Hedge fund manager Kyle Bass escapes sanctions in drug patent case

[September 29, 2015]  By Andrew Chung

NEW YORK (Reuters) - Hedge fund manager Kyle Bass has been given the green light to try to profit from efforts to wipe out drug patents, a move that could fuel similar strategies by other deep-pocketed investment firms.

In a decision that comes as a blow to the pharmaceutical industry, a tribunal of the U.S. Patent and Trademark Office on Friday denied a request by Celgene Corp to sanction Bass and his Coalition for Affordable Drugs by throwing out their challenges to its patents.

Celgene in July accused Bass of abusing the patent review process by short-selling pharmaceutical shares that drop when a patent review is filed. If Bass is not stopped, the company warned, other for-profit groups will start using the patent reviews as investment strategies.

The Patent Trial and Appeal Board (PTAB) dismissed the argument.

"Profit is at the heart of nearly every patent," the board said. "As such, an economic motive for challenging a patent claim does not itself raise abuse of process issues."

The board's decision, made by six specialized patent judges, also noted that short-selling is "legal and regulated."

A spokeswoman for Bass' $2 billion Dallas-based Hayman Capital Management said in a statement on Monday that now that Celgene's sanctions bid has failed, the PTAB can now turn to evaluating "challenges to Big Pharma patents that contribute to out of control prescription drug prices."

A representative for New Jersey-based Celgene, one of the world's largest biotechnology companies, could not be reached.

Since February, Bass has asked the patent agency to take a second look at 31 drug-related patents, including five of Celgene's, through a procedure called inter partes review.

The reviews began in 2012 as part of the America Invents Act, as a faster and easier way to eliminate poor quality patents. Drug firms have recently lobbied Congress to prevent hedge funds from launching the reviews.

Bass has said his efforts would lower drug costs for consumers because big companies were improperly extending patent protection in questionable ways, such as changing dosage or packaging, to keep prices high.

Despite Friday's victory, his battle with the pharmaceutical industry has yet to bear fruit. The board has made decisions on three of his patent challenges so far, and in each case, it has declined to initiate a formal review.

(Reporting by Andrew Chung; Editing by Alexia Garamfalvi, Bernard Orr)

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