First Hedge Fund IPR Ready for PTAB Institution Decision
Earlier this week, Acorda Therapeutics filed its response to the first of the now notorious hedge fund IPR filingsin (IPR2015-00720). In its response (here), Acorda points out that unnamed investors are directly funding the filing, yet remain unknown to the public despite the requirements to list all real-parties-in-interest. Acorda also points out the profiteering nature of the filing as a means to influence the price per share of publicly traded stocks, which is inconsistent with the PTAB's congressional mandate.
Since the first round of hedge fund filings, the same entities have filed upward of 15 IPRs. Additional copycat IPR filings have followed from other hedge funds. Meanwhile, the demand for the PTAB's limited resources remains at an all time high from parties with legitimate patent disputes.
As I have pointed out previously, independent of the RPI issue, the Board has the power to shut down this burgeoning avenue of abuse, and should do so quickly (a decision is not due until 8/26). While Congress is poised to quickly provide a statutory control to cut off this chicanery, the public would be far better off if the PTAB exercised its discretion. Such decisive action by the agency would avoid the unintended consequences that would certainly follow the current legislative proposals.
As a reminder the rationale behind hedge fund attacks on Bio/Pharma patents is to spook markets to the benefit of a short position. That is, prior to filing of the IPR, the Fund will take a "short" position in a low cap stock having a market value closely tied to their patent portfolio. 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). For example, Acorda saw a 10% drop in its stock price when the '720 IPR was filed—before the merits of the petition were even known.
Current legislative proposals (STRONG ACT) includes a provision that would require standing for IPR petitioners (presumably to thwart such filings). However, companies not only employ IPR as an alternative to ongoing litigation but as a due diligence tool to avoid such situations in the first instance. Innovators looking to develop a new product line, or new area of business should have the freedom to clear the landscape of improvidently granted patents via the PTAB without having to wait for a lawsuit, or threat of one. Such knee-jerk legislative fixes are not only counterproductive, but are plainly urged by disingenuous lobbyists seeking to limit the PTAB's effectiveness under the guise of stopping the hedge funds.
Instead, the PTAB should simply exercise its discretion and not institute these filings as being inconsistent with their congressional mandate.
In this regard, 35 U.S.C. §326(b) provides :
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.
Presumably the same interests that control the prescription of regulations extend to their enforcement.
The manipulation of financial markets through PTAB filings of investment professionals is entirely inconsistent with the guiding principles of §326(b). Indeed, the actions of Congress to quickly outlaw this practice (The Patent Act is rumored to be adjusted in this same regard this week) only reinforces the plain intent of §326. Indeed, the PTAB has recently exercised its discretion to deny institution of otherwise viable IPR petitions on equitable grounds. See Conopco, Inc. v. Procter & Gamble Co., Paper 24, No. IPR2014-00506 (December 10, 2014) (holding that the Director may, but not must, institute a proceeding when an RLP is demonstrated that would unnecessarily tax Board resources). A petition that by its very nature undermines the integrity of the patent system and unnecessarily tax the agency's limited resources would seem to be an easy call . While the IPR statutes enable anyone to file an IPR, institution of an IPR is a matter of discretion.
The PTAB can, and should deny these purely financial gambits on RPI grounds, and as a matter of sound agency discretion as a waste of limited agency resources.