Patent Abuse or Genius? Is Kyle Bass Abusing the Patent System?

ToughYesterday the Wall Street Journal published an article explaining the novel strategy of Kyle Bass, head of Hayman Capital Management, to make money by invalidating patents. Bass, who has teamed up with Erich Spangenberg, has filed several petitions for inter partes review (IPR) at the United States Patent and Trademark Office (USPTO) asking the Patent Trial and Appeal Board (PTAB) to invalidate patent claims covering drugs. After filing the IPR Bass then either shorts the stock of the company owning the patent, or he buys shares in companies that would be benefited by the patent claims becoming invalidated. What Bass is doing is alternatively characterized as creative and brilliant, or evil and abusive.

Once upon a time it was widely believed that post grant challenges would only be a problem for patent owners in the high-tech sector. Increasingly, however, pharmaceutical and biotechnology companies are finding that their patents are coming under fire, which is alarming given that these companies have relatively few patents covering the commercialized product. If the Bass challenge is successful there will be many more that follow due to the heavy reliance on patents to protect the extremely expensive research and development required to take pharmaceuticals and biosimilars to market. Indeed, if Bass is successful it could be catastrophic for the industry.

Regardless of whether you believe Bass is doing a public service, or he is engaged in an unforeseen abuse of process, an important question remains: Is Bass able to use IPR to challenge patent claims in this way? Unfortunately, the answer is complicated due to the fact that the statute seems to suggest one answer, while the legislative history suggests a different answer.


Post Grant Review at the USPTO

The history of post grant review at the USPTO is relatively short. Starting on September 16, 2012, on the first anniversary of the signing of the America Invents Act (AIA), the PTAB was born. The jurisdiction of the PTAB is greatly expanded compared to the previous Board of Patent Appeals and Interferences (BPAI). Most specifically, the PTAB conducts trials within the Patent Office. These trials are required by the new procedures ushered in by the AIA, namely Inter Partes Review (IPR), Post-Grant Review (PGR) and Covered Business Method (CBM) Review. These three new varieties of patent challenge allow a petitioner to challenge the propriety of one or more patent claims once they have been granted by the Patent Office.

The challenges being brought by Bass are IPRs. In an IPR the petitioner may request to cancel as unpatentable one or more claims of a patent only on a ground that could be raised under 35 U.S.C. 102 or 103 and only on the basis of prior art consisting of patents or printed publications. See 35 U.S.C. 311(b). The contest between the petitioner and patent owner is played out in an administrative trial in front of a panel of the PTAB. The PTAB will not institute an IPR unless there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition. The determination by the Director whether to institute an inter partes review under 35 U.S.C. 314 is final and nonappealable. See 35 U.S.C. 314(d).

According to the statute, “[a] person who is not the owner of a patent may file a petition to institute an inter partes review of the patent.” 35 U.S.C. 311(a). Similarly, with PGR “[a] person who is not the owner of a patent may file with the Office a petition to institute a post-grant review of the patent.” 35 U.S.C. 321(a). However, when it comes to CBM things are quite a bit different: “[a] person may not file a petition for a transitional proceeding with respect to a covered business method patent unless the person or the person’s real party in interest or privy has been sued for infringement of the patent or has been charged with infringement under that patent.” AIA § 18 (a)(1)(B).

As you can see, in order to challenge a patent using CBM the petitioner must be a defendant in a patent infringement lawsuit, or have been charged with infringement. No such similar requirement exists for either IPR or PGR. This is why Bass has a legitimate reason to believe that he can challenge patents despite having no direct interest in the patent either as an alleged infringer, licensee or prospective licensee.

Despite the fact that the statute on its face seems to allow any petitioner to file an IPR, it still feels wrong to many in the industry that a wealthy businessman should be able to reap financial rewards for a situation he creates. This is no doubt reinforced by familiarity with post grant procedures at the USPTO and why they were created in the first place.



Legislative History*

Time and time again throughout the legislative history post grant proceedings were explained as being a faster, low-cost alternative to litigating validity disputes in Federal District Court. That being the case, it would seem extremely odd that any petitioner could bring a post grant challenge to a patent when that petitioner would not have standing to sue to invalidate the patent in Federal District Court. Make no mistake about it – Kyle Bass would not be able to take his challenge to Federal District Court. He would have no standing to bring a Declaratory Judgment Action. There is no case or controversy. So why then would he have standing to bring a post grant challenge?

Patent reform efforts that ultimately culminated in the AIA were underway for at least five years prior to enactment of the legislation. In one earlier round of reform attempts, on April 18, 2007, Congressman Howard Berman speaking on the introduction of the Patent Reform Act of 2007, explained that the post grant procedures in the legislation were to “provide meaningful, low-cost alternatives to litigation for challenging the patent validity…” Berman would go on to say:

“The post-grant procedure is designed to allow parties to challenge a granted patent through a expeditious and less costly alternative to litigation. Many have expressed concerns about the possibility of harassment of patent owners who want to assume quiet title over their invention. In an effort to address those concerns, the bill prohibits multiple bites at the apple by restricting the cancellation petitioner to opt for only one window one time. The bill also requires that the Director prescribe regulations for sanctions for abuse of process or harassment.”

