Amendments to House Bill Would Ban Kyle Bass's Patent Review Strategy

Jun 10 2015 | 11:52am ET

Kyle Bass’s novel use of a patent review process to seek invalidation of intellectual property protection on several blockbuster pharmaceutical drugs has come under fire on Capitol Hill.

The House Judiciary Committee will consider revisions to a pending bill, designed primarily to combat so-called patent trolls, that require any party seeking an inter partes review (IPR) of an existing patent to certify that it does not have any financial interest in a drop in the patent owner’s securities.

In effect, the insertion bars hedge funds like Bass’s $2 billion Hayman Capital Management from taking short positions in pharmaceutical stocks and then challenging their patents.

Bass has filed at least 14 such challenges so far, including on Celgene’s drug Revlimid, Acorda's Ampyra, Horizon’s Vimovo and Biogen’s drug Ampyra. In each case, the drugs in question account for a significant percentage, if not the majority, of annual revenue for the company that owns it. 

His strategy relies on IPR petitions with the U.S. Patent and Trademark office, a mechanism originally created as part of the 2012 America Invents Act (AIA), on the grounds that certain patents granted to pharmaceutical companies allegedly relied on previously known technology and/or minor modifications to such things as dosage and packaging, and thus did not deserve to be protected as intellectual property.

Such questionable patents, according to Bass, have limited competition and kept drug prices grossly inflated for much longer than necessary.

For instance, Bass’s recent challenge against Horizon Pharmacueticals’ arthritis drug Vimovo points out that the active ingredients in the $50-per-day treatment are merely the combination of two generic drugs – a pain reliever and an acid inhibitor – that are already widely available at low cost.

Yet because of the patent protection, Bass contends, Horizon is able to charge 66 times more for Vimovo than the sum of its two components.

The tactic has justifiably alarmed the pharmaceutical industry, which has described Bass’s approach as “abusive”. Accordingly, House of Representatives Judiciary Committee Chairman Bob Goodlatte, R-VA, has introduced the amendments to the Innovation Act of 2015, legislation aimed at further reforming the patent litigation process. If passed, the resulting bill would head to the full House of Representatives for a vote.

The clout of the pharmaceutical industry in the halls of Congress is significant. It is far and away the top spender when it comes to dollars spent in Washington D.C., dropping $230 million on lobbying in 2014, according to the non-profit Center for Responsive Politics, up slightly from the $228 million it showered on Congress in 2013. So far in 2015, the industry has spent $65.8 million on lobbying efforts. 

Ironically, the pharma industry was a major supporter of the AIA that created the IPR process that Bass is now utilizing to challenge their key patents. Post-grant administrative challenges such as those envisioned by the AIA have become popular, and upward of 75% of such reviews result in patent invalidation, according to industry observer IP Watchdog. 

Goodlatte's amendments, which essentially protect the pharmaceutical industry from the very review process it previously supported, have thus come under criticism by opponents as an example of crony capitalism at its worst.

The House Judiciary Committee will consider the amended Innovation Act on Thursday.

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