Kyle Bass IPR challenge moves foward, what does it mean for patent reform?

By Gene Quinn
October 12, 2015

Kyle Bass is the hedge fund billionaire the Coalition for Affordable Drugs, which has filed a series of inter partes review challenges against a number of drug patents that he and his organization think should never issued. The first three decisions out of the Patent Trial and Appeal Board (PTAB), which is the administrative tribunal statutorily designated to hear post grant challenges filed at the United States Patent and Trademark Office (USPTO), were not favorable for Bass.

In the first two decisions relating to his challenge against Acorda Therapeutics patents the PTAB refused to institute the IPRs. In what can be described only as a horribly disingenuous decision the PTAB also refused to institute an IPR in Bass’ challenge against Biogen. Making matters worse, decisions of the PTAB are not appealable. It was not looking good for Bass, and some started to wonder whether the Patent Office was simply going to refuse Bass’ petitions at every turn.

The first bit of good news for Bass came with respect to his IPR petition against Celgene Corporation. Celgene Corporation filed a motion for sanctions against the Coalition for Affordable Drugs on July 28, 2015. The motion for sanctions alleged that filing of the inter partes review (IPR) by the Coalition for Affordable Drugs constituted an abuse of process. On August 11, 2015, the Coalition for Affordable Drugs filed an opposition to the patent owner’s motion for sanctions.

According to Celgene, the Bass strategy of shorting a stock and filing an IPR is an abuse of the process and not what post grant procedures were designed to accomplish. Celgene’s motion argues:

Inter partes review (“IPR”) was designed as an expeditious and less costly alternative to federal district court litigation. It was not designed for the purpose to which it is aimed here—as a tool to affect the stock prices of public companies for financial gain, to the detriment of those companies and the investing public. By their own admission, the real parties in interest (“RPI”) filed this and other petitions as part of their strategy to profit from affecting stock prices. Their petitions represent an ongoing abuse of the IPR process that has been and will continue to be an unwarranted burden on the Patent Trial and Appeal Board (“Board”), and on innovators like patent owner Celgene Corporation (“Celgene”) and its shareholders. Celgene is confident in the strength of its patents, but should not be required to expend extensive resources defending them in the face of the RPI’s abuse of process.

In response, the Coalition for Affordable Drugs argued:

[Celgene] makes the curious argument that filing IPR petitions with a profit motive constitutes an “abuse of process.” Yet at the heart of nearly every patent and nearly every IPR, the motivation is profit. Celgene files for and acquires patents to profit from the higher drug prices that patents enable. Generic pharmaceutical companies challenge patents to profit from generic sales. Celgene’s argument is in conflict with Supreme Court precedent expressly finding it in the public’s interest for economically motivated actors to challenge patents. See Lear v. Adkins, 395 U.S. 653, 670 (1969) (holding public interest requires permitting licensees to challenge validity because they “may often be the only individuals with enough economic incentive to challenge the patentability” and “[i]f they are muzzled, the public may continually be required to pay tribute to would-be monopolists”). Having an economic motive for petitioning the government simply does not turn the petition into an abuse of process.

On September 25, 2015, the PTAB, in a decision authored by Administrative Patent Judge Michael Tierney, explained that the purpose of the America Invents Act (AIA) was to “encourage the filing of meritorious patentability challenges, by any person who is not the patent owner, in an effort to improve patent quality.” Given that Bass and the Coalition for Affordable Drugs did not own the patent in question the law allows these types of challenges.

On the issue of whether a profit motive makes filing an IPR sanctionable, the PTAB sided again with Bass. Tierney wrote:

Patent Owner contends that Petitioner’s purported altruistic motive of lowering drug prices for consumers is a pretext. Motion 5–6. Patent Owner states that Petitioner seeks to profit from its Petitions for inter partes review. Id. at 5–7. Patent Owner contends that if the Board permits this strategy to continue, it will be inundated with similar petitions, and no public company that relies on patents will be safe from unnecessary petitions from for-profit organizations misusing inter partes reviews as investment strategies. Id. at 7.

Profit is at the heart of nearly every patent and nearly every inter partes review. As such, an economic motive for challenging a patent claim does not itself raise abuse of process issues. We take no position on the merits of short-selling as an investment strategy other than it is legal, and regulated.

Bass’ luck continued to an October 7, 2015, decision of the PTAB to institute an IPR proceeding against U.S. Patent No. 6,773,720, owned by Cosmo Technologies LTD. Bass, by and through the Coalition for Affordable Drugs, challenged claims 1–4 of the ’720 patent as unpatentable under 35 U.S.C. § 103(a). Based on the information presented in the Petition and Preliminary Response, the PTAB was persuaded that there is a reasonable likelihood that Bass would prevail with respect to those claims and, therefore, institutes inter partes review of claims 1–4 of the ’720 patent.

