10/2/2019
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`Hedge Fund Gets PTAB To Eye VirnetX Patents In Apple Case - Law360
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`Hedge Fund Gets PTAB To Eye VirnetX Patents In
`Apple Case
`
`By Ryan Davis
`Law360, New York (October 7, 2015, 10:00 PM EDT) -- A hedge fund persuaded the Patent Trial and
`Appeal Board on Wednesday to review two VirnetX network security patents that Apple has been
`found to infringe, as the board rejected VirnetX's argument that the fund's petitions should be denied
`as an improper attempt to manipulate its stock price.
`
`The PTAB found that The Mangrove Partners Master Fund Ltd., run by 37-year-old Nathaniel August,
`had shown that there is a "reasonable likelihood" that VirnetX Inc.'s patents are invalid as obvious or
`anticipated. The board instituted America Invents Act inter partes reviews, despite previously
`rejecting multiple petitions by Apple Inc. and Microsoft Corp. challenging the same patents.
`
`Just as it did last month when it decided not to sanction a different hedge fund run by Kyle Bass for
`challenging drug patents under the America Invents Act's inter partes review program, the PTAB said
`that it did not matter that Mangrove challenged VirnetX's patents as part of a short-selling strategy,
`since the AIA allows anyone to file petitions.
`
`"Profit is at the heart of nearly every patent and nearly every inter partes review," it said. "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 petitioner's investment strategy."
`
`The board's decision to review VirnetX's patents at Mangrove's request opens a new chapter in story
`of both the controversial practice of hedge funds targeting patents in AIA reviews and the long-
`running VirnetX infringement litigation.
`
`Mangrove Partners, which has assets under management of $450 million, filed its petitions in April,
`challenging VirnetX's patents on a method for securely communicating over the Internet. VirnetX is a
`patent licensing company that acquired the patents from government contractor Science Applications
`International Corp.
`
`Mangrove apparently followed a model pioneered by Bass, who set up a subsidiary of his Hayman
`Credes Master Fund LP to challenge numerous drug patents. Bass reportedly took a short position in
`the stock of the companies whose patents he targeted and stood to gain if the price dropped. To
`date, the PTAB has denied the three Bass petitions it has ruled on.
`
`VirnetX's patents are significant because a Texas jury found that Apple products infringed them, a
`decision the Federal Circuit largely affirmed last year, although it vacated the jury's $368 million
`damages award. A retrial on damages, combined with a trial over different VirnetX patents, is slated
`for January in the Eastern District of Texas, so Apple could potentially benefit if the patents are
`ultimately invalidated by the PTAB.
`
`In its opposition to Mangrove's petitions, VirnetX argued that they were "part of a rapidly expanding
`group of controversial filings by hedge funds using the inter partes review process to move stock
`prices and reap profits."
`
`VirnetX said that before filing the petitions, Mangrove held a short position of 270,000 shares of
`VirnetX stock. A month after the petitions were filed, when any movement in the stock price caused
`https://www.law360.com/articles/712078/print?section=assetmanagement
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`IPR2015-01046
`Mangrove Partners Master Fund Ltd. & Apple Inc. v. VirnetX Inc.
`IPR2015-01047
`Mangrove Partners Master Fund, Ltd., Apple Inc., and Black Swamp IP, LLC v. VirnetX Inc.
`Exhibit 1053, page 1
`
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`10/2/2019
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`Hedge Fund Gets PTAB To Eye VirnetX Patents In Apple Case - Law360
`by the challenge would have subsided, Mangrove no longer held a short position, VirnetX said.
`
`"This demonstrates that the petition was part of a coordinated investment strategy ... to manipulate
`[VirnetX's] stock price," it said, calling such activity an "improper purpose that the board should not
`condone."
`
`However, the board reiterated the statement it made when it rejected a drug company's motion for
`sanctions against Bass, and held that an AIA petitioner's motives are immaterial. It also rejected
`VirnetX's arguments that Mangrove's petitions failed show likelihood of success or should be rejected
`because numerous other petitions challenging the same patents have failed.
`
`The patents challenged by Mangrove have been the subject of scores of AIA petitions, but none of
`the others were instituted. Apple filed several petitions, which the board denied as time-barred, as
`did Microsoft, which had also been accused of infringement, but later settled with VirnetX. Apple has
`gotten the board to review some other VirnetX patents, however.
`
`A company called New Bay Capital also challenged the same VirnetX patents in 2013, but the
`reviews were terminated after VirnetX accused it of a running a "shakedown" where New Bay said
`it would not challenge the patents in exchange for millions of dollars.
`
`At the urging of drug companies, which have been outraged by Bass' strategy of targeting drug
`patents, Congress is considering legislation that would effectively ban hedge funds from filing AIA
`petitions.
`
`Attorneys for the parties could not immediately be reached for comment Wednesday.
`
`The patents-in-suit are U.S. Patent Numbers 6,502,135 and 7,490,151.
`
`Mangrove is represented by Abraham Kasdan of Wiggin and Dana LLP and James T. Bailey.
`
`VirnetX is represented by Joseph E. Palys and Naveen Modi of Paul Hastings LLP.
`
`The cases are The Mangrove Partners Master Fund Ltd. v. VirnetX Inc., case numbers IPR2015-01046
`and IPR2015-01047, before the Patent Trial and Appeal Board.
`
`--Editing by Jeremy Barker.
`
`All Content © 2003-2019, Portfolio Media, Inc.
`
`https://www.law360.com/articles/712078/print?section=assetmanagement
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`2/2
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`IPR2015-01046
`Mangrove Partners Master Fund Ltd. & Apple Inc. v. VirnetX Inc.
`IPR2015-01047
`Mangrove Partners Master Fund, Ltd., Apple Inc., and Black Swamp IP, LLC v. VirnetX Inc.
`Exhibit 1053, page 2
`
`