United States: Is Legislative Reform For Inter Partes Review On The Horizon?

Less than three years after implementation of the Inter Partes Review process, the life science industry is already calling upon Congress for significant reform.

When the Leahy-Smith America Invents Act ("AIA") was signed into law on September 16, 2011, it resulted in substantial changes to the United States patent system. Among the changes was the introduction of a new post-grant proceeding, inter partes review ("IPR"),1 and the creation of the tribunal responsible for conducting these proceedings, the Patent Trial and Appeal Board ("PTAB").2 The IPR procedure allows a party to challenge the patentability of a patent as anticipated (35 U.S.C. § 102) or obvious (§ 103) based on prior-art patents and printed publications.

The IPR process is initiated when a third party (who is not the patent owner) files a petition for IPR with the United States Patent and Trademark Office ("USPTO"). The PTAB may institute an IPR if the petition demonstrates that there is a reasonable likelihood that the petitioner would prevail with respect to at least one claim challenged. If the PTAB decides to institute the IPR, it is statutorily required to issue a final written decision within one year of the institution decision. The final determination will trigger estoppel in civil actions as well as in USPTO and International Trade Commission proceedings, extending to any ground that the petitioner "raised or reasonably could have raised" during the IPR.

The IPR has procedural aspects that parallel district-court litigation, including interaction with the presiding body during the process, depositions of fact and expert declarants, evidentiary objections, and the right to an oral hearing. In addition, IPRs offer several potential advantages to patent challengers that do not exist in district-court litigation. First, the presumption of patent validity does not apply in IPRs, and the PTAB uses the "preponderance of the evidence" standard rather than the higher "clear and convincing" standard applied in district-court actions. Second, for unexpired patents, the claim-construction standard used by the PTAB is "broadest reasonable interpretation," which can result in a broader construction than in the district court, thus making claims potentially easier to invalidate. Third, the PTAB is composed of technical decision makers with specialized expertise. Finally, IPRs are considered a more efficient mechanism for patent challenges because they are quicker and less expensive than district-court litigation.

Due to these features, the IPR process has gained increasing popularity since it took effect on September 16, 2012. According to USPTO statistics, as of May 28, 2015, over 2,900 IPR petitions have been filed since the proceedings became available.3 The increased popularity is evident from a comparison of the number of petitions filed in 2013 (514) and the number of petitions filed in 2014 (1,310).4 And as of May 28, there have already been 1,119 petitions filed in the 2015 fiscal year,5 suggesting that the number of petitions filed annually will increase yet again.

The USPTO statistics indicate that as of May 28, approximately 7.9% of AIA petitions (most of which are IPR petitions) filed in the 2015 fiscal year relate to patents in the areas of biotechnology and pharmaceuticals.6 Many of these petitions are filed on behalf of companies facing infringement lawsuits related to the patents they are challenging in the IPRs. But recently there has been a flurry of IPR petitions, unrelated to any litigation or threat of litigation, filed against patents covering successful pharmaceutical products. This has caused a stir in the industry as well as in the legislature.

An organization connected to hedge-fund manager Kyle Bass has been filing IPR patent challenges against several pharmaceutical companies and simultaneously betting against those companies' stock. Mr. Bass created the organization Coalition for Affordable Drugs LLC ("CFAD"), which is a wholly owned subsidiary of the hedge fund Mr. Bass manages, Hayman Capital Management, L.P. Beginning in February 2015, CFAD has filed several IPR petitions against pharmaceutical companies, including Accorda Therapeutics Inc., Shire plc, Jazz Pharmaceuticals Inc., Biogen IDEC International GmbH, and Celgene Corp.

In January 2015, Mr. Bass announced his plan to use the IPR process to challenge about fifteen pharmaceutical companies having a combined market capitalization of $450 billion.7 According to the Wall Street Journal, Mr. Bass is focused on pharmaceutical patents that he believes to have little value other than to drive up prescription-drug prices.8 The business model involves betting against companies with what Mr. Bass and his organization believe are weak patents and investing in the companies that would profit if those patents were found invalid.9 Mr. Bass has indicated that CFAD intends to invalidate patents through this process and stated "[w]e will not settle."10 While indicating that his fund stands to gain if the plan follows through, Mr. Bass has also insisted that the IPRs will help reduce drug costs for consumers by opening the door for generic drug companies.11

The life science sector has had a heated response to these IPRs.12 It has been suggested that Mr. Bass is exploiting the IPR process to the detriment of the industry, the patent system, and ultimately the patients. The President and CEO of the Biotechnology Industry Organization ("BIO") Jim Greenwood has made the following statement on behalf of the organization: "Kyle Bass opened a new door to abuse of the US patent system, exploiting the USPTO's patent challenge proceeding as part of his cynical short-selling strategy against innovative biotech companies that are delivering transformative therapies to patients in need."13 Greenwood additionally stated that Mr. Bass' campaign "not only damage[s] the value of companies working for cures—but hurts sick and suffering patients and their families who are eager for cures."14

But the AIA and the USPTO's regulations do not require the party challenging a patent through the IPR process to have been charged with infringement. Rather, any party who is not the patent owner can file a petition for IPR.15 The life science industry is thus turning to the legislature and USPTO for help. BIO has emphasized that the AIA was not intended to be used in such a way and urged Congress to rapidly enact legislation to prevent similar abuse of the IPR process in the future, stating that "[p]atents are the lifeblood of innovative, lifesaving biotech companies. Congress and the USPTO should act promptly to prevent abuse of the patent system in this manner."16

Mr. Bass' business strategy and the impassioned response from the life science sector have caught the attention of Congress. The STRONG Patents Act of 2015 ("Support Technology and Research for Our Nation's Growth"), S.632, which was introduced in the Senate in March 2015, has deliberately addressed the issue by requiring that a party may not file an IPR petition unless the party has been accused of infringement.17 This approach may not be the proper solution to the problem. As it is currently drafted, it would exclude companies from filing IPRs where they believe they are at risk of being sued for infringement but have not yet been accused of such infringement. Accordingly, the solution provided in the STRONG Patents Act may be a somewhat extreme remedy for what is currently a narrow issue.

