Allergan plc's deal with the Saint Regis Mohawk tribe could open a Pandora's box on patent ownership.

Company executives said the agreement, which transfers the patents for dry eye treatment Restasis to the tribe in exchange for milestone payments to the company, is about avoiding double jeopardy. The deal puts the patents behind the shield of the tribe's sovereign immunity, a power with origins in the 11th amendment to the U.S. constitution that limits private actions brought against states and tribal governments in federal court.

Allergan is awaiting a decision in U.S. district court in Marshall, Texas, but could also have a hearing with the U.S. Patent Trial and Appeal Board, or PTAB.

Mylan NV, one of the generics makers aiming to bring a competitor to market, filed an objection in U.S. court on Sept. 11 accusing Allergan of "attempting to misuse Native American sovereignty."

Where the litigation goes from here is open to interpretation.

Sovereign immunity questioned

Generic-drug makers could question the validity of the tribe agreement itself, Chad Landmon, a lawyer with Axinn specializing in patent litigation and Food and Drug Administration policy, said in an interview. If challengers can argue that Allergan is using the agreement to slow down a legal decision, it could also potentially be grounds for an antitrust action, he added.

"They would have to make some sort of argument that there is no proper purpose to this," he said.

Another avenue could be throwing sovereign immunity into question by focusing on whether it stands when a sovereign entity knowingly takes on patents already in litigation.

"If you were the tribe that purchased the patent after it was challenged, or received ownership of the patent after it was challenged, I would argue they waived their sovereign immunity because they knew these patents were subject to a review by the patent office," Brian Nolan, an intellectual property lawyer with Mayer Brown, told S&P Global Market Intelligence.

"I wouldn't be surprised if that is an argument we see some of the generic companies making when they try to oppose the motion to dismiss the intellectual property rights under the sovereign immunity grounds," Nolan said, calling it an "implicit waiver" of immunity.

Court proceedings preferred

This argument could also throw the upcoming Texas district court decision into limbo; if generics makers are able to argue that a necessary and indispensable party — the tribe now holding the patents — was not present for the case, they could try to get it dismissed, Nolan added.

"That would be something obviously negative to Allergan, because Allergan wants to proceed in the district court," Nolan said.

It's preferable for Allergan that the dispute play out in district court rather than with PTAB because the latter applies a broader claims structure and makes decisions based on a preponderance of evidence, giving patent challengers a better chance to make their case, Nolan noted. Even if generics drugmakers win at the district court level, Allergan could appeal and effectively push back the whole timeline, making district court an even more favorable venue.

The company expects a decision by Sept. 15 on whether the PTAB hearing will go forward, Robert Bailey, Allergan's chief legal officer and corporate secretary, said during a presentation at the Morgan Stanley Global Healthcare conference on Sept. 12.

"We've made it quite clear that we want to have our patents adjudicated in a single forum," Bailey said, adding that the intellectual property rights process has become a place where hedge fund investors and "reverse trolls" have abused the patent system by bringing challenges in order to extract money.

The PTAB process is being questioned at the Supreme Court, said Maria Hilado, Allergan CFO and executive vice president.

"We believe that it really should be challenged at the federal court, not at the PTAB. That's really the essence of this whole transaction," Hilado said.

Setting a standard

One thing that is certain is that there is very little, if any, precedent for this kind of agreement, though several tribes are looking at similar deals. While sovereign immunity issues have popped up around state universities' patents in the past, these patent holders often played a key role in the original science or technology behind the patent and later licensed that out to pharmaceutical companies to be commercialized.

"This is a unique path," Nolan said. "Oftentimes when you see sovereign immunity in play, it is when a state university actually generated it."

"This is the first I've heard of anything along these lines," Landmon said, noting that the Federal Trade Commission could get interested, as could state attorney generals.

"It'd obviously be a unique kind of setting for this to play out," he said.