Hedge Fund Patent Petitions Could Be Squashed

Celgene now has permission to seek dismissal of Kyle Bass' challenge of a Thalomid patent.

The Patent and Trademark Office may squelch efforts by hedge fund manager Kyle Bass to make a profit from its patent challenge proceedings.

The PTO’s Patent Trial and Appeal Board issued an order authorizing Celgene Corp. to file a motion to dismiss Bass’ inter partes review petitions challenging the validity of its Thalomid (thalidomide) patent. The order comes as industry is pushing Congress to enact legislation to prevent Bass and others from using the IPR proceedings to manipulate stock or obtain payments from firms.

PTAB Chief Justice James Donald Smith said in April that the board does not consider the identity of those filing petitions, but he acknowledged that the system may be subject to abuse (Also see "‘Reverse Patent Trolls’ Allowed To Pursue PTO Patent Challenges" - Pink Sheet, 6 Apr, 2015.).

“The order is asking Celgene, ‘Is there a hook you can give us that will let us control this in some way?’” Matthew Kreeger, a partner at Morrison & Foerster, said. He noted that the board rarely considers such a dismissal request, called motions for sanctions in the board's parlance, and in this case did so by an expanded panel.

Celgene requested authorization to file for dismissal as a sanction for abuse of the IPR process in a June 3 email to PTAB. The identified "real parties in interest" in these proceedings “have stated publicly that they intend to use the IPR process for the purpose of affecting the value of public companies,” the email states. “This is not the purpose for which the IPR process was designed.”

Celgene said one or more of the real parties in interest previously threatened to file IPRs against its patents unless it met their demands and did so when Celgene did not pay them.

Thalomid Patent Likened To Accutane Pregnancy Prevention Methods

Bass, of Hyman Capital Management, has filed IPR petitions against eight biopharma companies, including Acorda Therapeutics Inc., Shire PLC, Jazz Pharmaceuticals PLC, Biogen, Allergan Inc. and Aralez Pharmaceuticals Inc. Acorda was the first to be hit with a petition challenging the validity of a patent on its multiple sclerosis drug Ampyra (dalfampridine).

Acorda asked the PTAB to deny instituting review of the patent because the petition was filed for the “improper purpose” of driving down the price of the firm's stock in which Bass or his investment funds held a short position (Also see "Legal Briefs: Courts On Exclusivity; Namenda ‘Hard Switch’ Deemed Coercive; Acorda Fights Bass Patent Petition" - Pink Sheet, 1 Jun, 2015.).

Bass’ group, the Coalition for Affordable Drugs, filed four IPR petitions against Celgene requesting cancellation of claims in patent No. 6,045,501, which covers methods for delivering a drug to a patient while preventing the exposure of a fetus or other contraindicated individual to the drug. Bass contends that the claims are unpatentable due to prior art publications.

One petition states that by August 2008, persons of ordinary skill in the art understood that teratogenic drugs may cause birth defects. For example, it notes that Roche used methods to prevent use of Accutane (isotretinoin) in pregnant patients.

Generic firms filed similar petitions against Jazz Pharmaceuticals, challenging the validity of patent claims covering the method of distributing Xyrem (sodium oxybate) under a Risk Evaluation and Mitigation Strategy. The petitions also cited Roche’s pregnancy prevention program.

The generic firms first challenged the Xyrem patent through the proceeding for covered business method patents and when that failed, filed IPR petitions (Also see "REMS Patent Safe For Now, But Pharma Still Facing PTO ‘Death Squads’" - Pink Sheet, 23 Jan, 2015.).

Broader Moves Against Patent Reviews

Inter partes review, one of four administrative trial proceedings created under the America Invents Act of 2011, is intended to improve patent quality and provide an alternative to patent litigation. Under IPR, any third party may petition the PTAB to review the validity of a patent beginning nine months after it issues, and if the board agrees to institute review it must issue a decision within one year.

The biopharmaceutical industry has been critical of the proceeding because of its high rate of invalidating patent claims and the disparity in review standards between the PTAB and district courts. The Biotechnology Industry Organization has also criticized the tactics of Bass and others and advocated legislation that would prevent them from abusing the IPR system.

Congress appears to be listening. On June 11, the House Judiciary Committee voted to approve the Innovation Act, H.R. 9, which would require IPR petitioners to certify that they are not seeking to manipulate stock and have not demanded money from a patent owner (Also see "Patent Review Reforms Still Getting Tweaked In Advance Of House Vote" - Pink Sheet, 15 Jun, 2015.).

Biopharma companies are also expressing concern that the IPR proceeding may be used by biosimilar applicants to avoid the exchange of patent information required under the Biologics Price Competition and Innovation Act (see related story, (Also see "Biosimilar Sponsors Looking To Avoid ‘Patent Dance’ Turn To Inter Partes Review" - Pink Sheet, 22 Jun, 2015.)).

Bass is represented in the Celgene IPR petitions by Sarah Spires of Skiermont Puckett. Celgene is represented by F. Dominic Cerrito of Quinn Emanuel Urquhart & Sullivan and Anthony Insogna of Jones Day.