Spooking Financial Markets Via IPR
Over a year ago, I explained how "PTAB Trolls" were attempting to manipulate the new administrative trial system of the Patent Trial & Appeal Board (PTAB). PTAB Trolls attempt to extract settlements from patentees involved in high value litigation disputes. A PTAB troll operates as follows: (1) Identify a patentee that has been awarded a large damage verdict (not yet satisfied); (2) collect the prior art used in the litigation; (3) apply the same art in an Inter Partes Review (IPR) (with lower burdens of proof); (4) hope to leverage those burdens, and speed of the PTAB into forcing a settlement from the patentee.
Other versions of this practice include PTAB Trolls that will take a "short" position in a penny stock having a market value closely tied to a patent litigation verdict. In such cases the mere filing of an IPR can spook investors, impacting trading volumes enough to cause a temporary, but significant, price drop (i.e., quick profit for a short seller). To date, these efforts have mostly failed, but not all. (See Patience Haggin's informative article on PTAB Trolls here)
Next up, well financed hedge funds taking on key drug patents of the pharmaceutical industry?
Last week, the founder of Dallas-based Hayman Capital Management, L.P., Mr. Kyle Bass, announced to the world that he planned to attack 15 drug companies via IPR.
Mr. Bass has explained his rationale as follows:
We are going to challenge and invalidate patents through the IPR process ... (and) we are not going to settle . . .The companies that are expanding patents by simply changing the dosage or the way they are packaging something are going to get knee capped. ..This is going to lower drug prices for Medicare and for everyone.
First, Mr. Bass is certainly not embarking on this multi-million dollar venture to help Medicare patients. Instead, he is simply hoping to spook financial markets to his benefit. It's one thing to accuse the pharmaceutical industry of monopolization with "dosage patents" but, taking out key patents in the unpredictable arts is easier said then done—otherwise, the generic industry would have long since put ethical drug companies out of business.
Delusions of grandeur aside, given this brash pronouncement, are these investment-driven IPR filings something that the PTAB should even entertain?
When drafting the post-grant trial statutes of the America Invents Act (AIA) Congress empowered the USPTO with substantive rule making authority for implementing the trials of the AIA. This authorization is tempered by the interests outlined in 35 U.S.C. §326(b):
Considerations- In prescribing regulations under this section, the Director shall consider the effect of any such regulation on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to timely complete proceedings instituted under this chapter.
Clearly, there are enough interested parties in the pharmaceutical industries that "bad patents" should be eliminated by interested competitors. In fact, generics are increasingly utilizing the PTAB to settle such disputes. In view of this, is accepting challenges from hedge funds for the purpose of degrading/spooking financial markets consistent with protecting the integrity of the patent system? Should PTAB resources be dedicated to efforts to manipulate financial markets?
Of course not.
The manipulation of financial markets through PTAB filings of investment professionals is entirely inconsistent with the guiding principles of §326(b). More importantly, the PTAB has the rule making authority to outlaw IPR petitions that undermine the integrity of the patent system and unnecessarily tax the agency's limited resources.
Mr. Bass may be the only one about to be "knee capped," and rightfully so.