Guest post by Michael Gulliford. Mr. Gulliford is an advisor to the Saint Regis Mohawk Tribe and the Founder of Soryn IP Group, a patent advisory and finance firm headquartered in New York City.
Native Americans and patents don’t make headlines. That changed when the Saint Regis Mohawk Tribe, located in upstate New York, conceived a lucrative transaction that saw Allergan transfer patents covering the dry eye drug Restasis® to the Tribe. In return, the Tribe agreed to use its sovereign status to protect the patents from a controversial administrative proceeding coined the patent “death squad”, and to license the patents to Allergan. Allergan paid the Tribe $13.75 million upfront, with continuing royalty payments of $3.75 million per quarter.
Although the story is far from over, so much remains unsaid. As an advisor to the Tribe on patent issues, allow me to explain.
#1 – Tribes Are Vilified For Following The Status Quo
Tribes, like States, are sovereigns and cannot be hauled into federal administrative proceedings that resemble lawsuits without consenting. Here, the Tribe used its sovereign status to shield the patents from attack in a new administrative proceeding called Inter Partes Review (IPR), held at the Patent Trial & Appeals Board (PTAB). Generic companies remain free to challenge patent validity in district court.
From the hysteria, you’d think the Tribe is the first to invoke sovereign immunity with IPRs. It is not. State universities are, and began successfully doing so before the Allergan deal.
At least five major state universities have asserted their immunity as arms of their sovereign states with respect to IPRs. Some invoked sovereign immunity with corporate partners. Yet, only the Tribe faced Congressional hearings and proposed legislation. And in its recent decision, the PTAB, which hears IPRs, took the remarkable step of concluding that the Tribe’s immunity did not apply to an IPR because it was lesser than the immunity held by States.
In doing so, the Board overlooked the guidance of our nation’s most prominent Constitutional law scholars on the exact issue at hand. But as the leaders of numerous Indian tribes have told me, this treatment is par for the course. Once Native Americans engage in economic activities that were previously considered the status quo, the claws come out.
#2 – No One Gives Native Americans Credit
The most recited narrative of the deal is that Allergan “rented” the Saint Regis Mohawk Tribe’s sovereign immunity. This point of view is based on racism at worse and paternalism at best. Most can’t fathom that an Indian tribe, itself no stranger to devastating property loss, could be sophisticated enough to appreciate how recent changes to the U.S. patent system have failed innovators, or to have done a deal to right such wrongs.
But as I’m sure Allergan quickly appreciated when it visited the Tribe’s reservation, the Saint Regis Mohawk Tribe challenges convention. Its leadership is highly sophisticated and entrepreneurial. With limited powers of taxation, and the enormous burden of providing healthcare, addiction treatment, housing and education to its people, the Saint Regis Mohawk Tribe innovates to create revenue.
The Tribe’s broadband company “Mohawk Networks,” is solving the “last mile” problem in regions of Northern New York by building and expanding its high-speed fiber network. While local auto and aluminum factories have shut down, costing local jobs, the Tribe invested heavily in a new soy bean processing plant located close to the Tribe’s reservation. The plant will support farms that supply the State’s Greek yogurt industry, and create needed jobs.
The Tribe’s Office of Technology, Research and Patents, founded well before the Allergan deal, is pursuing a host of patent and commercialization initiatives. All are examples of the Tribe’s desire to steer away from casino gaming as its sole revenue source. And there is more to come.
#3 – PR Is Obfuscating A Conversation That Needs To Happen
Created in 2011 in response to “patent troll” problems, IPRs were supposed to give companies a cheaper way to challenge the validity of patents they are accused of infringing. But by implementing rules that strongly promote patent invalidity findings, IPRs inflicted significant pain for companies heavily reliant on patents.
It isn’t even controversial that IPRs have clouded the validity of most U.S. patents. The U.S. Chamber of Commerce recently demoted the U.S. patent system to #12 in the world because of IPRs. Numerous Supreme Court and appellate judges have railed against IPRs. The Wall Street Journal Editorial Board highlighted the harm that IPRs cause to American innovation.
Given these truths, one could make a compelling argument that the Board of any company reliant on patents should do whatever is necessary to avoid IPRs. Why shouldn’t companies fight back and do deals to avoid having their crown jewels invalidated?
The answer is PR and political pressure to not do such deals. Big tech likes IPRs because killing patents increases the bottom line. It is cheaper to invalidate patents than to compensate innovators for the use of their technology. Generic drug companies like IPRs because the lax IPR standards that were set up to make “patent troll” patents easier to kill can be used to more easily wipe out pharma patents. Although Congress carefully sculpted legislation to govern pharmaceutical patent challenges — called the Hatch-Waxman Act — IPRs have undone the delicate balance that Hatch-Waxman strikes.
But conversations about these issues are not happening because huge sums of money have been spent vilifying Allergan and the Tribe.
So let’s start asking new questions. Why are tribal sovereigns being treated so much differently than States? And why is way more attention being paid to the Tribe’s transaction than to fixing the flawed IPR process that forces innovators to need the Tribe’s assistance?
In the end, my bet is that history will thank the Saint Regis Mohawks for enabling changes that bring the United States patent system back to #1 in the world.
Michael Gulliford is the Founder and a Managing Principal of Soryn IP Group, a patent advisory and finance firm headquartered in New York City that closed almost $140 million in patent deals in 2017. In addition, Soryn Capital, manages one of the largest funds in the U.S. dedicated to patent litigation finance. Prior to founding Soryn, Michael was a partner in the Intellectual Property group at Kirkland & Ellis LLP.