Kyle Bass’s Response to Motions about Abuse of IPR in IPR2015-01092 

The response in Coalition for Affordable Drugs v. Celgene (IPR2015-01092) is here.

Here’s the introduction:

Celgene’s motion is littered with references to the Petitioner’s and Real Parties-in-Interest’s (collectively, “CFAD”) “admitted profit motive,” and makes the curious argument that filing IPR petitions with a profit motive constitutes an “abuse of process.” Yet at the heart of nearly every patent and nearly every IPR, the motivation is profit. Celgene files for and acquires patents to profit from the higher drug prices that patents enable. Generic pharmaceutical companies challenge patents to profit from generic sales. Celgene’s argument is in conflict with Supreme Court precedent expressly finding it in the public’s interest for economically motivated actors to challenge patents. See Lear v. Adkins, 395 U.S. 653, 670 (1969) (holding public interest requires permitting licensees to challenge validity because they “may often be the only individuals with enough economic incentive to challenge the patentability” and “[i]f they are muzzled, the public may continually be required to pay tribute to would-be monopolists”). Having an economic motive for petitioning the government simply does not turn the petition into an abuse of process.

CFAD anticipates that fees and costs to complete an IPR for a single drug is approximately $1 million dollars. There are a limited number of entities capable of making that financial commitment. And fewer can make such a commitment without the prospect of profiting from their efforts. The fact is CFAD’s motivations do not change the social value of its activities. Poor quality patents enable pharmaceutical companies to maintain artificially high drug prices and reap unjust monopoly profits paid for by consumers and taxpayers.

Celgene accuses CFAD of motives that are not entirely “altruistic.” That is a truthful irrelevancy. The U.S. economy is based largely on the notion that individual self-interest, properly directed, benefits society writ large. Celgene’s motive is to profit from consumers and taxpayers from drug sales. Celgene’s patent-conferred monopoly results in Revlimid prices that exceed $580 per pill—creating costs in excess of $200,000 per patient year. (See Exs. 1021-23, showing prices for three Celgene drugs protected by challenged patents.) Revlimid sales were nearly $5 billion in 2014. Celgene is not giving Revlimid or its profits away.

CFAD’s IPRs are part of its investment strategy, and it will only succeed by invalidating patents, which would serve the socially valuable purpose of reducing drug prices artificially priced above the socially optimum level. And even if, despite its best efforts, it does not profit—each petition that knocks down a barrier to generic entry benefits the public. It should be axiomatic that people do not undertake socially valuable activity for free—not Celgene, not generics, not shareholders, and not investment funds. Low drug prices will not simply materialize. They must be brought about by agents who will invest significant capital and do the hard work of identifying and challenging weak patents. Generics sometimes serve this function. But the law does not render it “abuse” for others, including CFAD, to also play this important societal role.

About David

Professor of Law, Mercer University School of Law. Of Counsel, Taylor English Duma, LLP. Former judicial clerk to Chief Judge Rader; former lawyer with Baker Botts and other firms

4 thoughts on “Kyle Bass’s Response to Motions about Abuse of IPR in IPR2015-01092 

  1. 1

    This seems to be just another branch of the battle of whether short selling should be allowed in general. A lot of people, especially current shareholders of companies and CEOs, hate that short selling is a thing. However, there is a non-trivial argument that short selling keeps the market price of shares honest. I think this round goes to CFAD.

    1. 1.1

      MANY of the so-called “another branch of the battle” are like like, OSitA.

      Many things are – in substantial error – portrayed as “patent problems” when the “problem” (if any) is entirely something else:

      – court proceedings
      – corporate law (formation)
      – contracts (and leases)

      I have no doubt that this round goes to CAFD – the better discussion would be as to “why”….

      1. 1.1.1

        Sounds like we might agree on something…?

        I think the two issues a) are IPRs are “good” thing? and b) is short selling a “good” thing? are separate issues.

        If short selling is allowed, CAFD is legitimately using a tool to that end (much like Ackman v Herbalife). However, there are questions of whether the tool itself is legitimate. In a capitalistic society, you can’t expect someone to give up a tool, even if there are questions to it legitimacy.

        1. 1.1.1.1

          There is most definitely more than two issues – and more nuances to the two issues that you mention.

          Have you read the response by CAFD?

          Have you noted the parallels to “everyone’s favorite,” the so-called “Tr011” positions?

          Can you distinguish the two?

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