Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 1 of 34 PageID #: 25670
`
`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF TEXAS
`MARSHALL DIVISION
`
`
`Civil Action No. 2:15-cv-1455-WCB
`
`ALLERGAN, INC.,
`
`Plaintiff,
`
`v.
`
`TEVA PHARMACEUTICALS USA, INC.,
`AKORN, INC., MYLAN PHARMACEUTICALS
`INC., MYLAN INC., and INNOPHARMA, INC.
`
`(Consolidated) LEAD CASE
`
`FILED UNDER SEAL
`
`Defendants.
`
`
`
`
`
`
`
`DEFENDANTS’ BRIEF OPPOSING JOINDER OF
`THE SAINT REGIS MOHAWK TRIBE AS A CO-PLAINTIFF
`
`CONFIDENTIAL UNDER PROTECTIVE ORDER
`
`
`
`
`

`

`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 2 of 34 PageID #: 25671
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`TABLE OF CONTENTS
`
`I. 
`
`BACKGROUND ................................................................................................................ 2 
`
`A. 
`
`B. 
`
`The admitted purpose of the transaction is to extend the Tribe’s sovereign
`immunity to Allergan’s Restasis patent portfolio to derail the IPRs. ..................... 2 
`
`The Tribe holds no actual rights; in a simultaneously executed license
`agreement Allergan took back all substantial and exclusionary rights. .................. 5 
`
`II. 
`
`ARGUMENT ...................................................................................................................... 7 
`
`A. 
`
`The assignment to the Tribe should be disregarded as a sham. .............................. 7 
`
`1. 
`
`2. 
`
`3. 
`
`The Tribe has not been assigned any rights; the transaction is like
`sham arrangements that have been condemned in other contexts. ............. 7 
`
`The lack of valid consideration for the assignment confirms that
`the transaction is a sham that is injurious to the interests of society. ....... 12 
`
`Because the transaction is a sham, joinder of the Tribe under
`Federal Rule of Civil Procedure 25(c) is not appropriate. ........................ 14 
`
`B. 
`
`Because Allergan retains all substantial rights, the Tribe lacks standing. ............ 16 
`
`1. 
`
`2. 
`
`Each of the Azure factors precludes joinder of the Tribe; Allergan
`holds all substantial rights and the Tribe lacks exclusionary rights. ......... 18 
`
`Other provisions confirm that Allergan holds all substantial rights;
`Allergan’s rights are not actually limited to a “field of use.” ................... 23 
`
`III. 
`
`
`
`CONCLUSION ................................................................................................................. 26 
`
`
`
`
`
`
`i
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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 3 of 34 PageID #: 25672
`
`Cases
`
`TABLE OF AUTHORITIES
`
`A123 Sys., Inc. v. Hydro-Quebec,
`626 F.3d 1213 (Fed. Cir. 2010)................................................................................................24
`
`Alfred E. Mann Found. For Sci. Research v. Cochlear Corp.,
`604 F.3d 1354 (Fed. Cir. 2010)....................................................................................16, 18, 22
`
`Alsaedi v. Alsaedi,
`177 Misc. 2d 440 (N.Y. Civ. Ct. 1998)..............................................................................13, 14
`
`Aspex Eyewear, Inc. v. Miracle Optics, Inc.,
`434 F.3d 1336 (Fed. Cir. 2006)..........................................................................................16, 18
`
`AsymmetRx, Inc. v. Biocare Med., LLC,
`582 F.3d 1314 (Fed. Cir. 2009)................................................................................................23
`
`Attorneys Trust v. Videotape Computer Prods., Inc.,
`93 F.3d 593 (9th Cir. 1996) .....................................................................................................11
`
`Azure Networks, LLC v. CSR PLC,
`771 F.3d 1336 (Fed. Cir. 2014)........................................................................................ passim
`
`Barona Band of Mission Indians v. Yee,
`528 F.3d 1184 (9th Cir. 2008) .................................................................................................13
`
`Coltec Indus., Inc. v. United States,
`454 F.3d 1340 (Fed. Cir. 2006)..................................................................................................8
`
`Commonwealth of Pennsylvania v. Think Fin., Inc.,
`2016 WL 183289 (E.D. Pa. Jan. 14, 2016) ..............................................................................10
`
