Petition Dismissal is Appropriate for Improper Use of PTAB Resources

stop_sign_with_traffic_cones_335I first discussed the potential abuse of PTAB post-grant patent trial proceedings back in 2013.  Since that time, attempts by profiteers to leverage the PTAB for improper purposes have failed. The most recent incarnation of this strategy is being advanced in the name of Hayman Capital, a hedge fund. As detailed yesterday by, a recent Wall Street Journal article outlined the true purpose of these filings is to influence stock prices of smaller bio/pharma patent holders to the negative (via PTAB IPR filings) while simultaneously investing in their close competitors. The Journal also explains that members of the fund invest a minimum of $1million each, with Hayman Capital earning a 20% return.  The Journal notes that those behind the filings have also created an organization referred to as the “Coalition for Affordable Drugs,” but strongly implies this entity exists only for optics.

With the negative publicity surrounding these filings, and, if true, their reported abusive purposes, can the PTAB shut them down?

Yes, and I expect that they will.


There are several avenues for the PTAB to deny the petitions without reaching the merits (RPI being one, given the anonymity of fund investors and their reported interest in competitors of targeted patentees), but let’s focus on the easiest way for the agency to halt this reported abuse.

35 U.S.C. § 316(a)(6) mandates the USPTO Director prescribe regulations:

prescribing sanctions for abuse of discovery, abuse of process, or any other improper use of the proceeding, such as to harass or to cause unnecessary delay or an unnecessary increase in the cost of the proceeding;

The Director has done exactly that with Rule 42.12:

(a) The Board may impose a sanction against a party for misconduct, including…

(7) Any other improper use of the proceeding, including actions that harass or cause unnecessary delay or an unnecessary increase in the cost of the proceeding.

* * * *                                           

(b) Sanctions include entry of one or more of the following…

(6) An order providing for compensatory expenses, including attorney fees…

(8) Judgment in the trial or dismissal of the petition.

Congress created AIA trial proceeding to combat trolls, not create an altogether new class of them. Since the initial filings of Hayman, the STRONG ACT has been introduced in the Senate and includes a provision that would require standing for IPR petitioners (presumably to thwart such filings). However, companies not only employ IPR as an alternative to ongoing litigation but as a due diligence tool to avoid such situations in the first instance. Innovators looking to develop a new product line, or new area of business should have the freedom to clear the landscape of improvidently granted patents via the PTAB without having to wait for a lawsuit, or threat of one. Such knee-jerk legislative fixes will have unintended, and unfortunate consequences.

Instead, to put a halt to these filings the Board need only issue an Order to Show Cause as to why the petitions should not be dismissed under 42.12 as an improper use of limited agency resources— citing the journal article. The agency is on solid footing in this regard. See Heckler v. Chaney, 470 U.S. 821, 831 (1985)(indicating an agency, when deciding whether to take action in a particular matter, must determine whether its resources are best spent on one matter or another).

Given that the Board’s resources are already taxed due to the significant demand of these proceedings for their intended use, shutting off a workflow that Congress clearly did not intend, and that is plainly abusive, is necessary to maintain the integrity of the system. Moreover, if investors are profiting off of the mere filing of a petition (i.e., spooking stock prices upon mere filing, irrespective of the merits) an award of attorneys’ fees may be strong deterrent to copycat filings going forward.

The PTAB was given the power to police such behavior, and it should.


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 Read more.

Join the Discussion

4 comments so far.

  • [Avatar for Nick White]
    Nick White
    April 10, 2015 05:20 am

    I agree with JNG

    35 U.S.C. § 316(a)(6) ………is qualified.

    ……such as to harass or to cause unnecessary delay or an unnecessary increase in the cost of the proceeding.

    It’s about the proceedings themselves not external matters such as reasons for instigating the proceedings.

  • [Avatar for JNG]
    April 9, 2015 10:21 pm

    Sorry, but this is just speculation, not a reasoned conclusion.

    Let’s see:

    1) No case precedent cited

    2) None of the cited provisions have to do with standards for *instituting* proceedings; they are all related to a proceeding that has already been initiated.

    3) the “agency resources” argument is also weak: there is no suggestion that the PTAB is unable to consider this request – if they want to start weighing in on the merits of which cases to take based on the identity of the petitioner, they are waiting for a major slap down

    Net result: nothing on point

    I might also add, the author’s bias here is apparent as he seems convinced that the Congress made some distinction on whose patents are apparently immune from the IPR process, or who is entitled to file and who is not. There is no such allowance given anywhere.

  • [Avatar for SAM]
    April 9, 2015 06:22 pm

    When the ulterior motive is the only true motive, and presumably, short positions are being covered within a day of filing the petition (obviously unrelated to the merits), there is a real problem. At the very least, the PTAB needs to delve deeper into the facts, whether of its own accord, or through the application of liberal patentee discovery.

  • [Avatar for TJM]
    April 9, 2015 06:00 pm

    If the petition is groundless and is done simply to spook a stock price, I completely agree that the PTAB should freely award attorneys fees.

    However, if there is a legitimate question regarding validity of a patent, I am not confident that Hayman’s petition would be thrown out. Even assuming that the PTAB is aware of the ulterior motive, Hayman could respond to an Order to Show Cause simply by arguing that it believes the cost of the drug is artificially high. I’ll admit that it is probably a false pretense, but I think it will be difficult for PTAB judges to dismiss the petition if it sets forth a compelling case that the patent is invalid.

    Regardless of any other motive behind the filing, I think the PTAB considers weeding out invalid patents as its raison d’etre. Without having read the petitions, I would not be surprised if the PTAB allows at least some of the cases to proceed.