Case 2:15-cv-01455-WCB Document 522 Filed 10/16/17 Page 1 of 11 PageID #: 26017
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`MARSHALL DIVISION
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`§§
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`Case No. 2:15-cv-1455-WCB
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`ALLERGAN, INC.,
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`Plaintiff,
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`v.
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`MEMORANDUM OPINION AND ORDER
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`TEVA PHARMACEUTICALS USA, INC.,
`et al.,
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`Defendants.
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`Before the Court is Plaintiff’s Opposed Motion to Join Party Pursuant to Federal Rule of
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`Civil Procedure 25(c). Dkt. No. 517. The Court GRANTS the motion.
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`BACKGROUND
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`On September 8, 2017, following the trial of this case, plaintiff Allergan, Inc., filed a letter
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`with the Court announcing that Allergan had assigned its rights to the patents at issue in this case,
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`to the Saint Regis Mohawk Tribe and that the Tribe had granted Allergan an exclusive license to
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`the patents. Allergan added that it “expects to join the Tribe as a co-plaintiff in due course.” Dkt.
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`No. 480-1. Under the terms of the agreements between Allergan and the Tribe, the Tribe will
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`receive $13.5 million upon execution of the agreement and will be eligible to receive $15 million
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`in annual royalties. Dkt. No. 510-3.
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`On September 11, defendants Mylan Pharmaceuticals Inc. and Mylan Inc. filed a response
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`stating that Allergan “has admitted in other forums that the intent is to employ Native American
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`sovereign immunity and attempt to cut-off pending validity challenges with the Patent Office.”
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`1
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`MYLAN - EXHIBIT 1163
`Mylan Pharmaceuticals Inc. et al. v. Allergan, Inc.
`IPR2016-01127, -01128, -01129, -01130, -01131, -01132
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`Dkt. No. 481, at 1. Mylan argued that “Allergan is attempting to misuse Native American
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`sovereignty to shield invalid patents from cancellation.” Id. at 2.
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`The Saint Regis Mohawk Tribe has made a special appearance in the inter partes review
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`(“IPR”) proceedings pending before the Patent and Trademark Office (“PTO”), and has moved to
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`dismiss those proceedings based on the assertion of the Tribe’s sovereign immunity. Dkt. No.
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`510-7.
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`After waiting a month for Allergan to file the promised motion to join the Tribe, the Court
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`on October 6 entered an order directing Allergan, by October 13, to submit information regarding
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`the assignment to the Tribe and directing the parties by the same date to file briefs addressing the
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`question whether the Tribe should be added as a co-plaintiff or whether the assignment transaction
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`should be disregarded as a sham. Dkt. No. 503.
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`Later that day, the defendants filed what they styled Defendants’ Notice Regarding
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`Allergan’s Document Production According to the Court’s October 6, 2017 Order (Dkt. No. 503).
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`Dkt. No. 504. In that filing, the defendants sought to ensure that they would receive copies of the
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`materials submitted by Allergan. In addition, the defendants listed nine categories of documents
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`that they believed Allergan should produce in response to the Court’s October 6 order and stated
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`that, “in the event evaluation of Allergan’s production reveals the necessity,” they would be
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`requesting leave to conduct depositions directed to the nature of Allergan’s transaction with the
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`Tribe. Id. at 2. The defendants also requested “leave to file a letter seeking relief from the October
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`13 filing and allowing Defendants to conduct such depositions on an expedited basis.” Id.
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`On October 9, Allergan filed Plaintiff’s Response to Defendants’ Notice Regarding
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`Document Production According to the Court’s October 6, 2017 Order. Dkt. No. 505. Allergan
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`stated that it had sought the defendants’ consent to a motion to add the Tribe as a co-plaintiff
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`pursuant to Federal Rule of Civil Procedure 25(c), but that the defendants had not consented to
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`such a motion. Dkt. No. 505, at 2. Allergan represented that it would produce “all the materials
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`identified in the Court’s October 6 order by October 10, and produce to the Court
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`contemporaneously with this filing the assignment and license documents already provided to
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`Defendants.” Id. at 2-3. Allergan also represented that it would file an opposed motion to add the
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`Tribe as a co-plaintiff by October 13. Id.
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`The following day, the Court entered an order that (1) directed Allergan to provide to the
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`defendants all of the materials provided to the Court in response to the Court’s October 6 order; (2)
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`directed Allergan to tell the Court what consideration was given to Allergan in exchange for the
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`purported assignment of the patents-in-suit to the Tribe; (3) denied the defendants’ requests for the
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`production of additional materials from Allergan and for the opportunity to conduct depositions
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`regarding the issue of whether the Tribe should be added as a co-plaintiff; and (4) denied the
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`defendants’ request to submit a letter seeking relief from the October 13 date for filing briefs
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`addressing the question whether the Tribe should be added as a co-plaintiff. Dkt. No. 509.