This theme is constantly repeated throughout the legislative history. Post grant procedures were designed to be an alternative to litigation, and Congress was well aware of at least some potential abuses of the new procedures. The intent was to give those with a justiciable grievance a cheaper, faster forum in which to challenge a patent. Likewise, the procedures were designed to the greatest extent possible to prevent abuse of process and/or harassment. The legislative history is silent with respect to the type of challenge Bass is bringing, although it stretches the imagination to believe that Congress intended to allow pharmaceutical companies to be subjected to a challenge by an individual or entity that would not have standing to sue in Federal District Court.

But Congressman Berman was not the only one to make these same assertions, nor were they only made with respect to the Patent Reform Act of 2007.

One of the three goals of the Patent Reform Act of 2007 was “to improve and clarify several aspects of patent litigation, including the creation of a less expensive, more expeditious administrative alternative to litigating patent validity issues,” explained Senator Patrick Leahy (D-VT) on January 24, 2008. “The time has come to eliminate the inter partes reexamination system and replace it with a new post-grant review system at the USPTO that will give third parties a quick, inexpensive, and reliable alternative to district court litigation to resolve questions of patent validity.”

Similarly, in a report from the minority relating to post grant review procedures contained within the Patent Reform Act of 2007, Senators Tom Coburn (R-OK), Charles Grassley (R-IA), Jon Kyl (R-AZ) and Sam Brownback (R-KS), explained that post grant review procedures “should be timely and streamlined and should take issues off the table that cannot be resurrected in subsequent litigation, providing a cost effective alternative to litigation. To protect patent holders from harassment and abuse by a competitor or infringer, the system must be narrowly crafted with appropriate safeguards.”

Fast forward to 2011. On the Senate floor during the patent reform debate on February 28, 2011, Senator Orrin Hatch (R-UT) explained: “The bill will also establish another means to administratively challenge the validity of a patent at the U.S. Patent and Trademark Office, USPTO— creating a cost-effective alternative to formal litigation, which will further enhance our patent system.” Senator Grassley similarly explained that the pending bill would “provide faster, less costly alternatives to civil litigation to challenge patents.” Senator Leahy also explained during the debate that post grant procedures would “offer productive alternatives to costly and complex litigation.”

On March 7, 2011, Senator Leahy would again echo his previous comments, saying the bill would “streamline the current ‘inter partes’ system so that it will be a more efficient alternative to litigation.” Similarly, Senator Mark Udall (D-CO) explained that post grant proceedings “are intended to serve as a less-expensive alternative to courtroom litigation and provide additional access to the expertise of the Patent Office on questions of patentability.”

Senator Jeff Sessions (R-AL), also spoke in some detail about the measures Congress was taking to help ensure that post grant proceedings did not become abusive. Sessions explained:

“The bill also includes many protections that were long sought by inventors and patent owners. It preserves estoppel against relitigating in court those issues that an inter partes challenger reasonably could have raised in his administrative challenge. It imposes time limits on starting an inter partes or post-grant review when litigation is pending. And it imposes a one-year time limit on the duration of these proceedings. All of these reforms will help to ensure that post-grant review operates fairly and is not used for purposes of harassment or delay.”

In the House of Representatives, on June 22, 2011, the primary architect of reform in the House, Congressman Lamar Smith (R-TX) repeatedly explained that the purpose of allowing post grant challenges to issued patents was to provide a low cost alternative to invalidate patent claims. At one point during the day Smith explained that post grant challenges “would create a cheap and speedy alternative to litigation— allowing parties to resolve these disputes rather than spend millions of dollars that litigation now costs. In the process, the proceeding would also prevent nuisance or extortion litigation settlements.”

Even the Obama Administration understood post grant proceedings to be for the purpose of creating an alternative to litigation in Federal District Court. Then Commerce Secretary Gary Locke explained that a post grant challenge “decreases the likelihood of expensive litigation because it creates a less costly, in-house administrative alternative to review patent validity claims.”



Given the universal agreement that the purpose for creating new post grant challenges was to create a low-cost alternative to litigation to determine the validity of patent claims it is difficult to understand why the Bass challenge should be allowed to move forward. Furthermore, given the concern about extortion litigation settlements, abusive challenges and harassment of patent owners, it seems unlikely that Congress would be supportive of the type of challenge that Bass is pursuing using IPRs. Of course, if Congress wanted to limit IPR and PGR to petitioners who had a vested interest in the outcome they could have done so, as they did do with CBM challenges.

