Allergan Plc. signage is displayed on the exterior of the company's office in Medford, Massachusetts, U.S., on Friday, Aug. 5, 2016. Allergan Plc. is scheduled to release earnings figures on August 8. Photographer: Scott Eisen/Bloomberg (Photo: Scott Eisen/BB)

Allergan PLC faced a skeptical appeals court Monday as the company defended its use of an American Indian tribe’s sovereign immunity to avoid challenges to its patents from generic-drug makers.

Two of three judges on the U.S. Court of Appeals for the Federal Circuit in Washington questioned whether Allergan was seeking to circumvent review by the Patent and Trademark Office. The reviews are widely used by technology companies, banks and insurers who say it offers a way to weed out bad patents.

(Related: A Native American Tribe, a Drugmaker and an Unusual Patent Plan)

The court is considering whether patents for Allergan’s blockbuster dry-eye drug Restasis can still be challenged despite being transferred to a tribe that claims sovereign immunity. The generic-drug makers Mylan NV and Teva Pharmaceutical Industries Ltd. claim that the patents are little different than earlier, expired ones.

Allergan paid the St. Regis Mohawk Tribe and transferred its Restasis patents last year in a move designed to quash challenges filed by the rival drugmakers at the Patent and Trademark Office. The medication, a treatment for chronic dry eye, brought in $1.5 billion in sales last year or 9% of Allergan’s revenue.

“Did Allergan get anything out of this transaction other than sovereign immunity?” asked Circuit Judge Timothy Dyk.

Circuit Judge Jimmie Reyna said Allergan’s actions, if emulated by others, could harm the review procedures set up by Congress in 2011.

A Native American Tribe, a Drugmaker and an Unusual Patent Plan

“We can all recognize a shell game when we see one,” said Justice Department lawyer Mark Freeman, who defended the patent office’s decision to let the reviews continue despite the St. Regis Mohawk tribe’s claim of sovereign immunity.

The Law’s Advantage

Allergan and the tribe said there’s no reason they shouldn’t take advantage of the law if they can.

“I would lay this on Congress’s door,” said Jonathan Massey, the lawyer representing Allergan and the Mohawks. “It is Congress’s job to change it if they don’t like the system.”

The Supreme Court has upheld the constitutionality of the reviews, rejecting arguments that only courts can take away already issued patents.

Anyone can petition the Patent Trial and Appeal Board to review a patent, and present arguments at a hearing. While the reviews have similarities to court disputes, there are procedural and legal differences.

“We have to decide whether immunity applies in these hybrid situations,” said Circuit Judge Kimberly Moore, who reserved her harshest questioning for lawyers for the government and generic-drug makers including Mylan.

The tribe says that it’s a sovereign nation and has immunity from the review process carried out by the Patent Trial and Appeal Board. In February, that board disagreed and refused to dismiss challenges to the validity of those patents. Even if the tribe wasn’t subject to the board’s review, Allergan retained enough rights that it could step in and defend the patent, the board said.

Allergan appealed to the Federal Circuit.

Big Tech Sued

The Mohawk tribe has since reached a similar agreement with another company, SRC LLC, and together they sued Amazon.com Inc. and Microsoft Corp. over patents for high-speed computing. Apple Inc. was sued over a patent owned by three North Dakota tribes, though that case was settled.

The goal is to avoid a review of issued patents before the patent board, which has an easier legal standard to cancel issued patents and is a favorite among tech and financial companies. The U.S. Supreme Court in April rejected claims the administrative reviews were unconstitutional.

Among the companies that filed legal arguments against Allergan’s tactics are Microsoft Corp; a group of tech companies whose members include Alphabet Inc.’s Google, Amazon.com Inc. and Oracle Corp.; and Askeladden, a group set up to address patent issues by the Clearing House, a payments company owned by the biggest U.S. banks.

“Allergan’s immunity-renting transaction with the tribe is the first of its kind, but if the gambit succeeds, it is sure not to be the last,” said the Association for Accessible Medicines, the generic-drug industry’s trade group. It “would harm not only the patent system but the health care system as well.”

Drugmakers have been accused of jacking up prices on old drugs, keeping generic-drug makers from getting the information they need to make copycat medicines and tweaking drug treatments so they can obtain new patents and extend their rights. Health insurers have also weighed in against Allergan in the case.

For Allergan, the case may be a moot point — the patents were ruled invalid by a trial court judge in Texas who also questioned the legitimacy of the tribe’s agreement, but stopped short of calling it a “sham.” That case is on appeal before the same appeals court that’s considering the sovereign immunity issue.

The Federal Circuit, the nation’s top patent court, has put the patent office review on hold until it hears the arguments, but is expected to rule quickly.

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