The pharmaceutical industry is lobbying hard for changes to the Senate’s patent reform bill that would protect the industry from so-called reverse trolls who use the inter partes review process to invalidate patents while shorting stocks.
Sen. Charles Grassley, Republican of Iowa, chairman of the Judiciary Committee, said in an committee executive business meeting Wednesday that certain stakeholders – primarily in the life sciences community – have raised concerns about perceived abuses at the Patent and Trademark Office.
“They say that the post grant proceedings at the Patent Office are being gamed and are stacked against patent holders,” Grassley said. “On the other hand, other stakeholders believe that the inter partes review (IPR) and post grant review (PGR) proceedings have been successful in weeding out weak patents.”
Grassley said the Judiciary Committee has been getting input on many of these issues and is trying to craft something that threads the needle to instill more confidence in the PTO’s proceedings.
“Let me make clear that no one will get everything they want – our goal is to strike the right balance in a way that doesn’t gut the Patent Office proceedings, and at the same time makes improvements to address the perception that these proceedings are biased and being abused. It’s my hope that we’ll get to a place where most folks are comfortable.”
The IPR process has been used effectively by investment firms such Kyle Bass’s Hayman Capital to petition to invalidate a number of patents held by branded drug companies.
The pharmaceutical industry has labeled Bass and his cohort so-called reverse trolls and accused them of abusive shakedown tactics usually reserved for patent monetization companies, many of whom are derisively called patent trolls.
Hayman Capital officials didn’t return telephone calls and emails seeking comment.
“Kyle Bass can use IPRs against a pharmaceutical company that he has shorted,” said Robert Fletcher, president of Intellectual Property Insurance Services in Louisville, Kentucky. “That’s manipulating the market and gaming the system.”
Invalidating patents in the IPR process through “clear and convincing evidence is tough to avoid,” he said. “Arguably people are not going to have as clear access to the courts as they deserve.”
Ultimately, Fletcher said he worries that no matter what passes it may end up being “devastating to the sciences and the useful arts.”
Ashley Keller, managing director at Gerchen Keller Capital, a Chicago-based investment advisory firm that has some $100 million committed to patent investments, said the Senate bill may include some new language that would add a standing requirement to the IPR process.
The America Invents Act of 2011 allowed anybody, regardless of standing, to file an IPR and ask the Patent Trial and Appeal Board to invalidate patent claims.
“My understanding is the Senate version is awaiting some language related to IPRs that the pharmaceutical industry wants,” Keller said.
“They want some kind of standing requirement,” Keller said, noting that currently no such standing is required, a holdover from the old Ex Partes Re-examination process that predates the AIA.
“I’m confident the branded pharmaceutical industry wants a standing requirement. But it’s asking for something new” with unknown and perhaps unintended consequences.
Keller said critics of Bass may be trying to protect patents of dubious value, which ends up distorting the patent market.
No one disputes that big pharma deserves patent protection for coming up with innovative new molecules that help to treat diseases and provide incentives for doing so, he said.
“Everybody agrees that’s a protected class of invention,” he said. “But subsequently, they’ll come up with a method for distribution or dosage level that they use to extend the life of their monopolies. At best these are marginal innovations and at worst they are invalid patents.”
To the extent that Bass weeds out such invalid patents he is doing a service to society, Keller said.
“I’m a staunch defender of IP rights,” he said. “But bad patents are a drag on our economy and cause us to have to pay more for products.”
Keller also defended Bass from the accusations of being a so-called reverse troll, saying unlike patent trolls he isn’t shaking down because he refuses to settle. He makes money shorting stocks, but always sees the IPR through to conclusion.
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