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Update on Sovereign Immunity as a Defense in Post-Grant Proceedings

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In early September the pharmaceutical company Allergan announced a surprising transfer of its patents related to the billion-dollar dry-eye drug Restasis. Rather than transferring them to another drug company or investor as one might expect, the drugmaker transferred them to a Native American Tribe in New York, who immediately granted Allergan an exclusive license. Allergan undertook this unusual maneuver to take advantage of several recent decisions by the PTAB relating to post-grant challenges. As previously reported on this blog,1 the PTAB has determined that sovereign immunity under the Eleventh Amendment is available as a defense in post-grant review proceedings for patent owners that operate as an arm of a state.

As you may remember, in Covidien LP v. University of Florida Research Foundation Inc.,2 the Board analyzed Supreme Court case law regarding the Eleventh Amendment and determined that the “considerable resemblance” between IPRs and civil litigation “is sufficient to implicate the immunity afforded to the States by the Eleventh Amendment,”3 and therefore the Board dismissed the petitions. In that proceeding, the university was the only party. A subsequent IPR, Neochord, Inc. v. University of Maryland, Baltimore,4 presented a slightly different situation, because both the University and the patent’s exclusive licensee were named in the petition. The PTAB determined that sovereign immunity applied to the University and that “the University retained rights under the license agreement, and transferred less than ‘substantially all’ of its rights to [the licensee].”5 The Neochord panel, therefore, found that the IPR could not proceed without the University, because it “remains a necessary and indispensable party to [the] proceeding.”6 Accordingly, the University and the exclusive licensee were both dismissed along with the petition.7

In a recent decision, Reactive Surfaces Ltd., LLP v. Toyota Motor Corporation,8 the PTAB affirmed the availability of sovereign immunity as a defense for state-run entities in post-grant proceedings but ruled that an inter partes review against the private co-owner of the patent could proceed. In this case, Reactive Surfaces filed a petition seeking inter partes review of claims 1-11 of U.S. Patent No. 8,394,618 (“the ’618 Patent”), which is co-owned by the Regents of the University of Minnesota (“the Regents”) and Toyota (collectively, “Patent Owners”).9 The ’618 Patent identified six inventors; during prosecution, three of the inventors assigned their interests to the Regents, and the remaining inventors assigned their interests to Toyota.10

The Patent Owners filed a motion to dismiss the petition on the grounds that the Regents were entitled to sovereign immunity under the Eleventh Amendment.11 The Patent Owners argued that the merits of the IPR could not be adjudicated without the Regents as a party, so the IPR must be dismissed in its entirety.12

Regarding the Regents, the Board cited Covidien and Neochord, holding that while “neither of those decisions is binding on us . . . their reasoning [is] persuasive.”13 Accordingly, the panel concluded that sovereign immunity under the Eleventh Amendment is available as a defense in inter partes review.14 The Board then analyzed federal court precedent and determined that the “courts treat the Regents and the University of Minnesota as interchangeable for the purposes of [the] Eleventh Amendment.”15 The Board therefore held that “the Regents are an arm of the State of Minnesota” and granted the motion to dismiss as to the Regents.16

Turning to Toyota, the co-owner of the patent, the panel first examined situations in which “the rules governing inter partes review proceedings provide for continuing in the absence of a patent owner.” The Board concluded that although “none of these rules applies precisely in the present situation, their existence demonstrates that it is not the case that the absence of one patent owner necessarily requires the termination of the inter partes review.”17 Next, the panel reviewed Federal Rule of Civil Procedure 19(b) and related federal court precedent and determined that dismissal of the entire action after a finding that one defendant has sovereign immunity is not required.18 Finally, the Board decided that Toyota could “adequately represent the interests of the Regents in the challenged patent,” because Toyota’s interest in the patent was “identical” to the Regents.19 “When the absent sovereign party and a remaining party have identical interests in the asserted patents, the remaining party adequately represents the interests of the absent sovereign party.”20 Therefore, the Board held that the proceeding could continue without the Regents and, thus, denied the motion to dismiss as to Toyota.

The Federal Circuit has not weighed in on the merits of any of these dismissals. Thus, the PTAB’s panel decisions are the only guidance available. As evidenced by Allergan’s actions, Patent owners have already taken notice of these decisions, and the rest of the patent community will surely be monitoring further decisions closely as well.

1 Catherine Garza and Paula Heyman, Sovereign Immunity Protects State-Funded Patent Owners from Post-Grant Proceedings, BAKER BOTTS: PTAB TRIALS BLOG (April 11, 2017),
2 Covidien LP v. Univ. of Fla. Res. Found., Inc., IPR2016-01274, -01275, -01276, Paper 21 (P.T.A.B. Jan. 25, 2017).
3 Id. at 24.
4 Neochord, Inc. v. Univ. of Md., Baltimore, No. IPR2016-00208, Paper 28 (P.T.A.B. May 23, 2017).
5 Id. at 19.
6 Id.
7 Id. at 20.
8 Reactive Surfaces Ltd., LLP, v. Toyota Motor Corporation, IPR2016-01914, Paper 36 (P.T.A.B. July 13, 2017)
9 Id. at 3.
10 Id. at 2-3.
11 Id. at 1.
12 Id.
13 Id. at 4.
14 Id. at 8.
15 Id. at 9-10.
16 Id. at 11.
17 Id. at 12.
18 Id. at 13-14 (citing SourceOne Global Partners, LLC v. KGK Synergize, Inc., 2009 WL 1346250, at *4 (N.D. Ill. 2009), Davis v. United States, 192 F.3d 951, 960 (10th Cir. 1999)).
19 Id. at 15.
20 Id. (citing A123 Sys., Inc. v. Hydro-Quebec, 626 F.3d 1213, 1221 (Fed. Cir. 2010).


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