Bass Loses First IPR Case As PTO Rejects Acorda Therapeutics IPR Challenge

Aug 24 2015 | 7:37pm ET

The efforts of U.S. hedge fund manager Kyle Bass to utilize the patent review process as a way to challenge pharmaceutical company patents have been dealt a blow. 

The U.S. Patent and Trademark office has rejected the petition challenging two Acorda Therapeutics patents on the company’s Ampyra multiple sclerosis drug. The PTO determined that Bass, whose Coalition for Affordable Drugs filed the challenge, did not present enough evidence to warrant review of the patents. 

Bass, founder of Dallas-based Hayman Capital Management, argued that the Ampyra patents merely protected a combination of known science around the drug’s active ingredient and such things as dosage, and did not warrant protection as intellectual property.

Acorda, for its part, countered that MS is a complex disease with wide and variable differences between patients in terms of impact, symptoms and the like, meaning arrival at a single dosage was a difficult process. “We’re extremely gratified by the patent office’s decision denying institution,” said Gerald Flattmann of Paul Hastings in New York, who represented Acorda in the proceedings. “It further validates the strength of Acorda patent portfolio protecting Ampyra.”

The decision cannot be appealed.

The Coalition has filed more than 20 so-called IPR challenges since February, targeting drugs where Bass and his colleagues believe patents have been awarded on meager grounds. For instance, Bass filed an IPR challenge against Horizon Pharmaceuticals’ patent on arthritis drug Vimovo in May, arguing that the drug merely combines a generic pain reliever with a generic acid inhibitor, yet due to patent protection that prohibits generic competition, costs 66 times more than its component parts.

Such abuse of intellectual property protections, according to Bass, is a contributing factor to sky-high drug costs in the United States. 

The IPR process became available in 2012 as part of the American Invents Act. It was an attempt to discourage expensive patent-related litigation filed by non-practicing entities, otherwise known colloquially as patent trolls. However, in the event, it has created what some have termed a mirror image of the very problem it was trying to solve, generating an reverse incentive for non-operating entities to seek invalidation the intellectual property of operating companies based on the argument that prior art existed.

Bass’s motivations have come under some strong debate. He is widely considered to have shorted the shares of the drug companies whose patents he has challenged. In many cases, those patents are on drugs that make up the vast majority of the company’s annual revenue, meaning winning an IPR challenge would decimate the shares of the firm and generate significant profits on a short position. 

The strategy has some merit, at least from a trading perspective. On the day the first Ampyra challenge was announced, Acorda’s stock fell more than 9%. 

In response, the drug industry, which has the second-largest lobbying effort in Washington DC, has recently pushed for legislation that would ban third-party IPR reviews undertaken purely for financial gain. Allowing third parties such as hedge funds the ability to use the IPR process to generate price volatility, goes the drug industry argument, was not consistent with Congressional intent in creating the law in the first place. 

Bass has characterized the allegations of his hedge fund’s short interest in the stocks he has targeted as a “truthful irrelevancy,” suggesting that whether he is short a company’s stock or not, a patent awarded erroneously should be canceled. 

The PTO’s decision was specific to the Ampyra challenges. It did not address Bass’s overall strategy or any of the other IPR challenges in its decision. 

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