Apple is being sued for patent infringement by a Native American tribe

Apple gets sued for patent infringement dozens of times each year, mostly by little-known shell companies with no products—the types of companies often derided as "patent trolls." But the newest lawsuit seeking royalty payments from iPad sales is likely a first: the recently created plaintiff, MEC Resources LLC, is wholly owned by a Native American tribe. The MEC lawsuit appears to be using Native American legal rights to avoid having the US Patent Office perform an "inter partes review" that could invalidate the patent.

The case had a typical beginning. In March, a Texas company named Prowire LLC filed a lawsuit (PDF) against Apple in Delaware federal court, claiming that the iPad 4 infringes its US Patent No. 6,137,390.

Apple asked the judge to transfer the case to California. Prowire lawyers opposed that motion, but they didn't hang around to see the litigation through. In August, they informed the court that the patent had been handed off to MEC Resources LLC, a North Dakota firm. Shortly thereafter, the Delaware judge granted a transfer to California, noting that MEC is a "North Dakota citizen" and that keeping Apple in Delaware's overcrowded courts made little sense.

MEC Resources is wholly owned by the Mandan, Hidatsa, and Arikara Nation, also known as the Three Affiliated Tribes. Neither MEC's CEO nor its lawyers responded to a request for comment from Ars. However, recent developments in other patent cases shed light on why there's suddenly a connection between patents and Native Americans.

Earlier this month, the New York-based St. Regis Mohawk Tribe disclosed that it was given a set of valuable patents belonging to the drug company Allergan. In return for holding on to those patents, which were licensed back to Allergan, the company would pay the tribe an annual royalty of $15 million, as long as the patents remained valid.

Both the tribe and Allergan were explicit about why they executed the deal: to avoid having the US Patent Office review their patents in a procedure called inter partes review, or IPR. The IPR process, which went into effect in 2012, is a kind of mini-litigation system that takes place before the Patent Trial and Appeals Board (PTAB), rather than in district courts. Because it's faster and cheaper than the courts, IPR has been one of the most efficient ways to get rid of bad patents. That has made it loved by tech companies, who are often patent defendants—and hated by the drug companies, who are usually asserting their patents against generic competitors.

But there are certain parties that can't be challenged with an IPR because of "sovereign immunity," an old legal concept codified in the 11th Amendment of the US Constitution. Sovereign immunity prevents states from being sued in federal court unless they agree to the suit. It dates back to pre-revolutionary times, in which laws prevented anyone from suing a sovereign ruler, like a king or queen, without their consent.

In the patent world, sovereign immunity protects public universities, which are viewed as essentially arms of the state. Two PTAB cases so far have established that patents owned by public universities can't be challenged in IPRs. (Sovereign immunity also protects state entities from "declaratory judgment" lawsuits seeking to invalidate their patents preemptively, so public university patents can only be invalidated in court if the university initiates a lawsuit.)

As expected, last week the St. Regis Mohawk tribe filed papers requesting that the IPR filing against Allergan's patents be thrown out on the basis that the tribe is a sovereign government and therefore qualifies for immunity. Mylan Pharmaceuticals, which initiated the IPR, has said it will fight it out, calling the deal a "sham transaction."

An attractive strategy

When the St. Regis-Allergan deal became public a few weeks ago, it was immediately clear that if the strategy could successfully shield patents from invalidity challenges, it wouldn't be limited to pharmaceuticals. The St. Regis tribe is already holding 40 patents from a technology company and acknowledges it plans to make money from using those patents in lawsuits.

The tribe wouldn't identify the tech company in question, but by reviewing patent office records, others have discovered that it's SRC Labs, a high-performance computing company founded by Seymour Cray. The patents haven't yet been used in court, but they will be, as the tribe made clear in an FAQ about its patent business.

"The Tribe owns 40 of this company’s patents through assignments and expects that it will earn a significant amount of money through the Shore firm’s enforcement of the patents in federal court," stated the tribe. "Right now a federal court case is being prepared for filing. These cases take a year or more so the money judgment would not be expected until the case is finished—at least 18 months from now."

The patent in question describes a type of "enhanced" inductor that reduces electromagnetic resistance. It was filed in 1999 and assigned to a Taiwanese state-run research institute named the Industrial Technology Research Institute, or ITRI. A few years ago, ITRI and other state-sponsored patent holders started looking to US courts to assert their patents.

It isn't clear what relationship the '390 patent presently has to ITRI, if any. It was acquired by Prowire LLC in mid-2016. Texas corporate documents show that company is owned by Yih-Gwo Ching and Zhou Ye, but little else is known about the company. The two named inventors on the patent are, as far as anyone knows, still in Taiwan.

Will it work?

Even though sovereign immunity has helped at least two public universities dodge IPRs, it isn't clear that the strategy will work for Native American tribes. Their sovereign immunity is granted by Congress and, thus, can be revoked or changed by Congress. States, on the other hand, derive their sovereign immunity from the 11th Amendment.

Patent owners aren't the first to attempt to use Native American legal rights as a shield. In California, certain payday loan companies tried to avoid state lending laws by affiliating with the Miami Tribe of Oklahoma and the Santee Sioux Nation of Nebraska.

That scheme didn't work. Last year, the California Supreme Court found "scant evidence that either tribe actually controls, oversees, or significantly benefits from the underlying business operations of the online lenders."

In April, the US Supreme Court decided the case of Lewis v. Clarke (PDF), which held that an employee of Mohegan Tribal Gaming Authority wasn't entitled to use sovereign immunity to protect himself from a lawsuit related to a car crash.

Cases like that give hope to Josh Landau, a patent reform lobbyist for the Computer and Communications Industry Association, that certain patent-holders' plans to dodge IPRs will fail.

"My sense is that the PTAB is skeptical of this claim," Landau said in an interview with Ars. "There are real problems that can occur if sovereign immunity can be bought and sold in this way."

IPRs have fundamentally changed the economics of patent litigation by increasing risks and lessening rewards for asserting weak patents. If Native American tribes are allowed to bypass the normal rules, the only ones who benefit will be "people who own shaky patents that they want to assert, patents that would have been invalidated in IPRs," writes Landau.

"'The validity of your patents is subject to review, unless you pay off some Indian tribe' does not seem like a good way to run an intellectual property system," notes Science columnist Derek Lowe.

There's no telling how this turns out until we see some rulings from courts or the Patent Trial and Appeals Board. If the patent-licensing shops see even a glimmer of hope that they could avoid IPRs, we're likely to see whole patent portfolios transferred to tribes in short order.