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`Allergan subsequently provided additional materials related to the assignment and license
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`transactions between Allergan and the Tribe. Dkt. Nos. 510, 511. Allergan also answered the
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`Court’s question about consideration by stating that the consideration for the assignment of the
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`patents to the Tribe was the Tribe’s promise not to waive its sovereign immunity with respect to
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`any IPR or other administrative action in the PTO related to the patents. Dkt. No. 510, at 2-4.
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`The parties’ briefs were timely filed on October 13. Dkt. Nos. 513, 514.
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`In addition,
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`Allergan moved to substitute the Tribe as the plaintiff in this action pursuant to Federal Rule of
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`Civil Procedure 25(c), which the defendants opposed. Dkt. No. 517. Allergan represented that the
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`Tribe consents to being joined as a plaintiff in this action. Dkt. No. 513, at 6 n.1. The Court
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`advised the parties that the issue would be resolved without a hearing. Dkt. No. 519.
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`DISCUSSION
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`The Court has reviewed the information and briefs filed in response to the Court’s order.
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`From that information, it is clear that Allergan’s motivation for the assignment was to attempt to
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`avoid the IPR proceedings that are currently pending in the PTO by invoking the Tribe’s sovereign
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`immunity as a bar to those proceedings.
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`The Court has serious concerns about the legitimacy of the tactic that Allergan and the
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`Tribe have employed. The essence of the matter is this: Allergan purports to have sold the patents
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`to the Tribe, but in reality it has paid the Tribe to allow Allergan to purchase—or perhaps more
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`precisely, to rent—the Tribe’s sovereign immunity in order to defeat the pending IPR proceedings
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`in the PTO. This is not a situation in which the patentee was entitled to sovereign immunity in the
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`first instance. Rather, Allergan, which does not enjoy sovereign immunity, has invoked the
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`benefits of the patent system and has obtained valuable patent protection for its product, Restasis.
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`But when faced with the possibility that the PTO would determine that those patents should not
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`have been issued, Allergan has sought to prevent the PTO from reconsidering its original issuance
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`decision. What Allergan seeks is the right to continue to enjoy the considerable benefits of the
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`U.S. patent system without accepting the limits that Congress has placed on those benefits through
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`the administrative mechanism for canceling invalid patents.
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`If that ploy succeeds, any patentee facing IPR proceedings would presumably be able to
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`defeat those proceedings by employing the same artifice. In short, Allergan’s tactic, if successful,
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`could spell the end of the PTO’s IPR program, which was a central component of the America
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`Invents Act of 2011. In its brief, Allergan is conspicuously silent about the broader consequences
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`of the course it has chosen, but it does not suggest that there is anything unusual about its situation
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`that would make Allergan’s tactic “a restricted railroad ticket, good for this day and train only.”
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`Smith v. Allwright, 321 U.S. 649, 669 (1944) (Roberts, J., dissenting).
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`Although sovereign immunity has been tempered over the years by statute and court
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`decisions, it survives because there are sound reasons that sovereigns should be protected from at
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`least some kinds of lawsuits. But sovereign immunity should not be treated as a monetizable
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`commodity that can be purchased by private entities as part of a scheme to evade their legal
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`responsibilities.
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`It is not an inexhaustible asset that can be sold to any party that might find it
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`convenient to purchase immunity from suit. Because that is in essence is what the agreement
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`between Allergan and the Tribe does, the Court has serious reservations about whether the contract
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`between Allergan and the Tribe should be recognized as valid, rather than being held void as being
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`contrary to public policy. See generally Restatement of the Law (Second) Contracts §§ 178-179,
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`186.
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`The defendants point out that the assignment-and-licensing transaction in this case is
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`similar in some respects to other transactions that have been held ineffective, such as abusive tax
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`shelter transactions, in which courts have looked behind the face of the transactions to determine
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`whether the transactions have economic substance or are simply a method of gaming the tax
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`system to generate benefits that were not intended to be available. See, e.g., Salem Fin., Inc. v.
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`United States, 786 F.3d 932 (Fed. Cir. 2015); Coltec Indus., Inc. v. United States, 454 F.3d 1340
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`(Fed. Cir. 2006).
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`Allergan argues that the transactions are legitimate because the Tribe has offered
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`consideration in the form of its agreement not to waive its sovereign immunity before the PTO and
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`in exchange has received much-needed revenue from Allergan. But such circumstances are
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`frequently encountered in sham transactions, such as abusive tax shelters. The straw parties who
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`perform the service of making the transaction appear to have economic substance, when it actually
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`does not, are providing a service, for which they are ordinarily well compensated. Nonetheless, the
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`transaction is disregarded if it is contrary to the policies underlying the relevant laws.
