(FROM THE WALL STREET JOURNAL 6/26/15)
By Ed Silverman
One of the world's largest biotech companies is fishing for bass
-- Kyle Bass.
In response to a patent challenge filed by the hedge-fund
manager, Celgene Corp. recently won permission from the U.S. Patent
and Trademark Office to file a motion seeking sanctions against a
Bass entity for allegedly abusing the process for reviewing
patents.
Although Celgene hasn't yet filed a motion, the development is
being closely watched because it raises the possibility that patent
officials may put an end to a tactic Mr. Bass has used to challenge
valuable patents held by drug makers.
Several times over the past few months, his Coalition for
Affordable Drugs sought to invalidate patents by arguing they don't
represent an innovation and, instead, are designed to thwart
competition. By challenging the patents, Mr. Bass contends rival
drugs would emerge faster and prices would drop.
His filings have been part of a wave of challenges that emerged
following a provision in the America Invents Act that went into
effect in September 2012. Known as Inter Partes Review, the law
makes it easier and faster to file a patent challenge.
But critics say Mr. Bass, who heads Hayman Capital Management
LP, has an ulterior motive: betting against, or shorting, the
shares of drug makers and biotechs whose patents he maintains are
spurious. And the tactic has angered companies, which claim Mr.
Bass is abusing the patent system.
"The companies are concerned that he drives down the stock
quickly, and then makes his money buying [the shares] on the way
back up," says Matthew Cutler, an attorney at Harness Dickey, who
specializes in intellectual property. "This isn't the way they
thought the law would be used."
Celgene attorneys made this point in a June 3 email to the
patent office. But there was more. They also alleged that Mr.
Bass's coalition threatened to challenge Celgene patents "unless
Celgene met their demands." Those demands weren't specified, but
the email states that "when Celgene did not pay," the patent
challenges were filed, according to the patent office order, which
cited the email.
In response, Hayman sent a statement saying the coalition is
seeking a "merit-based review" of Celgene patents and charged that
the biotech is "resorting to desperate procedural tactics. If
Celgene had any confidence in the strength of their patents, they
would welcome the opportunity to publicly defend their
government-issued monopoly instead of obfuscating the issue."
As for Celgene, a spokesman declined to comment on the specifics
of the case or when a motion for sanctions may be filed. But he did
write that the biotech "believes in the strength of its
intellectual property, and will continue to vigorously defend its
patents."
Of course, it remains to be seen whether the patent office would
sanction Mr. Bass and dismiss his patent challenge. But if that
happens, it could create a precedent for other companies trying to
fend off his filings.
"If the patent board found that filing a [challenge] to
influence a company's stock price constituted abuse of process,"
says attorney Matthew Kreeger, an intellectual property specialist
at law firm Morrison Foerster LLP, "that could put an end to the
Kyle Bass strategy."
And that would be a big catch.
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