It will be interesting to see what happens with the Bass petitions, and even more interesting to see whether Congress steps in to bail out the pharmaceutical industry. After all, it was the pharmaceutical lobby that drafted the AIA in the first place. How ironic that the AIA could bring the industry to its knees.


* For a compilation of documents that make up the legislative history please see Comprehensive Legislative History of the Leahy-Smith America Invents Act, Compiled, Edited, And Abridged by Patrick A. Doody, Pillsbury Winthrop Shaw Pittman.


Warning & Disclaimer: The pages, articles and comments on do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of

Join the Discussion

36 comments so far.

  • [Avatar for Nick White]
    Nick White
    April 15, 2015 09:47 am

    I agree that the patent system must service people over money but it does that through assisting in the focsued use of money. That is the fundamental point and why it is important that standing does not preclude any interested parties.

    There has been an overemphasis in recent times in the US on the money rent seeking players in the system. It has blinded people to the reality. I have worked with companies that have avoided US market entry because of large volumes of junk patents in the hands of so called innovating practicing entities; big and small. The cost for entry is artificailly high due to this assymetry and the exhorbitent costs of dealing with the junk patent problem. Where is their “standing”.

    As I have said previously the US patent system does not belong to the USA. In fact as many non-US companies and applicants use it as US companies.

    By having inappropriate “standing” requirements you will see less not more innovation as it will push the risks of market entry to a much higher level… have to risk being sued, which of course will happen as most abuse litigation to distort the market. Thats the purpose of a MAD patent strategy. Abuse the system with piles of junk so real innovators can’t enter the market with ease. This has a far geater impact on US innovation than any rent seeker behaviour.

    I am fundamentally on the side of the inventor and the generation and use of ideas but not through the use of a bastardised system which is shaped in the image of those who would abuse it from all quarters.

    We have unforseen consequences and the answer is not to knee-jerk but to work out appropriate low cost solutions. Its the same with the NPE/Troll debate. Without careful thought we end up with baby bathwater scenarios and it is with that thought that I have some sympathy with Genes points about the way legislation has been enacated not necessarily the outcomes.

    I actually think that the notion that we pretend that everyting is new under the sun for the same money ideology is equally damaging. Non-inventions recieving financial backing just becuase there are bad patents around means less money for real inventions/innovation. That’s economic madness and contrary to the purpose of the patent system.

  • [Avatar for Aldo DiBelardino]
    Aldo DiBelardino
    April 15, 2015 09:10 am

    with all due respect.

    standing is important to purpose and outcome.

    the patent system must serve people over money.

    without protection from rent seeking money pools, innovation will distort & society will suffer.

    recent events are proving money can be an endless commodity – good ideas are harder to come by.

    our founding fathers understood the importance of enabling innovation to improve life over the interest of big money (the king & queen in their time) – we should not now hand over that societal benefit to too big to fail money pools and kleptocracy…

    i have no personal issue with mr. bass, but do not wish to live by a creed that serves endless money over helping others with better ideas – in my opinion, we are here to serve one another, not money.

    the nothing new under the sun to serve money ideology is dangerous.


    x-it inventor
    big lather inventor

  • [Avatar for Nick White]
    Nick White
    April 15, 2015 06:25 am

    What is the problem with the USPTO wielding the “power” in IPR? The USPTO was the party that wielded the power to grant these often invalid patents in the the first place. Are the courts any better a place?

    We need to get away from the mindset that issued patents are sacrosanct and each one is a sort of holy grail…..the pro patent at all costs mindset. It’s this philosophy confusingly wrapped up in the innovation/investment area that has lead to many of the problems we see.

    A dispassionate, functional and low cost way of cleaning up patents is worthy in and of itself irrespective of peoples actual motives.

    Why kill a bad patent? Because we can and if so motivated we should. There is no value to the wider stakeholder community on not doing so.

    When it comes to “standing” there is one important issue. The public. It is why in EPO proceedings even when a party withdraws the EPO is able to continue to revoke a clearly bad patent in the “public interest” and there is nothing that the patent owner can do about that.

    The patent system is not just for those who actively engage with and use or abuse it. We keep loosing sight of that. Everyone has standing.

  • [Avatar for Matthew Rappaport]
    Matthew Rappaport
    April 14, 2015 08:27 pm

    Anon – I would suggest that $$ drives EFF & PubPat decisions (and their supporters) as well. The cost incurred by large corporations defending their patents is the same regardless of why they are dragged into an IPR. Whose to say EFF and PubPat’s constituents don’t short stock as well?

