Bills
| 3.23.22

Should Tribal Immunity be Eliminated as a Defense in Drug Patent Proceedings? (S. 440)

Do you support or oppose this bill?

What is S. 440?

(Updated July 1, 2019)

This bill — the Preserving Access to Cost Effective Drugs (PACED Act — would eliminate tribal immunity as a defense for all patent owners in proceedings before the U.S. Patent and Trademark Office (USPTO) and Patent Trial and Appeal Board (PTAB). The prohibition also applies to court actions and proceedings before the International Trade Commission (ITC). This bill wouldn’t prevent pharmaceutical firms from partnering with Indian tribes for research, development, and licensing of drugs.

Argument in favor

Pay-for-delay schemes cooked up by pharmaceutical companies to extend their patent protection and keep generic competition from reaching the market allow them to maintain unfairly high prices for their products. This bill would close a loophole drug companies use to unfairly extend their patents.

Argument opposed

While it’s indisputable that drug prices are too high and that some pharmaceutical companies unfairly use pay-for-delay schemes to extend their patent protection, this bill isn’t the answer to these problems. This bill could have the effect of deterring pharmaceutical companies from partnering with Indian tribes in drug research.

Impact

Patents; patent holders; patent disputes; pharmaceutical drug consumers; pharmaceutical companies; Indian tribes; tribal sovereignty; U.S. Patent and Trademark Office; Patent Trial and Appeal Board (PTAB); and International Trade Commission (ITC).

Cost of S. 440

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sen. Tom Cotton (R-AR) reintroduced this bill from the 115th Congress to restore the power of the Patent and Trade Office, federal courts, and the International Trade Commission to review patents regardless of sovereign immunity claims made as part of sham transactions: 

"It's past time to end the patent abuse that is raising drug costs for our seniors. This bill will make sure unscrupulous patent holders can't game the system and block their competitors from entering the market. That'll go a long way to help Arkansans get the drugs they need more affordably.”

Original cosponsor Sen. Joni Ernst (R-IA) adds that this bill closes loopholes that allow pharmaceutical companies to unfairly fix drug prices: 

"High prescription drug and health care costs impact all Iowans, but especially our seniors and those on a fixed income. It's past time we remove loopholes that allow manipulators to unfairly stifle competition and inflate prescription drug prices for Iowans who need them most.”

Original cosponsor Sen. Pat Toomey (R-PA) notes that sham transactions set a “dangerous precedent” for other consumer products outside the pharmaceutical industry: 

"Sham transactions involving the transfer of patent ownership from a pharmaceutical company to a tribe for the sole purpose of shielding the patent from challenges are a clear abuse of our patent system and set a dangerous precedent for other consumer products. The PACED Act will improve our patent system and protect patients and consumers from higher drug prices by eliminating this egregious loophole."

The Association for Affordable Medicines (AAM) expressed its support for this bill in a press release: 

“With everyone from patients to the President demanding action on drug pricing, AAM welcomes the re-introduction of the Preserving Access to Cost Effective Drugs (PACED) Act. As pharmaceutical companies continue to find novel ways to game the system to keep their monopolies intact long past their expiration date, the PACED Act addresses this particularly onerous practice that keeps drug costs artificially high. The scheme is so egregious that everyone said, ‘there ought to be a law.’... Congress should give the PACED Act its full consideration and enact this law."

Writing in IPWatchdog when this bill was introduced in the 115th Congress, Gene Quinn, a patent attorney and president & CEO of IPWatchdog, argued that this bill discriminates against Native Americans: 

“If the goal is to preserve access to reasonably priced drugs, why isn’t the bill limited to pharmaceuticals or biologics? If the need for this bill is to stop the rising costs of drugs, as the Senators explain, why does the bill prevent Indian Tribes from claiming sovereign immunity regardless of the substance of the patent owned? If the goal of the bill is to preserve access to reasonably priced drugs, why doesn’t it do anything to curb the prices charged by brand name pharmaceutical drug companies? Of course, anything that addressed brand name pharmaceutical drug companies directly would be politically impossible because it would lead to a long, drawn out, brutal fight with one of the most powerful lobbies in the world. Still, how can a bill proclaim to do something — anything — about drug prices when it isn’t directed to anything except for patents owned by Indian Tribes? What about the tens of thousands of patents owned by companies like Eli Lilly, GlaxoSmithKline, Merck, Pfizer, Bristol Myers Squibb, AbbVie, AstraZeneca, Novartis, Roche and Johnson & Johnson? Surely a bill that would do something to ensure reasonably priced drugs has to do more than discriminate against Indian Tribes? Apparently not. We should be able to all agree that drug prices are an issue of national importance, but the PACED Act is not limited to drug patents, medical device patents, or any other patent related to public health. Neither is it applicable to those companies that actually control the latest, greatest, patented, brand name drugs. If the goal is to address the rising costs associated with healthcare the PACED Act is extraordinarily overbroad and completely ineffectual. But that isn’t the intent of the bill. Instead, PACED is nothing more than a thinly veiled attempt to block the participation of Native Americans from the patent system as sovereigns. To do this a legislative subterfuge is being used; namely the myth that States and Native American Indian Tribes are being treated the same… [N]o Native American Tribe has ever attempted to block any drug company’s efforts to invalidate any patent a Tribe owns. Tribes have only sought a forum for those proceedings. It is entirely reasonable for Native American Tribes to demand the procedural certainty and fairness that comes with a proceeding presided over by an Article III judge, respects the right to a trial by jury as to factual issues, and includes the presumption that patents paid for and issued by the United States Government are valid.”

