Celgene Corp. (CELG), the pharmaceutical giant fighting inter partes review (IPR) petitions to invalidate its patents for safely delivering a derivative of thalidomide to pregnant women without harming the development of their fetuses, has asked the Patent Trial and Appeals Board to dismiss the petitions and sanction the Coalition for Affordable Drugs VI LLC for abusing the IPR process.

The coalition is controlled by J. Kyle Bass’s Hayman Capital Management and Erich Spangenberg, the founder of IP Navigation Group.

The coalition filed its petitions with PTAB in in April seeking to invalidate U.S. Patent Nos. 6,045,501 and 6,315,720. Both patents cover methods for delivering Revlimib, a derivative of Thalidomide to pregnant women without harming the development of their fetuses.

The coalition believes that the patents should be invalidated based on the prior art.

Patent market observers said the dispute between the coalition and Celgene and other pharmaceutical companies is new and unprecedented. As such, they said it is unclear how the PTAB will act.

Others, however, said Celgene’s motion is unlikely to succeed because it is arguing that PTAB should put Celgene’s profit motive ahead of that of Bass and Spangenberg, which is unfair.

“I don’t think PTAB will dismiss this as abusive,” said Robert Sachs, a partner with Fenwick & West in San Francisco. “If you look at PTAB they’ve been consistent in granting petitions and invalidating patents. The reasoning for invalidation is always competitive and about profit. I don’t think that constitutes abuse. There’s nothing in the statute that precludes this.”

If PTAB did dismiss the petition “it would open up a whole can of worms. Anyone who is facing a series of IPRs could make the abuse argument,” he said.

David Pratt, a managing director of M-CAM, the Charlottesville, Virginia-based IP investment advisory firm, said PTAB has some discretion and could decide to dismiss the petitions.

“I’m not totally sold that they’ll dismiss,” he said. “This would invalidate a whole class of IPRs.”

As for sanctions, he said there’s not a “long history.”

“Celgene is arguing legislative intent and there’s always a tension between the statute and legislative intent,” he said.

But the U.S. Supreme Court has been pretty clear that if the words of a law say certain things that’s what they mean, he said.

The parallel is the Patent Act, which also is pretty clean, but has been reinterpreted by the Supreme Court.

In CLS Bank v. Alice, the high court determined that the district courts had sometimes gone too far, especially with the subject of patentability, he said.

Summit, N.J.-based Celgene argues that Bass and Spangenberg should be sanctioned because they are improperly filing IPRs against Celgene and other pharmaceutical companies including Acordia Therapeutics and Shire LLC, in order to profit from a decline in the companies share prices.

Shares of Acordia lost nearly 10% of their value after the coalition filed an IPR to invalidate some of its patents and another 5% after a second IPR was filed. Shares of Shire similarly dropped 2.5% after the coalition filed an IPR.

Celgene shares are currently trading at around $131.75 and have traded between $83.16 and $140.72 over the past year.

The motion notes that Bass intended to halve the $450 billion combined market value of his target companies to benefit his investments.

The motion also notes that to date, eight coalition entities have filed a combined 16 IPRs against 10 companies. Another eight entities “appear to be lying in wait to similarly abuse the AIA by filing petitions solely to execute the real party of interest’s investment strategy.

“This is contrary to the AIA’s purpose, and the board should not allow it. If the Board permits this strategy to continue, it will be inundated with similar petitions, and no public company that relies on patents to protect its innovations will be safe from threats or unnecessary petitions from for-profit organizations misusing IPRs as investment strategies. The Board should exercise
its discretion and dismiss the Petition.

Moreover, Celgene argues that under 35 U.S.C. § 316(a) and 37 C.F.R. § 42.12, the board “has the power to and should sanction [the coalition and Bass and Spangenberg] by dismissing this Petition as an abuse of process and an improper use of these proceedings.”

“The AIA did not introduce IPRs to provide hedge funds (who have no litigable patent claim) with a vehicle to profit from affecting a public company’s stock price by taking advantage of the stigma associated with IPRs.”

Celgene’s motion even quotes the general counsel of the U.S. Patent and Trademark Office as saying that “[w]hen we developed [IPRs], we never thought people would use them this way,
in an effort to move stock or as an investment vehicle.”

Celgene is represented by F. Dominic Cerrito, a partner with Quinn Emanuel Urquhart & Sullivan LLP in New York, and Anthony Insogna, a partner with Jones Day in San Diego.

A person, who asked not to be identified, said Celgene’s motion is “ridiculous and unlikely to succeed.”
“The crux of the motion seems to be that it constitutes ‘abuse’ because Bass filed his petition to turn a profit by shorting Celgene’s stock.  But everyone in the patent system is out to make a profit.  Celgene files orange book patents to turn a profit by charging monopoly prices for new drugs; generics file ANDAs to turn a profit by entering the market and undercutting monopoly prices; Celgene’s stockholders buy the stock to turn a profit by hoping for higher stock prices due to solid earnings visibility; and short sellers short stock to turn a profit by hoping for lower prices due to reduced earnings.  I don’t see any reason Celgene’s profit motive is legitimate but Kyle’s is abusive.  It’s ridiculous.”

Bass couldn’t be reached for comment.

Spangenberg addressed the same issues in a statement.

“Celgene, Jones Day and Quinn Emanuel lambast the Coalition for Affordable Drugs for having a ‘profit motive’ in filing an IPR petition. Apparently, the argument they are making is that when one takes an action and has a profit motive, that this somehow constitutes ‘abuse.’ This is rich coming from these three and I hope the irony of this is not lost by anyone.”  

Spangenberg said Celgene has raised prices on Revlimid every year since its introduction in 2005 at rates far in excess of the annual rate of inflation to the point that Revlimid costs over $128,000 per U.S. patient per year. 

“Why? Because they can--they received a government granted monopoly in the form of patents and this is how our capitalist system works. I attribute no evil to Celgene for having an apparent prodigious profit motive.

“I am not familiar with the rule or law that says a person can’t undertake a socially valuable activity and have a profit motive.

“If CFAD is successful, the price for Revlimid will come down and this will benefit patients, insurance companies and taxpayers. Having a profit motive does not change this benefit in any way and is the thing that accelerates the realization of this benefit of lower drug prices for consumers.

“The question that Celgene, Jones Day and Quinn do not seem to want to answer is, did Celgene properly receive this government granted monopoly for patents that, for example, cover how the drug is distributed by pharmacists using these incredibly technical machines called ‘computers’ and the novel steps of asking consumers questions about fertility related topics? I happen to think the answer is ‘no’ but the judges at the PTAB will make this important call in their unbiased role as Article I judges.

Spangenberg said he participated in the petitions to invalidate Celgene’s patents for Revlimib “knowing it would be controversial for some and embraced by others.  Name calling by the likes of these folks simply is of no moment to me.  I embrace it and hope they continue to waste tremendous amounts of time coming up with new disparaging names and baseless motions that have nothing to do with the merits, as this tells me I am on to something important.”
—To reach the reporter responsible for this story please contact Dan Lonkevich at 707 318-7899 or at dan@thepatentinvestor.com