Financiers Challenge Pharmaceutical Patents by Filing Petitions for Inter Partes Review

Inter partes review is a new trial proceeding that became available on September 16, 2012 by the Leahy-Smith America Invents Act (AIA) and allows a third party to challenge a patent directly to the Patent Trial and Appeal Board (Board). A third party can initiate an inter partes review after nine months from the issuance of a patent or after the termination of a post-grant review. A patent can only be challenged under anticipation (§102) or obviousness (§103) standards, and only on the basis of prior art consisting of patents or printed publications. Inter partes review has advantages over challenging the patent in court, as an inter partes review has a faster resolution time than a court proceeding, and the Board may be more likely to overturn the patent. Within the last few months a new trend has occurred: petitions for inter partes review have been filed by financiers that are targeting patents owned by pharmaceutical companies.

Ferrum, a privately held venture, filed a petition for inter partes review of claim 4 of U.S. Patent 7,030,149, assigned to Allergan Sales, LLC (Allergan). See IPR2015-00858, No. 1 Petition. The disputed claim relates to the treatment of glaucoma by administering two known active ingredients, timolol and brimonidine, in a single composition. Although the Federal Court held that claim 4 was not obvious in Allergan, Inc. v. Sandoz Inc., Ferrum is petitioning the cancellation of the claim as unpatentable under §103. According to Ferrum, although the corresponding composition claims were found to be invalid, the claim only survived because two of the three judges of a Federal Circuit panel found certain claim language to be a limitation. Ferrum argues that “when interpreted under the broadest reasonable interpretation standard applicable in inter partes review proceedings, claim 4 would have been obvious.” Id. at 7. Ferrum is able to make this argument because the standard for claim interpretation in an inter partes review is different from that used in the court system. The difference is the “broadest reasonable interpretation” standard as used by the Board, as opposed to the principles of claim constructions as used by courts to interpret claims in a litigation, which is set forth in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005), Id. at 16.

Ferrum is not the first financier to file an inter partes review challenging a pharmaceutical patent. In February, Kyle Bass, through the Coalition For Affordable Drugs (CFAD), filed a petition for an inter partes review for Acorda’s U.S. patent 8,663,685, relating to a treatment for multiple sclerosis. See IPR2015-00817. According to Bass, the basis for filing the inter partes review is to lower drug prices by challenging patents that are granted by simply changing the dosage. Bass claims that Acorda improperly owns the patent on a drug that should be generic because the ‘685 patent was given for this reason. The petition reads: “Not only was that specific dosing regimen known in the prior art at the time of the alleged invention, but the prior art also taught that administering 10 mg twice per day was effective at improving walking in MS patients, while avoiding side effects attendant to higher daily doses.” Id.

Acorda isn’t the only pharmaceutical company that Bass is pursuing. Bass plans to begin an inter partes review process by challenging 15 firms and their patents: “We are going to challenge and invalidate patents through the inter partes review process and we are not going to settle. The companies that are expanding patents by simply changing the dosage or the way they are packaging something are going to get knee capped…This is going to lower drug prices for Medicare and for everyone.”

While pharmaceutical drug patents often come under attack from generic manufacturers, Bass’s petition was the first time a hedge fund challenged a patent in an inter partes review. While he expressed the inter partes review process as a strategy to lower drug prices, some have viewed this as an investment opportunity for him to profit through a short position on the pharmaceutical company’s stock. The mere filing of an inter partes review can alarm investors and impact the trading volumes enough to cause a temporary price drop (i.e., quick profit for a short seller). On the day the inter partes review was filed, Acorda Therapeutics stock fell almost 10 percent.

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