Post-Grant Patent Blog

New York Representatives Ask Director Lee to Investigate IPRs Filed by Hedge Funds and Other Non-Practicing Third Party Petitioners
January 17, 2017

As of January 2017, the Coalition for Affordable Drugs, a company formed by a hedge fund manager and the founder of a patent monetization entity, has filed forty petitions for inter partes review.  The Patent Trial and Appeal Board (“PTAB”) instituted trial for eighteen of these petitions.

On December 5, 2016, a bipartisan group of ten members of Congress from the State of New York wrote to Director Michelle K. Lee “to express our concern with the continued abuse of the inter partes review (IPR) system by financial speculators and other third parties with no legitimate interests in patented technology undergoing review” and to ask Director Lee to use the PTO’s authority to prevent such abuses.  

These members of Congress stated they were “concerned with numerous recent attempts by hedge funds to short the stocks of targeted companies prior to IPR filing.”  They also expressed concern “that hedge funds are filing repeat petitions challenging certain patents, even though previous IPR petitions on . . . these patents had already been rejected by the U.S. Patent & Trademark Office (PTO).”  They referred to New York’s “large and thriving bioscience industry, which is an important driver of the state’s economy,” and stated that New York companies’ and entrepreneurs’ dependence “on a strong and predictable system of intellectual property rights, and on a fair and reasonable system for adjudicating the validity of these rights, to attract investor capital and to commercialize their innovative technologies and lifesaving cures.”

The letter noted that the IPR petitions were “typically” filed by hedge funds or financial speculators “as part of a secret stock-shorting scheme or in an attempt to extort substantial payments from patent owners.”  But they found “particularly troubling”:

repeated instances of filing petitions challenging the same patent claims on grounds substantially identical to those previously denied institution in prior-filed petitions.  In essence, this “try-again” practice affords hedge funds multiple bites at the apple, in which the PTO’s reasons for denying an IPR petition are used as a how-to guide to filing another petition.

They also were concerned that:

this practice inspires collusion by parties who would otherwise be time-barred from bringing their own IPR because the PTO has been permitting such parties to join these hedge funds in their IPR.  Furthermore, it is our understanding that the statute appears to foreclose that option.

They further observed that “[a]llowing these open-ended challenges perpetuates such disputes rather than resolving them” and “undermine[s] the investment-backed expectations of patent owners in ‘quiet title’ in their intellectual property, depreciates the market value of their businesses, and harms their ability to advance their research and development programs.”

The letter further noted the PTO’s statutory discretion to deny institution of petitions where institution would not be in the interests of justice (35 U.S.C. § 314(a)) and “reject IPR petitions that contain the same or substantially the same arguments or evidence previously presented to the PTO” (35 U.S.C. § 325(d)), as well as Section 316(a)’s direction to the PTO “to prescribe regulations regarding ‘abuse of process, or any other improper use of the proceeding, such as to harass’ patent owners.”  

The members of Congress urged Director Lee “to fully embrace your statutory authority to curb abuse of the IPR system by hedge funds and other non-practicing, third-party petitioners.”  They noted

it is ironic that a system that was designed to address legitimate concerns about “patent trolls” who abuse their patent rights is now being used to attack patent owners for similarly illegitimate reasons – a form of reverse patent trolling.  If left unaddressed, we believe these abuses risk upsetting the carefully crafted balance of procedures that were designed to ensure that the IPR system provides patent owners with a fair and predictable process for defending their intellectual property rights.

Time will tell whether the PTO will adopt practice rules that limit the ability of parties without competitive interest in the patented technology to challenge patent validity through inter partes review.

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