Recently, Allergan, the Dublin-based drug company famous for Botox and Restasis, made headlines for entering into an unconventional business deal. Seemingly out of nowhere, the company announced it had signed over the rights to all of its patents on Restasis — one of its biggest moneymakers — to a Native American Indian tribe. Why would the company make such a move? Like many business deals, there is a backstory to this one.
In the early 1980s, as the nation recovered from the economic malaise of the previous decade, the pharmaceutical industry was suffering. Generic drug companies were struggling so badly that in 1984 the U.S. Congress passed the Drug Price Competition and Patent Term Restoration Act. Known as Hatch Waxman, for its coauthors Senator Orrin Hatch and Representative Henry Waxman, the bill attempted to stimulate the generic drug market while protecting branded drugs enough that the pharmaceutical companies would continue to spend research-and-development funds to develop new drugs.
The legislation worked. Eventually, generic drugs would comprise almost 90 percent of the marketplace, and while branded drugs enjoyed only a 10 percent market share drug companies made enough profit that they did not hesitate to create new and innovative drugs. It was a rare example of legislation performing exactly the way its authors intended. So what did Congress do? It passed another piece of legislation that torpedoed it.
That legislation was the America Invents Act, coauthored by Senator Patrick Leahy and Representative Lamar Smith. Passed in 2011, the bill shifted the process of acquiring a patent from “first-to-invent” to “first-inventor-to-file,” to help resolve patent disputes, but it also allowed third parties to challenge existing patents and expanded the post-patent re-examination process, which it renamed the inter partes review (IPR).
Congress anticipated that a small number of patents would be challenged before a newly created adjudicating body named the Patent Trial and Appeal Board. However, once every patent ever issued could come under review because of actions taken by a third party, the number of challenges exploded. Some challenges were legitimate; others were filed by “patent trolls.”
One company that found itself fighting off third-party challenges was Allergan. That should not have been surprising since Restasis, a dry-eye drop treatment, generates $1.49 billion annually in sales. Competitors like Teva, Akorn, and Mylan Pharmaceuticals filed third-party challenges to Allergan’s Restasis patents.
Because of unrelated ongoing litigation, the constitutionality of the inter partes re-examination process is now before the U.S. Supreme Court, which may hand down a ruling on the matter as early as October. In the meantime, Allergan decided to pursue a drastically different approach to protect its patents.
In a move that could have far-reaching implications in the business community, it transferred the rights to its Restasis patents to the Saint Regis Mohawk Tribe, a small Native American community located in northern New York. As compensation for the transaction, the tribe received $13.75 million at the time of the transfer; the tribe then licensed the patents back to Allergan in exchange for $15 million in annual royalties for the life of the patent.
As a sovereign Indian Nation, the tribe is immune to intellectual property challenges like the ones brought up through the IPR process. Since the technical owner of the Restasis patents is now the tribe, it filed a request with the Patent Trial and Appeal Board to have all challenges dismissed. Failing an unforeseen loophole, the board will likely have no choice but to dismiss the challenges.
Some have criticized Allergan. Senator Sherrod Brown was quoted as saying the deal “rips off consumers” and cannot “become the new normal.” But Allergan CEO Brent Saunders countered that the “novel” deal will allow his company “to focus the defense of the Restasis patents in the federal court system and avoid the double jeopardy created by the IPR system.”
The rights-transfer scenario was the brainchild of a Dallas-based law firm that approached the Saint Regis Mohawk Tribe and Allergan with the idea. After extensive negotiations, both the tribe and the drug company agreed the deal was mutually beneficial. Will other drug companies follow suit? If the inevitable legal challenges to the deal fail in court, the answer is yes. Companies will “have to find the right partners,” Saunders said, but, “yeah, there are some folks who may pursue this.”