United States: PTAB Refuses To Sanction Kyle Bass

Many pharmaceutical companies have complained about the IPR petitions filed by Kyle Bass and the Coalition for Affordable Drugs against Orange Book-listed patents covering approved pharmaceutical products, but Celgene Corp. took more serious action, and filed motions for sanctions in the IPRs launched against its patents relating to Thalomid® (thalidomide) and Revlamid® (lenalidomide). However, the USPTO Patent Trial Appeal Board (PTAB) refused to sanction Bass on the grounds raised by Celgene. This means patent owners looking for general relief from hedge-fund sponsored patent challenges will have to hope the Federal Circuit sees it differently (assuming Celgene appeals) or that Congress takes action to limit the ability of non-competitors to file IPR petitions.

In its barely five page decision, the PTAB addressed three specific arguments raised by Celgene.

Profit Motive Is Not Sanctionable

Celgene's motion for sanctions emphasized the profit motives of the Coalition for Affordable Drugs. In response, the PTAB noted that "[p]rofit is at the heart of nearly every patent and nearly every inter partes review." With regard to the Coalition's short-selling strategies, the PTAB stated:

We take no position on the merits of short-selling as an investment strategy other than it is legal, and regulated.

The AIA Did Not Restrict IPRs To Competitors

Celgene emphasized that the Coalition has no "legitimate competitive interest in the patents" and no plan or ability to compete in the marketplace, but the PTAB did not find anything in the IPR statute that limits petitioners to "competitors." In this regard, the PTAB distinguished the IPR statute's general language providing that "a person who is not the owner of a patent" can file an IPR petition from the more restrictive language used for covered business method reviews, "which require a party or privy to have been sued or charged with infringement of the patent."

The AIA Had A Broad Purpose To Improve Patent Quality

Celgene argued that the Coalition's IPRs were contrary to the purpose of the America Invents Act (AIA), which Celgene asserted was "to reduce abusive litigation tactics with a specific focus on non-practicing entities." The PTAB did not accept this narrow view of the AIA:

The purpose of the AIA 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.

With regard to IPRs, the PTAB stated:

The AIA was designed to encourage the filing of meritorious patentability challenges, by any person who is not the patent owner, in an effort to further improve patent quality.

The PTAB noted that Celgene had not based its motions for sanctions on arguments that the Coalition had filed "a non-meritorious patentability challenge," and concluded that Celgene had not met its burden of showing by a preponderance of evidence that the Coalition was abusing the IPR process.

Will Congress See Things Differently?

The July 29, 2015 draft of the Innovation Act sponsored by Congressman Goodlatte (R-Va) includes provisions designed to put an end to hedge-fund sponsored IPRs:

[A] review may not be instituted unless the petitioner certifies that the petitioner and the real parties in interest of the petitioner—

  1. 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, during a period following the filing of the petition to be determined by the Director; and
  2. have not demanded payment, monetary or otherwise, from the patent owner or an affiliate of the patent owner in exchange for a commitment not to file a petition under section 311 with respect to the patent that is the subject of the petition, unless the petitioner or the real party in interest of the petitioner has been sued for or charged with infringement of the patent, during a period to be determined by the Director.

Interestingly, BIO and PhRMA wrote a joint letter to Congress expressing their views that these provisions do not go far enough because they "contain numerous loopholes that will allow such entities to continue to abuse IPRs for their own financial gain." Instead, they urge Congress to wholly exempt patents covering FDA-approved from IPRs.

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