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`Another roughly analogous example cited by the defendants is People ex rel. Owen v.
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`Miami Nation Enterprises, 386 P.3d 357 (Cal. 2016). In that case, two tribal entities ran payday
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`loan businesses. When the lending entities were sued by the State for improper lending practices,
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`the entities asserted sovereign immunity. The California Supreme Court determined that, despite
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`the formal agreements between the lending entities and the tribes, the tribes had no operational
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`control over the businesses and received only a small percentage of the profits of the businesses.
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`After examining all of the circumstances, the court concluded that the arrangement between the
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`lenders and the Tribes was such that the businesses were not entitled to assert the tribes’ sovereign
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`immunity.
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`The concern of the courts in both of those examples is the same: whether the party
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`invoking a particular legal protection has engaged in a bona fide transaction of the sort for which
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`that legal protection was intended. In both the abusive tax shelter cases and the Owen case, the
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`answer was no. In this case, as indicated, the Court has serious doubts that the transaction in which
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`Allergan has sought to obtain immunity from inter partes review by the PTO in exchange for
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`payments to the Tribe is the kind of transaction to which the Tribe’s sovereign immunity was
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`meant to extend.
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`There is a second significant issue presented by Allergan’s motion: whether after the
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`Tribe’s grant of an exclusive license in the Restasis patents to Allergan, the Tribe has transferred
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`all substantial rights in the patents back to Allergan, so that Allergan, and not the Tribe, is properly
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`considered the patentee. See, e.g., Diamond Coating Techs., LLC v. Hyundai Motor Am., 823
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`F.3d 615, 618 (Fed. Cir. 2016). Even assuming that the initial assignment was valid, the Tribe
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`would not be considered the owner of the patents if, through the exclusive license agreement, it
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`has transferred all substantial rights in the patents except for the right to receive royalties on the
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`sale of Restasis. In that event, Allergan would be entitled to maintain this action on its own, and
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`it would not be necessary to add the Tribe as a co-plaintiff. On the other hand, if the Tribe has
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`retained substantial rights in the patents, even after the grant of the exclusive license to Allergan,
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`the Tribe would be a necessary party to this infringement action.
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`Allergan argues that the Tribe retained substantial rights, including the right to practice
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`the patents for research, education, and other non-commercial uses, and the first right to sue third
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`parties not related to Restasis bioequivalents. Dkt Nos. 518, at 2; Dkt. No. 510-7, at 17-18. The
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`Court has examined the documents provided by Allergan and regards the question as a close one.
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`Some provisions of the exclusive license, such as the limitations on Allergan’s rights to as
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`particular field of use—specifically, to practice the patents in the United States for all FDA-
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`approved uses—give the Tribe at least nominal rights with regard to the Restasis patents. It is,
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`however, questionable whether those rights have any practical value. There is no doubt that at
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`least with respect to the patent rights that protect Restasis against third-party competitors,
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`Allergan has retained all substantial rights in the patents, and the Tribe enjoys only the right to a
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`revenue stream in the form of royalties.
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`The questions as to the validity of the assignment and exclusive license transaction and
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`whether the Tribe is an owner of the Restasis patents within the meaning of the Patent Act may
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`be dispositive in the IPR proceedings. But those issues do not bear on this Court’s power to
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`hear this case. Regardless of whether Allergan’s tactic is successful in terminating the pending
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`IPR proceedings, it is clear that the assignment does not operate as a bar to this Court’s continued
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`exercise of its jurisdiction over this matter.
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`This case was brought by Allergan, the Tribe’s predecessor in interest, seeking affirmative
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`relief, and thus any possible immunity from suit that might be applicable to avoid litigation brought
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`against the Tribe has no application to this action. See Competitive Techs., Inc. v. Fujitsu Ltd.,
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`374 F.3d 1098, 1102-03 (Fed. Cir. 2004) (“[W]hen a state files suit in federal court to enforce its
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`claims to certain patents, the state shall be considered to have consented to have litigated in the
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`same forum all compulsory counterclaims, i.e., those arising from the same transaction or
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`occurrence that gave rise to the state’s asserted claims.” (quoting Regents of the Univ. of N.M. v.
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`Knight, 321 F.3d 1111, 1126 (Fed. Cir. 2003))); see also Texas v. Caremark, Inc., 584 F.3d 655,
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`659 (5th Cir. 2009) (“When a state initiates a lawsuit, it waives its sovereign immunity to the
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`extent required for the lawsuit's complete determination.” (citing Clark v. Barnard, 108 U.S. 436,
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`448 (1883))); United States v. Oregon, 657 F.2d 1009, 1014-16 (9th Cir. 1981) (holding that tribe
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`waives sovereign immunity by intervening in lawsuit).