`Eli Lilly & Co. v. Actavis Elizabeth LLC,
`435 F. App’x 917 (Fed. Cir. 2011) ..........................................................................................24
`
`FlowRider Surf, Ltd. v. Pac. Surf Designs, Inc.,
`2017 WL 2349031 (S.D. Cal. May 26, 2017) ....................................................................21, 23
`
`Gilead Scis., Inc. v. Merck & Co., Inc.,
`2016 WL 3143943 (N.D. Cal. June 6, 2016) .............................................................................7
`
`Hartman v. Harris,
`810 F. Supp. 82 (S.D.N.Y. 1992).............................................................................................12
`
`Higgins v. Smith,
`308 U.S. 473 (1940) ...................................................................................................................8
`
`
`
`ii
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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 4 of 34 PageID #: 25673
`
`In re BP p.l.c. Sec. Litig.,
`2016 WL 29300 (S.D. Tex. Jan. 4, 2016) ................................................................................11
`
`Int’l Gamco, Inc. v. Multimedia Games, Inc.,
`504 F.3d 1273 (Fed. Cir. 2007)................................................................................................24
`
`Keystone Driller Co. v. Gen. Excavator Co.,
`290 U.S. 240 (1933) .................................................................................................................24
`
`Klamath Strategic Inv. Fund ex rel. St. Croix Ventures v. United States,
`568 F.3d 537 (5th Cir. 2009) .....................................................................................................8
`
`Kramer v. Caribbean Mills, Inc.,
`394 U.S. 823 (1969) .................................................................................................................11
`
`Luminara Worldwide, LLC v. Liown Elecs. Co.,
`2015 WL 11018002 (D. Minn. Apr. 20, 2015) ........................................................................22
`
`Luminara Worldwide, LLC v. Liown Elecs. Co.,
`814 F.3d 1343 (Fed. Cir. 2016)................................................................................................22
`
`Matter of Covington Grain Co., Inc.,
`638 F.2d 1362 (5th Cir. 1981) .................................................................................................15
`
`Michigan v. Bay Mills Indian Cmty.,
`134 S. Ct. 2024 (2014) ...............................................................................................................9
`
`Minnesota Min. & Mfg. Co. v. Eco Chem., Inc.,
`757 F.2d 1256 (Fed. Cir. 1985)................................................................................................15
`
`Morrow v. Microsoft Corp.,
`499 F.3d 1332 (Fed. Cir. 2007)..........................................................................................16, 18
`
`Otoe-Missouria Tribe of Indians v. N.Y. Dept. of Fin. Servs.,
`769 F.3d 105 (2d Cir. 2014).....................................................................................................13
`
`People ex rel. Owen v. Miami Nation Enters.,
`2 Cal. 5th 222 (2016) ...............................................................................................9, 10, 11, 14
`
`Propat Int’l Corp. v. Rpost, Inc.,
`473 F.3d 1187 (Fed. Cir. 2007)................................................................................................22
`
`Salem Fin., Inc. v. United States,
`786 F.3d 932 (Fed. Cir. 2015)....................................................................................................8
`
`Speedplay, Inc. v. Bebop, Inc.,
`211 F.3d 1245 (Fed. Cir. 2000)..........................................................................................16, 22
`
`
`
`iii
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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 5 of 34 PageID #: 25674
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`Television Reception Corp. v. Dunbar,
`426 F.2d 174 (6th Cir. 1970) ...................................................................................................15
`
`Three Affiliated Tribes of Fort Berthold Reservation v. Wold Eng’g,
`476 U.S. 877 (1986) .................................................................................................................11
`
`Torres v. Krueger,
`596 F. App’x 319 (5th Cir. 2015) ............................................................................................16
