New patent buster on the block
Hedge fund rattles US pharma by challenging bad patents to bring down prices and make profits for itself
Kis upsetting big pharma in a big way. YLE BASS It is this Dallas-based hedge fund manager,much more than smart generic drug makers, who is unsettling the US pharma industry by challenging their patents. He has even formed an organisation, the Coalition for Affordable Drugs (cad),to bring down prices of drugs. At least that is the reason he gives for challenging over a dozen patents on a wide range of drugs in the US.
Since the beginning of 2015, Bass has made (business) headlines for targeting companies that appear to have bad patents by filing a series of iprs, or Inter Partes Reviews, at the US Patent Office (uspto).The ipr is like the post-grant opposition to patents, but is a limited process that was introduced just three years ago in the US. Although anyone can challenge a bad patent by showing that it shouldn’t have been granted in the first place because of prior art—this means something already existing and known—very few challenges get past the first hurdle.The Patent Trial and Appeal Board (ptab) only takes up the ipr if it decides “there is a reasonable likelihood” that the grounds cited will invalidate the patent claims.In India,the appellate board of the Patent Office does not set the bar so high but examines every patent challenge without pre-deciding the outcome.
Kyle Bass is flamboyant and controversial.He is head of Hayman Capital Management LP,which correctly predicted the 2008 subprime mortgage crisis and made a fortune by betting on the housing bust.While Bass is targeting companies with spurious patents that he maintains have no value except to push up prescription drug prices, it is also true that his fund shorts such companies.In market parlance “shorting stocks” is to profit from wagering on their decline.
Bass has even set up a separate pharmacy vehicle within his fund to push this “short activist strategy”. His defence is that it will help end the unethical “pay for delay” practice of drug manufacturers to keep less costly generics out of the market,and ultimately change the way pharma companies view patents.
For the moment, all that Bass has done is to stir up rage and a huge counter campaign. At least one website appears to have been set up to discredit him and he has been attacked among other things for his business links with “the corrupt, incompetent Marxist regime” of Argentinean President Cristina de Kirchner, as Wall Street portrays it. One of the companies he has targeted, Celgene Corporation, which makes therapies for cancer and inflammatory disorders,has got ptab to consider a motion to sanction cad for what it claims is abuse of the ipr process for filing petitions with a profit motive.
To which, cad has responded tartly. Calling it a curious argument, the Bass organisation says that at the heart of nearly every patent and nearly every ipr, is the profit motive. After all, Celgene acquires patents only to profit from the higher drug prices that patents ensure. So, too, generic companies which challenge patents only to profit from sales of generic drugs. cad also cited the US Supreme Court’s observations to show that Celgene was way off the mark. The court had found that it is in public interest for economically motivated actors to challenge patents.
Patent law analysts point out the pharma industry is using Bass to undermine the ipr process which is a useful tool for invalidating bad patents. As for abuse of the process,they say the rules are so restrictive that only a very tiny percentage of the total patents are challenged through the ipr route. And of these, barely a quarter succeed. So, whether Bass is in it for himself or not,what is happening is all to the good.
TARIQUE AZIZ / CSE