Big Pharma Now Using Tribal Law To Protect Their Patents

Allergan is the maker and patent holder for Restasis which is used to treat chronically dry eyes. It is a billion dollar drug for the company and, along with Botox, accounts for around 30% of the company's revenue, each accounting for about 15%. The company was close to losing its patent protection in 2013 but subsequently bought some additional patents that extended the drug's protection until 2024. Actavis, PLC submitted an application to develop a generic version of the drug which was accepted by the FDA and claimed that these new patents were unenforceable because they were obtained after that application. That claim was never adjudicated because Acatvis eventually merged with Allergan. But it was clear that Allergan was and is deeply concerned about protecting its Restasis patent.

Yesterday, in what seems like a bizarre and inexplicable move, Allergan transferred its Restasis patents to the Saint Regis Mohawk Tribe. The Tribe then immediately turned around and licensed the ability to exclusively market Restasis back to Allergan in a deal that would pay the Tribe nearly $14 million up front and another $15 million annually.

The apparent rationale for this strange maneuver is to prevent any legal challenges from generic drug makers to the Restasis patent. Although the law is obscure and will likely be adjudicated in future lawsuits, it appears that tribal sovereign immunity would mean that no challenge to the Restasis patents could be made to the Patent Office as those rules would no longer apply.

In 1984, Congress passed the Drug Price Competition and Patent Term Restoration Act, better known as the Hatch-Waxman Act after its two main sponsors, in order to spur the creation of generic drugs. The law was designed to be a compromise between drug innovators and generic drug makers in the pharmaceutical industries. In return for extending certain patent protections for the innovators, generic drug makers got an easier process for creating the generic, only having to prove bioequivalence as well as safety and protecting the generic drug maker from patent infringement suits during the time it is preparing its application to the FDA for the generic.

As Rachel Sachs writes, "this [Allergan] transfer has the potential to prevent any invalidity challenges to any drug patents. Would-be generic competitors could not seek to initiate inter partes review (IPR) actions before the Patent and Trademark Office (PTO). They could not bring declaratory judgment actions in federal court. And – both most importantly and most unclear – they could not bring Paragraph IV claims under Hatch-Waxman, preventing generic companies from challenging patents’ invalidity and requiring us all to wait until the very end of patent expiration to experience generic competition. Here’s why: tribal sovereign immunity claims will bar these suits."

Allergan's stated reason for making this move is to avoid the situation that currently exists where patent challenges occur in two venues. In 2011, a new patent review process was passed into law by Congress that created a Patent Trial and Appeal Board in order to streamline the process. But legal challenges through the regular court system are still allowed to continue, meaning that patent challenges are conceivably determined in two venues. The CEO of Allergan defended the deal with the Tribe, saying, "We did this to really make sure that we can defend these patents in only one forum", in this case the courts.

As Sachs points out, regardless of the reasons for Allergan's specific deal, this deal potentially rips apart the Hatch-Waxman Act. Now generic drug makers will be unable to challenge the validity of the innovator patents. Meanwhile, the drug innovators get to keep their extended patent protections. The result is we will all have to pay higher prices as we wait for the innovator patents to finally expire. And, as Allergan has shown with Restasis, those pharmaceutical innovators can get very creative in finding ways to extend their patents. One pharmaceutical analyst says that "we will probably see multiple branded companies housing their patents with Indian tribes" if this Allergan scheme passes muster in the courts.

In so many ways, this development parallels the tax avoidance schemes in the business world. So many deals are structured not to make business sense per se, but solely to avoid the tax and legal structure that is in place, tax inversion being a rather typical example. I have no idea what the answer is, other than to say that we somehow need to enforce the spirit and not just the letter of the law.