The PTAB recently revisited Patent Owners’ requests to file motions for sanctions against the Petitioner, Coalition for Affordable Drugs (“CFAD”). The CFAD was started in conjunction with hedge fund manager Kyle Bass, who has been accused of filing IPRs in order to manipulate company stock price for his hedge fund’s monetary gain. Recently, in Coalition for Affordable Drugs v Celgene Corp. (IPR2015-01169), the PTAB authorized Celgene to file a Petition for Abuse of Process against CFAD. The Board ordered that the parties brief (1) the elements required to establish an abuse of process; (2) any evidence of intent that supports or undercuts the allegation of abuse of process in these cases; and (3) the standard of proof that applies when deciding a motion for sanctions. Discussed in previous blog posts: Is the Coalition for Affordable Drugs Abusing the IPR Process?
Briefs were filed on Sept. 2 by CFAD in the Celgene case, with CFAD asserting that there is no abuse of process as monetary gain underlies the pursuit of nearly every patent and patent challenge, and what CFAD is doing is not prohibited because short-selling stock is not illegal. CFAD also claimed that its actions benefit the public by trying to knock out patents that are a barrier to entry of generic, cheaper drugs.
However on September 1, in Coalition for Affordable Drugs v NPS Pharmaceuticals (IPR2015-00990; IPR2015-01093) in which the Patent Owner also was authorized to file a motion for sanctions against CFAD, the PTAB ordered that the parties provide further briefing on whether the Petition should be dismissed for abuse of process, addressing the following four new questions: 1) the standing requirement for challenging the validity of that patent in an inter partes review under 35 U.S.C. § 311(a); 2) to what extent, if any, the business objective or intent of the Petitioner should be considered in reaching a determination of abuse of process; 3) the intent of Congress to provide an alternative to litigation and to provide a mechanism to increase patent quality by allowing expedited administrative patent challenges; and 4) the resulting social costs/benefits associated with a decision to address the merits of the Petitions versus a decision to dismiss the Petitions for abuse of process without reaching the merits of the Petitions.
- With respect to standing, 35 U.S.C. § 311(a) states that any person may file an IPR unless they are within the few noted exceptions. Interestingly, the standing rules for IPR omit the requirement that to file an IPR the Petitioner must have been sued for or been charged with infringement, which is explicitly stated in the statute relating to Covered Business Method Challenge. Thus, the question becomes was it the intent of the lawmakers to let anyone file a petition, regardless of their real “interest” in the proceedings or was this somehow an oversight by the lawmakers?
- With respect to motive and intent, in its Celgene brief, CFAD makes the point that all parties in a patent challenge are generally motivated by monetary gain, so motive may often be guided by profit in any IPR filed. Consider the rules of conduct before the PTO set out in 37 CFR 11.18(b)(2) which states that “to the best of the party’s knowledge … the paper is not being filed to harass someone or to cause …needless increase in cost of any proceeding before the Office. These requirements are similar to those set out in 35 U.S.C. 316(a)(6) relating to the code of conduct in IPR proceedings. How a party proves up legitimate intent from the intent to harass behind the filing of an IPR seems to be up to the PTAB, or potentially for the Federal Circuit, to decide.
- With respect to alternatives to litigation, there is a long history of opening up the patent system to challenge by third parties, however, what the alternatives to litigation were meant to be and who they were meant to be open too must still be considered. The standing requirements in litigation and other alternative proceedings are stricter than those of the IPR. Coupled with a lower standard for proving invalidity than in litigation, the open IPR system seems to be having the unintended consequences of tipping the scales in favor of Petitioners. Will the proposed new rules fix the loop hole in the IPR system to make the RPI requirements more in line with that in CBM or in other PTO proceedings? Probably not. The proposed new rules for IPR are currently being discussed, and a new provision states that Petitioners will have to certify that their Petition is “not being presented for any improper purpose.” How this is really any different than the current rules is unclear, as these requirements are already within the applicable statutes. A petitioner such as CFAD would likely hold to their mantra that they are filing the Petition to eliminate an invalid patent and reduce drug prices, so this proposed rule change would simply be a matter of form over function.
- With respect to the costs/benefits of assessing the Petition on its merits rather than dismissing for abuse of process prior to institution, it has been noted that the authority lies with the PTO to apply sanctions for abuse of process and improper use of the IPR proceeding (35 USC 316(a)(6)), and that this authority originally referred to post-institution conduct and not conduct prior to institution (Intellectual Ventures II LLC v. JPMorgan Chase & Co., 781 F.3d 1372, 1376 (Fed. Cir. 2015). It may be that if the IPR Petition is not deemed to be frivolous, and an actual question of validity is raised, the IPR Petition will be examined on the merits for institution, and any sanctions for abuse of process may be applied in a different form rather than dismissing the Petition altogether.
As the PTAB assesses pending motions for sanctions, and potentially additional motions for sanctions filed against CFAD, these questions about alleged abuse of process will likely be decided by the PTAB soon.