`
`United States v. Line Material Co.,
`333 U.S. 287 (1948) .................................................................................................................24
`
`Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA,
`944 F.2d 870 (Fed. Cir. 1991)......................................................................................17, 22, 23
`
`Village of Upper Nyack v. Christian & Missionary All.,
`143 Misc. 2d 414 (Sup. Ct. 1988) ............................................................................................13
`
`Washington v. Confederated Tribes of the Colville Indian Reservation,
`447 U.S. 134 (1980) .................................................................................................................13
`
`
`
`Statutes
`
`35 U.S.C. § 256 ..............................................................................................................................15
`
`
`
`Other Authorities
`
`Blank, Joshua D., & Staudt, Nancy, Corporate Shams, 87 N.Y.U. L. Rev. 1641 (2012) ...............7
`
`Martin, Nathalie, & Schwartz, Joshua, The Alliance Between Payday Lenders and Tribes: Are
`Both Tribal Sovereignty and Consumer Protection at Risk?,
`69 Wash. & Lee L. Rev. 751 (2012) ..........................................................................................8
`
`Simpson, Sham Transactions, Oxford University Press, Chapter 4 (2013).....................................7
`
`Wright, Miller, & Kane, 7C Fed. Prac. & Proc. Civ. § 1958 (3d ed.) ...........................................14
`
`
`
`
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`iv
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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 6 of 34 PageID #: 25675
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`The transaction between Allergan and the St. Regis Mohawk Tribe (“the Tribe”) is a
`
`sham and should be disregarded by the Court. As Allergan’s CEO, Brent Saunders, has
`
`repeatedly, publicly admitted, the only reason for this transaction is to shield its patents from
`
`cancellation. Ex. 7 at 1. This transaction was not a genuine purchase of intellectual property by
`
`the Tribe. Rather, Allergan paid for the use of the Tribe’s sovereign immunity to thwart the
`
`parallel inter partes reviews (“IPRs”) before the Patent Trial and Appeal Board (“PTAB”).
`
`Allergan admitted as much in its October 10 filing with the Court conceding that the
`
`alleged “consideration” provided by the Tribe was nothing more than the Tribe’s promise not to
`
`waive its sovereign immunity in the IPR proceedings. Thus, there has been no real change in
`
`ownership—just a maneuver to derail the PTAB’s ongoing review of Allergan’s patents.
`
`The sham nature of the transaction with the Tribe is further underscored by the fact that
`
`the Tribe did not pay Allergan a cent for the patents claiming Restasis, which generated $1.4
`
`billion in 2016 sales, or $4 million dollars a day. Instead, it was Allergan who paid the Tribe
`
`$13.75 million up-front to take faux title to the Restasis patents. Dkt. No. 510, Ex. F at 4; Ex. 8
`
`at 1-2 (the Tribe notifying its members that it “is not investing any money in this business” and
`
`“[i]ts only role is to hold the patents”). Thus, Allergan, which has already enjoyed an almost 15
`
`year monopoly, bought up to an additional six years of exclusivity on Restasis for less than 1%
`
`of Restasis’ annual sales (or approximately four days of Restasis sales). See Ex. 9 at 2.
`
`Using this sham transaction, Allergan now wishes to join the Tribe as a co-plaintiff under
`
`Federal Rule of Civil Procedure 25(c). Rule 25(c) is discretionary and permits joinder upon a
`
`transfer of interest. But there has been no actual transfer of interest. Allergan continues to hold
`
`all of the patent rights, including the exclusive and unencumbered right to control this suit. The
`
`1
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`

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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 7 of 34 PageID #: 25676
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`Tribe lacks any such rights. Further, the illicit purpose of the transaction—to subvert the PTAB’s
`
`lawful review and not to facilitate this litigation—provides ample reason to deny joinder.
