Authored by Michelle Carniaux and Dervis Magistre
Hedge fund mogul Kyle Bass has earned a certain amount of notoriety (some would say infamy) for his investment strategy of using IPRs to drive down the value of pharmaceutical companies he is shorting. To date, he and his hedge fund entities have filed thirty-three IPR petitions challenging patents owned by Big Pharma. Critics hoping that the PTAB would declare this strategy an abuse of the IPR process had their hopes dashed by recent rulings that unequivocally confirmed that a profit motive does not taint an otherwise meritorious IPR petition.
We previously wrote on a Motion for Sanctions that Celgene Corporation filed in a set of Bass-filed IPRs (IPR2015-01092, 01096, 01102, 01103, 01169). Since the PTAB granted Celgene’s request for authorization to file the sanctions motion, the expectation of at least several Big Pharma companies was that the PTAB was poised to deal the Bass investment strategy a deathblow. However, in its ruling on this motion on September 25, 2015, the PTAB disappointed this expectation, declaring that “an economic motive for challenging a patent claim does not itself raise abuse of process issues.” The PTAB further stated that IPRs are not limited simply to “parties having a specific competitive interest in the technology covered by the patents” since 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.” Simply put, since the statute does not expressly limit who can bring an IPR challenge (except to exclude the patent owner), the PTAB is unwilling to imply such a limitation based on self-interested allegations of abuse by patent owners.
Two other Institution Decisions (IPR2015-01046, 01047), this time involving IPRs filed by The Mangrove Partners Masters Fund, Ltd. against patents owned by VirnetX, have solidified the realization that the PTAB has no interest in blocking investment-motivated IPR challenges. In these decisions, the PTAB brushed aside VirnetX’s argument that the IPRs should be denied as brazen attempts to manipulate the financial markets. The PTAB rested its rejection of this argument on the same rationale it gave for denying the sanctions motion above: “an economic motive for challenging a patent claim does not itself raise abuse of process issues.”
Kyle Bass has already started reaping the benefits of these rulings, as he recently persuaded the PTAB to institute an IPR against Cosmo Technologies Ltd. (IPR2015-00988). Since twenty-nine Bass-filed IPR petitions currently await institution decisions, and no PTAB ruling to date has blocked or even frowned upon his profit-motivated use of the IPR system, Kyle Bass has surely been emboldened to continue pursuing with impunity investment windfalls at the expense of patent owners.