As an alternative to this bill, Quinn argued in favor of having Congress focus on making the IPR system fair for everyone: 

“Instead of a clearly discriminatory bill that will never apply to States or State universities, the Senate should concentrate on making the IPR system fair for everyone. If a fairer IPR system that is truly balanced cannot be fashioned Congress should eliminate the post grant proceedings altogether. Ironically, if the PTAB and PTAB process were seen as fair and even-handed, there would be no incentive for any company to transfer its patents to sovereign tribes or State universities in order to escape the clutches of PTAB jurisdiction. Simply stated, the problem is IPRs, not Native American Tribes or sovereign immunity. Congress should fix the problem rather than passing a discriminatory, misleading and ineffectual piece of legislation.”

This bill passed the Senate Judiciary Committee on a party-line 12-10 vote and has two Republican cosponsors in the 116th Congress. In the 115th Congress, it had four bipartisan cosponsors (three Republicans and one Democrat) and didn’t receive a committee vote.

The Electronic Frontier Foundation, Engine, American Consumer Institute Center for Citizen Research, Public Knowledge, America's Health Insurance Plans (AHIP), Association for Accessible Medicines, United for Patent Reform, High Tech Inventors Alliance, Patients for Affordable Drugs Now, BlueCross BlueShield Association and Blue Shield of California supported this bill in the 115th Congress.


Of Note: When Sen. Cotton introduced this bill in the 115th Congress, his office noted that avoiding review enables pharmaceutical firms to prevent generics from coming to market, thereby raising the cost of drugs. Additionally, Sen. Cotton’s office noted that if non-practicing entities (often referred to as “patent trolls”) can skirt review or use a tribe as a straw plaintiff, it makes it harder for businesses to defend themselves against dubious patent claims.

This bill was precipitated by Allergan’s sale of its patents on Restatis — an eye medication with $1.5 billion in annual revenue — to the St. Regis Mohawk Tribe for a one-time payment of nearly $14 million and annual royalties of $15 million. This sale allowed Allergan to effectively rent the tribe’s sovereign immunity and thereby claim that its patents are beyond the reach of the U.S. Patent and Trademark Office (PTO). Immediately after the Restasis sale, the St. Regis Mohawk Tribe immediately filed a motion to dismiss based on a claim of tribal sovereign immunity that’d negate the U.S. PTO’s pending review of the Restasis patents. 

Ultimately, the U.S. Patient Trial and Appeal Board (PTAB) ultimately decided that the tribe couldn’t claim sovereign immunity in this case and a federal judge ruled that the deal was a “sham transaction” designed to circumvent Congress’ authority to regulate pharmaceutical patents. Patient groups, healthcare providers and even other pharmaceutical CEOs openly criticized Allergan’s patent “shenanigans,” and the judge in the case wrote, “What Allergan seeks is the right to continue to enjoy the considerable benefits of the US. patent system without accepting the limits that Congress has placed on those benefits through the administrative mechanism for canceling invalid patents.” 

However, despite its loss in the broader case, Allergan’s patent gamesmanship succeeded in delaying generic competition for Restasis until 2020, even with the courts’ opposition to the deal. Simultaneously, the company raised the cost of Restasis for millions of patients, increasing its profits on the drug. The Association for Accessible Medicines warned, “If brand-name drug companies know they can shield themselves from PTO’s administrative procedures by paying a tribe a small fraction of the amount they receive in revenues each year, this ‘ploy’ will proliferate. The result will harm patients who lose access to competing produces as long as invalid patents remain on the books.”


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / Bill Oxford)