PTAB Refuses to Bounce Bass & Co. IPRs in Celgene
Sept. 28, 2015 (Mimesis Law) — After a rough 0-3 start in his battle against Big Pharma, Kyle Bass finally has a reason to smile. Last week the Patent Trial and Appeal Board (PTAB) of the USPTO denied Celgene’s Motions for Sanctions requesting dismissal of Bass’s Inter Partes Review (IPR) petitions.
The five petitions at issue were filed by the Coalition for Affordable Drugs VI, LLC – an entity controlled by Bass’s Hayman Capital hedge fund – challenging three Celgene’s patents. Specifically, the three patents, 6,045,501, 6,315,720 and 5,635,517 all appear in the Orange Book for Celgene’s blockbuster cancer drug, Revlimid.
Bass has acknowledged that he is challenging Celgene’s patents, as well as other big pharma patents, so he can profit from a short-selling trading strategy in the stock market. He is also claiming that his investment strategy will bestow a public good in bringing down inflated drug prices propped up by invalid patents. Yet, without a profit motive, he wouldn’t be incentivized to do just that. Bass has claimed that his crusade against Big Pharma cannot be undertaken based purely upon altruistic motives, since the costs associated with each IPR filing are staggering. Someone has to pay for at least due diligence fees, filing fees, legal fees and expert fees. If not Bass, funded by Hayman Capital with a very specific profit generating strategy in place, then who?
And this was precisely the issue at the core of the PTAB’s opinion denying Celgene’s motions for sanctions. Celgene asked the PTAB to dismiss the petitions on the ground that they are driven entirely by an admitted “profit motive” unrelated to the purpose of the America Invents Act that was passed in 2011. Celgene also claimed that Bass has no competitive interest in invalidating the challenged patents, principally because he is not a generic pharmaceutical company looking to enter the market with a generic version of Revlimid. Celgene also argued that the IPR process was established as an efficient alternative to district court litigation, not as a way for stock-market traders, who could not challenge the patents in district court, to profit in the stock market.
Despite being criticized by Bass as “running a kangaroo court”, the PTAB reached its decision here by strictly adhering to the language of 35 U.S. Code 311, which allows anybody to challenge validity of a patent through an IPR, irrespective of his or her motives. The PTAB broke up the opinion in three parts – (1) Profit Motive; (2) Lack of Competitive Interest; and (3) Purpose of America Invents Act. With respect to the issues of “profit motive”, the PTAB unequivocally stated that “[p]rofit 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.” The PTAB took no position on the merits of short-selling and its legality simply because that is not their role.
With respect to the issue of “competitive interest”, the PTAB noted that standing is not a requirement to appear before this administrative agency and held that “Congress did not limit inter partes reviews to parties having a specific competitive interest in the technology covered by the patents.”
Finally, the purpose of the AIA, according to PTAB, “was not limited to just providing a less costly alternative to litigation. Rather, the AIA sought to establish a more efficient and streamlined patent system that improved patent quality, while at the same time limiting unnecessary and counterproductive litigation costs.”
The PTAB’s decision denying Celgene’s request for sanctions based on Bass’ short-selling strategy appears to put to rest the propriety of that strategy, for these petitions as well as any other petitions filed by Bass. But is Big Pharma now left without recourse to hit back against Bass? Not necessarily. The PTAB signaled that there may be another avenue for striking down IPR petitions filed by hedge funds – the determination of whether the filing is a “meritorious patentability challenge.” What does that mean? Well, Sec. 42.12 of the IPR rules allows the PTAB to impose sanctions against a party for “advancing a misleading or frivolous argument or request for relief.” But what qualifies as a frivolous argument? Do Bass’s first three petitions qualify as frivolous simply because they were not instituted? Even if the PTAB chooses not to sanction hedge funds for filing IPRs as an “abuse of process”, will it choose to sanction hedge funds for filing petitions that are not successful on their merits? That remains to be seen. With the path to substantive decision on institution cleared against Celgene, we can expect Kyle Bass’s IPR filings to continue. With this hurdle cleared, the next challenge is to get to institution in this and other filings.
Nothing in this material is intended to constitute legal or investment advice of any kind, nor is any of this material based on any non-public information of any kind. In addition to my work at Markman Advisors, I am also a name partner at a NYC-based intellectual property litigation boutique firm, Kroub Silbersher & Kolmykov PLLC (www.kskiplaw.com). Markman Advisors is affiliated with a Houston-based investment management firm, Perdix Capital Management, which may have existing or potential positions relating to situations discussed in this material. Markman Advisors also provides consulting services to buy-side investors, including hedge funds and family offices, that may also have or enter into positions relating to situations discussed in this material. Questions or comments can be directed to me at email@example.com. All suggestions are welcome.