    Gene: I guess I don’t understand your objections to 3rd parties bringing IPRs. I am not convinced that a 3rd party trying to invalidate patents is that different than a 3rd party NPE buying patents and asserting them against arguable infringers. It seems to me to be the other side of the same coin. Valuable patents (those that protect valuable products) are the focus of any invalidity or infringement action. Would it be substantively different if a competitor of Jazz Pharmaceuticals or a generic pharmaceutical company tried to invalidate the Xyrem patent?

    As for re-exam vs. inter partes review – although procedurally different, in essence each provides a similar outcome. Correct?

    It seems to me like the “hunting license to kill patents” only applies if there is an incentive. Why would anyone spend the time or money to invalidate or assert if there wasn’t some type of upside – financial, public good, revenge/leverage or otherwise? To my knowledge most IPR’s have been targeted at large companies not small inventors…I am sure someone has the data to test this theory…

    In general, it seems like 3rd party IPR’s provide a reasonable option to challenge valuable patents…The problem as I see it, is the enormous amount of power that the USPTO wields in determining these outcomes.

  • [Avatar for JNG]
    April 13, 2015 07:42 pm

    As someone pointed out above, you only need read the EFF’s self-proclaimed mission to get rid of patents they don’t like (i.e. the Podcast patent) to understand who was “selling” this thing years ago. BTW where is Scott McKeown today to lament or criticize THAT supposed “abuse” of scarce agency resources?? Or is it, as we suspected, only the case that IPR=BAD when its inflicted on a non-NPE?

    I think the main proponents knew full well what the scope of this procedure was going to be… they intentionally hid their ant-patent agenda (as they are doing now with the most recent (de)form proposal) because they didn’t want to publicly announce that it was basically granting a hunting license to kill patents – particularly those of small inventors who cannot afford to defend themselves in these expensive proceedings. The whole thing was disguised, right down to the name – “America Invents Act” – the only thing that was “invented” were new ways to reduce patent rights – how farcical is that? The whole thing had that 1984 doublespeak spin from the very get go.

  • [Avatar for Aldo DiBelardino]
    Aldo DiBelardino
    April 13, 2015 03:19 pm

    thanks for the clarification gene!

    hopefully, more transparency in government and input from citizens will begin to make meaningful changes…

    selling one thing then changing meaningful details to pass something else is fraud !!

  • [Avatar for Gene Quinn]
    Gene Quinn
    April 13, 2015 03:10 pm


    I personally think that if post grant procedures are an alternative to expensive district court litigation, like they were sold, than it should only be possible to bring a challenge if the party bringing the challenge could have standing to challenge the patent in district court. Thus, third party challenges without standing would fail. If they want to challenge the patent third parties who have no standing should be required to pursue a reexamination, which is a subsequent examination procedure, not a post grant challenge.

    Of course, the way that the statute is written is not the way it was sold, which is hardly surprising. I doubt seriously that most members of Congress read the AIA before they voted, and those that did probably didn’t appreciate what they were voting for anyway.


  • [Avatar for Anon]
    April 13, 2015 01:51 pm


    There i$ one very evident di$tinction….

  • [Avatar for Matthew Rappaport]
    Matthew Rappaport
    April 13, 2015 12:29 pm

    Gene: I am curious if you view the third party efforts by EFF (funded through crowdsourcing) to invalidate the Podcasting patent – or past 3rd party efforts to invalidate WARF stem cell patents or Gilead HIV patents as any different than what Bass is doing?

  • [Avatar for CK]
    April 13, 2015 06:04 am

    ‘Third-party’ is the broadest possible term for the drafters to have used; you assume too much if you think the drafters meant it to be restrictive. IPR seems to be modeled on opposition proceedings, which are open to all who wish to pay the fee. Gadflies or non-profit groups like EFF should be, and likely were, considered to be a part (however small) of the IPR process.

    The quotes from senators don’t prove very much. Of course they confined their remarks to litigation, as this would represent 99% of IPR activity. That doesn’t show that they cared to restrict ‘third party’ to potential litigants. They didn’t care to restrict it, it seems. Again, the model is opposition.

    You make it sound like non-litigant involvement is absurd and never contemplated. What about Peer-to-Patent? – the recurring idea to crowdsource patent examination? (however moronic we practitioners know that idea to be). See the attached link.

  • [Avatar for JNG]
    April 12, 2015 02:36 pm


    The real problem with interpartes was that it was not resulting in the “kill” rate that the IP offenders wanted to see. Cost, really, has little do with it. Let me explain why, as someone who gets to see this played out every day.

    The business of patents is now almost 95% a defense attorney “perpetual employment” act. Big firms love patent cases, because their clients are easily cajoled into spending another nickel or dime (to the bottom line) on yet another frivolous motion. Again, easy example from a real case:

    1) complaint filed
    2) D immediately files motion for transfer (this costs about $50k-$100k)
    3) Court does nothing, sit on it
    4) D files motion for lack of standing (this costs another $100k easily)
    5) Court does nothing, sits on it
    6) D now prepares Answer, since no ruling (depending on complexity, could be $20-50k)
    7) D now starts discovery by noticing the deposition of anyone remotely connected to the case, and asking for every piece of paper printed on the continent; this “process” easily sucks up $500-$1m

    Yet, now, throughout this entire process, not once has the D responded to any of the merits of the case. The case “exists” solely as a vehicle for generating more attorney fees.