`
`It bears noting in this context that Allergan used the IPR process against a third party’s
`
`patent that was inconvenient for Allergan’s best-selling Botox franchise only one year ago.
`
`Allergan even sought a stay of parallel district court proceedings on the ground that the IPR
`
`“would save both judicial and party resources, consistent with Congress’ intent in passing the
`
`America Invents Act.” Allergan Memorandum in Support of Motion Stay, No. 1:15-cv-03372,
`
`Dkt. No. 40 at 1-2 (N.D. Ill.). It is remarkable that Allergan considered the IPR process a valid,
`
`equitable proceeding for challenging patent validity when it filed its own IPR petition just last
`
`year—yet, now that the same tribunal is scrutinizing Allergan patents, Allergan and the Tribe
`
`consider IPRs “double jeopardy” administered by a “kangaroo court.” See Ex. 4 at 3. Given its
`
`own recent, successful reliance on IPRs, Allergan’s attempt to justify its sham assignment by
`
`labeling the IPR process inequitable, harmful “double jeopardy” is pure hypocrisy. Ex. 7 at 2;
`
`Dkt. No. 510, Ex. J at 2-3.
`
`In any event, even taking the transaction at face value, Allergan retains all substantial
`
`rights in the patents. The Tribe cannot be considered the patent owner for purposes of standing
`
`and cannot be joined as a co-plaintiff in this suit because it lacks the requisite exclusionary
`
`rights. See generally Azure Networks, LLC v. CSR PLC, 771 F.3d 1336, 1347 (Fed. Cir. 2014).
`
`I.
`
`BACKGROUND
`
`A.
`
`The admitted purpose of the transaction is to extend the Tribe’s sovereign
`immunity to Allergan’s Restasis patent portfolio to derail the IPRs.
`
`One week before the PTAB was set to hold a hearing in the co-pending IPRs on the
`
`patents-in-suit, Allergan purported to assign the patents to the Tribe. One might naturally assume
`
`that the Tribe paid Allergan handsomely to acquire the patents covering a drug that generates
`
`
`
`2
`
`

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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 8 of 34 PageID #: 25677
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`annual revenues in excess of $1 billion—but that assumption would be wrong. Ex. 2 at 1. Dale
`
`White, general counsel for the Tribe, proudly declared: “[T]his 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.” Ex. 1 at 3. In fact, Allergan paid the Tribe $13.75 million upfront to hold
`
`nominal title to the patents. See, e.g., Dkt. No. 510, Ex. F at 4; Dkt. No. 506, Ex. C at § 4.1; Dkt.
`
`No. 511, Ex. K. The Tribe is also eligible to receive a royalty of up to $15 million per year for
`
`the life of the patents. See, e.g., Dkt. No. 510, Ex F at 4; Dkt. No. 506, Ex. C at § 4.2.
`
`Allergan and the Tribe have freely admitted the illicit purpose of the transaction in press
`
`releases, statements to the media, in communications to the House and Senate, and in filings with
`
`this Court. As the same-day joint press release asserts, the purpose of the transaction was “to
`
`strengthen the defense of our [Allergan’s] RESTASIS® intellectual property” by having the
`
`Tribe invoke sovereign immunity to terminate the IPR proceedings. Dkt. No. 481, Ex. 1 at 1; see
`
`also Dkt. No. 510, Ex. F at 1, 4; Dkt. No. 510, Ex. G at 1-2. The Tribe has separately confirmed
`
`the improper purpose of the transaction.1 Dkt. No. 510, Ex. H at 1-2; Dkt. No. 510, Ex. I at 1-2.
`
`And Allergan has admitted in writing to the Senate Judiciary Committee that the purpose of the
`
`transaction was to shield its patents from review before the PTAB. Dkt. No. 510, Ex. J at 3-4.
`
`Indeed, even in the context of this litigation, Allergan has freely admitted that the alleged
`
`“good and valuable consideration” it received from the Tribe for the assignment was the Tribe’s
`
`agreement to assert the defense of sovereign immunity in the related IPRs. Dkt. No. 510 at 3-4.
`
`1 For example, in its own press release, a week after the deal was signed, the Tribe argued
`that it was only trying to emulate “the same business model and legal positions long employed
`by public universities and other state sovereigns” who “partner and serve as incubators for start-
`up companies and large industrial companies to help bring products to market, often with the
`sovereigns retaining title to the intellectual property.” Dkt. No. 510, Ex. H at 1-2. Yet the Tribe
`fails to note that it played no role in bringing the Restasis product to market; in fact, it played no
`role at all in this entire litigation, attempting to make an appearance only after trial concluded.
`
`
`
`3
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`

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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 9 of 34 PageID #: 25678
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`The statements of Allergan’s Chief Legal Officer, Robert Bailey, and the Tribe’s lawyer,
`
`Michael Shore of Shore Chan DePumpo LLP (“Shore Chan”), are especially illuminating. For
`
`example, Mr. Bailey told Fortune magazine that the deal was not Allergan’s idea; rather, Shore
`
`Chan approached the Tribe and proposed the deal as a way to expand its revenue to include a
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`patent-holding business venture. Ex. 2 at 2. Michael Shore has since admitted to the Wall Street
`
`Journal that he came across the Tribe while searching for an Indian tribe willing to take
`
`advantage of the “arbitrage opportunity” he perceived as a result of the PTAB’s sovereign
`
`immunity rulings involving state universities. Ex. 3 at 4.2 Mr. Shore explained that “[w]e
`
`approached a couple of tribes with the idea and they thought we were insane.” Ex. 1 at 3.
`
`According to Mr. Shore, after signing the Tribe as a client, his firm scoured the PTAB’s
`
`docket and identified Allergan “as a company that looked like their needs were acute.” Ex. 3 at
`
`4-5. Mr. Shore told the Wall Street Journal that the Tribe proposed a deal in early August and is
`
`trying to reach more. Id. at 5. Mr. Shore has also unapologetically explained that the purpose of
`
`the transaction is to insulate Allergan’s Restasis patents from “what has been perceived as a
`
`kangaroo-court type atmosphere where all the expectations of patentees that have existed for 150
`
`years are thrown out of the window.” Ex. 4 at 3. The hypocrisy of Mr. Shore’s assertion is acute
`
`when one examines Allergan’s own exploitation of post-grant challenges at the PTAB. For
`
`
`2 IPWatchdog also published a quote from Mr. Shore in which he stated: “[I]f you can find a
`sovereign which is willing to take advantage of that arbitrage, there is money to be made there.”
`Ex. 1 at 2. The “arbitrage” that Mr. Shore is referencing is that the Tribe benefits from the
`upfront payment and licensing fees while Allergan benefits from protecting the Retasis patents
`by shielding them behind the tribe’s sovereign immunity. Id. Mr. Shore said the same thing to a
`reporter from Intellectual Asset Management who interviewed him alongside the Tribe’s general
`counsel. See Ex. 4. Shore stated: “We realized that there’s an arbitrage here – there’s the value of
`a non-sovereign patent which is much lower than the value of a sovereign patent.” Id. at 2.
`
`
`
`4
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`

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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 10 of 34 PageID #: 25679
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`example, Allergan filed an IPR petition to bolster its Botox franchise, scoring a victory this year
`
`against a third-party patent directed to administering botulinum toxin. See IPR2016-00102.
`
`In sum, it is apparent from the statements of Allergan, the Tribe, and their counsel that
`
`the true purpose of the agreement is to appropriate sovereign immunity in an attempt to shield
`
`the Restasis patents from review by the PTAB. The transaction does not represent a bona fide
`
`purchase of the patents by the Tribe. The alleged assignment of rights is indeed a sham.
`
`B.
`
`The Tribe holds no actual rights; in a simultaneously executed license
`agreement Allergan took back all substantial and exclusionary rights.
