Bass Escapes Sanctions in Celgene IPR

In a decision issued on September 25, 2015, the Patent Trial and Appeal Board denied Celgene Corporation’s request to sanction the Coalition for Affordable Drugs run by hedge fund manager Kyle Bass for abusing the inter partes review process as a way to manipulate the stock price of Celgene and profit by short selling the stock. (IPR2015-01092, Paper No. 19; IPR2015-01096, Paper No. 20; IPR2015-01102, Paper No. 20; IPR2015-01103, Paper No. 21; and IPR2015-01169, Paper No. 21.)

Celgene, against which Bass filed five IPRs, filed a motion for sanctions alleging abuse of process. Celgene argued that the IPR filings by Bass are a part of an investment strategy intended to hurt Celgene’s stock prices and profit by short selling its stocks.  According to Celgene, CFAD has no technical and competitive interest in the validity of the challenged patents and serves as a dummy front for manipulating stock prices.  (http://www.aiablog.com/post-grant-proceedings/celgene-submits-briefing-on-showing-abuse-of-ipr-proceedings/)

CFAD’s response admitted that its IPRs are a part of its investment strategy; nonetheless, CFAD argued that it will only succeed by invalidating patents and by doing so would serve a socially valuable purpose of reducing drug prices.

In requesting further briefing, the Board instructed the parties to address the elements that were required to establish abuse of process, present evidence of intent that supports or undercuts the allegation of abuse of process, and the standard that applies when deciding the motion for sanctions. (IPR2015-01092, Paper No. 5.)

In deciding against Celgene, the Board held Congress did not limit inter partes review proceedings to parties having a competitive interest in the patent.  According to the Board, “Congress intended inter partes reviews to allow parties to challenge a granted patent as an expeditious and less costly alternative to litigation . . . [and] the AIA sought to establish a more efficient and streamlined patent system that improved patent quality, while at the same time limiting unnecessary and counterproductive litigation costs.”

The Board noted that Celgene did not allege that the IPRs filed by CFAD present a non-meritorious patentability challenge and, according to the Board, an economic interest in the outcome of the proceedings does not by itself raise abuse of process issues.  The Board further stated that “profit is at the heart of nearly every patent and nearly every inter partes review.”  The Board declined to take any position of the merits of short-selling as an investment strategy.