We have to wait to see what the ultimate outcome is on these challenges, and whether the PTAB will institute additional IPRs on the remaining Bass challenges. For now, however, it can no longer be said that the PTAB has closed its doors to Kyle Bass.

What the means for the ongoing patent reform debate in Congress is another matter entirely. The biotechnology and pharmaceutical industries are pushing Congress to exempt their patents from IPR challenge. So far this has been viewed as a non-starter in Congress because exempting patents on drugs would be scored as a cost to the government, which would mean that to get the patent reform bill passed it would need additional budgetary treatment in Committees, and also be paid for moving forward. The cost to the government is as a result of the inevitability that at least some drug patents will be lost in IPR, which would save the government money as the result of cheaper generics becoming immediately available on the market if a patent were to fall.

With at least one Bass IPR challenge very real you can expect the bio/pharma lobby to step up their push for a legislative solution. If they do not get a legislative solution they are unlikely to support any patent reform legislation, which likely will cause reform to grind to a halt. However, if bio/pharma were to persuade Congress and obtain a legislative fix to their IPR problem that could easily mean that patent reform would sail through Congress and with very little advance warning.

Stay tuned!

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 5 Comments comments.

  1. Chris Neill October 12, 2015 5:46 pm

    I think the PTAB got it right. The profit motive just gives him the incentive to discover potentially invalid patents, information that might otherwise be undersupplied. And if he loses at the IPR stage, surely the companies’ stock prices will rise due to the strengthening of their patent portfolios and he will lose on his short sale, so its a risk he has accepted.

    Definitely interested to see how his challenges stand up on the merits once the IPR proceedings actually begin.

  2. Mike October 13, 2015 2:28 pm

    I think Celgene’s argument is that Bass’s profit motive does not depend on the validity of the patent, only on the institution of the IPR. Having a patent challenged creates a long-term litigation burden on the patentee, resulting in huge set-asides for legal expenses, an immediate drop in forecasted earnings, and a corresponding drop in stock price, regardless of whether the challenge has any hope of being successful. The short sale is successful and Bass makes his profit as soon as the patent is challenged and the stock prices drop. That is what Celgene sees as abuse of process.

  3. Chris Neill October 13, 2015 6:28 pm

    Mike-
    That’s an interesting way to frame it. So I guess the real question, then, is whether the short sale is based on a hope that the patent will be invalidated, thus a loss of property rights for the drug company, or a hope that news of the challenge itself will cause the share price to fall.

  4. Night Writer October 14, 2015 12:01 am

    >>That is what Celgene sees as abuse of process.

    But, the problem with that position is that it is his right and anyone’s right to channel any patent with an IPR. I think this is an unintended consequence of the no standing requirement. Moreover there will only be the long term litigation handing over the company if the IPR is instituted.

    I don’t think that anything can be done that is in the spirit of our laws (which doesn’t mean much to anyone anymore.) And, if some get instituted, then it is very hard to claim they are frivolous (and, in fact, he is doing what Congress wanted the citizens to do.)

    Also, I think the long-term litigation that is hanging over the company is the AIA that allows IPRs with no standing—that is the long-term litigation that is hanging over every company that relies on patents.

  5. xtian October 14, 2015 9:24 am

    The institution of the IPR on Comso’s patent will create interesting law. Cosmo’s patent is listed in the Orange Book to cover the drug Lialda – Sold by Shire.

    It appears there is already at least 4 generic challengers (there may be more):

    Zydis in 2010
    Watson Actavis in 2012
    Mylan in 2012
    Amneal in 2015

    The litigation for each ANDA applicant is at various stages. Most interesting, however, will be the interplay between the Watson/Actavis case and this IP because the Watson/Actavis case has a long history. A brief summary:

    District Court (held valid and infringed);
    Fed Cir reversed based on their de novo claim construction;
    In the meantime, Teva v. Sandoz was decided by the Supremes;
    Shire files cert. based on Teva case (http://www.fiercepharma.com/story/supreme-court-pitches-patent-fight-over-shires-lialda-after-teva-ruling/2015-01-26);
    Supremes issue GVR in Shire’s case (http://www.pharmapatentsblog.com/2015/01/29/why-did-the-supreme-court-gvr-the-shire-lialda-case/)

    Something to think about. The validity decision of the initial district court opinion was never appealed. Some claim terms have now been construed at least three times. Will this have any effect on the IPR claim construction or will an Article I decision trump an Article III decision?