Kyle Bass Loses Round 1 of IPR Attack Against Pharma/Biotech Patents

Foley & Lardner LLP

On August 24, 2015, the Patent Trial and Appeal Board (PTAB) declined institution of two petitions filed by Coalition For Affordable Drugs for Inter Partes Reviews (IPRs) of Acorda’s patents (U.S. Patent Nos: 8,007,826, 8,663,685) covering Ampyra, a billion-dollar drug for treating multiple sclerosis.

Coalition For Affordable Drugs – Petitioner

The Petitioner, Coalition For Affordable Drugs, is a wholly owned subsidiary of a hedge fund managed by Kyle Bass, which appears to have little to do with the life science and drug industry other than filing IPR petitions against patents owned by pharmaceutical and biotechnology companies.

Kyle Bass, A Hedge Fund Manager

The original petition was filed against Acorda on February 10, 2015. The day after the filing, a New York Times article commented on Kyle Bass and his new investment strategy using IPR as a tool, stating that “Kyle Bass, a hedge fund manager who bet successfully on a housing market crash in the United States, is aiming at pharmaceutical companies worth of a combined $450 billion in market capitalization.” The New York Times further commented that “Mr. Bass, based in Dallas, has already drawn blood. Acorda Therapeutics stock fell almost 10 percent on news of his challenge on Tuesday. The biotech company, with a $1.5 billion market capitalization, gets nearly all its revenue from Ampyra, a treatment for multiple sclerosis. If cut-price competition emerges sooner than expected, the company would be hurt badly.”

Kyle Bass’ Publicized IPR Strategy

During a speech at a conference, Kyle Bass candidly discussed his new IPR strategy of challenging some of the biggest drug makers in the country. Bass bluntly stated that his IPR strategy served to grow his hedge funds by shorting the stock of the targeted pharmaceutical and biotechnology companies, which would also open the door for generic companies to introduce comparable drugs at a lower and more affordable price to the public. To date, entities associated with Kyle Bass, such as Coalition For Affordable Drugs, have filed at least 15 petitions for IPRs against patents owned by at least 8 publicly treated pharmaceutical and biotechnology companies (for a full listing, see “Will New PTAB Rules Impact IPRs Filed By Kyle Bass Hedge Fund?”).

PTAB Decision Based On Public Accessibility

The PTAB’s decisions to deny the institution of IPRs against Acorda’s patents may come as a surprise to many because they were based on the lack of evidence establishing public accessibility of two posters that Coalition For Affordable Drugs alleged as prior art, rather than being based on an “improper purpose” or failure to identify “Real Parties-in-Interest” as the Patent Owner had argued in its preliminary response. The Board held simply that Coalition For Affordable Drugs failed to present sufficient evidence to qualify the posters as printed publications or prior art under 35 U.S.C. § 102(b).

Both posters were submitted in Information Disclosure Statements during prosecution of the Acorda’s patents. The Board held that “the submission of an IDS does not constitute an admission that a cited reference is material prior art,” especially because the IDSs “state expressly that ‘[i]dentification of the listed references is not meant to be construed as an admission of Applicants or Attorneys for Applicants that such references are available as ‘prior art’ against the subject application.’”

Relying on a four-part test from In re Klopfenstein (“[1] the length of time the display was exhibited, [2] the expertise of the target audience, [3] the existence (or lack thereof) of reasonable expectations that the material displayed would not be copied, and [4] the simplicity or ease with which the material displayed could have been copied”), 380 F.3d 1345, 1350, the Board stated that “determination of whether a reference is a ‘printed publication’ involves a case-by-case inquiry into the facts and circumstances surrounding the reference’s disclosure to members of the public,” and held that the involved posters were presented, but not distributed or indexed, so they could not constitute “printed publications.”

The failure of the Acorda petitions to include sufficient evidence of public accessibility for the particular cited prior art is a common defect that has led to denial of many IPR petitions. See, e.g., IPR2015-00369, IPR2014-01457, IPR2015-00146, and IPR2014-00186.

The Impact Of The PTAB’s Decisions

Congress stated that an IPR petitioner can be any party other than the patent owner who has not brought a civil suit challenging the validity of the patent. The PTAB did not address whether these particular petitions should be denied on discretionary grounds based on an improper purpose. Although round 1 of the hedge fund attack on biotech/pharma patents goes to the patent owners, it remains to be seen how the PTAB will handle the remaining petitions filed by this petitioner and other similar types of petitioners.

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Foley & Lardner LLP

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