Hedge Fund IPR Scheme Unraveling

Last week, the USPTO's Patent Trial & Appeal Board (PTAB) authorized a Motion for Sanctions in four IPR proceedings filed by the now infamous Kyle Bass & friends. The motion for sanctions will be based on an alleged abuse of process by Bass & Co. for pursuing four IPR proceedings relating to Celgene patents 6,315,720 and 6,045,501. 37 C.F.R. § 42.12(a)(6) The sanction sought is termination of the proceedings. 42.12(b)(8). (motion here)  

The motion authorization, while clearly not an ultimate decision as to the propriety of sanctions is a clear harbinger of things to come. First, as busy as the Board is, any request for additional work is strongly indicative of far more than a passing interest in the topic. Second, the authorization in these cases comes by way of expanded panel. Finally, such motions are exceedingly rare (like less than 1% of cases, rare).  If shares in Hayman Capital were publically traded— like its IPR targets— shares would be significantly down trending on this news. The game is over.

As I pointed out months back, not only does the PTAB have the tools to deny these filings, it, not Congress, is in the best position to do so.  Now that a patentee has stepped up to tackle the issue head on, the Board need not take it up sua sponte

In my April post I explained that Rule 42.12 provides the PTAB with the ability to terminate filings that waste agency resources for profit. Congress created AIA trial proceeding to combat trolls, not create an altogether new class of them. Rule 42.12 provides sanctions for abuse of process and other improper use of office filings. When the Wall Street Journal is reporting on the financial schemes driving PTAB filings, it is time to act. 

To the Board's credit, they are doing exactly that. The Order explains:

Patent Owner confirmed that it wishes to move for sanctions against Petitioner, but not Petitioner’s counsel. Specifically, Patent Owner requested authorization to move for dismissal of the Petitions as a sanction for abuse of process by Petitioner or its real parties-in-interest. 37 C.F.R. § 42.12(a)(6), (b)(8). Based on the specific representations made during the telephone conference, we granted the requested authorization. Our decision was based on a determination that briefing will facilitate development of a complete record and, thereby, will promote the just resolution of the issues raised by Patent Owner.

.       .        .         .         .

We instructed the parties to address specifically in their briefs (1) the elements required to establish an abuse of process; (2) any evidence of intent that supports or undercuts the allegation of abuse of process in these cases; and (3) the standard of proof that applies when deciding a motion for sanctions.

Of course, if Mr. Bass & Co. are put out of business, the Bio/Pharma lobby will find the wind suddenly taken from its patent reform sails