Using an innovative strategy, pharmaceutical company Allergan recently transferred the patents associated with the eye drug, Restasis, to the Saint Regis Mohawk Tribe, in exchange for an exclusive license back. The tribe reportedly received $13.75 million from Allergan, with a potential to earn an additional $15 million in royalties annually. Restasis was a billion dollar drug for Allergan. However, Restasis patents are being challenged in court and in the U.S. Patent and Trademark Office, as being invalid. The move by Allergan was an attempt to avoid Inter Partes Review ("IPR") by the patent office, under a theory of sovereign immunity. Allergan asserted that its assignment of the Restasis patents would allow it to focus the defense of the patents in the federal court system. It contends the IPR was double jeopardy under the patent system.

Unfortunately for Allergan and Restasis, a federal judge in the Eastern District of Texas invalidated four key patents for the dry-eye treatment Restasis. The decision handed down Monday is a setback for Allergan. The ruling does not mean generic versions of the drug will be immediately available, as Allergan indicated its intent to appeal the decision, and the FDA has yet to approve generic versions of the drug.

Allergan stock dipped more than 5 percent on the news. Restasis is Allergan’s second best-selling product, behind Botox. In 2016, it generated nearly $1.5 billion for Allergan. The patent office has not ruled on the issue of sovereign immunity in the IPR for Restasis patents. While others have challenged the dual jurisdiction of patent review in administrative IPR proceedings in the U.S. Patent and Trademark Office, and federal court review, the Supreme Court has yet to rule on such challenges. The Court has granted certiorari on the issue with Oil States v. Green Energy Group, which will be heard this term. The issue before the Supreme Court is whether it is constitutional for an Article I tribunal to extinguish patent rights.