The America Invents Act (“AIA”) was (in my opinion) essentially a total capitulation by Congress to the fantasies of the megacorporations that are by far the biggest customers of the U.S. Patent Office (IBM alone accounts for about 2 percent of all patents issued each year). It is therefore ironic that Big Pharma is finding itself dodging a hail of bullets from the procedural assault weapons that the AIA legislated into existence.

Before the AIA, the only practical way to get a patent invalidated was to wait to be sued for infringement, or at least seriously threatened with an infringement suit (so that you could convince a federal district court that a genuine controversy existed, as required for a declaratory judgment action). But thanks in large part to the quite effective PR campaign by the big dogs against so-called “patent trolls” (a misleading term about which I have posted elsewhere), the AIA instituted a procedure whereby anyone can now challenge a patent via a so-called “inter partes review” (“IPR”) proceeding in the patent office.

IPR petitions are not for the faint of heart, or at least not for the light of wallet — the standard filing fees alone come to $23,000, and typical attorney fees are likely to be many times that. The cost of this “remedy” is obviously well beyond the reach of any struggling startup, which is, I’m sure, exactly as intended. (A cynic might observe that, unlike just about every other fee that the patent office charges, which are 50% discounted for small entities and 75% for microentities, the $23,000 fee for an IPR petition is the same for all applicants — no discounts.)

Enter Texas hedge fund guru Kyle Bass, who is certainly neither light of wallet nor faint of heart, and who has teamed up with Erich Spangenberg of IPNav, a Texas lawyer not noted for timidity in asserting patent rights. Per the Wall Street Journal:

A well-known hedge-fund manager is taking a novel approach to making money: filing and publicizing patent challenges against pharmaceutical companies while also betting against their shares.

Kyle Bass, head of Hayman Capital Management LP—which made a fortune wagering on the housing bust—is targeting patents that he says have little value other than to drive up prescription drug prices. His new fund bets against companies whose patents it believes are spurious, and invests in those that would profit if the patents are invalidated, said people familiar with the matter.

Just as a point of reference, the probability of the challenger winning an IPR and getting the challenged patent invalidated has been running around 70%, depending on how you count. (Wait, you mean the PTO is now — itself — invalidating 70% of the patents that it just issued? That would be one way to look at it . . . .)

Anyway, I don’t imagine Big Pharma is too worried. Having just gotten their hands permanently installed in our pockets via the curiously named “Affordable Care Act”, they probably don’t really need patents to keep the extortion flowing. But it’s definitely entertaining to watch a couple of Texas scrappers go after some real patent bullies using the weapons that the they themselves pushed Congress to create. (Naturally, they’re back in Congress pushing for reform of the reform.)

Interview with Kyle Bass on IAM

Statement on pharma strategy by Kyle Bass to House committee

Erich Spangenberg’s predictions about the patent system for 2015 

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