54:5 Hedge Funds Should Be Able to Challenge Patent Validity Using Inter Partes Review Despite Mixed Motives


On February 10 and February 27, 2014, The Coalition for Affordable Drugs (“CFAD”) filed petitions with the United States Patent and Trademark Office (“USPTO”) challenging the validity of two patents covering Ampyra, a prescription drug that improves multiple sclerosis patients’ ability to walk. Acorda Therapeutics, which owns the two patents, watched its stock drop 9.7% on February 10 and 4.8% on February 27 in reaction to news of CFAD’s patent challenges. The patent challenge and ensuing stock drop comprise the initial steps of a new investment strategy developed by hedge fund manager Kyle Bass. Mr. Bass created CFAD to search for potentially invalid patents and file petitions requesting the USPTO to reassess the validity of these patents in an administrative process called inter partes review (“IPR”).
CFAD states it is targeting patents that lack social value. The USPTO should have never issued the targeted patents in the first place because the patents fail to disclose anything novel and accomplish little more than keeping drug prices artificially high. However, CFAD’s motives for challenging drug patents are not purely altruistic. It stands to make a profit by shorting the shares of companies holding the challenged patents and taking a long position on the shares of companies who stand to benefit from the challenged patent’s invalidation. Opponents accuse CFAD of exploiting loopholes in the patent system and manipulating financial markets primarily for profit at the expense of biotechnological innovation. Critics urge the USPTO and Congress to amend laws or introduce new laws to prevent CFAD and other financial opportunists from challenging patents.
This Comment uncovers the merits of the biotechnology sector and CFAD’s arguments, ultimately concluding that Congress should not create any legal barriers that would prevent hedge funds from challenging the validity of biotechnology patents. It is important for third parties who represent the interests of the public domain to have an opportunity to participate in the discussion over a patent’s validity—even in instances where public interests are subordinated by personal motives. By allowing third parties who represent the public interest to challenge patents, Congress prevents biotechnology companies and their direct competitors from entrenching the patent system with patent owner’s interests without any balancing consideration for public domain interests. Instead, Congress should introduce legislation that prevents parties’ financial motives from abusing IPR’s settlement provisions. Even third parties motivated primarily by personal gain can serve an important “ecological role” in maintaining the integrity of the U.S. patent system, ensuring invalid patents do not slip through the cracks.