Pharmaceutical giant, Allergan, may have found a loophole in the patent system to extend its monopoly over its drug, Restasis. Generic drugmakers sought to invalidate Allergan’s patents on the dry eye medication in order to introduce generic, less expensive versions of the drug to consumers. These companies, led by Mylan, brought suit in district court as well as an inter partes review (IPR) proceeding before the U.S. Patent Trial and Appeal Board (PTAB), a process which makes patent challenges easier and less costly. In order to avoid IPR, which is simultaneously celebrated by patent challengers and loathed by drugmakers, Allergan transferred its patents to the New York Saint Regis Mohawk Tribe. The Tribe’s status as a sovereign nation shields any patents it holds from IPR. In exchange for agreeing to exclusively license the patents back to the drug manufacturer, Allergan is to pay the Tribe $13.75 million upfront then $15 million per year thereafter in royalties. These figures pale in comparison to the $1.5 billion the drug brought in last year alone, accounting for 10% of Allergan’s overall revenues.
There is a concern this tactic could inhibit the entry of more affordable pharmaceuticals into the market. Indeed, four senators have asked the Senate Judiciary Committee to conduct an investigation into the agreement claiming it is “a blatantly anti-competitive attempt to shield its patents from review and keep drug prices high.” However, in a case against the University of Florida earlier this year, it was argued and decided that sovereign immunity applies not only to courts but also to quasi-judicial proceedings managed by the U.S. Patent and Trademark Office. Based on this precedent, Allergan has a solid argument as to the validity of its agreement with the Tribe. The only exception to a tribe’s sovereign immunity is if Congress expressly abrogated it or the tribe itself expressly waives it. Nothing in the Patent Act abrogates such tribal immunity and the Tribe has made it clear they are definitely not waiving their immunity in this situation.
Allergan responded to these concerns by stating the focus need not be on their agreement with the Saint Regis Mohawk Tribe but rather on the IPR process and “its negative impact on life sciences.” In long-term investment strategies, drug manufacturers find comfort in the protection of their patents. The threat of IPR creates significant business uncertainty rendering it far less attractive to expend vast resources to research and develop new pharmaceuticals. The Supreme Court will hear arguments this month as to the constitutionality of IPRs.