NCPA - National Center for Policy Analysis

Is Patent Reform Protecting Pharmaceutical Patents?

April 29, 2015

Recently, controversial hedge-fund manager Kyle Bass, through his wholly owned subsidiary, the Coalition for Affordable Drugs, filed challenges with the Patent Trial and Appeals Board (PTAB) against four established drugs: Amprya, Xyrem, Lialda and Gattex.

In short, Bass is challenging patents and then profiting from the damage done to the companies that hold them, either by short-selling their stock or by investing in their competitors.

This strategy would not have been possible a half-decade ago, before the passage of the America Invents Act in 2011. But despite calls for policymakers to stop it, it is probably here to stay — and it may turn out to be a good thing for consumers.

The America Invents Act targeted "patent trolls" — companies that buy dubious patents and use them to sue businesses for infringement. The law created the PTAB and gave it expansive jurisdiction to decide post-grant challenges to patents. With a lower burden of proof for patent invalidation and a broader claim scope as compared to its predecessor (the Board of Patent Appeals and Interferences), the PTAB is designed to review patentability in a timely, cost-effective manner.

The use of PTAB's "inter partes review" (IPR) procedure to invalidate a patent is much more affordable than conventional litigation pursued through the federal courts.

  • An IPR procedure can cost about $300,000 and take up to 18 months.
  • The use of conventional litigation could cost $3 million or more and take several years before being resolved.
  • Under the IPR procedure, a petitioner is not required to have legal "standing" — a concrete stake in the patent at issue, such as being an infringer, a licensee, or a potential licensee.

Pharmaceutical and biotechnology companies want Congress to institute a standing requirement as a remedy for Bass's unforeseen "abuse" of the patent system. However, a standing requirement may not make for good policy. While the IPR procedure has many benefits for a patent challenger, it is by no means costless.

Source: Thomas A. Hemphill, "Is Patent Reform Working for Drugs?" Real Clear Policy, April 28, 2015. 


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