`
`Allergan’s patent transaction with
`St. Regis Mohawks could presage
`more arbitrage patent transactions
`
`By SSteve Brachmann
`September 18, 2017
`
`Print Art
`
`The pharmaceutical treatment Restasis is a
`medication for patients su(cid:119)ering from chronic dry
`eye disease marketed by the Irish pharmaceutical
`multinational Allergan (NYSE:AGN). The drug is an
`important part of Allergan’s corporate portfolio,
`earning $336.4 million in net revenues in the U.S.
`during the second quarter of 2017. Although that
`was a 9 percent decrease on net revenues for
`Restasis during 2016’s second quarter, that still
`makes the medication the second-best selling
`treatment in the Allergan portfolio behind the
`company’s cosmetic treatment Botox. Through
`the first half of 2017, U.S. sales of Restasis helped contribute $645.2 million in net revenues to
`Allergan.
`
`“Arbitrage” by Nick
`Youngson/nyphotographic.com. Licensed under
`CC BY-SA 3.0.
`
`Allergan’s strong position in chronic eye treatments, however, has been under attack since at
`least last December by the Patent Trial and Appeal Board (PTAB), a tribunal which has proven
`itself to be an antagonist to patent rights over the five years of its existence. The PTAB decided
`to institute a series of inter partes review (IPR) proceedings against six patents covering
`MYLAN - EXHIBIT 1146
`Mylan Pharmaceuticals Inc. et al. v. Allergan, Inc.
`IPR2016-01127, -01128, -01129, -01130, -01131, -01132
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`Restasis set to expire in 2024 a(cid:120)er American pharma rival Mylan Pharmaceuticals
`(NASDAQ:MYL) petitioned the board to challenge the validity of those patents. Allergan had
`previously asserted the patents in suits against Mylan and Israeli generic drugmaker Teva
`Pharmaceuticals (NYSE:TEVA) a(cid:120)er those firms filed abbreviated new drug applications
`(ANDA) with the U.S. Food and Drug Administration (FDA) to produce generic versions of
`Restasis.
`
`Putting Allergan’s feet to the fire, so to speak, by initiating patent validity review trials at the
`PTAB led that company to develop a brilliant plan to give its intellectual property assets an
`added layer of protection. On September 8th, a press release issued by Allergan announced
`that it had partnered with the St. Regis Mohawk Tribe, a sovereign nation located across the
`border of Canada and New York State, in an attempt to dismiss the IPR proceedings at PTAB.
`Under the terms of the deal, Allergan transferred ownership each of the Orange Book patents
`covering Restasis to the St. Regis tribe and has received an exclusive license to those patents
`from the tribe. The St. Regis tribe receives an upfront payment of $13.75 million along with
`annual royalties of $15 million.
`
`In return for paying this high price to transfer IP assets, Allergan and the tribe get to mount a
`sovereign immunity defense which could ultimately be successful in getting PTAB to dismiss
`the IPR proceedings. Such a defense has already worked in a university context. This January,
`the University of Florida Research Foundation (UFRF) scored a major victory at PTAB when it
`convinced the PTAB to dismiss three IPRs instituted against its patents on an 11th Amendment
`defense. The PTAB found in favor of the university’s argument that, as a Florida state entity, it
`could not be the subject of legal proceedings brought by a private party.
`
`Although the St. Regis tribe isn’t a(cid:119)orded 11th Amendment protections, as a sovereign nation,
`the tribe cannot be sued in a venue where it doesn’t want to be and can only be sued for
`compulsory counterclaims. This was a point raised in a call with Michael Shore, partner at
`Shore Chan DePumpo LLP who is representing the St. Regis tribe in the IPR cases. “If you can
`avoid IPRs, there’s a huge value di(cid:119)erence between patents which can be subject to IPRs and
`patents that are not,” Shore said, “a significant enough di(cid:119)erence that if you can find a
`sovereign which is willing to take advantage of that arbitrage, there is money to be made
`there.” The tribe benefits from the upfront payment and licensing fees while Allergan benefits
`by protecting the Restasis patents behind a sovereign immunity defense. Shore noted that
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`UFRF’s ability to win on its sovereign immunity argument led Medtronic, the infringing party,
`to immediately take a license with the Florida university foundation.
