Apple Likes the Patent ‘Death Squad.’ Allergan Pays to Avoid It

Updated on
  • Drugmaker’s bid to pay tribe points to dislike of patent board
  • Patent office reviews spark backlash in courts, Congress

Allergan Plc’s decision to pay a Native American tribe $15 million a year rather than let one of its blockbuster drugs be scrutinized by the U.S. Patent & Trademark Office is part of a backlash against an agency review panel that has been dubbed a “death squad.”

The drugmaker earlier this month transferred ownership of patents protecting a medicine with $1.49 billion in sales last year to the Saint Regis Mohawk Tribe of upstate New York. The tribe, which will receive royalties every year, says that as a sovereign entity it is immune from such civil patent challenges.

The creative -- and untested -- maneuver is designed to circumvent the Patent Trial and Appeal Board, a five-year-old, fast-track review panel that’s become the top U.S. venue for multimillion dollar patent fights. Pharmaceuticals, biotechnology companies and other critics say the board has made it too easy for rivals to attack patents and they’re pressing Congress, the courts and the patent office for changes.

On the other side are Silicon Valley companies such as Google or Apple Inc., which are among the biggest users of the review board to fend off what they consider nuisance lawsuits from companies looking for a quick payday.

“Critics are well organized and they want change -- they don’t care if it’s in the courts or Congress,” said John Thorne, general counsel for the High Tech Inventors Alliance, a group that supports PTAB, as the panel is known, and has members including Google, Amazon.com Inc. and Intel Corp.

The patent office’s appeals board has become more popular for challenges than any federal court district.

PTAB was created by the patent office under 2011 legislation that marked the biggest changes in the U.S. patent process in six decades. The board allows parties to challenge whether a patent was properly issued by the patent office. Since the first IPR challenge was filed in 2012, thousands of patents have been canceled.

“People are starting to realize that the invalidation rates are sky high,” said software inventor Paul Morinville who founded a group called US Inventor Inc. to pitch his arguments against PTAB to members of Congress and their staffs.

So many patents have been invalidated that it’s been called a “death squad,” a term first coined by Randall Rader, the former chief judge of the U.S. Court of Appeals for the Federal Circuit, which oversees all patent disputes in the country.

SCOTUS Case

In June, the Supreme Court agreed to take a case to determine if the reviews are constitutional -- critics of the reviews say a patent is a property right that only federal courts can revoke. But even those who want to see the system dismantled say that case is a long shot.

While a district court is seen as “an impartial adjudicator” of disputes, the PTAB reviews “feel like it’s the patent owner against the patent office and the other guy,” said Hans Sauer, deputy general counsel for Biotechnology Innovation Organization, a Washington trade group whose members include Allergan, Amgen Inc. and Monsanto Co.  
 
Sauer is critical of the different legal standards between the courts and the patent office, where a patent can be upheld by a federal judge and invalidated at the agency. He said it’s counter to assurances that the system would be fair. Drugmakers and biotech companies want the rules to be more consistent with courts or have their industry carved out entirely because disputes involving their patents are covered by other laws.

The Supreme Court last year upheld some of the rules that Sauer complains about, though it didn’t address the constitutionality question. The reviews are not the same as district court lawsuits because “the proceeding offers a second look at an earlier administrative grant of a patent,” Justice Stephen Breyer wrote for a unanimous court.

Gaming the System

Still, PTAB is facing scrutiny. The Federal Circuit, which usually supports the board’s rulings on patents, has criticized some of its procedures this year, such as not allowing patent owners to introduce certain evidence and a failure to adequately explain its actions.

Some patent office judges are frustrated about parties trying to game the system. In a Sept. 6 decision in a case against Canon Inc. on toner cartridges, a seven-judge PTAB panel railed against challengers filing multiple petitions on the same patent until they got the result they sought.

“PTAB is still relatively young,” said lawyer Scott Kelly of Banner & Witcoff in Washington, who’s filed almost four dozen petitions for clients this year. Some of the flaws are the result of growing pains. The agency had expected to get a few hundred petitions a year. Instead, more than 7,300 were filed between 2012 and July.

Tech, Pharma  

Technology companies like Microsoft Corp. pushed for the law that created PTAB. It also had the support of a group of large patent owners, whose members included Johnson & Johnson, 3M Co., and General Electric Co.

While the number of patent lawsuits in federal court is dropping, use of the patent board is increasing. In the first half of this year, 987 petitions were filed in the patent office, up 16 percent from the year-ago period, according to Unified Patents, a tech-backed group that files challenges to fend off lawsuits. By contrast, the number of civil suits dropped 12 percent to 1,919.

PTAB has proven a more popular venue for parties in the electrical and computer fields, accounting for three out of five of the 1,650 petitions between Oct. 1 and July 31, according to patent office statistics. Bio and pharma petitions make up 11 percent.

Often defendants in patent infringement lawsuits, tech companies file more validity claims against patents at PTAB.

Apple, Samsung Electronics Co. and Google -- among the most-sued companies over patents -- are also the most prolific users of the patent board. Apple’s filed some 350 petitions since the procedures began, Samsung’s lodged more than 250 and Google’s filed 189, according to a check of the PTAB’s docketing system. Apple and Samsung didn’t comment; Google referred queries to Thorne.

The patent office has been considering changes to its procedures, but those were put on hold after Michelle Lee, an appointee of former President Barack Obama, left the post. President Donald Trump’s nominee, lawyer Andrei Iancu, hasn’t gone through Senate confirmation and his views are the subject of speculation from all sides of the debate.

High Tech’s Thorne said he sees the reviews as a matter of “self-correction.” “It’s really a small number of patents that shouldn’t have been issued that are being canceled by the people who issued them,” he said.

For drugmakers, however, “PTAB remains the No. 1 issue” on patents, said BIO’s Sauer.

Allergan’s Strategy

It remains to be seen whether Allergan’s legal strategy will work; the PTAB panel hearing the case has ordered additional written legal arguments.

Allergan is facing a challenge over its Restasis patents from Mylan NV, which wants to produce a generic version. The board previously determined that Mylan has established a “reasonable likelihood” of winning its arguments that the patents are invalid.

By transferring ownership to the tribe, Allergan can try to limit its legal battle to the courts, where it’s harder to invalidate patents because of a more stringent legal standard.

The tribe says sovereignty shields it from civil legal challenges over patents. State and foreign governments can’t be sued or subjected to federal government action except in certain circumstances.

“I would expect it creates a playbook for other cases down the road both for us and for others,” said Bob Bailey, Allergan’s chief legal officer.

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE