Of Tribes and Trolls: An Unlikely Alliance?
The interplay between Native American tribes and the American government has always been complicated. The law and concept of tribal sovereignty – Native American property constitutes their own country within the United States – has resulted in many unforeseen consequences over the years. This includes easily advantageous ones, such as the relatively unknown nature of tribal languages rendering them perfect for transmitting messages in code during World Wars I and II. Other consequences are more grey-area, such as the creation of lucrative “Indian” casinos and gaming facilities in states where gambling is limited or illegal.
Now, the latest in unforeseen consequences has arisen in the form of an unlikely alliance between Native American tribes . . . and patent trolls. In 2012, the U.S. Patent and Trademark Office (USPTO) began using an in partes review process (IPR), allowing challengers the option of attacking a patent’s validity before the USPTO’s Patent Trial and Appeals Board (PTAB) rather than in federal courts. Because IPR proceedings are faster and cheaper than court challenges, they quickly became the favorable method of getting rid of bad patents, especially those of patent trolls and other organizations that enjoy asserting their (often weak) patent rights vigorously against others.
This raised the question for trolls and others: how to continue the lucrative process of suing and obtaining settlement payouts, while avoiding the risk of being IPR’d out of existence? Patents owned by state entities like public universities already could not be challenged with an IPR proceedings due to state sovereign immunity. But patent trolls, and other heavy patent enforcers such as pharmaceutical companies, did not fall under this category. And out of that dilemma was born the unlikely partnership of trolls and tribes:
When pharmaceutical company Allergan PLC faced an IPR against its patent portfolio for the eye drug Restasis, filed by its long-time competitor Mylan. Quickly, Allergan sold the portfolio of patents to the Saint Regis Mohawk tribe and licensed them back — allowing Allergan to use the patents and (most likely) to sue under them. In other words, Allergan paid $13.75 million dollars to the tribe, and committed to a further royalty of $15 million a year . . . for the privilege of immunity to IPR proceedings on patents that bring in over $1 billion in revenue per year. Allergan wants to use the patents as a sword – sue potential competitors for infringement – while using the tribal sovereignty as a shield, preventing the patents from being invalidated or challenged inexpensively or quickly. Predictably, papers have now been filed with the USPTO requesting that the IPR be dismissed.
- The St. Regis tribe already holds 40 patents from a technology company and has publicly stated that it plans to make money suing companies to extract repetitive wins or settlement payments. In other words, they will likely take on the mantle of patent trolls.
- Apple has been sued for patent infringement by a new patent troll, MEC Resources, LLC. Investigation revealed that MEC is wholly-owned by a collective of three Native American tribes. Thus, theoretically, Apple will have no recourse to initiate IPR proceedings on the patents, but will have to spend more time and money pursuing invalidation arguments in court.
- Sovereign immunity has already helped two public state universities dodge IPR proceedings, paving the way for the same result on tribal sovereignty.
General principles of logic and fairness deem it unlikely that courts would permit tribes to enter courthouses to avail themselves of the privilege of federal patent law and procedure, without being subject to the same risks of patent invalidation that any other patentee has. Similarly, it seems unlikely that courts would to permit patent trolls and traditionally litigation-savvy entities like pharmaceutical companies, to exploit the loophole of tribal immunities to achieve the same result. To allow otherwise would embolden trolls, strengthen the weakest patents, allow significant gaming of the system, and make smaller businesses even more beholden to nuisance settlements. The only possible compromise might be permitting tribal immunity to IPRs for tribal-held patents so long as they do not attempt to take advantage of that in federal litigation.
But there are several indications that tribal immunity will not hold up in the IPR arena, at least not in full. First, while state sovereign immunity derives from the 11th Amendment and cannot be revoked, tribal immunity comes from Congress, which can revoke or limit that immunity. Second, courts have already rejected attempts by payday loan companies to avoid California lending laws via attempting to adorn the cloak of immunity by affiliating themselves with tribes. And third, despite tribal immunity to state gambling laws, the federal government still retains the power to regulate gaming. There is no reason why federal government, through the USPTO, should not have similar oversight, especially given that tribal patents only exist by taking advantage of, and being granted and recognized by, that same federal office.
This is a new strategy in a long line of strategies by trolls and other high-frequency patent enforcers to keep their money-making machines churning with minimum expense and risk. Whether in court or in Congress, they will not give up this potential new advantage easily. Nor will Native American tribes, who receive significant financial benefit from the arrangement, give up a potential new source of funding – one that may prove to be the most lucrative since the dawn of the tribal casino.
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