Inter Partes Review and the Controversial Implications of the Kyle Bass Petitions

By Gene Quinn
September 15, 2015

uspto-madison-main-copyStarting on September 16, 2012, on the first anniversary of the signing of the America Invents Act, the Patent Trial and Appeal Board (PTAB) was born. Although the PTAB is just celebrating its third anniversary, controversy continues to surround its proceedings and decisions. From being criticized as a patent “death squad,” or for the rules being overwhelmingly slanted against patent owners. The PTAB has been under near constant fire, which is easy to understand given how contentious post grant proceedings were.

Ever since inter partes review and the other forms of post grant review were unveiled I have been a vocal critic of the procedures, at least the way they are presently conceived and actually administered. While it is a laudable goal to make it easier to challenge obviously absurd patent claims, the way that post grant procedures were created does little other than ensure that any patent owner with a commercially valuable patent will face endless challenges. The patent system is supposed to encourage commercially relevant innovations, not to turn patents covering ubiquitous innovations into another more than an illusory promise. After all, ubiquitous innovations become ubiquitous because they are so valuable.

In one of the more interesting, unforeseen developments stemming from the re-write of U.S. patent laws undertaken in the America Invents Act, hedge fund billionaire Kyle Bass has been filing petitions for inter partes review, shorting the stock in the company who owns the drug patent he is challenging, and attempting to exploit a market opportunity created by the careless drafting of the IPR statute. So far the Patent Office has shut Bass down. While I disagreed with the first and second petition denials, the refusal to institute by the Board in the Biogen petition was utter reprehensible. That any Judge would write such nonsense is astonishing, made worse by the fact that Congress has insulated the Patent Office from judicial review of IPR institution decisions.

According to the Patent Statute, “[a] person who is not the owner of a patent may file a petition to institute an inter partes review of the patent.” Unlike with covered business method (CBM) challenges, there is no standing requirement to initiate an IPR. The lack of a standing requirement to initiate an inter partes review challenge is behind the novel strategy conceived by Bass and his advisors, one of whom is Erich Spangenberg. Critics of the Bass/Spangenberg strategy say this is abusing the IPR process for financial gain, something the statute did not intend.

[PTAB-1]

In one case Celgene Corporation is seeking sanctions against Bass for filing challenges against two different patents, U.S. Patent No. 6,045,501 and U.S. Patent No. 6,315,720. Celgene argued that it is misuse of process to file an IPR for financial gain, an argument that seems strained to say the least. In responsive filings the Bass backed Coalition for Affordable Drugs argued that every patent and every IPR is filed for some profit motivation. Bass argued:

[A]t 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.

The Coalition for Affordable Drugs goes on to argue that whether their motives are altruistic is irrelevant. They argue:

The U.S. economy is based largely on the notion that individual self-interest, properly directed, benefits society writ large. Celgene’s motive is to profit from consumers and taxpayers from drug sales. Celgene’s patent-conferred monopoly results in Revlimid prices that exceed $580 per pill— creating costs in excess of $200,000 per patient year. Revlimid sales were nearly $5 billion in 2014. Celgene is not giving Revlimid or its profits away.

Clearly, there is no justifiable grounds to chastise Bass even if his motivation is entirely financial. Patents are about business, and as he points out the pharmaceutical companies aren’t exactly giving their drugs away. There is also a clear financial motivation when others file IPRs because they want to invalidate patent claims so they don’t have to pay licensing fees or infringement damages. The entire patent system is about money.

It is, however, undeniable that Congress did not intend for hedge fund billionaires to challenge drug patents using inter partes review. It is equally undeniable that the law clearly does allow for anyone, including hedge fund billionaires, to challenge patents they believe were improvidently granted. It is likewise undeniable that Congress did not create a standing requirement, but that they considered the issue and determined only to create a standing requirement for CBM. Despite all of this it seems that the Patent Office will go out of their way to contrive reasons why the Bass petitions will not be instituted. Pitiful.

Meanwhile, as the Bass saga is playing out the USPTO, which is at the center of all the IPR controversy, is currently proposing to revise practice and procedure rules that apply to IPR challenges. Revision of the rules was always planned, but it seems certain that whatever the USPTO decides to do will lead to controversy and not please anyone. Indeed, one of the biggest criticisms of inter partes review is that patent owners are for all intents and purposes estopped from amending claims. Congress allowed for claims to be amended but the PTAB has interpret the statute as only allowing a motion to amend to be filed and there to be no right to amend. If we are going to concern ourselves with legislative intent the USPTO is wrong. Congress clearly sold the AIA as giving patent owners one chance to amend claims, but that isn’t what has happened in real life. Surprisingly, the changes proposed by the USPTO will do nothing with respect to amendments, which will be a hard pill to swallow for patent owners.

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.

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 as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 9 Comments comments.

  1. JNG September 15, 2015 11:32 am

    “It is, however, undeniable that Congress did not intend for hedge fund billionaires to challenge drug patents using inter partes review. It is equally undeniable that the law clearly does allow for anyone, including hedge fund billionaires, to challenge patents they believe were improvidently granted.”

    So true Gene. What’s equally undeniable is that when the Board wants to interpret words in its favor, it will go out of its way to stretch them way beyond their limits. Witness the expansion and distortion of what is covered under the term “financial product or service.” Now the plain words of the IPR requirements are being distorted in the opposite direction, to add in self-serving limitations that don’t exist. The patent system surely needs reform, not deform.

  2. American Cowboy September 15, 2015 12:27 pm

    Who the requester is and what his business model is, is just as irrelevant as whether a patent owner is an NPE or not. If Kyle Bass is successful at showing how awful the IPR/PGR mess is, then more power to him.

  3. American Cowboy September 15, 2015 2:26 pm

    What Bass did was innovative. Why are the so-called friends of innovation so critical?

  4. Mr. V September 15, 2015 3:48 pm

    Great overview Gene. Looking forward to your webinar!

  5. Paul F. Morgan September 16, 2015 9:31 am

    The economic incentive for “Bass fishing” type IPRs depends on being able to buy the patent owner company stock cheaper after publicly announcing the filing of an IPR petition. Given the 3 for 3 petition strikeout record so far, savvy investors should be far less likely to panic and sell to drop the stock price merely because an IPR petition has been filed. Making “short sales” more risky, since they or equivalent options risk stock price increases from other factors until they are covered.

  6. Paul F. Morgan September 16, 2015 9:49 am

    Re: “the refusal to institute by the Board in the Biogen petition was utter reprehensible.”
    It sounds like that from your analysis above, but that raises the following interesting question: if the published prior art was that good, and this patented drug is that large a contributor to Company profits, why has no generic drug company used the Hatch Waxman process to challenge the validity of this patent and enter this highly lucrative market itself? Such proceedings are not even limited to publication or patent prior art like an IPR.

  7. xtian September 17, 2015 8:50 am

    Actavis filed its ANDA back in July of 2014. Interestingly, there are 5 Orange Book listed patents. Even if Bass was successful in this IPR, it would not allow generics to come on the market and not fulfill his purpose of lowers the costs of drugs for the consumer. To accomplish this stated goal, he would have to invalidate the other OB patents as well. I do not believe he has done this. His actions are not consistent with his stated goal.

  8. Krupa Parikh September 18, 2015 4:25 pm

    I’ve tried registering for the webinar a couple times but never got a confirmation e-mail. Any chance you can confirm my registration? Thanks a lot!

  9. Gene Quinn September 19, 2015 5:32 pm

    Krupa-

    I have sent your e-mail and message to Innography. They are sponsoring the webinar and handling registrations.

    -Gene