USPTO denies Kyle Bass IPR patent challenge against Acorda Therapeutics

By Gene Quinn
August 25, 2015

Hayman-Capital-Kyle-Bass

Kyle Bass

Yesterday the Patent Trial and Appeal Board (PTAB) at the United States Patent and Trademark Office (USPTO) declined to initiate an inter partes review of two patents owned by Acorda Therapeutics, Inc. (NASDAQ: ACOR). Acorda closed yesterday at $28.96, but opened at $35.15. Acorda is currently trading at $32.44 (as of 12:03 pm ET).

Acorda patents United States Patent No. 8,007,826 and United States Patent No. 8,663,685 were challenged by the Coalition for Affordable Drugs, LLC, the entity formed by billionaire hedge fund manager Kyle Bass. Kyle Bass, head of Hayman Capital Management, filed several petitions for inter partes review (IPR) at the USPTO, including these two against Acorda, asking the PTAB to invalidate patent claims covering certain drugs. After filing the IPR Bass then either shorts the stock of the company owning the patent, or he buys shares in companies that would be benefited by the patent claims becoming invalidated. What Bass is doing is alternatively characterized as creative and brilliant, or evil and abusive. See Patent Abuse of Genius? Is Kyle Bass Abusing the Patent System?

The denial decisions by the PTAB (here and here) of these two Bass petitions are nearly word for word identical, at least in all material respects. Some had believed that the PTAB might use some inherent authority not to institute the proceedings based on the fact that Bass filed these petitions by and through the Coalition for Affordable Drugs in order to cause a decrease in the stock price of Acorda, which he could then take advantage of because he shorted the stock.

Instead, the PTAB substantively denied the Bass petitions finding that the prior art relied upon to challenge the ‘826 and ‘685 patents was not sufficiently available to the public to qualify as prior art. The decision by the PTAB strikes me as at least somewhat odd given the ease with which the PTAB has initiated inter partes reviews over the past several years, and the Board’s comfort with finding patent claims invalid.

 

IDS References Not an Admission of Materiality

The prior art in question in these two petitions were posters that the patent owner admitted were “presented” at various industry meetings in relevant IDS filings submitted during the prosecution of the underlying applications. The Board correctly started by stating that “the submission of an IDS does not constitute an admission that a cited reference is material prior art,” citing to several Federal Circuit decisions. See also 37 C.F.R. 1.97(h).

At the end of the decision it was curious to read the PTAB conclude that the petition did not make the required threshold showing that the posters in question were sufficiently publicly accessible to qualify as printed publications under pre-AIA 35 U.S.C. 102(b). The PTAB specifically ruled that the petition did “not demonstrate adequately that the Hayes poster… or the Goodman poster… constitute prior art…” No citation was provided here. It seems that the PTAB stretched the fact that an IDS is not an admission that references are material to patentability to mean that the filing of an IDS is not an admission that references are prior art.

There is support in the MPEP for the proposition that references disclosed in an IDS are not necessarily considered to be prior art. Specifically MPEP 609 explains: “There is no requirement that the information must be prior art references in order to be considered by the examiner.”

But if a reference isn’t prior art why submit the reference in the first place? It would be reasonable to over submit references to the Patent Office given the very real threat of inequitable conduct charges, which result from an actual, potential, or hypothetical violation of the duty of candor in 37 C.F.R. 1.56. Indeed, charges of inequitable conduct have been a scourge on patent litigation over the years, particularly prior to Therasense v. Becton DickinsonStill, at the threshold level it would seem reasonable to assume that the patent owner had some rationale justification for including these posters on an IDS form submitted for examiner consideration.


 

When is a Presentation Considered Prior Art?

The Board then relied heavily on In re Klopfenstein, which established a four-part test to determine whether such presented material (as opposed to distributed material) is properly considered prior art. The factors to be considered were:

  1. The length of time the display was exhibited;
  2. The expertise of the targeted audience;
  3. The existence of reasonable expectations that the material displayed would not be copied; and
  4. The simplicity or ease with which the material displayed could have been copied.

Interestingly, the PTAB gave the patent owner the benefit of the doubt, which hopefully they will start to do more often. In particular, the PTAB explained that the only evidence presented that established presentation of the posters was the admission by the patent owner during prosecution, therefore, the petition did not make any factual allegations about length of display, expertise of the audience, or copying.

The PTAB also took notice that the posters conveyed “dense material in a small space.” Citing Klopfenstein with approval, the PTAB explained “more complex a display, the more difficult it will be for members of the public to effectively capture its information.” On this last point the PTAB clearly makes an overbroad statement that would necessarily need to be considered in light of the particular facts of this presentation.

In Klopfenstein, the Federal Circuit was considering a fourteen-slide presentation printed and pasted onto poster boards, which was presented in October 1998 at a meeting of the American Association of Cereal Chemists. Similarly, the presentation of the references at issue in the Bass petition were respectively made on October 31, 2011, and September 18-21, 2002.

The conclusion reached by the PTAB, that a poster displaying complex information could not reasonably be copied and that there would be no expectation that it could be copied, may have made sense in the time frame between 1998 to 2002. Such a conclusion certainly does not make any sense whatsoever today given how ubiquitous smartphones have become, now with cameras capable of capturing 16 megapixels (or more). I know I’ve personally taken pictures of poster presentations at various conferences for reference later, so it hardly seems as stretch that such “copying” would be unexpected today.

It would have been nice if the PTAB had mentioned the ease of copying even very dense material today thanks to camera phones. I suppose that you don’t get that type of consideration or analysis when you deny a petition right out of the gate without really considering the implications of the decision.

 

Conclusion

It seems odd to me that a petitioner would have to establish why the patent owner disclosed a reference and evidence surrounding the presentation of the references when they were listed on an IDS filed by the patent owner.  Placing such burden on the petitioner prior to any discovery seems fundamentally unfair. The patent owner disclosed the posters on an IDS and yet the PTAB requires the petitioner to aver peculiar facts relating to information that only the patent owner could have. Further, such a high showing is being required without any discovery. These post grant proceedings were conceived of as an alternative to litigation, yet the PTAB places a nearly insurmountable burden on the petitioner in this case.

While I’m not against having a high threshold to initiate post grant proceedings, the threshold to initiate seems to be unevenly applied. Worse, the way the law is written decisions not to institute cannot be appealed. See 35 U.S.C. 314(d). Whether it is constitutional to insulate an agency decision from judicial review is an open question. I am unaware of any other situation where an agency decision cannot be review by an Article III judge. In fact, the cornerstone of an administrative law system is that decisions of the agency, which are within the Executive Branch, can be challenged in the Federal Judiciary. Without the ability to review agency decisions the delicate checks and balances within the Constitution seem to be thwarted. It is unclear with Bass will pursue this matter on constitutional grounds, but eventually someone will.

Don’t get me wrong, I am not a fan of the PTAB instituting inter partes reviews and killing patents. I think the PTAB institutes too many reviews and they kill too many patent claims, being all too willing to find claims obvious. I also think that standing should be required to institute a post grant proceeding, but Congress clearly rejected a standing requirement with respect to inter partes review (IPR) and post grant review (PGR), opting only for a standing requirement in order to institute a covered business method (CBM) review. This bias aside, I have to wonder whether this decision represents a shift in the worldview of the PTAB or whether they sought out a reason to deny the petition because it was filed by Kyle Bass. Unfortunately, I suspect these two denials have everything to do with who was behind the challenge and little to do with the merits of the challenge.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. 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.

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Discuss this

There are currently 5 Comments comments.

  1. Jeff August 25, 2015 3:06 pm

    Gene,
    With 21 more IPR petitions filed by Kyle Bass and other hedge funds having followed suit, the PTAB is either going to have to address the hedge fund as petitioner and corresponding RPI questions or they are going to have to continue making questionable rulings in order to kick the can down the road. I know you covered Congress’s rejection of a standing requirement, but do you see the PTAB finally making a blanket ruling allowing/disallowing hedge funds in general to enter the fray?

  2. Gene Quinn August 25, 2015 3:52 pm

    Jeff-

    I can’t see the PTAB making a final blanket ruling that would prevent hedge funds from filing IPRs. They would have no legal authority to make such a ruling. As Bass pointed out in the Celegene filing on some level all IPRs are filed for a financial purpose. The challenger wants to kill a patent so they don’t have to pay. I’m not sure how you could come up with an intellectually honest way to distinguish the two circumstances.

    Having said that, institution decisions are not appealable, so they could do whatever they want unless and until someone finally challenges the statute as being unconstitutional. The more I think about it the more convinced I am that making an agency decision non-appealable has to be unconstitutional.

    The USPTO has been painted into a box with post grant proceedings, at least in part because of a poorly worded and ill-conceived statute.

  3. American Cowboy August 26, 2015 9:58 am

    Governmental action virtually always has unexpected consequences. The Kyle Bass financial guy’s exploitation of the governmental action called AIA is a prime example. Another reason why allowing IPR’s etc. were a lousy idea.

  4. Frank August 26, 2015 10:12 am

    Agreed that this seems like a Kyle Bass-specific decision, which may be the ‘right thing to do’ but then may cause people to wonder about the intellectual honesty of the PTAB.

  5. Jeff August 26, 2015 12:18 pm

    Thanks Gene. What are your thoughts on the Real Party of Interest arguments when it comes to these hedge funds? Does it pass muster or is it akin to asking publicly traded companies for their shareholder’s list?