    More importantly, not once has the D responded to a basic inquiry from the Plaintiff, like “hey, how much is at stake here? if its small, lets just figure out a way to solve this amicably” – again, this is not a question D counsel want to answer, because if it became known really how little is stake (i.e., the plaintiff’s real demand) the client might be disinclined to keep spending giant sums of $$

    Now fast forward a few years – the only time D counsel decide they want to shut down a case is when they’ve already milked the client pretty well, and now the incremental advantage of trial fees is outweighed by the potential negative of an adverse decision. Would’nt look good on the firm resume! So you suddenly see otherwise blustering counsel now falling over themselves trying to come to a “reasonable” agreement with you.

    That’s 5 years and $3m later. Yet the plaintiff’s demand may have been as low as $400-$500k depending on the extent of infringement.

    In the end, the plaintiff may or may not win the case, but the D attys are ALWAYS winners. The client, having been forced to “settle” for $400k, but pay its own lawyers $3m, then starts a massive PR campaign complaining about the “high cost of litigation” without once acknowledging that it is almost always (and entirely) their own doing.

    Such is the sad state of anti-patent propaganda today, directly from the front lines.

  • [Avatar for Gene Quinn]
    Gene Quinn
    April 11, 2015 06:03 pm


    Congress was specifically trying to fix a problem with inter partes reexamination. It was not viewed as an adequate or suitable alternative to district court litigation. So that is why they say over and over again in the legislative history that they wanted to scrap inter partes reexamination in favor of something that would be a meaningful (and used) alternative to litigation.

    I think without a legislative fix it will be extremely difficult to prevent this type of use. The statute is pretty clear, and as you point out they know how to require standing because they did that with CBM. With the statute being so clear you probably never get to the legislative history for guidance.


  • [Avatar for JNG]
    April 11, 2015 04:59 pm

    Gene, you say:

    “That being the case, it would seem extremely odd that any petitioner could bring a post grant challenge to a patent when that petitioner would not have standing to sue to invalidate the patent in Federal District Court. ”

    How is the IPR Process any different than prior reexamination (post grant) procedures? In fact ex parte can be filed by anyone anonymously. I see absolutely no prohibition on this, and in fact the CBM procedure shows you Congress knew when it wanted to impose restrictions, and when it did not. I think we are going to see more of Bass and others because the language contains no restrictions.

  • [Avatar for Tru Brit]
    Tru Brit
    April 10, 2015 03:32 am

    From this side of the pond, the problems seem to be procedural in nature. The theory of allowing challenges by persons without locus standi is good. The issue is that there is no penalty for over-lawyering. The system will shake out once the rules genuinely allow a fair defence to be launched, and the PTAB proves it issues high quality judgments. Patents in Europe have high value and are challengeable by any person in EPO opposition procedures, but the costs are 5% because the EPO does not encourage parties to instruct the level of lawyering that seems commonplace in USA. Let the hedge funds play in our world, their main interest is their own pockets, but the general public benefits from the register being cleared of patents that are invalid.

  • [Avatar for GMS]
    April 9, 2015 03:09 pm

    Post grant trials instituted by the AIA did not really provide a “new” avenue of attack on patents, rather they are essentially just revised versions of previously available reexamination procedures (ex parte (which is still available) and more closely inter partes reexam).

    The scheme being relied upon by Bass could have been readily implemented for over a decade prior to enactment of the AIA. However (and this is a BIG however), the former reexamination proceedings tended to be patent owner friendly and very slow – making implementation of Bass’s scheme much more difficult and risky.

    Accordingly, it is only the statistical success of invalidating patents in trials in front of the AIA that make IPRs or CBMs an attractive avenue for use in “schemes” such as the one discussed here. We are already seeing a shift in the statistics of success in invalidating patents in front of the PTAB and I believe (hope) it will continue to become more balanced in the future.

    In the end, I tend to agree that this is an abuse of the system, but it is not a new avenue for abuse – just a more friendly one (at least currently).

  • [Avatar for TJM]
    April 9, 2015 01:14 pm

    “Loosely-held” should be “closely-held” in the comment above. Sorry for the typo.

  • [Avatar for TJM]
    April 9, 2015 01:13 pm

    To be fair, Bass’s scheme relies on targeting publicly-held companies. The patents of small businesses (i.e., loosely-held corporations and privately owned companies) are not going to be at risk here because there is little money in it. I suppose he could challenge a patent of a small business if doing so would raise the stock of a publicly-held competitor, but I believe those situations are uncommon.

    Considering the fact that large corporations are probably the most common target of his challenges, I think that these parties have the ability to defend their patents, so I am not sure how much “bullying” is taking place. And they certainly can find creative ways to make these types of challenges less attractive, such as by obtaining a large number of claims with different scope (as I mentioned above). Certainly there is a calculus of balancing the potential profit against the cost, but I have a hard time believing that the stock will fluctuate very much just due to the fact that someone files an IPR challenge. Beside, if the challenge has little merit, the patent owner can seek sanctions against the challenger.

  • [Avatar for aldo]
    April 9, 2015 12:25 pm

    with all due respect, mr. bass and other extorters of unearned rents may not care if they win or loose in the patent review process as long as they extract more profit than the cost of the hit and run process – that is what really needs to be debated… as well as the collateral damage to the spirit of innovation that must now fear the bully of too big to fail money…


    x-it inventor
    big lather inventor

  • [Avatar for TJM]
    April 9, 2015 12:02 pm

    “. . . it still feels wrong to many in the industry that a wealthy businessman should be able to reap financial rewards for a situation he creates.”

    This is another statement that seems incorrect to me. How has Bass created the situation? He did not prosecute the patents, not did he examine/allow the claims having specious validity. He did not create the IPR/PGR processes. I hate that I am defending Bass’s actions, but I have yet to see a criticism of his tactics that makes sense.

    If the patent is valid, then I trust that the patent owners will be vindicated either at the PTAB or the Federal Circuit.

  • [Avatar for TJM]
    April 9, 2015 11:41 am

    “Given the universal agreement that the purpose for creating new post grant challenges was to create a low-cost alternative to litigation to determine the validity of patent claims it is difficult to understand why the Bass challenge should be allowed to move forward.”

    I have a hard time agreeing with this statement. Nothing about Mr. Bass’s action are contradictory to the purpose of creating a low-cost alternative for determining validity. Even if each IPR/PGR costs $1 million to litigate (which is on the very high end of the ones I have worked on), that is still cheaper than litigation for both the challenger and the patent holder. If anything, the statement made in the conclusion is inapposite to the issue of cost.

    Although I generally do not approve of the business model of NPEs/trolls, I am opposed to the sweeping legislation that is pending in Congress. Similarly, I do not like the idea of having Congress “fix” the issue of hedge funds challenging patents of questionable validity. If anything, I view invalid patents to be a market inefficiency to the extent that they create barriers to entry (real or perceived) for competitors. Mr. Bass is exploiting that market inefficiency to make money. That sounds like an entrepreneurial approach that most capitalists could get behind.

    This article seems to suggest that IPRs and PGRs should be modified to change the standing requirement to prevent challenges from parties like hedge funds. I see a similarity between this idea and efforts to curb patent trolls. With respect to the latter, observers often say that we could cure the problem of patent trolls by preventing a party from suing another unless it is actually practicing its patent. I abhor this idea, and I would guess that many of the commenters on this blog feel the same way. But how is that approach any different from what is suggested with respect to preventing a hedge fund from challenging a patent’s validity?

    At the end of the day, I think the market can solve the problem posed by Mr. Bass all by itself. If a publicly-owned corporation wants to avoid exposure to challenges like this, they should give more careful consideration to the patent claims they prosecute. They can pursue a range of claims, some more broad and others more narrow. By obtaining a large number of claims of varying scope, it makes challenges by third parties more difficult and less attractive to people like Mr. Bass.

  • [Avatar for aldo]
    April 9, 2015 10:25 am

    same story, new day with more understanding.

    we are learning that capital creation is endless, but good ideas are harder to come by – so as we evolve, good ideas need to triumph over endless bad capital creation… or we all perish, surrounded by piles of worthless money:)

  • [Avatar for American Cowboy]
    American Cowboy
    April 9, 2015 09:45 am

    Same sad, old story: Money men vs. idea men. Money men win.

  • [Avatar for aldo]
    April 9, 2015 08:37 am

    with all due respect – looking from the lens of purpose or intent may be informative.

    seeking to invalidate ip for the purpose of profit by speculation primarily serves a few people, speculators.

    it also seems to undermine the system that encourages entities to take risks in the process of expanding mankind’s understanding by rewarding them with exclusivity.

    speculation just produces more capital – the federal reserve has invented the mean to create endless capital – that at the end of the day seems to be hurting many people…

    i am in favor of ensuring a better life by encouraging and protecting people and entities that focus on making life better by finding new and novel solutions and not just by making more money by speculation.

    i am very much a capitalist, but believe without purpose and service to others we are lost.

    hope this is helpful.

