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 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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.