By: Jeffrey Kuo and Afia Naaz
Edited by: Margaux Savee
Who is Kyle Bass?
Kyle Bass is a hedge fund manager who developed a strategy to attack pharmaceutical companies and their patents. Bass, through various entities and more recently in his own name, files and publicizes the filings of Inter Partes Reviews (IPRs), challenging the patentability of a pharmaceutical patent in the United States Patent and Trademark Office (USPTO). At the same time, Bass would bet that the threat of invalidation of the patent would cause the company’s stock price to drop; he would short sell the company’s stock or invest in other companies that would benefit if the patents deemed unpatentable. He calls this an “activist short strategy.” So far, Bass and his affiliates have filed 36 IPRs against 16 different pharmaceutical companies.
Why is Bass Doing This?
Bass claims that pharmaceutical companies exploit the patent system, utilizing the 20 year exclusivity provided by the patent to inflate drug prices. As such, Bass sets out to attack pharmaceutical companies with “BS patents,” believing that either invalidation of the patent - or the drop in stock prices through the threat of invalidation - will lead to lower drug prices.
What are IPRs and Why is Bass Filing Them?
Inter Partes Review (IPR) is a trial proceeding to review the patentability of one or more claims in a patent. IPRs were instituted by the America Invents Act to provide a quicker and cheaper alternative to litigation in the courts. IPRs are conducted in the USPTO and decided upon by the Patent Trial and Appeal Board (PTAB), where a decision whether to institute the IPR is usually made around six (6) months after filing. If instituted and not dismissed, a final decision by the PTAB will issue within 12 months after institution. The entire process, from filing to final decision for an IPR, is about 18 months. Bass is able to utilize the IPR proceedings to challenge the pharmaceutical patents while avoiding the lengthy and costly path through district court litigation.
What is the Status of the Kyle Bass IPRs?
At this time, 35 of the 36 filed IPRs have reached a final written decision. A final written decision for the remaining pending IPR is expected in June 2017. The Kyle Bass IPR stats are as follows:
- 42% - Denied institution
- 26% - Unpatentable
- 26% - Patentable
- 6% - Patent Owner abandoned the contest
Why Does This Matter?
Patents are pivotal to the success of a pharmaceutical company, and Kyle Bass is on the forefront of attacking pharmaceutical patents by utilizing the quicker and cheaper alternative to litigation. While Bass’ true goals and the ethics of his strategy may be debated, the PTAB has ruled against sanctions for his methods. However, about 68% (42% denied institution, 26% patentable) of his attempts to invalidate a pharmaceutical patent have been thwarted. By understanding the process of IPR proceedings, educating the investors, and having knowledgeable counsel to combat the attacks, the effects of a “Kyle Bass IPR” can be mitigated.
 Coalition For Affordable Drugs VI, LLC, v. Celgene Corp., IPR2015-01092, IPR2015-01096, IPR2015-01102, IPR2015-01103, IPR2015-01169, Decision: Denying Sanctions Motion 37 C.F.R. § 42.12, PTAB, September 25, 2015.