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B.A. in economics and MBA from top 10 business school. I have over 10 years of M&A / corporate finance experience. Currently head the New York Shock Exchange, a youth mentorship program that teaches investment management skills and ... more

Allergan Punished After Judge Invalidates Restasis Patents

Date: Tuesday, October 17, 2017 11:56 AM EDT

Allergan's (AGN) fight with generic rivals pursuant to its Restasis patents took another twist Monday. Judge William Bryson ruled Restasis patents were invalid due to obviousness:

A federal judge ruled today that patents protecting Allergan's $1.5 billion blockbuster dry-eye drug, Restasis, are invalid due to obviousness. The international drug company's stock dropped about five percent on the news.

The ruling by US Circuit Judge William Bryson could have wide effects on the patent landscape because the Restasis patents are at the center of a novel legal strategy that involves using Native American sovereignty rights to avoid certain types of patent reviews, called inter partes reviews, or IPRs.

Monday's decision caught me totally unawares. I did not expect a ruling until the end of October. AGN fell as much as 7% before finishing the day lower by over 3%. I had the following takeaways on the news.

Judge Bryson Likely Damaged Allergan's IPR

The federal case had no impact on the inter partes review ("IPR") brought on by Mylan (MYL) and expected to take place weeks later. Allergan transferred the patents to the St. Regis Mohawks who was to use it sovereign immunity to dismiss the IPR. Mylan called the Mohawk deal a "sham" since there was no real change in ownership. The theory went that if Judge Bryson allowed the Mohawks to be co-plaintiffs in the federal case it could potentially embolden Allergan's chances to win an IPR. The judge allowed the Mohawks as co-plaintiffs, yet expressed serious concerns about the Mohawk deal:

Earlier today, Bryson decided that the St. Regis Mohawk Tribe should be joined to the case. But he didn't add the tribe because he thought the deal was valid—rather, he did it as an insurance policy to make sure that his decision to invalidate the patents couldn't be challenged on the grounds that the wrong parties were named.

But Judge Bryson's opinion (PDF) on the matter makes clear that he does not endorse or validate the deal to essentially purchase sovereign immunity from the St. Regis Tribe.

"The court has serious concerns about the legitimacy of the tactic that Allergan and the Tribe have employed," Bryson writes. In his view, Allergan has paid the Tribe to "rent" its sovereign immunity at the US Patent Office.

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