Challenge of Allergan tribal patent deal in uncharted legal territory

As generic drug manufacturers are gearing up to argue that a deal Allergan Plc made with a Native American tribe to shield patents from administrative review is a sham, some experts say the generic companies are in uncharted legal territory.

Last week, Allergan announced it would transfer the patent rights to its Restasis dry-eye treatment to the Saint Regis Mohawk Tribe, which will license them back to the company in exchange for ongoing payments.

Allergan says the tribe’s sovereign immunity puts the patents beyond the authority of the Patent Trial and Appeal Board, an administrative court created in 2012 that can cancel patents.

But Richard Torczon, a lawyer for generic drug company Mylan NV, said the tribe is abusing the defense of sovereign immunity, which he said is intended to shield tribes that get dragged into court without their consent.

“The tribe here has not been dragged into this proceeding against its will,” Torczon said during a hearing on Monday before three judges from the patent board. “It has deliberately by its own admission targeted these proceedings for exactly this kind of revenue-generating opportunity,” he said, according to a transcript.

Torczon also compared the deal to cases in which payday lenders have partnered with tribes to get around state laws barring high-interest rates.

Michael Shore, a lawyer for the St. Regis Mohawk Tribe, dismissed Torczon’s statements in an interview on Wednesday and said the deal would hold up.

“Literally nothing the guy said is legally accurate,” Shore said of Torczon.

Gregory Ablavsky, a professor of early American legal history, said there is no direct precedent on which either side can rely because of the unique nature of the deal. However, he said a bankruptcy case involving tribal immunity could support Mylan’s waiver argument.

Monday’s hearing, which dealt mostly with scheduling issues, offered a preview of arguments Mylan and two other generic drug companies, Teva Pharmaceuticals Inc and Akorn Pharmaceuticals, will make against Allergan’s deal.

There is much at stake for generic manufacturers, which frequently ask the patent board to invalidate patents on brand-name drugs so they can bring generic versions to market. If Allergan’s groundbreaking deal is upheld and other pharmaceutical companies follow suit, generic drug companies will lose access to an attractive forum for challenging patents.

Allergan has said generic rivals can still bring patent challenges in federal court, which the company described as a time-tested and fair process.

In addition to arguing that the tribe has waived immunity, the generic manufacturers plan to rely on cases in which payday lenders have partnered with tribes to circumvent state laws barring high-interest rates.

Some courts have ruled that such lenders were not entitled to sovereign immunity because they were not arms of the tribe.

Michael Risch, a professor of patent law at Villanova University School of Law, said the payday lending disputes are legally distinct because in this case Allergan actually transferred its patents to the tribe.

But Risch said the argument has rhetorical force because Allergan might balk at being compared to a payday lender.

“I think this has a decent chance of holding up,” he said. “If it works, it is brilliant.”