`
`The benefits to both parties involved with the Restasis patent transaction would seem to defy
`any legal definition of a sham transaction, although Mylan certainly doesn’t find that to be the
`case. In a telephone hearing on the St. Regis tribe’s motion to dismiss the IPRs at the PTAB,
`counsel representing Mylan called the patent transfer a “sham transaction” on seven
`occasions. For a transaction to legally be a sham, it would have to be unlawful or illusory in
`order to serve as a tax shelter or another deceptive device. There’s nothing deceptive about
`the fact that sovereign immunity defenses have proven successful in defending against patent
`validity challenges at the PTAB, nor are the benefits to either side illusory in nature.
`
`The pharmaceutical world has had a particularly tense relationship with the PTAB, a point
`acknowledged by Bob Bailey, executive VP and chief legal o(cid:119)icer at Allergan. “From a
`pharmaceutical industry perspective, the IPR process has been a thorn in our side,” Bailey
`said. He explained that the IPR process was not created to give hedge fund managers an easy
`ability to make money by shorting a stock and then filing a petition for IPR. “We get a call from
`reverse trolls on a regular basis,” he said. “Now we have an alternative.”
`
`“We approached a couple of tribes with the idea and they thought we were insane,” Shore
`said. “Then we found the St. Regis Mohawks and their general counsel figured out what we
`were doing pretty quickly.” Dale White, the general counsel for the St. Regis tribe, noted that
`Allergan worked with the tribe to develop a relationship before entering into the patent
`agreement. “We are not going to enter into a transaction with just any company,” White said,
`adding that Bailey had come to visit the tribe personally and met face-to-face with tribal
`leaders to help establish a rapport.
`
`“This is something that we need because our primary source of revenue is the casino, and that
`can’t last forever so we’re trying to diversify,” White said. Unlike most business deals proposed
`to the St. Regis tribe in the past, this transaction didn’t require the tribe to give up any land or
`money in entering an agreement that provides a significant upside to the tribal community.
`White noted that the St. Regis tribe has many needs which can be met through the proceeds of
`the Restasis patent transaction such as housing, education, healthcare and welfare. According
`to White, this transaction will go a long way help in helping the St. Regis tribe much more self-
`su(cid:119)icient if not completely self-reliant.
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`“We are hoping that the revenues will continue, but I’m not going to be giving the tribe
`unrealistic promises of continued revenues,” White said. Although the team believed that the
`sovereign immunity defense was a strong argument, the tribe was planning on taking a
`cautious approach to how the money is spent and wait to see the immunity defense play out
`at the PTAB before using the bulk of the payment. White noted that the tribe plans on
`investing the money within the community itself instead of making per capita payments to
`tribal members.
`
`News of the St. Regis patent transaction has sparked interest in others pursuing similar
`arbitrage arrangements that provide revenue streams to Native American tribes outside of
`gambling and tobacco. According to Shore, there’s a lot of interest in pursuing such deals in
`sectors outside of pharmaceuticals. White seemed confident that other tribes would soon
`pursue their own similar IP deals. “There are 500 tribes in the U.S.,” White said. “There is a lot
`of media surrounding this and there is a lot of money. There will be other tribes.” Small
`operating companies have plenty of reason to contemplate such a transaction of their own
`patents themselves, Shore said. “There may be no IPRs filed yet, but they may be looking to
`do this preemptively so that when they engage in an enforcement campaign, they have
`removed the risk of IPR.”
`
`Tags: allergan, arbitrage, dry eye, immunity, inter partes review, IPR, patent, Patent Trial and
`Appeal Board, post grant proceedings, post-grant, PTAB, RESTASIS, Saint Regis Mohawk,
`soveriegn, St. Regis, transaction, treatment, validity
`Posted In: Courts, IP News, IPWatchdog Articles, IPWatchdog.com Articles, Licensing, Patent
`Trial and Appeal Board, Patents, Pharmaceutical, Universities
`There are currently 1 Comment comments. Join the discussion.
`
`1.
`
`Mr. V September 19, 2017 12:05 pm
`
`Thank Steve. I’ve read 100 articles about this Licensing deal but found your quotes from the actual
`parties involved to be most helpful.
`
`Any plans for a follow-up piece on the St. Regis Mohawk-SRC Computers deal?
`
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