Mimesis Law
4 July 2020

Getting Personal: Shire & Celgene Ask For Sanctions Against Bass In IPR Fight

Sept. 14, 2015 (Mimesis Law) — Late last week, Shire Plc (SHPG) and Celgene Corporation (CELG) both filed responses to a request by the Patent Trial and Appeal Board (PTAB) for additional briefing regarding the propriety of IPR petitions filed by Kyle Bass.  Both Shire and Celgene have asked for sanctions, stating that Bass is improperly using the IPR petitions to manipulate stock prices.

The briefs state that Bass’s use of IPRs through his Coalition of Affordable Drugs (CFAD) entities are an abuse of the system and an activity that was not contemplated by the law that created them, the so called America Invents Act (AIA). Celgene argued that using the IPR prices to drive down stock prices was a consequence never considered by the USPTO or Congress when the act was passed.  Both companies argue that, since the petitions are for an improper purpose, CFAD has no standing to bring an IPR.  Shire comments that Bass’s activities are “offensive to the AIA’s fundamental purpose.” Celgene claims that Bass’s “series of legal proceedings is harassment that is, among other things, frightening off investors,” and categorized CFAD as an NPE.  They argue that the AIA was intended by Congress to stop non-practicing entities from using abusive litigation tactics for personal financial gain, not to allow NPE’s to use abusive IPR tactics for personal financial gain.

There are two issues here.  The first is whether or not a third party that is not involved in litigation should be able to bring an IPR. To make the point even clear, Celgene plainly states that petitions of interested parties (like generic drug manufacturers) against their drugs would be proper, but CFAD’s petitions are not proper.

The controversy about third parties bringing IPRs is not new.  Other entities, including Iron Dome, Unified Patents, RPX, and the Electronic Frontier Foundation have all brought IPR challenges against NPEs, even though they were not defendants to litigation.  Rich Hung & Alex Hadduck have an excellent discussion of this topic at Intellectual Property Watch.  For this issue, Celgene and Shire are in the position that they argue that third party challenges against NPE patents are fine, while third party challenges against publicly traded operating companies is not acceptable.

But the more important issue in this challenge is claims that the only purpose for the challenge is market manipulation. Celgene asserts that Bass’s strategy is to “move markets in the short term, not waiting 18 months to see if it can invalidate patents.”  Shire claims that CFAD makes money regardless of the merit of the IPR, as the company profits simply by filing and IPR and spreading “materially misleading” statements about the potential impact of the IPRs on generic drug prices.  This is an important and serious claim.  While short selling is an activity that is legal (if not frowned upon by some), spreading misinformation about a stock, and then trading on the short-term market reaction to that misinformation, is the type of market manipulation that gets the attention of the Securities and Exchange Commission.

However, as Zach Silbersher pointed out in his article at IAM, it is not apparent that short term movement is really Bass’s strategy.  Out of the 9 companies that own patents targeted by Bass, very few have had meaningful short-term reductions to their stock price in response to IPRs.  While Acorda’s stock price has moved significantly on IPR news, Celgene’s stock price actually went up from $109.59 to $112.01 on the day that the IPR was filed, and has stayed above the $109 price ever since (as of 9/11/2015).  If Bass’s true strategy is short term trading around the filing of meritless IPRs, then financial failure is likely to kill the strategy anyways.

The briefs also attack Bass’s claims that his activities will have an impact to generic competition, and claim his altruistic motivations are suspect.  Both companies point out that Bass has yet to challenge all of the Orange Book patents that are listed for the drugs that Bass is attacking, which means that Bass’s statements that IPRs may lower drug prices are wrong, misleading, and simply a way to manipulate the market. Celgene also argued that CFAD owes its investors a fiduciary duty that puts its investment strategy above any alleged altruistic mission.

Finally, Celgene also claims that this is an extortion ploy, that Spangenberg was asking for payment not to file IPRs prior to the filings by CFAD.  This is contrary to public statements by Bass, who has claimed that he will not settle IPR challenges brought by CFAD.  However, the timing of the alleged requests for settlement seem to be prior to the formation of CFAD, before Bass and Spangenberg started to work together in this space.

CFAD’s reply is due in 7 business days, so we should hear Bass’s side of the story in a couple of weeks.

Disclosures and Disclaimers:

The author of this post is a private fund manager. At the time of publication, funds and accounts managed by the author had no position in the companies discussed herein. Such funds and accounts may buy and sell securities of the companies mentioned in this post, both before and after the publication of this post and without giving further notice to any party. This post reflects the opinion of the author, and does not necessarily reflect the opinions or positions of any other entity.

The information set forth in this post does not constitute a recommendation to buy or sell any security. This post contains certain “forward-looking statements.” When used herein, the words “anticipate,” “intend,” “estimate,” “believe,” “expect,” “plan,” “should,” “hypothetical,” “potential,” “forecast,” “project,” variations of such words and similar expressions are intended to identify forward-looking statements.  All of these statements are subject to various factors that may or may not occur, and may cause the analysis in this post to differ materially from actual events.  This post is based on information that the author reasonably believes is reliable; however, the author gives no guarantee as to the accuracy or completeness of information relied upon.  The author makes no representation as to the accuracy or completeness of the information set forth in this post and undertakes no duty to update its contents.

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