Bass Opposes Sanctions and Defends His Actions at the PTAB

Written by Tasha Francis.

On July 28, 2015, Celgene filed a motion for sanctions in IPR Nos. 2015-01092 and 2015-01103, proceedings challenging the validity of Celgene patents covering Thalomid®, Revlimid® and Pomalyst®. Celgene specifically requested dismissal of the IPR petitions filed by hedge-fund manager Kyle Bass and the Coalition for Affordable Drugs (CFAD). According to Celgene, the Bass petitions are an abuse of the IPR process because Bass filed the petitions as part of a strategy to profit from the affect the petitions would have on Celgene's stock prices. Celgene further alleged one or more of the real parties in interest (RPI) threatened to file IPRs against the challenged patents unless Celgene met their demands. When Celgene did not pay, the RPIs filed the present petitions. Last night, Bass filed its opposition to Celgene's motion for sanctions.

In his brief, Bass embraces Celgene's accusation that Bass's motives "are not entirely 'altruistic'" and states "[t]hat is a truthful irrelevancy." IPR 2015-01103, Paper 14 at 2. Bass argues that having an economic motive for petitioning the government does not turn the petition into an abuse of process. In fact, "at the heart of nearly every patent and nearly every IPR, the motivation is profit." Id. at 1. For example, Celgene profits from its patent on the order of $580 per pill, creating in excess of $200,000 per patient per year. Id. at 2. Bass notes Celgene doesn't give Revlimid or its profits away. Id.

Reframing the issue, Bass argues there is a public interest in challenging invalid patents specifically, a "socially valuable purpose of reducing drug prices artificially priced above the socially optimum level." Id. at 2. Bass estimates the costs arising from improperly granted patents over the next twenty years is estimated to be $73-$220 billion. Id. at 5. Bass notes the cost to challenge pharma patents is high, and "there are a limited number of entities capable of making that financial commitment." Id. at 1. The "CFAD anticipates that fees and costs to complete an IPR for a single drug is approximately $1 million dollars." Id.

Bass asserts "[i]t should be axiomatic that people do not undertake socially valuable activity for free not Celgene, not generics, not shareholders and not investment funds." Id. at 2. And instead of sanctioning Bass's activities, Bass suggests "CFAD's activities should be encouraged" because generic competition is not effective at policing brand ever-greening strategies. Id. at 4. For example, despite Celgene first asserting its patents covering Thalomid®, Revlimid® and Pomalyst® nearly nine years ago- "no court has ever reached a decision on the merits of the validity" of the patents. Id. at 3-4.

Bass then directly addresses Celgene's arguments. First, Bass states that Celgene's motion didn't present any material facts- rather it only presented press gossip and attorney argument, which included "name-calling." Id. at 5, 6. Bass highlights the fact that Celgene presented no evidence establishing the RPI ever demanded payment. Id. at 5. Bass states there is nothing illegal about the filing of IPR petitions to make a profit. Id. at 6. In support, Bass presents a declaration of a finance professor and short selling expert, Dr. Wu that "establishes that short selling is common, legal, and regulated." Id.

Bass argues his IPR petitions are proper under the AIA statute which states "a person who is not the owner of a patent may file" IPR petitions. Id. at 7. Bass dismisses Celgene's cites to the AIA legislative history as either irrelevant as they relate to the Patent Reform Act of 2007 or processes that did not involve IPR proceedings. Instead, Bass argues "Congress created the IPR process to vanquish low quality patents and improve quality." Id. at 8. In support, Bass cites "[a] long line of Supreme Court cases" to establish that "federal patent policy errs on the side of more patent validity challenges" citing cases such as Edward Katzinger Co. v. Chicago Metallic Mfg. and Lear v. Adkins. Id. at 9.

Bass asserts there cannot be abuse of process until after institution of the IPR. Under Bass' construction, "[a]buse of process has two elements: (1) the existence of an ulterior motive; and (2) an act in the use of process other than such as would be proper in the regular prosecution of the charge." Id. at 11 (internal quotes omitted). Notably, this is a narrower definition for "abuse of process" than proffered by Celgene (which occurs when a party uses the process "to achieve a goal for which the process was not designed" IPR2015-01103, Paper 13 at 10). Bass argues Celgene cannot meet this test because so far, the only process used is the filing of petitions. Bass argues under the Noerr-Pennington doctrine, individuals who petition the government for redress of grievances are immune from liability from such activity under the First Amendment, and Celgene has failed to show that Bass' petitions fall under the exception to this rule. In other words, Celgene presented no evidence that the petitions are objectively or subjectively baseless. Id. at 13.

Bass concludes by arguing that the Board lacks authority to dismiss the petitions prior to institution. 35 U.S.C. 316 empowers the PTO to prescribe sanctions for abuse of discovery, abuse of process or any other abuse of proceeding. The AIA differentiates between petitions for proceedings and acts of instituting a proceeding. Thus the PTO only has authority to prescribe sanctions related to post-institution conduct. Because there has been no institution decision, Bass asserts the Board lacks authority to dismiss. "A dismissal sanction would amount to an impermissible substantive rule that changes existing law governing an individual's standing to file an IPR petition." Id. at 15.

Celgene's reply to Bass' opposition to the sanctions motion is due Tuesday, August 18th.