United States: Federal Circuit Rules That Tribal Sovereign Immunity Does Not Apply In IPR Proceedings

In a closely-watched case, the U.S. Court of Appeals for the Federal Circuit affirmed a decision by the USPTO's Patent Trial and Appeal Board and held that tribal sovereign immunity does not apply to inter partes review proceedings under the America Invents Act. The court reasoned that IPR proceedings are essentially an agency review of its decision to grant the challenged patent, rather than an adjudicatory proceeding between two private parties. Thus, under prior Supreme Court authority, the court held that tribal immunity does not apply to IPRs involving patents owned by tribes. The decision upsets recent attempts to avoid AIA post grant challenges by assigning patent rights to Native American tribes. Saint Regis Mohawk Tribe v. Mylan Pharmaceuticals, Inc., No. 2018-1638 (Fed. Cir. July 20, 2018).


Allergan, Inc. owned patents covering Restasis, a drug used to treat dry eye symptoms. A competitor, Mylan Pharmaceuticals, Inc., filed IPR petitions challenging multiple Allergan patents. IPR2016-01127. Allergan then assigned the patents to the Saint Regis Mohawk Tribe in a sale and license-back transaction. The PTAB denied the Saint Regis tribe's motion to dismiss the petition based on tribal sovereign immunity. The PTAB ruled that tribal immunity is "subject to the superior and plenary control of Congress," Santa Clara Pueblo v. Martinez, 436 U.S. 49 (1978), and since the AIA established IPR proceedings for any patent, regardless of ownership, the PTAB had jurisdiction over the patents.  Furthermore, the PTAB determined that an IPR "is not the type of 'suit' to which an Indian tribe would traditionally enjoy immunity under the common law[,]" because it could not result in damages or an injunction, only an administrative review of the issued patent. The Saint Regis tribe appealed the PTAB decision to the Federal Circuit.

On March 28, the Federal Circuit stayed proceedings in the IPR until June, when the appeals court scheduled expedited hearing on the issue. In the meantime, Sen. Claire McCaskill (D-Mo.) and four other senators introduced the Preserving Access to Cost Effective Drugs Act, or PACED, that would remove tribal sovereign immunity in patent proceedings before the PTAB, ITC, and federal courts.

Federal Circuit Rejects Tribal Immunity Claim

In a panel decision written by Circuit Judge Moore, the Federal Circuit affirmed the PTAB and ruled that IPR proceedings are not barred by sovereign immunity. The court did not address other arguments presented by Mylan, including that the transaction with Saint Regis was a sham.

The court's decision is based on a recent Supreme Court case applyin common law tribal immunity, Fed. Maritime Comm'n v. S.C. State Ports Auth., 535 U.S. 743 (2002) ("FMC"), which held that tribal immunity does not apply uniformly in administrative proceedings before federal agencies. In essence, the FMC decision held that adjudicatory proceedings before agency tribunals are affected by a tribe's sovereign immunity, while agency investigation and enforcement actions are not.

The Federal Circuit held that IPR proceedings more closely resemble agency enforcement actions than adjudications of rights between private parties. The court noted that an IPR is "a 'hybrid proceeding' with 'adjudicatory characteristics' similar to court proceedings, but in other respects it 'is less like a judicial proceeding and more like a specialized agency proceeding.'" Slip op. at 7, quoting Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2143–44 (2016). In particular, the court pointed out that the Supreme Court's two most recent decisions involving IPRs each stressed different aspects of the proceedings. In Oil States Energy Services v. Greene's Energy Group, LLC, 138 S. Ct. 1365, 1373 (2018), the Supreme Court stated that an IPR is "simply a reconsideration of the PTO's original grant of a public franchise," while the Court's decision in SAS Institute Inc. v. Iancu, 138 S. Ct. 1348 (2018), stressed the features of IPRs that resemble a "party-directed, adversarial" process akin to private party litigation.

The Federal Circuit noted three significant features of IPRs that established their character as agency enforcement proceedings, rather than adversarial adjudications of the parties' rights. First, the USPTO Director has broad discretion as to whether to institute trial on a petition:

First, although the Director's discretion in how he conducts IPR is significantly constrained, he possesses broad discretion in deciding whether to institute review. Oil States, 138 S. Ct. at 1371.  Although this is only one decision, it embraces the entirety of the proceeding. If the Director decides to institute, review occurs. If the Director decides not to institute, for whatever reason, there is no review. In making this decision, the Director has complete discretion to decide not to institute review.. . . In FMC, the Federal Maritime Commission lacked the "discretion to refuse to adjudicate complaints brought by private parties," FMC, 535 U.S. at 764, and in federal civil litigation, a private party can compel a defendant's appearance in court and the court had no discretion to refuse to hear the suit. In both instances, absent immunity, a private party could unilaterally hale a sovereign before a tribunal, presenting an affront to the dignity of the sovereign. . .  [In the IPR context,] [i]t is the Director, the politically appointed executive branch official, not the private party, who ultimately decides whether to proceed against the sovereign.

Slip op. at 8.

Second, the agency has standing to proceed with the review even if the IPR is settled or a party drops out of the proceeding. "Once IPR has been initiated, the Board may choose to continue review even if the petitioner chooses not to participate. 35 U.S.C. § 317(a)." Slip op. at 9.

Third, the procedures in IPR trials differ from the procedures in federal court under the Federal Rules of Civil Procedure. Among other things, discovery is more limited, the patent owner has the right to move to amend claims, and the hearings are time-limited and rarely allow live testimony:

In IPR, the agency proceedings are both functionally and procedurally different from district court litigation. In short, the agency procedures in FMC much more closely approximated a civil litigation than those in IPR.

Slip op. at 10.

The Federal Circuit concluded that IPRs are administrative proceedings closely related to ex parte reexamination, which Saint Regis conceded is not subject to tribal immunity:

The mere existence of more inquisitorial proceedings in which immunity does not apply does not mean that immunity applies in a different type of proceeding before the same agency. Notably, the Supreme Court in Cuozzo recognized inter partes reexamination and IPR have the same "basic purposes, namely to reexamine an agency decision." 136 S. Ct. at 2144. While IPR presents a closer case for the application of tribal immunity than reexamination, we nonetheless conclude that tribal immunity does not extend to these administrative agency reconsideration decisions.

The Director's important role as a gatekeeper and the Board's authority to proceed in the absence of the parties convinces us that the USPTO is acting as the United States in its role as a superior sovereign to reconsider a prior administrative grant and protect the public interest in keeping patent monopolies within their legitimate scope. The United States, through the Director, does "exercise . . . political responsibility" over the decision to proceed with IPR. FMC, 535 U.S. at 764 The Tribe may not rely on its immunity to bar such an action.

Slip op. at 11.

Circuit Judge Dyk filed a concurring decision reviewing the history of reexamination and IPR proceedings, concluding that "significant features of the system confirm that inter partes review is an agency reconsideration rather than an adjudication of a private dispute and does not implicate sovereign immunity." Con. Op. at 12.


Practical Significance

The Saint Regis Mohawk Tribe decision is likely to curtail the practice of patentees assigning their patents to Native American tribes to shield them from IPR challenges. The case may be significant to the related issue of state sovereign immunity in IPRs, although the Federal Circuit expressly reserved that issue for a future case.

The constitutional law issues addressed in the decision may attract the attention of the Supreme Court, and thus a final ruling on the tribal immunity issue may await a decision by the Supreme Court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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