by the Three Affiliated Tribes of the Fort Berthold reservation, in order to gain a better understanding of tribal sovereign immunity in the context of intellectual property. Based on my discussions with the folks at Mandaree Enterprises, set forth below is an overview of how patent owners can partner with Native American tribes to create a level playing field with infringers while possibly avoiding the anti-inventor/anti-patent PTAB. It should be noted upfront that I’m not an attorney so you should seek your own independent legal advice and not rely on this article which is not intended to offer legal advice or substitute for obtaining the advice of legal counsel. Also, this article (due to space constraints) is necessarily incomplete in that it focuses on only one aspect of this type of structure, but there are many other benefits of teaming up with a tribe.
In general, a sovereign cannot be sued unless they submit to the authority and jurisdiction of the court. For example, you cannot sue your state government for some wrong they committed against you unless the state has consented to such suit. Likewise, you cannot sue an American Indian tribe (or a commercial entity owned by such tribe) unless it has consented to such suit. In other words, both states and American Indian tribes enjoy sovereign immunity meaning that before a suit can proceed, there must be consent to the suit or a waiver of this immunity which subjects the sovereign to the authority of the court in which they are being sued.
This means that an infringer cannot file a declaratory judgement (commonly, called a “DJ Action”) against a tribe asking a court to find that they do not infringe a tribal owned patent or that the patent at issue is invalid. As a practical matter, a DJ Action starts a patent infringement suit whether you are prepared for it or not. In the same way, a party cannot file or maintain a petition for inter partes review (or covered business method review or post-grant review) unless the sovereign submits to the authority of the PTAB.
This sovereign power creates a favorable environment in which your patent may be licensed without risking millions of dollars in legal costs and losing years of your patent’s enforceable life, and importantly, without burdening the courts with unnecessary litigation when things can be settled out of court.
Under the present system we have today in the United States and under current law, if you contact an entity with evidence of their infringement and to discuss the possibility of licensing your patent, you are putting yourself at risk of having a DJ Action filed against you. That means the infringer can force you into a court of their choosing (which I bet won’t be the EDTX) half way across the country in San Jose, CA or Wilmington, Delaware. So, before you contact an infringer to discuss licensing your patent, you better have a few million dollars tucked away for legal fees and expenses to defend against the inevitable DJ Action and be fully prepared to go to court. If you are lucky enough to avoid a DJ Action, and thanks to the grossly unfair American Invents Act which gave rise to the anti-patent PTAB, an accused infringer can always file an unlimited number of petitions for PTAB review of your patent. As a practical matter, this means a potential outlay of hundreds of thousands (or even millions) of dollars for legal fees and expenses to defend your patent at the PTAB while locking up your patents (district courts routinely stay parallel district court proceedings while PTAB review and the subsequent Federal Circuit appeal are on-going) from anywhere from three to five years (or more). Of course, the PTAB is so popular with infringers because over 90% of patent claims that are subjected to the PTAB review are invalidated which renders such claims worthless for purposes of licensing. Even worse, if an infringer doesn’t want to appear like they are bullying an independent (i.e. small) inventor, they can hire a third party mercenary to file petitions for review at the PTAB which allows the infringer to remain anonymous while the inventor is forced to spend hundreds of thousands of dollars (or more depending upon the number of petitions filed against the patent) at the PTAB while losing years off the patent’s enforceable life.
Native American tribal sovereign immunity thwarts both of these dilatory infringer tactics and repositions the negotiation to where it needs to be – outside of the courthouse. The tribe can inform detailed information to the infringer of their infringement and offer to enter into licensing negotiations without fear of being subjected to a DJ Action. Thus, the tribe can inform the infringer of their infringement and unless the tribe sues the infringer, the infringer will not be able to play the litigious gamesmanship or file the unending and procedurally unfair PTAB procedures. In sum, sovereign immunity equalizes the bargaining power between the inventor and the infringer and sets the negotiation table fairly.
Working with an American Indian tribe also precludes some of the scorched earth litigation tactics (including, often arguably frivolous claims) that infringers often use in an effort to drown a patent owner in litigation costs. For example, it is not unheard of for an infringer to launch an attack (either through a DJ action or through petitions for review at the PTAB) on other patents owned by the inventor holder that are not related to case against the infringer. This course of action is designed to burden the inventor with rapidly rising legal costs that can deplete all of theirs funds, thus forcing capitulation or licensing terms favorable to the infringer. Sovereign immunity thwarts these types of ancillary attacks because they are not available to infringers who are in litigation a sovereign.
Isn’t it paradoxical that Native Americans who suffered so many injustices by losing their cultural identity, property and much more are the very same people that could bring about an end to the injustices being perpetrated against American inventors and their property rights by the current patent system in this country?
But back to my initial question: Why are so many critics calling this arrangement a sham?
Senator McCaskill (D-MO) seems to think that Indian Tribes asserting sovereign immunity is a sham and she has introduced legislation that would end tribal sovereignty as it applies to patent ownership. This raises a real and serious question: Why should a university be allowed sovereign immunity while denying sovereign immunity to a Indian tribes? Why should it be illegal for Native American tribes to participate in commerce as sovereign nations just as we agreed to in hundreds of treaties — the same treaties we have so often broken to the peril of Native Americans.
If the tribes offer a way to make patent licensing more efficient, more productive, and more fair, and that also alleviates the courts of their already overworked dockets, why not allow it? Why not go the other way and eliminate the PTAB and restrict DJ actions? All of the very positive benefits that tribal sovereign immunity creates for inventors and small entities aside, it immeasurably helps down-trodden American Indian tribes develop their economies without taxing already poor and underprivileged Native Americans or burdening the federal government by paying subsidies.
Are critics decrying partnering with American Indian tribes because it increases the chances that an inventor will achieve a reasonable outcome and return for the hard work and investment that went into their invention? Or are critics alleging it is a sham because infringers can no longer use all of the frivolous and unfair tools at their disposal in litigation?
Or is the real reason that it is an American Indian tribe?