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Judge asks if Allergan's patent deal with Mohawk tribe is a 'sham'

  • A federal judge wants to know if Allergan's unusual deal with a Native American tribe is 'a sham' or a legitimate agreement.
  • Allergan partnered last month with the Saint Regis Mohawk Tribe, assigning the rights to the drug Restasis to the tribe.
  • That deal has drawn increased scrutiny from competitors and lawmakers.
CEO of global pharamceutical company Allergan Brenton Saunders.
Jean-Pierre Clatot | AFP | Getty Images
CEO of global pharamceutical company Allergan Brenton Saunders.

Scrutiny of Allergan's unusual patent partnership with a Native American tribe continued to ratchet higher Friday, with a federal judge raising the question of whether the deal is "a sham."

That judge now is ordering Allergan to address whether it will name the Saint Regis Mohawk Tribe as a co-plaintiff in its federal patent infringement lawsuit over the blockbuster eye drug Restasis.

And one law professor said that question could open the drugmaker up to further legal challenges over the tribe's immunity in another legal venue.

Judge William Bryson, who is overseeing the federal patent infringement case, noted that on Sept. 8, after the case went to trial, Allergan told him that it expects to have the Mohawk tribe join Allergan "as a co-plaintiff in due course."

But "no motion to join the Tribe has been forthcoming during the month since," Bryson wrote in the order in U.S. District Court for the Eastern District of Texas, where Allergan is suing Teva Pharmaceutical, Mylan and other companies to block them from selling competitors to Restasis on patent-infringement grounds. The drug draws about $1.5 billion in annual revenue for Allergan.

Noting that he soon needs to issue his decision in the case, Bryson ordered Allergan and the defendants to file briefs by Oct. 13 "addressing the question wheth

er the Tribe should be joined as a co-plaintiff in this action, or whether the assignment of the patents to the Tribe should be disregarded as a sham."

Allergan last month partnered with the tribe, seeking to benefit from its sovereign immunity to certain patent challenges in another venue, under a system known as inter partes review, or IPR.

The company has argued that dismissing the IPR case using the tribe's sovereign immunity had nothing to do with the federal case.

But Dan Ravicher, a law professor at the University of Miami, says the judge's order puts Allergan in a tough position, raising the question of whether naming the tribe as a co-plaintiff in the federal case could invalidate its sovereign immunity to the IPR challenges.

"It's a Catch-22," Ravicher said.

"Once they appear in federal court, they've now waived their tribal immunity."

The sovereign immunity to IPR challenges exists essentially because parties with that protection have to consent to be sued, Ravicher said. Enter into claims in federal court, waive your immunity in the IPR system, he said.

But Michael Shore, an attorney with the firm Shore Chan DePumpo, which orchestrated the partnership between the tribe and Allergan, disagreed.

"Participation in one forum does not waive as to another," Shore said Friday.

"Sovereign immunity means a sovereign chooses the forum and the claims to be adjudicated. The forum the Saint Regis Mohawk Tribe chooses is federal district court with an Article III judge," Shore said.

On Sept. 8, Allergan said it had transferred the patents for Restasis to the tribe, which then licensed them exclusively back to Allergan. Under the terms of the deal, Allergan paid the tribe $13.75 million, plus the potential for $15 million more in annual royalties.

After the deal was announced, the tribe then moved to dismiss the IPR challenges, citing its sovereign immunity.

Allergan's stock initially rose, as analysts heralded the arrangement as creative.

But the move quicklyled to intense scrutiny from lawmakers, nine of whom have weighed in with letters to the company or other actions.

On Thursday, Sen. Claire McCaskill, D-Mo., introduced legislation seeking to abrogate tribal sovereign immunity as a defense in inter partes review of patents.

Allergan's stock now is down 7.5 percent since announcing the partnership.

In response to the criticism, Allergan has said it is not seeking to avoid defending its patents, pointing to the pending case in federal court, where a ruling is expected soon.

CEO Brent Saunders has argued the IPR process is flawed, and that the company was aiming to avoid a "double jeopardy" situation where it was simultaneously defending the same patents on two separate tracks.

Mylan, one of the companies seeking to invalidate Allergan's patents for Restasis, has been pushing back in federal court on Allergan's arrangement with the tribe.

In a filing last month, Mylan called the move "nothing less than a transparent, last minute attempt to shield the patents-in-suit from inevitable cancellation."

In response to the judge's order Friday, Allergan said "the district court had been informed of the intent to have the Saint Regis Mohawk Tribe joined as a co-plaintiff in the litigation. And, today, the Court has ordered briefing on the issue of whether the transaction with the Tribe requires their joinder."

An Allergan spokesman referred additional questions to the tribe's attorney and Shore.

If the tribe is named as a co-plaintiff in the federal suit, the next likely step is for Mylan, which is challenging the Restasis patents in both venues, to challenge the tribe's sovereign immunity in the IPR process, said Ravicher, the University of Miami professor.

Jacob Sherkow, a professor at New York Law School, said it is not clear that naming the tribe in the federal suit would automatically invalidate its immunity to the IPR challenge. He noted that the suit was filed when Allergan owned the patents.

Sherkow said that one thing, though, is clear: The judge in the federal case doesn't appear happy with the situation.

"One thing that's a good general rule is that 'sua sponte' orders to brief an entire issue after the trial is closed generally mean the judge is upset about something," Sherkow said. The term "sua sponte" refers to a judge taking action on his own initiative, without a motion from either side in a case.

Shore, the attorney who connected Allergan with the Mohawk tribe, said the order doesn't mean the court is concerned with the transaction.

"What it means is that the judge wants all real patent owners bound by his decision — finality," Shore said.

But Sherkow argued that while it is impossible to know exactly how the judge is considering the issue, his order alone implies "some part of this is going to end in bad news for Allergan."

"I don't think Mylan's attorneys are opening up a bottle of champagne because of the order," Sherkow said.

"But maybe a bottle of beer."

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