At the beginning of this year, Kyle Bass, founder of Dallas-based hedge fund Hayman Capital Management, announced plans to challenge 15 drug companies’ patents via Inter Partes Review. As of today, Kyle Bass is over half way there.
Mr. Bass, along with the Coalition for Affordable Drugs filed its first two IPRs in February challenging Acorda Therapeutics’ U.S. Patent Nos. 8,663,685 and 8,007,826 which cover formulations of Ampyra®, a treatment for muscular sclerosis. On April 1st, Bass filed two IPR against Shire Pharmaceuticals for patents related to Lialda® (US 6,773,720; ulcerative colitis) and Gattex® (US 7,056,886; short bowel syndrome). Five days later, they filed an IPR against Jazz Pharmaceuticals’ patent covering distribution of Xyrem® used to treat narcolepsy (US 7,895,059). Monday of this week, Mr. Bass and the Coalition for Affordable Drugs filed its sixth IPR petition. This petition challenges US 8,754,090, covering Imbruvica®, the Johnson & Johnson and Pharmacyclics cancer treatment. The drug is expected to surpass $10 billion in annual sales and is a key feature in AbbVie’s $21 billion bid for Pharmacyclics. Wednesday, Mr. Bass’s seventh IPR petition was filed– this time against US 8,759,393 covering Biogen’s multiple sclerosis drug, Tecfidera®. Today, Mr. Bass filed two IPRs. One challenges US 6,045,501 held by Celegen Corporation, covering Pomalyst®. The second IPR filed today is Mr. Bass’s second attack on the validity of US 7,056,886, which as described above was already targeted by Mr. Bass on April 1st.
Mr. Bass’s behavior is distinct from the traditional practice of other non-practicing entities. Previously, non-practicing entities generally were people or companies who themselves had no product, but enforced patent rights against accused infringers in an attempt to collect licensing fees. Mr. Bass’s activities are unique in that he has neither a product to offer nor patent rights to assert against the targets of his IPR petitions.
Many believe Mr. Bass intends to use the IPR process to bet against, or short, the shares of companies whose patents are targeted by the Coalition for IPR review. Notably, the stock prices of each company targeted by Mr. Bass dropped after the IPR petitions were filed.
So what can pharma companies concerned about Mr. Bass’s use of the IPR process do?
First, pharma companies should educate themselves about the IPR practice so they are able to articulate to investors why Mr. Bass’s actions should be viewed as non-events. It may be the case that only some, not all, of the patent claims were challenged. The original IPR filed against US 7,056,886 only challenged 20 of the 75 claims. Or, as is in the case of Xyrem®, there may be many additional patents (not challenged by IPR) covering the product. Company spokespeople can also stress that IPR proceedings, with appeals, will take over 2.5 years and Mr. Bass may even lack standing to appeal any IPR decisions to the Federal Circuit. See, e.g., Consumer Watchdog v. Wisconsin Alumni Research Foundation, 753 F.3d 1258 (Fed. Cir. 2014). For at least these reasons, the IPRs should pose no immediate threat. Furthermore, it is worth noting none of Mr. Bass’s IPR petitions have been instituted to date.
Second, pharma companies could meet with their Congressional representatives and be proactive in changing the process. As the law now stands, so long as the petitions are filed in “good faith” there is nothing illegal with the use of the IPR process in this manner. Notably, this is distinct from the Covered Business Method Review procedures which require the petitioner to be a defendant in a patent infringement lawsuit, or have been charged with infringement. It seems unlikely that Congress would support the type of challenge Mr. Bass is pursuing through IPR practice given Congressional concern about extortion litigation settlements and harassment of patent owners.
We will continue to monitor the Bass petitions and related Congressional activity and provide updates.
Update (4/24/15): Yesterday marked Bass’s most active day in filing IPR petitions. Bass and the Coalition for Affordable Drugs filed five IPR petitions yesterday, bringing the total count to 12. Four of the IPRs targeted Celgene. Three of these IPRs attacked US 6,315,720, while the other was directed at US 6,045,501. The fifth IPR filed yesterday challenges US 7,056,886 held by Shire which was previously the target of an IPR filed by Mr. Bass on April 1st.