PACED Act Introduced to Prevent Abuse of Sovereign Immunity

Earlier this month, a group of Senators including Tom Cotton (R-AK), Claire McCaskill (D-MO), Pat Toomey (R-PA), Joni Ernst (R-IA), and David Perdue (R-GA) introduced the Preserving Access to Cost Effective Drugs (PACED) Act to prevent companies from asserting sovereign immunity in patent-related proceedings.  The bill is in response to Allergan’s act of transferring ownership of all Orange Book-listed patents for RESTASIS® (Cyclosporine Ophthalmic Emulsion) 0.05% to the Saint Regis Mohawk Tribe (the Tribe) in an effort to avoid facing inter partes review (IPR) challenges because of sovereign immunity afforded by the Eleventh Amendment.
 
The bill, if passed, would amend title 35 of the United States Code to prevent a patent owner from asserting sovereign immunity, including the sovereign immunity accorded to an Indian tribe, as a defense in certain actions before the United States Patent and Trademark Office. As such, sovereign immunity could not be asserted in derivation, reexamination, inter partes review, and post-grant review proceedings.
 
It is interesting to note that the bill also expands the abrogation of sovereign immunity to specifically to include claims involving biosimilars under Section 351 of the Public Health Service Act (42 U.S.C. § 262). 
 
In the case where the patent owner is a foreign state, the bill gives the Patent Trial and Appeal Board the power to determine whether the state is immune from jurisdiction in accordance with 28 U.S.C. Chapter 97.
 
According to the Senators, the bill is in response to what they perceive to be a misuse of the patent system by biopharma firms that only serves to increase drug prices and delay generic competition. To this end, Senator Cotton stated, "It's far past time that we crack down on patent abuse, which is raising 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 seniors get the drugs they need."
 
Senator McCaskill further added, "We watched a company brazenly try to exploit a potential legal loophole to game the system in an effort to protect their bottom line-and keep Missourians from access to cheaper generic drug options in the process.  That should be illegal, and our bipartisan bill would make it so by ending this astounding assertion of sovereign immunity to avoid patent review, before any other companies follow suit."
 
In addition, Senator Ernst noted, "Congress cannot look the other way as some pharmaceutical companies attempt to stifle competition and prevent Americans from accessing affordable generic drugs.  Failure to act could incentivize other industries to use similar tactics to block competitors.  Through the Preserving Access to Cost Effective Drugs Act, we can speed up the entry of safe and affordable generic drugs into the market while maintaining the integrity of the U.S. patent system."
 
The PACED Act has support from a number of groups, including R Street, 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.
 
The bill comes at a time when we are seeing a lot of pushback on the use of sovereign immunity. Shortly after Allergan transferred its patents to the Tribe, the district court ruled that the patents protecting Allergan's $1.5 billion blockbuster dry-eye drug, Restasis, are invalid due to obviousness. In the ruling, US Circuit Judge William Bryson explained that the court had “serious concerns about the legitimacy of the tactic that Allergan and the Tribe have employed" and that in his view, Allergan has paid the Tribe to "rent" its sovereign immunity at the US Patent Office. Moreover, on February 23, 2018, the PTAB itself denied the Tribe’s motion to dismiss the pending IPRs, stating that the doctrine of tribal sovereign immunity does not apply to IPR proceedings.
 
Of course, it should be noted that the issue of sovereign immunity in IPRs may be rendered moot if the Supreme Court rules that IPRs are unconstitutional in Oil States Energy Services v. Greene's Energy Group. If this were to happen, the bill may be unnecessary.
 
We will continue to keep you informed of developments in this field as they occur.