`
`Allergan purports to have assigned its patents to the Tribe in exchange for the allegedly
`
`valuable consideration of the Tribe’s promise to assert its sovereign immunity in the IPRs. Dkt.
`
`No. 510 at 3-4. Yet in the very same transaction Allergan took back an irrevocable, perpetual,
`
`and transferrable license that allows Allergan, and Allergan alone, to continue commercially and
`
`legally exploiting its IPR-challenged patents. Under license Allergan critically retains:
`
`
`
`
`
`
`
`
`
`
`
`the first right to sue on the patented subject matter at Allergan’s sole cost and expense
`with counsel of its choice (Dkt. No. 506, Ex. C at § 5.2.2);
`
`the unencumbered right to prosecute such litigation with the cooperation of the Tribe
`to “join as a party” and that the Tribe “shall not assert its sovereign immunity” (id.);
`
`the right to any profits from infringement litigation relating to the patents (id. at
`§ 5.2.5);
`
`the exclusive right to freely sublicense the patents (id. at §§ 2.1, 2.3);
`
`the right to order the Tribe to “promptly enter into confirmatory license agreements”
`in the form requested by Allergan (id. at § 2.2);
`
` any rights “related, necessary, or useful for Allergan to settle any Infringement
`Action . . . or to comply with its obligations” (id. at § 2.1);
`
`
`
`the exclusive right, at its sole cost and expense, to exploit, develop, manufacture, and
`commercialize a product on the patented subject matter (id. at §§ 2.1, 3.1);
`
` control over all interactions with governmental entities, including regulatory activities
`and Orange-Book listings (id. at §§ 3.1, 5.1.6);
`
`
`
`5
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`

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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 11 of 34 PageID #: 25680
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` control over administrative proceedings, including but not limited to defense of the
`patents in interferences, reissues, reexaminations, supplemental examinations, and
`contested proceedings before the PTAB (id. at §§ 5.1.1, 5.3);
`
` control over requests for patent term extensions (id. at § 5.1.5);
`
` control over prosecution and maintenance of the patents, and to “direct and control
`the prosecution strategy” (id. at § 5.1.1);
`
` control over whether Allergan may assign its rights; which Allergan may do without
`the consent of the Tribe (id. at § 10.3); and
`
` control over subcontracting of any or all of Allergan’s obligations (id. at § 10.4).
`
`Moreover, Allergan retains these irrevocable and exclusive rights under the license in
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`perpetuity. Id. at § 2.1. They terminate only when the patents are no longer enforceable, at which
`
`time Allergan owes no royalties to the Tribe for housing of paper title. Id. at §§ 9.1.1, 9.1.2, 9.2.
`
`This is not a mere field of use license as Allergan suggests. See Dkt. No. 510 at 4. The
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`field reserved for Allergan is “all FDA-approved uses in the United States.” Dkt. No. 506, Ex. C
`
`at § 2.1. The only uses within the scope of the patents are therapeutic uses requiring FDA
`
`approval. Indeed Allergan has argued in the context of this litigation that all the claimed uses are
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`“on-label,” and thus FDA-approved. Dkt. No. 352 at 11-19. FDA approval is required by law to
`
`market a drug in the United States and Allergan has reserved the exclusive right to prosecute any
`
`generic equivalents. Dkt. No. 506, Ex. C at § 5.2.2. Thus, while Allergan asserts that its rights
`
`are limited to an alleged field of use, that field is the only one within the scope of the patents and
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`Allergan has not identified or even suggested another field in which the Tribe has rights.
`
`Even the purported rights reserved by the Tribe relating to research, scholarly use,
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`teaching, education, and “incidental” patient care (id. at § 2.4) are strictly circumscribed. The
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`very same provision qualifies these non-commercial uses by prohibiting the Tribe from either
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`“directly or indirectly” developing, marketing or licensing a competing product or engaging in
`
`
`
`6
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`

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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 12 of 34 PageID #: 25681
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`any license activities that would result in a competing product. Id. Therefore, even in the non-
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`commercial realm, the Tribe cannot do anything that would create competition for Allergan.
