Texas hedge fund manager J. Kyle Bass’ big short strategy lives on.
The founder of Hayman Capital Management just scored a victory in his big war against the pharmaceutical industry and what he has called their “BS patents.”
Bass’ has been filing petitions with the United States Patent and Trademark Office challenging drugmakers’ patents while shorting their stocks. Some of the drugmakers responded by filing for sanctions and describing that strategy as an abuse of process.
The Patent Trial and Appeal Board, part of the USPTO, said in a notice on Friday that an economic motive is not “an abuse of process”:
Profit is at the heart of nearly every patent and nearly every inter partes review. As such, an economic motive for challenging a patent claim does not itself raise abuse of process issues. We take no position on the merits of short-selling as an investment strategy other than it is legal, and regulated.
This means Bass can continue to challenge drugmakers’ patents.
Bass created the Coalition for Affordable Drugs earlier this year, and the group has now filed 36 inter partes review (IPR) petitions with the USPTO challenging the validity of some drugmakers’ patents while also betting against the company’s stocks.
Some of his targets, including pharma giant Celgene, have filed motions with the USPTO for sanctions on a claim of “abuse of process” by Bass, claiming he is driven by an economic motive. He’s filed five IPRs against Celgene’s drug patents.
It’s all part of an “activist short strategy” that Bass thinks will end what he considers to be “pay for delay” agreements that stop lower-cost generic drug competitors from entering the market.
Bass has fully admitted a profit motive. He’s also pointed out that the drug companies are also in the business of making money when they fight to keep their patents longer and therefore to keep their drug prices high.
What’s more, on top of Bass making money for his fund and investors, if he is successful, his actions could save American consumers significant amounts of money.
Right now, the strategy isn’t playing out in Bass’ favour. He’s had petitions for two drugs tossed out before a trial could be held. He has said that he’s going to “fight” and that he’s “not a quitter.”
We reached out to Bass for comment.
Here’s the filing:
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