New Patent Ploy: Let’s Make a Deal with an Indian Tribe

Companies involved in patent disputes should be aware of a new tactic they may either face or wish to employ. Some patent owners have recently utilized a new strategy to avoid inter partes proceedings (IPRs) in the Patent Office. The strategy: sell (and then obtain a license back) the patents to an Indian tribe, retaining all marketing rights, and then assert that tribe’s sovereign immunity to avoid an IPR. At least two patent owners have revealed their implementation of such a strategy in recent filings, which has seen significant push-back from both the courts and Congress.

If you are a patent owner who expects heavy litigation on your patents, you might wish to consider using a similar strategy. If your company regularly faces claims of patent infringement (by competitors or patent trolls), then be prepared to have such a strategy employed against you by a patent owner.

The America Invents Act of 2011 created a new way to challenge patent validity: the IPR, which takes place in the Patent Office. The procedure is generally considered a desirable and cost-efficient way to challenge patent validity, and avoid expensive litigation. Most federal courts will stay pending litigation until the Patent Office works out the IPR issues. No surprise, patent owners hate IPRs, while patent defendants love them.

Pharmaceutical company Allergan, Inc., was involved in heavy litigation over three patents it owns. The defendants filed IPRs in the Patent Office. So, Allergan came up with an ingenious strategy: it sold its patents to the St. Regis Mohawk Indian tribe, paying the tribe $13.5 Million, plus a promise of $15 Million in royalties, and took a license back for its pharma business. It then asserted the tribe’s sovereign immunity to quash the IPR.

Allergan’s ploy precipitated quick and significant push-back. In the pending Texas infringement litigation, the judge criticized the deal as a sham. But then he joined the Indian tribe as a co-plaintiff anyway. The same day, he invalidated all of Allergan’s asserted patent claims. (Sovereign immunity is waived once the patents are asserted in litigation. So, Allergan’s arrangement did not shield it from invalidity counterclaims.)

Meanwhile, a bill was introduced in the Senate to abrogate tribal immunity for IPR proceedings.

Then, in October, another patent owner, SRC Labs, LLC (which owns several patents directed to computer and internet technology), filed a complaint in Virginia where it revealed it had entered into a similar arrangement with the Saint Regis Mohawk Tribe.

Thus far, Allergan’s ploy has not been very effective. But companies should expect others to try to repeat it until Congress or the courts weigh in with something more definitive.