    blessings & thanks,

    x-it inventor
    big lather inventor

  • [Avatar for Warren Tuttle]
    Warren Tuttle
    April 9, 2015 07:07 am

    Here’s a thought….perhaps we should label Kyle Bass a “reverse patent troll”, draw up an new scary image of what would look like and bring a new round of legislation with massive Google-style lobbying efforts to Congress to combat this out of control “problem”. All one needs to do is convince Goidlatte and Issa that you are a champion for innovation, and visit the White House 230 times over the next few yearS 🙂 Is anyone laughing yet about the current HR9 situation and all of it’s “unintended consequences”? Wonder if any of it’s backers give a hoot about this issue? I would bet not. Jeez, looks like true innovation in America is under attack from all sides, even if for sport, by those with tremendous influence and financial resources….and only their own sole interests at heart. Maybe the Wall Street Journel (besides you Gene) is becoming the mainstream paper of record on this brazen daylight heist of America’s essential new business incubating process. Let’s hope folks in Washington are reading and paying attention.

  • [Avatar for Nick White]
    Nick White
    April 9, 2015 04:35 am


    Yes I am aware of the history. I was of course referring to computer or internet implemented inventions and post State Street.

    Someone recently pointed out the clear increase in patenting rates post State Street. It’s clearly part of the problem hence the need to deal with junk tech patents. The “unintended consequences” of State Street are “real” Patent Trolls not NPEs and the current attacks on invention and innovation.

    I think the problem is more complex than that. The shift to this area of thinking has infested all areas of innovation and lead to some amusing outcomes.

    One example is US 8,865,100.

    The other is US Supreme Court and “abstract ideas”.

    The only problem I have with the US IPR area is the ridiculous costs. We can achieve a usually quality result after an Appeal process in Europe for a fraction of these costs. The parties get justice as does the public when bad patents are dead.

    So these people are engaged with a stock play. Big deal. Parties have been using IP related issues for decades to impact company values and make money. One upside of this activity is decluttering the top end of Pharma and increasing the drive for new technologies and acquisition from start-ups and dare I say it NPEs. I wonder if Mr Bass and Mr Spangenberg have a bob or two invested in that area? 😉

  • [Avatar for Steve]
    April 8, 2015 08:56 pm

    Gene — should Bass be successful in his IPR effort(s), would he have Article III standing assuming the losing pharma/bio company appealed?

  • [Avatar for Gene Quinn]
    Gene Quinn
    April 8, 2015 06:46 pm


    Not surprisingly, I agree with you completely. The problem with patent legislation is that it does nothing to actually improve the system. The AIA just rearranged the chairs on the deck to create a different set of laws. It didn’t harmonize our laws with other countries. We are just different in other ways than we once were. This is also a major problem with the Innovation Act. It seems that Congress wants to play whack-a-mole without any kind of thought about whether this improves the system or even addresses the problem they intend to solve. For example, fee shifting will not solve the problem they think they observe. To get fees you have to actually prevail, which means going all the way to the end. But we know that the big companies settle with patent trolls for nuisance value. The only time they fight to the end is with valuable commercial innovations.


  • [Avatar for Gene Quinn]
    Gene Quinn
    April 8, 2015 06:40 pm


    Sorry, but if you are trying to say that business method patents are a creation of the judiciary you are sadly mistaken. Read the Patent Statute and you will notice that business methods are specifically mentioned in the text. Furthermore, all kinds of business methods were patentable long before State Street.


  • [Avatar for Reed Christiansen]
    Reed Christiansen
    April 8, 2015 03:23 pm

    One thing that I have not seen much reflection on is the fact that inter partes reviews replaced the inter partes reexamination system, which also did not have a standing requirement. Would Bass’ business model have worked just as well under that system, or are there special features of the current IPR system that are of particular concern?

  • [Avatar for Arleen Zank]
    Arleen Zank
    April 8, 2015 03:19 pm

    This is rather intriguing. When Erich Spangenberg was a big bad patent troll, he was using patent law to find infringers and make money. Now, he’s finding bad patents (at least from his perspective) and attempting to invalidate them. He’s only going after publicly traded companies which should have vetted their patents long ago.

    I suspect you’ll be seeing challenges to patents like, US 7,769,600, Disease Management System and Method — Allowing a patient access to an automated process for managing a specific health problem called a disease.

    A low quality patent is a low quality patent. Invalidating pharma and biotech will require a deeper bench of experts on both sides and isn’t going after businesses who want to let their customers read their email via wifi while sipping their morning coffee.

  • [Avatar for Nick White]
    Nick White
    April 8, 2015 03:17 pm

    I would make one further point on “unintended” consequences. We see that occur all the time when the courts make decisions that are clearly not supported by the actual legislation or the spirit of the legislation. These Judges just make the law up as they go along.

    Business method patents are a prime example. These abominations and associated bad behaviour are the root cause of much of the rapid and ill thought out legislation we are wrestling with in the US. There is plenty being caught in the crossfire.