Despite endorsement of the bill by the biotechnology industry (specifically BIO),18 it has not garnered much support in Congress. Both the House of Representatives and Senate have introduced competing patent-reform bills that are gaining more traction—Innovation Act of 2015 (H.R. 9) and PATENT Act ("Protecting American Talent and Entrepreneurship Act of 2015") (S.1137), respectively. These bills did not originally include provisions addressing Mr. Bass' use of the IPR process. But members of the life science industry indicated—through organizations such as BIO and Pharmaceutical Research and Manufacturers of America—that they cannot support a bill that does not address the abusive practices in the USPTO post-grant proceedings.19

Subsequent amendments to both bills have introduced reforms to the AIA's post-grant review proceedings, and the amended acts were approved by the House Judiciary Committee and Senate Judiciary Committee. While the Innovation Act of 2015 takes a narrowly tailored approach to address the perceived abuse of the IPR process by Mr. Bass and CFAD, the PATENT Act takes a broader tack by making changes to the IPR system generally.

The Innovation Act of 2015 now includes a provision stating that IPRs cannot be instituted unless the petitioner certifies that it and any of its real parties in interest "do not own and will not acquire a financial instrument (including a prepaid variable forward contract, equity swap, collar, or exchange fund) that is designed to hedge or offset any decrease in the market value of an equity security of the patent owner or an affiliate of the patent owner."20 This reform specifically targets the actions of Mr. Bass and CFAD.

In contrast, the PATENT Act does not include a provision explicitly aimed at such abuses but rather introduces wider-reaching alterations to IPRs that would make it more difficult to invalidate patents. For example, the act (i) provides that patents subjected to review are presumed valid, (ii) gives the PTAB discretion not to institute IPRs when doing so "would not serve the interests of justice," and (iii) directs the USPTO to engage in rulemaking that would allow the PTAB to impose sanctions on parties that file frivolous petitions.21

Another issue that has been raised by the life science community and discussed during House and Senate committee meetings is whether patents that are subject to the Hatch-Waxman Act and Biologics Price Competition and Innovation Act should be immune from post-grant challenges at the USPTO. Provisions addressing this issue do not currently appear in pending legislation. To the extent that enacted legislation safeguards such patents from post-grant proceedings, it may eliminate future IPR petitions challenging patents covering brand pharmaceutical products such as the petitions filed by CFAD.

In sum, the alleged abuse of IPRs and the resulting concerns of the life science community have certainly received the attention of Congress. Although the pending legislation may not yet have all the answers, it is evident that members of Congress are working to devise an approach to prevent the types of patent challenges orchestrated by Mr. Bass and CFAD. With two bills already approved by the House and Senate judiciary committees, 2015 could be the year that patent reform becomes law.

Footnotes

1 35 U.S.C. § 311.

2 35 U.S.C. § 6.

3 http://www.uspto.gov/sites/default/files/documents/aia_statistics_05-28-2015.pdf (last visited June 4, 2015).

4 Id.

5 Id.

6 Id.

7 U.S. Hedge Fund Plans to Take on Big Pharma Over Patents, Reuters, Jan. 7, 2015.

8 Joseph Walker & Rob Copeland, Kyle Bass Takes Aim at Drug Patents, Wall St. J., Apr. 8, 2015, at B1.

9 Id.

10 Id.

11 Id.

12 See Press Release, Biotechnology Indus. Org., BIO Statement Following Kyle Bass' IPR Petition, Feb. 11, 2015, available at https://www.bio.org/media/press-release/bio-statement-following-kyle-bass-ipr-petition-0 (last visited June 12, 2015).

13 See id.

14 Id.

15 Except that an IPR petition may not be instituted if (i) prior to filing the petition the petitioner filed a civil action challenging the validity of a claim of the patent, or (ii) the petition is filed more than one year after the petitioner is served with a complaint alleging infringement of the patent. 35 U.S.C. § 315(a)(1), (b).

16 Press Release, Biotechnology Indus. Org., supra note 12.

17 STRONG Patents Act of 2015, S.632, 114th Cong. § 102(d) (2015).

18 See Press Release, Biotechnology Indus. Org., BIO Statement of Support for the Introduction of the STRONG Patents Act of 2015, Mar. 3, 2015, available at https://www.bio.org/media/press-release/bio-statement-support-introduction-strong-patents-act-2015 (last visited June 12, 2015).

19 See Press Release, Biotechnology Indus. Org., BIO Commends House Judiciary Comm.'s Review of the Innovation Act, Apr. 14, 2015, available at https://www.bio.org/media/press-release/bio-commends-house-judiciary-committee%E2%80%99s-review-innovation-act (last visited June 12, 2015); Press Release, Biotechnology Indus. Org., BIO Statement Regarding the Introduction of Senate Patent Reform Legislation, Apr. 29, 2015, available at https://www.bio.org/media/press-release/statement-regarding-introduction-senate-patent-reform-legislation (last visited June 12, 2015); Pharm. Research and Mfrs. of Am., PhRMA Response to Introduction of Senate Patent Bill, Apr. 29, 2015, available at http://www.phrma.org/media-releases/phrma-response-to-introduction-of-senate-patent-bill (last visited June 12, 2015).

20 Innovation Act of 2015, H.R. 9, 114th Cong. § 9(b)(1)(C) (2015).

21 See PATENT Act, S.1137, 114th Cong. § 11 (2015).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions