PTAB Denies St. Regis Mohawk Assertion of Sovereign Immunity

Late Friday afternoon the Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office (USPTO) issued a decision denying the Motion to Dismiss filed by the Saint Regis Mohawk Tribe.

The Saint Regis Mohawk Tribe had filed a Motion to Dismiss in six^[1] separate inter partes review (IPR) proceedings relating to the Allergan drug RESTASIS®. The RESTASIS® patents^[2] were all assigned by Allergan to the Tribe, with the Tribe granting back to Allergan an exclusive license. The purpose of this transaction was so that the Tribe could assert sovereign immunity and defeat the jurisdiction of the PTAB, which has been a much criticized tribunal that heavily favors challengers and significantly disadvantages patent owners (see here, here, here and here, for example).

“The Tribe is a sovereign government that cannot be sued unless Congress unequivocally abrogates its immunity or the Tribe expressly waives it,” wrote attorneys for the Tribe in the Motion to Dismiss. “Neither of these exceptions apply here. As Patent Owner, the Tribe is an indispensable party to this proceeding whose interests cannot be protected in its absence.”

In the decision issued by the PTAB on Friday, the three Administrative Patent Judge panel delivering a per curiam decision wrote:

Upon consideration of the record… we determine the Tribe has not established that the doctrine of tribal sovereign immunity should be applied to these proceedings. Furthermore, we determine that these proceedings can continue even without the Tribe’s participation in view of Allergan’s retained ownership interests in the challenged patents. The Tribe’s Motion is therefore denied.

“We just got the decision late this afternoon and our team is reviewing,” Dale White, the general counsel for the St. Regis tribe, told Ed Silverman of Pharmalot. “We will huddle up next week to strategize: talk about an appeal and a stay, pending appeal. That’s all I can say right now.”

While this decision is hardly shocking given the PTAB recently denied Eleventh Amendment sovereign immunity to the State of Minnesota, it is still an extraordinary example that clearly demonstrates just how far removed from mainstream judicial thinking the PTAB has strayed. Sovereign immunity is sacrosanct in our judicial system, but the PTAB casts it away for both States and Indian Tribes as if is merely an inconvenience for them — almost as if it is nothing more than a speed bump along the way to eventually invalidating the patents in question.

Still, one particular passage from the decision shows a complete and total lack of understanding on the part of the PTAB. The panel wrote:

Furthermore, the Board does not exercise personal jurisdiction over the patent owner. At most, the Board exercises jurisdiction over the challenged patent in an inter partes review proceeding.

If this panel really believes this, if the entire PTAB really believes this, god help patent owners!

How utterly naive and tone deaf can this tribunal be? They exercise jurisdiction over the patent and not the patent owner? That is simply wrong on the facts and wrong on the law.

If the PTAB is really exercising jurisdiction over the challenged patent and not the patent owner that by definition means the PTAB exercises only quasi in rem jurisdiction, not in personam jurisdiction, or even in rem jurisdiction as the panel incorrectly suggests in footnote 6. As explained by the United States Supreme Court:

“A judgment in personam imposes a personal liability or obligation on one person in favor of another. A judgment in rem affects the interests of all persons in designated property. A judgment quasi in rem affects the interests of particular persons in designated property.”

Hanson v. Denckla, 357 U.S. 235, 246 n. 12 (1958).

The PTAB does not have power to impose an obligation, and by their own admission they are not acting in personam. The PTAB also cannot act in rem because, as we know, a decision does not settle rights as to all persons in the designated property, but rather only at best extinguishes invalidity arguments available to the challenger and their privies. Because a decision of the PTAB only implicates the rights of certain persons, and because the patent and all patent claims remains open to challenge by others in the future, that means the PTAB really believes they are asserting quasi in rem jurisdiction.

In Shaffer v. Heitner, 433 U.S. 186 (1977) the Supreme Court extended the notions of fundamental fairness expressed in International Shoe v. Washington326 U.S. 310, (1945) relating to in personam jurisdiction to the exercise of in rem jurisdiction.