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`While the sovereign immunity issue is not presented in this case, the question whether
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`Allergan’s assignment of its patent rights to the Tribe is valid nonetheless has a bearing on this
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`case, because the validity of the assignment contract between Allergan and the Tribe affects
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`whether the Court should grant Allergan’s motion to add the Tribe as a co-plaintiff. If the
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`assignment to the Tribe is valid, the Tribe should be added as a co-plaintiff. If the assignment to
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`the Tribe is invalid, it would not be necessary to add the Tribe as a co-plaintiff.
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`This is more than a housekeeping matter of determining which names belong in the
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`caption. If the Court declines to join the Tribe as a co-plaintiff and it is later determined that the
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`Tribe is a valid owner of the patents, any judgment entered by the Court could be subject to
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`challenge on the ground that the owner of the patents was not a party to the action. See Indep.
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`Wireless Tel. Co. v. Radio Corp. of Am., 269 U.S. 459, 468 (1926); Diamond Coating Techs., 823
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`F.3d at 618-19; Propat Int’l Corp. v. RPost, Inc., 473 F.3d 1187, 1189 (Fed. Cir. 2007); Abbott
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`Labs. v. Diamedix Corp., 47 F.3d 1128, 1131 (Fed. Cir. 1995).
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`While it is important to ensure that any judgment in this case will not be subject to
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`challenge based on the omission of a necessary party, the Court is not required to decide whether
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`the assignment of the patent rights from Allergan to the Tribe was valid in order to resolve the
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`question whether to add the Tribe as a co-plaintiff. Instead, the Court will adopt the safer course of
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`joining the Tribe as a co-plaintiff, while leaving the question of the validity of the assignment to be
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`decided in the IPR proceedings, where it is directly presented.
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` Allergan has moved for the Court to add the Tribe as a co-plaintiff under Rule 25(c) of
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`the Federal Rules of Civil Procedure. That Rule provides that “[i]f an interest is transferred”
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`during the course of litigation, “the action may be continued by or against the original party
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`unless the court, on motion, orders the transferee to be substituted in the action or joined with the
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`original party.” Because the Tribe is at least the nominal transferee of the Restasis patents, and
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`because failure to join the Tribe could render any judgment rendered by this Court invalid, the
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`Court invokes its discretion under Rule 25(c) to order the Tribe joined as a co-plaintiff.
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`Importantly, the Court’s decision to permit joinder of the Tribe does not constitute a ruling on
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`the validity of the assignment of the Restasis patents or the Tribe’s status as a “patentee” for
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`purposes of the Patent Act, 35 U.S.C. § 281. Instead, it is “merely a discretionary determination
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`by the trial court that the transferee’s presence would facilitate the conduct of the litigation.” 7C
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`Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure
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`§ 1958, at 196-98 (2007).
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`Although the defendants have filed a lengthy and thorough brief in opposition to
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`Allergan’s motion to have the Tribe joined as a co-plaintiff in this action, they have not argued
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`that they would be prejudiced in any way by the joinder of the Tribe. The Tribe has consented to
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`joinder, Dkt. No. 513, at 6 n.1; id. at 7, and in light of the fact that the trial and the post-trial
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`briefing in the case has been completed, the presence of the Tribe as a co-plaintiff will not
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`interfere with the prompt entry of the Court’s findings of fact and conclusions of law, and the
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`Court’s the final judgment in this case. Allergan has represented that “the joinder will not
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`otherwise impact the substantive issues in the litigation. Id. at 6. And, as the successor-in-
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`interest to Allergan, the Tribe would be bound by any judgment. See Kloster Speedsteel AB v.
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`Crucible Inc., 793 F.2d 1565, 1582 (Fed. Cir. 1986). For that reason, substitution of a successor-
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`in-interest is appropriate even when the substitution occurs after trial. Panther Pumps & Equip.
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`Co. v. Hydrocraft, Inc., 566 F.2d 8 (7th Cir. 1977).
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`Accordingly, in order to ensure that any judgment entered in this case will be protected
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`against challenge on the ground that the proper parties were not all joined as plaintiffs, the Court
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`hereby orders the joinder of the Tribe as a co-plaintiff in this action under Federal Rule of Civil
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`Procedure 25(c). In so doing, the Court does not hold that the assignment of the patent rights to the
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`Tribe is valid, but instead proceeds on the ground that the assignment may at some point be held
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`valid, and that joining the Tribe as a party in this action is necessary to ensure that the judgment in
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`this case is not rendered invalid because of the absence of a necessary party.
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`IT IS SO ORDERED.
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`SIGNED this 16th day of October, 2017.
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`_____________________________
`WILLIAM C. BRYSON
`UNITED STATES CIRCUIT JUDGE
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