`
`II.
`
`ARGUMENT
`
`A.
`
`The assignment to the Tribe should be disregarded as a sham.
`
`The Tribe should not be joined as a co-plaintiff because the assignment is a sham. The
`
`assignment lacks economic substance and is an example of the oft-condemned practice of trying
`
`to extend tribal sovereign immunity to non-tribal entities as well as the inappropriate practice of
`
`assigning legal claims to avoid the proper exercise of jurisdiction.3 Because there has been no
`
`actual transfer of interest, Federal Rule of Civil Procedure 25(c) does not justify joinder.
`
`1.
`
`The Tribe has not been assigned any rights; the transaction is like
`sham arrangements that have been condemned in other contexts.
`
`A notable feature of this purported assignment is that payment went the wrong way:
`
`Allergan paid $13.75 million to the Tribe rather than demanding payment in exchange for its
`
`patents covering a drug that has demonstrated “substantial commercial success” including “an
`
`annual growth rate of 30%, nearly $8 billion dollars in revenue since launch, and net returns well
`
`in excess of research and development costs.” Dkt. No. 453 at 14-15. Indeed, Restasis accounts
`
`for about 10% of Allergan’s overall revenue and is Allergan’s second-biggest selling product
`
`behind Botox. Ex. 3 at 2; Ex. 2 at 1. As Allergan’s Chief Legal Officer, Mr. Bailey, told the New
`
`York Times in a recent interview: “It’s one of our most valuable products . . .” Ex. 5 at 3.
`
`
`3 In the event that the Court finds that the transaction in question is a sham, Defendants
`reserve the right to assert unenforceability of the patents due to unclean hands. See, e.g., Gilead
`Scis., Inc. v. Merck & Co., Inc., No. 13-cv-04057-BLF, 2016 WL 3143943, at *1 (N.D. Cal. June
`6, 2016) (holding asserted patents unenforceable due to a pattern of misconduct constituting
`unclean hands); see generally Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240, 241
`(1933) (requiring that “[h]e who comes into equity must come with clean hands.”).
`
`
`
`7
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`

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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 13 of 34 PageID #: 25682
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`So why pay the Tribe to take the patents covering Allergan’s “crown jewel”? Aug. 28 PM
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`Trial Tr. 90:2 (Reis). The intent was to create the appearance of tribal ownership for purposes of
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`asserting sovereign immunity in the IPRs, while in fact allowing Allergan to retain exclusive and
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`unencumbered rights to continue exploiting and enforcing its IPR-challenged patents. Thus, no
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`rights were actually transferred; just the assignment of nominal title with the understanding that
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`(in exchange for $13.75 million) the Tribe would assert sovereign immunity in the IPRs.
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`Sham transactions need not be fraudulent or illegal; they can be merely distortive,
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`evasive, or manipulative, tending in some way to unfairly use the laws to undermine policy aims
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`or goals. See Joshua D. Blank & Nancy Staudt, Corporate Shams, 87 N.Y.U. L. Rev. 1641,
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`1643-44 (2012); see also Ex. 6 at 5, Simpson et al., Sham Transactions, Oxford University Press
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`(2013), Chapter 4 on U.S. at p. 69. The assignment of title to the Tribe and the grant-back of all
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`meaningful rights in the patents to Allergan falls squarely within this definition of a sham. Courts
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`have considered sham transactions in various contexts that aid with understanding this case.
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`First, Courts have encountered similar transactions in tax cases where parties transfer
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`interests in an attempt to reduce tax liability. Courts look suspiciously at transactions “which do
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`not vary control or change the flow of economic benefits . . .” Higgins v. Smith, 308 U.S. 473,
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`476 (1940). The idea behind the above described “economic substance” doctrine is that tax
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`benefits should not be reaped from sham transactions lacking in economic reality. See generally
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`Klamath Strategic Inv. Fund ex rel. St. Croix Ventures v. United States, 568 F.3d 537, 543 (5th
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`Cir. 2009); see also Coltec Indus., Inc. v. United States, 454 F.3d 1340, 1353-54 (Fed. Cir.
