Sanctioning the “Spider”: Big Pharma Fights Back Against Kyle Bass’ IPR Campaigns

Authored by Michelle Carniaux and Michael E. Sander

Kyle Bass and his hedge fund Hayman Capital have become infamous for challenging the validity of patents owned by large biopharmaceutical companies, but now, “big pharma” is fighting back. On June 9, 2015, Celgene Corp. moved a step closer to ending Bass’ IPR reign of terror. In a set of IPRs challenging two patents owned by Celgene Corp. (IPR2015-01092,01096,1102,1103), the PTAB authorized briefing on a Motion for Sanctions over whether Bass and his related companies were, as alleged, “abus[ing] the IPR process for private financial gain.” IPR2015-01102, No. 7 at 6 (P.T.A.B. Jun. 9, 2015). Celgene argued that Bass intends to use the IPR process for the purpose of affecting the stock price of publicly traded companies, which is “not the purpose for which the IPR process was designed.” Id. Celgene also alleged that “one or more of the identified RPI previously threatened to file IPRs against the challenged patents unless Celgene met their demands.” Id. Celgene requested the Board to dismiss the petitions as a sanction for abuse of process and misuse of the IPR proceedings. Id.

The recent order from the PTAB is not a decision on the merits of the allegation of “abuse of process,” but merely authorizes the parties to brief the issue. Id. at 2. Arguments from both sides, and an opinion on the merits from the PTAB will be forthcoming.

Celgene’s motion for sanctions is just the most recent of three salvos fired by pharmaceutical companies against Bass’ IPR enterprises. On June 3, 2015, NPS Pharmaceuticals Inc., recently acquired by Shire, filed a motion for additional discovery to “determine all of the real parties-in-interest.” See IPR2015-00990, No. 9 Motion (P.T.A.B. Jun. 3, 2015). NPS alleged that Bass failed to list all of the investors in Bass’ hedge funds as real-parties-in-interest in their IPR petition. Specifically, NPS stated that Bass’ IPRs are filed “on behalf of numerous natural and non-natural persons who purposely and specifically funded the Petition and will benefit from it.” Id. at 2. NPS distinguished Bass’ IPRs and hedge fund structure from other petitioners that have investors, because “hedge funds are often created for a specific purpose . . . and hedge fund investors often can negotiate their individual rights as conditions to their investment,” suggesting that the control exerted by hedge fund investors may establish them as real parties in interest. Id. at 3. In their motion, NPS submitted an organizational chart of numerous entities with financial relationships to Kyle Bass, and argued that discovery was needed to unravel “the spider’s web of true RPIs.” Id.; see also Ex. 2005 (reproduced below).

Perhaps predicting an argument that revealing a large list of investors may be onerous, NPS argued “[t]hey cannot plead now because they involved a lot of persons in their scheme and set up many different entities to hide their identities and money, that sheer numbers should protect them from discovery and the statutory requirements of an IPR. . . . That would be rewarding their obfuscation.” Id. at 13.

The same policy and real-party-in-interest arguments were also raised in another IPR proceeding by Patent Owner Acorda Therapeutics. IPR2015-00720, No. 10 (P.T.A.B. May. 26, 2015). In their preliminary response, Acorda alleged that Bass’ IPRs were “the first in what has become a rapidly expanding series of highly controversial filings aimed at using . . . the inter partes review process itself to move stock prices and reap profits.” Id. at 1-2. They argued that “[u]se of the inter partes review process as a tool to manipulate markets is not what Congress intended,” and “[i]n order to preserve the Office’s resources for proper petitions and stem the sort of filings involved here, the Board should exercise its discretion under 35 U.S.C. § 314(a) to deny institution of this inter partes review petition.” Id. at 2. Acorda admitted that Bass’ strategy has worked to a degree: “[o]n the day the [] Petition was filed, before anyone could possibly have assessed its merits, Patent Owner Acorda’s stock price plunged nearly 10%.” Id. 6-7.

Acorda, mirroring the arguments raised by NPS, also argued that Bass failed to disclose all of the investors in his funds, and thus failed to disclose all real-parties-in-interest. Id. 8-9. Acorda argued that “[t]he undisclosed investors that provided substantial funding for the Petition are the parties that stand to gain or lose, and, therefore, are RPIs.”

The Board’s decisions in these proceedings will largely determine whether Bass’ foray into the inter partes process is at its end.