  • [Avatar for EG]
    April 8, 2015 03:09 pm


    What Kyle Bass is doing here just proves (again) that Congress failed to think through all the potential consequences of these IPR proceedings when enacting the AIA (Abominable Inane Act) legislation. And HR 9 has the same potential to cause such “unintended consequences.”

  • [Avatar for Nick White]
    Nick White
    April 8, 2015 03:03 pm


    I can assure you I am not missing any of the points and I like the article. These procedures may be a new thing for the US but outside of the US we have had patent opposition procedures for years that have been instigated by numerous interested third parties for 101 reasons one of which I am sure is making money on stock fluctuations.

    The thing is that a reasonable number of US patents that have been “lawfully” obtained are not actually “lawfully” valid.

    Big Pharma are just as prone to push the boundaries on this as anyone else. There is so called “abuse” of the patent system from all quarters. This “new” US phenomena may get some to up their game. I see US patents across sectors that are of suspect validity every week. Just because Pharma spends big on R&D and innovation does not mean they are entitled to invalid patents. They are no more worthy than any other sector. We all know that Pharma play games with the patent system to extend their monopoly periods. I think the monopoly issue is just semantics anyway.

    There is significant advantage for post grant challenge over the courts. The main one being the quality of assessment and another is the costs. In Europe for example most would prefer an opposition division that at least understands novelty as opposed to a Judge that may not and a quality low cost outcome. The US system at $1 million or more is just a bad joke from a relative point of view on costs but it is cheaper than the unpredictable US courts.

    I know there may have been certain motivations for this new US system derived from a desire to “clean up” tech sector patents (which I support entirely), but I see no reason why it should not be used to “clean up” the patents in all sectors and Pharma is as good as any. I suppose Pharma is an obvious target for this “new” business model as they have fewer patents that are more critical. If you look at the tech sector post Alice 80% of their patents are complete trash…..but what about their stock values? Hardly a flutter. That tells you something.

    I agree that this Hedge fund activity does not appear to have been envisaged at least by those who proposed the system in the US, but it’s not that surprising to those outside of the US. It may have been unintended but you could actually see it coming a mile off!


  • [Avatar for Chris Blank]
    Chris Blank
    April 8, 2015 02:38 pm


    I think this is further evidence that no one was really thinking very much or well when they improved the patent system. Standing has been a requirement in article iii litigation since the beginning of time. Really, the improvements have only weakened inventor’s rights and converted a property system into a litigation/tort system stacked against inventors and firms who invest in research and development. They have substituted 1000 page requests for motions with 50 page limits, given disinterested individuals the right to threaten property rights of innovators, and introduced massive uncertainty into the field of innovation. And yet we will see another wave of “improvements” soon.

    Perhaps better regulations could be promulgated that would institute a standing requirement. Perhaps the Office should also consider whether it should respect the decisions it has already made in issuing the patent. While the statute creates a presumption of validity in the courts, shouldn’t it be logical that the Office should be bound by its own factual findings, at least to some extent? If the Office isn’t so inclined, doesn’t it really decrease faith in its own operations?

    The real mystery to me is why this ever took place. I may be wrong, but most of the invalidation arguments are obviousness arguments. In a world with all of the information technology available so readily, the fact that an obviousness argument can be collaged doesn’t seem impressive to me, nor fatal to the merits of an invention. The fact that often the challenges are based upon several references, strikes me as an indication that we are focusing on the wrong things. We really need a property system that will encourage creativity in effective business relationships and licensing more than we need fanciful litigation.

  • [Avatar for Gene Quinn]
    Gene Quinn
    April 8, 2015 01:49 pm


    You miss the point. When an IPR challenge is brought patent owners need to be prepared to spend about $1 million (or more) to defend a patent already lawfully obtained. Further, there is no reason to believe that IPR was intended to allow for this type of strategy.

    Further, your view of a patent as a monopoly misses the point as well. A patent only provides the opportunity for monopoly profits for a very short time. A patent is not a monopoly, nor does it guarantee a monopoly. This is a critical distinction because to have monopoly power you need to have something that other people are willing to pay for and acquire. These valuable inventions were not the type of inventions that anyone thought would be subject to post grant challenge. Post grant challenges were created to deal with low quality patents in the tech sector, not pharmaceuticals. Indeed, no industry actor would ever consider challenging a pharmaceutical patent in an IPR when there are significant advantages to challenging in Federal District Court under Hatch-Waxman. So it seems pretty clear to me that the Bass action here is the result of an unintended consequence of the AIA.


  • [Avatar for Nick White]
    Nick White
    April 8, 2015 01:26 pm

    The problem for Pharma is only in respect of invalid patents they hold. The valid patents will remain intact. So one way of avoiding this problem and ensuring they have robust stock values is to make sure they only try and monopolize patentable inventions.