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`2006); Salem Fin., Inc. v. United States, 786 F.3d 932, 943 (Fed. Cir. 2015). Such transactions
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`are shams and “a lack of economic substance is sufficient to invalidate the transaction regardless
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`of whether the taxpayer has motives other than tax avoidance.” Klamath, 568 F.3d at 544.
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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 14 of 34 PageID #: 25683
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`Similarly, the purpose of the transaction between Allergan and the Tribe was to reap the
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`benefit of avoiding scrutiny before the PTAB using a transaction lacking in economic substance.
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`An examination of the terms of the license granted to Allergan reveals that the true purpose of
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`the transaction was to transfer nominal title to the Tribe so that the Tribe would assert sovereign
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`immunity in the related IPRs while still allowing Allergan to retain any and all rights that would
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`enable it to continue exploiting and enforcing its IPR-challenged patents without any oversight
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`from, or interference by, the Tribe. The transaction left Allergan’s ability to continue profiting
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`from its patents, and to freely enforce them against potential generic competitors, entirely intact.
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`Accordingly, as a matter of economic substance, the transaction did not alter Allergan’s
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`rights in the patents; its only purpose was to create the appearance of Tribal ownership.
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`Second, both federal and state courts have encountered attempts to stretch a tribe’s
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`sovereign immunity to non-tribal entities, most notably in the context of “payday” lending, or
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`short-term lending associated with high interest rates. See Nathalie Martin & Joshua Schwartz,
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`The Alliance Between Payday Lenders and Tribes: Are Both Tribal Sovereignty and Consumer
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`Protection at Risk?, 69 Wash. & Lee L. Rev. 751, 764-67 (2012). Justice Thomas noted this
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`trend and voiced concern in his dissent in Michigan v. Bay Mills Indian Cmty.:
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`[T]ribal immunity has . . . been exploited in new areas that are often
`heavily regulated by States. For instance, payday lenders (companies that
`lend consumers short-term advances on paychecks at interest rates that can
`reach upwards of 1,000 percent per annum) often arrange to share fees or
`profits with tribes so they can use tribal immunity as a shield for conduct
`of questionable legality . . . Indian tribes have also created conflict in
`certain States by asserting tribal immunity as a defense against violations
`of state campaign finance laws . . . As long as tribal immunity remains out
`of sync with this reality, it will continue to invite problems, including de
`facto deregulation of highly regulated activities.
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`134 S. Ct. 2024, 2052 (2014) (Thomas, J., dissenting). Courts have not hesitated to disregard
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`such schemes as shams. For example, in People ex rel. Owen v. Miami Nation Enters., 2 Cal. 5th
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`Case 2:15-cv-01455-WCB Document 514 Filed 10/13/17 Page 15 of 34 PageID #: 25684
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`222 (2016) the Supreme Court of California declined to extend tribal sovereign immunity to a
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`tribally owned lender notwithstanding the existence of formal arrangements, whole-tribal
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`ownership, the creation of corporate entities pursuant to tribal law, the express intent to extend
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`tribal immunity to the entity, the seating of tribal members on the board of directors, and some
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`amount of the profits going to support tribal operations. Id. at 250-56. Because the tribal entities
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`maintained little control over the lending business (id. at 251) and the percentage of the profits
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`going to the tribe appeared to be “very small,” what the Owen court assumed to be “1 percent of
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`gross revenues from the online lending operations” (id. at 232, 255), the court concluded that the
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`arrangement was not one to which tribal sovereign immunity should extend. Id. at 251.4
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`Like the payday lending scheme condemned as a sham in Owen, Allergan’