Background - Practices (Details)

IP Transactions & Portfolio Management


PTAB Decisions Suggest That Petitioner's Motive Is Irrelevant When Instituting Inter Partes Review Petitions


Does a petitioner's motive in filing an Inter partes review (IPR) petition matter when deciding whether to institute such proceedings? Based on two of its recent decisions, the Patent Trial and Appeal Board (PTAB) has suggested that a petitioner's motive is irrelevant as long as the underlying basis to challenge the patent has merit. Though these decisions are subject to review, in effect the PTAB rejected arguments that it is improper to institute an IPR when the petitioner's ostensible motive is merely profit-driven, as opposed to a competitive interest in invalidating a patent. This is good news for certain hedge funds and public interest organizations. A small number of hedge funds, for instance, have been filing IPR petitions and then "shorting" the patent owner's stock—a transaction that, in essence, bets on the stock price going down—or buying stock of a patent owner's competitors with the expectation that the IPR petition will either lower the price of the patent owners' stock or increase the price of its competitors. On the receiving end, it is bad news for companies whose stock price is tied closely to a single patent or small patent portfolio as they may see an uptick of IPR challenges.

IPRs are relatively new post-grant proceedings where the validity of a patent may be challenged in an administrative proceeding before the PTAB. Under the AIA statute, an IPR petition may be filed by any entity that does not own the patent at issue, and there is no requirement that the petitioner be an accused infringer, a competitor, or have any other interest tied specifically to the patent. See 35 U.S.C. § 311. 

On September 25, 2015, in Coalition for Affordable Drugs VI, LLC v. Celgene Corp., IPR2015-01092, -01096, -01102, -01103, and -01169, the PTAB denied a sanctions motion filed by patent owner Celgene.  Celgene argued that the Petitioner—a wholly-owned subsidiary of a hedge fund—abused the IPR process and that the petition should be dismissed because it was "driven entirely by an admitted ‘profit motive' unrelated to the purpose of the [AIA], and unrelated to a competitive interest in the validity of the challenged patents." The PTAB rejected both arguments, stating that "[p]rofit is at the heart of nearly every patent and nearly every inter partes review" and noted that "an economic motive for challenging a patent claim does not itself raise abuse of process issues." The PTAB also rejected any limitation on IPRs to those parties "having a specific competitive interest in the technology covered by the patents." Finally, in noting that there was no allegation that the petitions were without merit, the PTAB explained that "[t]he 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."

More recently, on October 7, 2015, the PTAB decided to institute IPR in The Mangrove Partners Master Fund, Ltd. v. VirnetX Inc., IPR2015-01046. VirnetX is a publicly-traded IP company (PIPCO) that has asserted its portfolio of patents against many high-tech companies. Mangrove, a hedge fund, was apparently seeking to use the IPR to financially benefit from any decline in VirnetX's stock price. The PTAB rejected VirnetX's argument that it "'should ... refuse to institute this IPR' because '[t]his proceeding was filed in an apparent attempt to manipulate the financial markets.'" As in Celgene, the PTAB explained that an economic motive for requesting IPR is not by itself improper and again noted that there was no question as to the merit of Mangrove's patentability challenge.

The PTAB's decisions in Celgene and VirnetX will likely have two effects. First, on the petitioner side, we would expect to see an increased number of petitioners that face accusations or suits involving the patent they seek to invalidate. In addition to hedge funds and other investment institutions, we would anticipate certain public interest entities that wish to invalidate patents on policy grounds to file IPRs. Similarly, industry organizations (whose members may be accused of infringement or otherwise face exposure) may also turn to IPRs on behalf of their members. Second, on the patent owner side, we would expect to see IPR challenges not only against pharmaceutical companies and PIPCOs, but also any public company with a stock value that is closely linked to a single patent or small set of patents. Such companies could further insulate themselves from such IPR attacks by diversifying their patent portfolios and product lines.

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