No surrender, industry signals to 'reverse patent trolls'
By Mari Serebrov
While lawmakers debate how to correct the unintended consequences of the America Invents Act, more drug- and device-makers risk being held up by reverse patent trolls threatening to challenge their patents through the Patent and Trademark Office's inter partes review (IPR) process.
Limited to prior art challenges, the IPR is a faster, cheaper alternative to litigating patents. And for now, at least, it's open to all comers – including those who want to manipulate the market for their own gain.
But when confronted by a reverse patent troll, life sciences companies are refusing to throw their hands in the air and wait for Congress to come to the rescue. Celgene Corp. recently got the go-ahead from the Patent Trial and Appeals Board (PTAB) to ask for sanctions against the Coalition for Affordable Drugs for the misuse and abuse of the IPR process.
The coalition, affiliated with hedge fund manager Kyle Bass, has filed four IPR petitions against two patents relating to Celgene's Thalomid (thalidomide). Bass has been described as a "reverse patent troll" for allegedly trying to exploit the IPR to short-sell the stocks of targeted drug companies. (See BioWorld Today, May 21, 2015.)
In its emailed request to PTAB for permission to file a sanctions motion, Celgene said the petitioner initially threatened to file IPRs against the patents unless the company met its demands. When the Summit, N.J.-based drugmaker refused to pay, the IPR petitions were filed.
"The identified real parties in interest . . . in these proceedings have stated publicly that they intend to use the IPR process for the purpose of affecting the value of public companies," Celgene told PTAB. "This is not the purpose for which the IPR process was designed."
The coalition's first target, Acorda Therapeutics Inc., is fighting back through its preliminary response to the group's IPR petition challenging two patents for Ampyra (dalfampridine), Cary Miller, a partner with Morrison & Foerster LLP, told BioWorld Today.
The Ardsley, N.Y.-based company told PTAB the coalition's petitions should be denied because they failed to name all affected real parties in interest, adding that "allowing hedge funds to use the IPR process to manipulate financial markets is inconsistent with congressional intent."
When word first spread of the coalition's IPR petition in February, Acorda shares (NASDAQ:ACOR) lost about 10 percent, even though its multiple sclerosis drug is protected by three other Orange Book-listed patents. PTAB has until mid-August to determine whether to even accept the Ampyra challenge. (See BioWorld Today, Feb. 13, 2015.)
Allergan Inc., of Dublin, is employing a third strategy in its fight against what it considers an IPR shakedown. In addition to responding to Ferrum Ferro Capital's IPR challenge to its glaucoma drug Combigan (brimonidine and timolol), Allergan is suing the privately held venture fund for extortion, according to Umer Raffat, an Evercore ISI senior analyst.
One of the reasons the mere filing of an IPR petition can wreak so much damage is that the "likelihood of a petitioner prevailing in an IPR is extremely high," Steven Weisburd, a partner with Arent Fox LLP, told BioWorld Today, adding that some describe the process as a "patent-killing machine." (See Medical Device Daily, June 26, 2015.)
With the total number of patents invalidated through the IPR process rumored to be higher than 80 percent, Weisburd said, "the bottom line is if you can get the patent office to accept your petition, you have a very high likelihood" of winning.
Whether those numbers hold for life sciences has yet to be seen. Since the IPR process became available in 2012, there have been few decisions involving drug or device patents, Miller said. If PTAB accepts the coalition's petitions, that could all change.
What the future holds depends on how narrowly PTAB interprets "real parties-in-interest" and whether Congress does anything to restrict the use of the IPR process, Miller said.
Lawmakers have committed to working with the life sciences industry on tweaks to patent reform bills awaiting action in both the House and Senate. A House committee this month sent the Innovation Act to the House floor with a "do-pass" recommendation. The bill would require IPR petitioners to certify that they "do not own and will not acquire a financial instrument . . . that is designed to hedge or offset any decrease in the market value of an equity security of the patent owner or an affiliate of the patent owner." (See BioWorld Today, June 12, 2015.)
A week earlier, the Senate Judiciary Committee approved its own reform bill, the PATENT Act, which includes placeholder language to protect life sciences companies from IPR abuses. The IPR must remain a legitimate process, but Congress must stop bad actors from using it to undermine the Hatch-Waxman Act, Sen. Orrin Hatch (R-Utah) said during the markup session. (See BioWorld Today, June 5, 2015.)
Even though some hedge funds and venture capitalists are using the IPR process in an attempt to manipulate the market, the proposed legislation doesn't look to the SEC as part of the solution. When asked if such actions would violate current rules, the SEC declined to comment.
Despite the presence of reverse patent trolls, the IPR route may become more popular for device-makers and biosimilar sponsors. While Hatch-Waxman offers an incentive for generic drugmakers to pursue patent challenges in court, those incentives don't exist for biosimilars, devices and diagnostics. Thus, a cheaper, more streamlined road to challenge a life sciences patent could catch on.
Just last week, Amgen Inc. filed an IPR petition on a formulation patent protecting Abbvie Inc.'s blockbuster biologic Humira (adalimumab). Amgen is one of several companies developing Humira biosimilars. If allowed to stand, the patent, which was issued last November, could delay the launch of those biosimilars for several years.
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