A number of entities are immune from IPR proceedings, by virtue of having sovereign status. Such entities include state governments, the federal government, and Native American tribes.

While the validity of patents belonging to these entities may still be challenged in federal court, this is a much longer and more expensive alternative – these considerations may be sufficient to prevent a party from challenging the validity of a patent altogether.

Allergan’s Restasis patents

In the past there have been numerous attempts by patent holders to exploit this exception by assigning their patents to these sovereign entities, resulting in many successful dismissals of IPRs. In a recent example Allergan, the manufacturer of a treatment for dry eyes (called “Restasis”), transferred six US patents covering this product to the Saint Regis Mohawk tribe. In exchange for this transfer and the exclusive licensing of the patents back to Allergan, the tribe received $13.75 million up-front in addition to $15 million per year in royalties from Allergan. Upon completion of the transfer, the tribe filed a motion to dismiss all outstanding IPRs against these patents in view of the tribe’s sovereign immunity.

This represents good value for money to Allergan; IPRs that run their full course have a success rate of 81% in either invalidating (65%) or restricting the scope of protection (16%) of a patent. Given that Restasis is Allergan’s second largest product (accounting for around $1.5 billion of income annually), this financial outlay is a small price to pay for the dismissal of the IPRs.

Is sovereign immunity an IPR loophole?

There have been many concerns raised about the impact of the exploitation of such “loopholes” in the law; by dismissing the IPRs, companies may be artificially extending the life of patents that should not be in force. This could therefore be seen to be artificially restricting competition in the market, which may be damaging to competitors and consumers alike. As one competitor stated in this case, this process of avoiding IPRs is:

a new and unusual way for a company to try to delay access to high-quality and affordable generic alternatives.

In October 2017 several of Allergan’s US patents relating to Restasis were invalidated by a federal judge in Texas, so Allergan’s efforts to protect their patents were in vain. Nevertheless, this case (as well as other recent cases in which similar transactions have occurred) has highlighted the existence of this loophole and may well lead to changes in legislation to prevent its exploitation in future.

Adapting the IPR process

Alternatively, it may be the case that the IPR process is adapted so as to remove the incentive to exploit such a loophole. One such modification could be that of modifying the claim construction – the rules for the IPR process state that the “broadest reasonable construction” shall be used. This means that the claims are often given a broader scope than they would be in court, which may lead to patents being invalidated much more frequently in IPR than in court. This may be seen as unfair by patentees, as they would likely not be afforded this same claim scope were they to seek to enforce the patents.

In short

The take-away message from this would appear to be that an IPR is a very effective tool for challenging validity of granted US patents - and it is likely that as loopholes such as the exploitation of sovereign state are closed this tool will become even more valuable.

In addition to this, it appears that it would not be worth the expenditure to try and shield patents from IPR in this manner in the case that it is expected that a patent would be invalidated in a federal court anyway.