The Patent Trial and Appeals Board handed billionaire J. Kyle Bass’s Hayman Capital and IP Navigation Group founder Erich Spangenberg a hugely important victory in their effort to invalidate weak patents held by pharmaceutical giants when it rejected Celgene Corp.’s motion for sanctions because of an alleged abuse of the IPR process as laid out in the America Invents Act of 2011.

Patent market observers and the biotechnology industry have been split on how the PTAB would come down on the argument between Celgene and the Bass and Spangenberg led Coalition for Affordable Drugs.

Celgene argued unsuccessfully that the coalition should be sanctioned for abusing the IPR process under the AIA, which the company said was never meant to allow someone to file an IPR to invalidate a patent and profit from shorting the stock. Indeed, Celgene questioned the coalitions’s motives for bringing the IPRs and argued it was only in it for profit and greed.

The coalition in its defense copped to the profit motive but argued persuasively that Celgene’s motives were profit driven as well. Moreover, while conceding its own profit motive the coalition also contended that it was serving the public good by invalidating weak patents that prop up underserved monopolies that effectively lead to price gouging by drug makers.

In rejecting the motion for sanctions, the PTAB panel said “profit is at the heart of nearly every patent and nearly every inter partes review. As such, an economic motive for challenging a patent claim does not itself raise abuse of process issues. We take no position on the merits of short-selling as an investment strategy other than it is legal, and regulated.

The panel also rejected Celgene’s argument that the coalition “has no competitive interest in the patents they challenge or the technology covered by the patents.”

“The Leahy-Smith America Invents Act allows a person who is not the owner of a patent to file a petition with the Office to institute an inter partes review of the patent. This is in contrast to covered business method reviews, which require a party or privy to have been sued or charged with infringement of the patent. AIA, § 18(a)(1)(B).

“Accordingly, consistent with the proposition that Article III standing is not a requirement to appear before this administrative agency, we hold that Congress did not limit inter partes reviews to parties having a specific competitive interest in the technology covered by the patents.

The panel also rejected Celgene’s argument that petitions in these cases are contrary to the America Invents Act, because Congress intended IPRs to allow parties to challenge a granted patent as an expeditious and less costly alternative to litigation.

“The purpose of the AIA was not limited to just providing a less costly alternative to litigation. Rather, the AIA sought to establish a more efficient and streamlined patent system that improved patent quality, while at the same time limiting unnecessary and counterproductive litigation costs. The AIA was designed to encourage the filing of meritorious patentability challenges, by any person who is not the patent owner, in an effort to further improve patent quality.

The ruling was handed down by a panel of Administrative Patent Judges including Toni R. Schooner, Michael P. Tierney, Michael W. Kim , Jacqueline Wrioght Bonilla, Grace Karaffa Obermann and Tina E. Hulse and written by Judge Tierney.

Officials of Summit, N.J.-based Celgene couldn’t be reached immediately for comment.

Celgene’s attorneys in the matter, Nick Cerrito, a partner with Quinn Emanuel, and Anthony Insogna, a partner with Jones Day, couldn’t be reached for comment.

"The six member panel’s decision is obviously correct as the law is crystal clear that 'any person other than the owner' can file an IPR and makes no mention of motivation, altruism or any of the other ruses raised by Celgene and Jones Day," Spangenberg said in an emailed statement.

For his part, Spangenberg said he "found ironic that Jones Day argued that the CFAD petitions are a waste of PTAB resources — I agree that someone here was wasting PTAB resources and the perfunctory nature of the PTAB’s decision makes abundantly clear who that was in this case.

"Now that this tomfoolery is behind us, my hope is that the PTAB will get to the merits and calls balls and strikes.

"As the events of this past week demonstrate, with politicians, consumer groups, traditional and social media and every day Americans talking about high drug prices and things that need to be done to reign them in, there is one US agency—the US patent office-- that can finally standup and end the obscene evergreening practices engaged in by the likes of Celgene that imposes unfair penalties on patients and taxpayers.

Spangenberg said the PTAB institution rate on pharmaceutical IPRs is approximately 46% and far lower than the 75% plus rate for other technology areas.

"While pharma makes these specious arguments about things like the 'unpredictable arts' and protecting investment, pharma patents are entitled to no greater deference than any other patents in any other technology area. If Congress wants to give 30 plus year monopolies to pharma companies, they are free to do so—this is not the proper role of the U.S. patent office and the PTAB."

Patent market observers generally agreed with Spangenberg that the PTAB got the decision right.

"It was a good decision, one based on the black letter of the law," said Chandran Iyer, a partner with Sughrue Mion LLC in Washington, D.C. in an email. "The AIA statute does not have a special standing requirement for IPRs (i.e., like the CBM does which requires active litigation or threat of litigation).

As such , Iyer said any party should be allowed to file an IPR, regardless of motive. "Looking at why someone filed an IPR is going down a slippery slope. If the patent owner wants this rule changed, then they should lobby Congress. They should not ask the PTAB to artificially and without authority limit the group of people who can file an IPR.

Others noted that the decision showed that the PTAB decision showed that it would be a fair arbiter of such disputes, which had been somewhat in doubt.

"It is important to maintain a far and balanced system that is open to all - not just to those with the most influence to bring to bear," said Rob Aronoff, a managing partner at Pluritas LLC in Tiburon, Calif. in an email. I also agree that it is beyond the scope of the panel to consider why the challenge was being brought, and by whom. Of course, the next important step is for the PTAB to now also rule fairly and consistently on validity, regardless of the 'profiles' of the parties involved."

A patent market observer, who spoke on condition of anonymity because he has matters before PTAB, said "this is exactly the right outcome. That it was in some doubt says a lot about how biased the PTAB is perceived to be, not what the law is or ought to be."

—To reach the reporter responsible for this story please contact Dan Lonkevich at 707 318-7899 or at dan@thepatentinvestor.com