The Supreme Court in Shaffer explained the difference between in rem jurisdiction and in personam jurisdiction:

If jurisdiction is based on the court’s power over property within its territory, the action is called “in rem” or “quasi in rem.” The effect of a judgment in such a case is limited to the property that supports jurisdiction and does not impose a personal liability on the property owner, since he is not before the court. In Pennoyer‘s terms, the owner is affected only “indirectly” by an in rem judgment adverse to his interest in the property subject to the court’s disposition.

Shaffer, 433 U.S. at 199 (footnote omitted).

The Supreme Court in Shaffer went further to recognize the obvious: “[A]n adverse judgment in rem directly affects the property owner by divesting him of his rights in the property before the court.” Shaffer, 433 U.S. at 206.

The Supreme Court wasn’t finished, however, going one step further to conclude that modern practice demands abandonment of the fiction that in rem jurisdiction does not act as an assertion of jurisdiction over property owners. In their own words the Supreme Court, in a decision authored by Justice Thurgood Marshall, held: “The fiction that an assertion of jurisdiction over property is anything but an assertion of jurisdiction over the owner of the property supports an ancient form without substantial modern justification.”

The PTAB defends its assertion that IPRs are an exercise of jurisdiction over property and not a person by pointing out that “a patent owner’s participation is not required, and inter partes reviews have proceeded to a final written decision under 35 U.S.C. § 318(a) even where the patent owner has chosen not to participate.” Decision at pg. 17. “The Board’s authority to proceed without the parties’ participation underscores its independent role in ensuring the correctness of granting patentable claims.” Decision at pg. 18.

Of course, this shows a frightening misunderstanding of basic, fundamental procedural rules. Even if a tribunal is exercising in personam jurisdiction the tribunal cannot mandate or order participation under pains and penalty of fine or imprisonment, at least not in America. It is always up to the parties in a proceeding to decide whether they participate. When a party does not participate with respect to an in personam proceeding the party ought to expect the issuance of a default judgment, but the tribunal’s authority to proceed without the participation of a party who has been properly notified of the action is completely irrelevant.  This justification is wholly without meaning.

And therein lies the problem the PTAB faces. The Administrative Patent Judges routinely demonstrate an acute lack of understanding relative to very basic legal matters.

In this case all three of the APJs on the panel became Administrative Patent Judges less than 10 years after they graduated from law school. One of the APJs on the panel became an Administrative Patent Judge within 5 years after graduating from law school. These APJs are conducting trials and deciding motions and cases where the loss of property rights will at times cost the patent owner millions of dollars; in some cases losing a patent can cost billions of dollars. Yet, it is all too common for APJs to have been given this extraordinary power when they were either Associates or at best Junior Partners in large firms.

The post grant challenge system operates on the basis that the procedures are an alternative to district court litigation, but the proceedings are conducted by those who are sometimes novice attorneys who still wouldn’t have the qualifications to warrant appointment as an Article III federal judge. It is no wonder they make so many mistakes, don’t understand the importance of what they write or how it either doesn’t support what they are saying or is simply flat wrong. It is also understandable how significant matters of ethical misconduct arose last year.

Many APJs are not experienced enough to have the wide breadth of knowledge and experience that supports their awesome powers. And that is perhaps more than anything the reason to explain how this tribunal has strayed so far from its original purpose. Originally this tribunal was estimated to accept 500 cases a year, but so successful have infringers become the tribunal accepts 1700 to 1800 cases a year. What was supposed to be a relatively extraordinary remedy to fix egregiously bad patents has become a routine part of virtually every patent dispute.

Whether you believe the Saint Regis Mohawk tribe deserves to dismiss these IPR proceedings by asserting sovereign immunity isn’t really the issue. Even if this winds up being the correct legal determination (which I seriously doubt), patent owners deserve better.

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[1] IPR2016-01127 (8,685,930 B2); IPR2016-01128 (8,629,111 B2); IPR2016-01129 (8,642,556 B2); IPR2016-01130 (8,633,162 B2); IPR2016-01131 (8,648,048 B2); and IPR2016-01132 (9,248,191 B2).

[2] U.S. Patent Nos. 8,685,930, 8,629,111, 8,642,556, 8,633,162, 8,648,048, and 9,248,191.