Petitions for inter partes review (IPR) against major pharmaceutical companies recently have attracted significant attention and opened up new questions about the IPR process.  The foundational question raised was whether hedge funds, whose apparent purpose in filing IPR petitions was to attempt reverse monetization (extracting value by weakening another party’s patent rights), were abusing the IPR process.  This was answered on September 25, 2015 when the Patent Trial and Appeal Board (PTAB) stated that “an economic motive for challenging a patent claim” is not an abuse of process. Decision, Coalition for Affordable Drugs VI, LLC v. Celgene Corp., case numbers IPR2015-01092, IPR2015-01096, IPR2015-01102, IPR2015-01103 (Sept. 25, 2015).

As we previously noted, in “AIA Post-Grant Proceedings: Reverse Monetization Brings New Faces to the PTAB,” at present, anyone “who is not the owner of a patent” may file a petition to institute an IPR of the patent.  35 U.S.C. § 311(a). Kyle Bass’ hedge fund, for example, has taken advantage of this broad standing and filed thirty-three IPR petitions to date through various entities.  The PTAB denied a Motion for Sanctions by Celgene Corp, one of the biopharmaceutical companies targeted by the fund, in connection with five of the fund’s petitions.  Based on the language of the statute, the PTAB noted that unlike covered business method reviews, which require a party or privy to have been sued or charged with infringement of the patent, “Congress did not limit inter partes reviews to parties having a specific competitive interest in the technology covered by the patents.”  Decision at 4.  In support of its statutory interpretation of 35 U.S.C. § 311, the PTAB cited a DC Circuit case, Sierra Club v. E.P.A., which stated that an administrative agency is not subject to Article III of the Constitution, so petitioners need not establish standing.  292 F.3d 895, 899 (D.C. Cir. 2002).

As an administrative agency, the PTAB is likely not the appropriate venue to complain of facts that may lend themselves to the assertion of torts or criminal behavior.  For example, following a petition for IPR against a single claim of a patent owned by Allergan Sales, LLC (Allergan), Allergan filed suit against Ferrum Ferro Capital, LLC (FFC) and one of its founders in the US District Court for the Central District of California.  Allergan Inc. et al. v. Ferrum Ferro Capital LLC et al., Case No. 8:15-cv-00992 (C.D. Cal.).  Allergan alleged that FFC attempted to extort Allergan by misusing the IPR process, and further alleges that FFC's misuse of the patent system constituted attempted civil extortion and malicious prosecution under California law and also violated California's Unfair Competition Law.  Given the lack of traction at the PTAB with respect to Celgene’s Motion for Sanctions, similar lawsuits against petitioners in district court may become increasingly popular.  In response, FFC filed a motion to strike Allergan’s complaint under California’s anti-Strategic Lawsuit Against Public Participation law, arguing that Allergan retaliated against it after the IPR petition was filed.  The case is still pending.

Without the threat of sanctions at the PTAB, Patent Owners will have to defend themselves on the merits in IPRs.  Following three decisions to deny institution of one hedge fund’s IPRs, the PTAB finally instituted reviews in connection with patents owned by Cosmo Technologies, Celgene Corp., and NPS Pharmaceuticals Inc. (NPS).  In instituting review of NPS’ patent, the PTAB also rejected NPS’ argument that the shareholders of the fund, who the PTAB described as “passive investors,” should have been named as real parties-in-interest.  The PTAB allowed limited discovery on the real parties-in-interest in that case with respect to agreements that would allow another party to control any aspect of the IPR or to review papers filed in the proceeding.  Coalition for Affordable Drugs II LLC v. NPS Pharms., Inc., IPR 2015-00990, Paper No. 14 (July 2, 2015).

Beyond the pharmaceutical industry, as we predicted at our “Abuse of IPRs? The Dawn of Reverse Monetization and New Considerations in Response Webinar,” new hedge fund targets have emerged.  VirnetX, a publicly traded IP company that has asserted its portfolio of patents against many high-tech companies including Apple, Inc., was targeted by a hedge fund, The Mangrove Partners Master Fund, Ltd. (Mangrove).  IPR2015-01046 and IPR2015-01046.  On October 7, 2015, the PTAB instituted the IPRs.  VirnetX filed a rehearing request urging the PTAB to review its decision in light of its failure to determine whether Mangrove had disclosed all real parties-in-interest, including the Cayman Islands-based hedge fund with whom it shares a name.  Although VirnetX raised this argument before, it argued that institution of an IPR cannot be considered until all real parties-in-interest have been identified.  We await the PTAB’s response, but the message appears to be clear: The PTAB is focused on its main role as an administrative body that analyzes patents on its merits, and is leaving abuse of process type claims regarding IPRs to the federal district courts.