Paper No. ___
`Filed: July 30, 2015
`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`
`__________________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`__________________
`
`COALITION FOR AFFORDABLE DRUGS IV LLC
`
`Petitioner
`
`v.
`
`
`PHARMACYCLICS LLC
`
`Patent Owner
`
`__________________
`
`
`Case IPR2015-01076
`Patent No. 8,754,090
`
`__________________
`
`PATENT OWNER’S MOTION FOR SANCTIONS PURSUANT TO
`37 C.F.R. § 42.12
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`
`
`Filed: July 30, 2015
`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`
`__________________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`__________________
`
`COALITION FOR AFFORDABLE DRUGS IV LLC
`
`Petitioner
`
`v.
`
`
`PHARMACYCLICS LLC
`
`Patent Owner
`
`__________________
`
`
`Case IPR2015-01076
`Patent No. 8,754,090
`
`__________________
`
`PATENT OWNER’S MOTION FOR SANCTIONS PURSUANT TO
`37 C.F.R. § 42.12
`
`
`
`
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`
`
`
`
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`Table of Contents
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`Page
`
`I.
`
`INTRODUCTION ........................................................................................... 1
`
`II.
`
`RELIEF REQUESTED ................................................................................... 2
`
`III. REASONS FOR REQUESTED RELIEF ....................................................... 3
`
`A.
`
`
`B.
`
`
`The Legislative History Shows Inter Partes Reviews Were
`Designed To Offer An Efficient, Cost-Effective Litigation
`Alternative ............................................................................................. 3
`
`The Board Should Dismiss the Petition As A Sanction For
`Petitioner’s Abuse Of Process And Improper Use ................................ 6
`
`1.
`
`2.
`
`3.
`
`The Board Should Adopt The Traditional Approach To
`Abuse Of Process And Improper Use ......................................... 6
`
`The Board Should Apply A “Reasonable Likelihood”
`Standard Of Proof
`In Adjudicating Motions For
`Sanctions For Abuse Of Process Or Improper Use ..................10
`
`The Petitioner Is Improperly Using This Proceeding To
`Affect Pharmacyclics’s Stock Price, A Purpose For
`Which It Was Not Designed .....................................................11
`
`IV. CONCLUSION ..............................................................................................15
`
`
`
`
`
`i
`
`
`
`
`
`Cases
`
`Table of Authorities
`
`Page(s)
`
`Dassault Systemes, S.A. v. Childress,
`No. 09-10534, 2014 WL 6865498 (E.D. Mich. Dec. 3, 2014) ............................... 8
`
`Herman & Maclean v. Henderson,
`459 U.S. 375 (1983) ....................................................................................... 10, 11
`
`In re Applications of High Plains Wireless, L.P.,
`15 F.C.C. Rcd. 4620 (2000) .................................................................................... 8
`
`Steadman v. SEC,
`450 U.S. 91 (1981) ......................................................................................... 10, 11
`
`Vitronics Corp. v. Conceptronic, Inc.,
`No. C-91-696-L, 1993 WL 300882 (D.N.H. Mar. 29, 1993) ................................. 8
`
`Wenger Mfg., Inc. v. Coating Mach. Sys., Inc.,
`No. 4-98-CV-90083, 1999 WL 33268173 (S.D. Iowa Sept. 30, 1999).................. 8
`
`Statutes
`
`35 U.S.C. § 314(a) ...................................................................................................10
`
`35 U.S.C. § 316 .......................................................................................................... 1
`
`5 U.S.C. § 556(d) .....................................................................................................11
`
`Other Authorities
`
`153 Cong. Rec. E774 (Apr. 18, 2007) ....................................................................... 4
`
`157 Cong. Rec. S5319-03 (Sept. 6, 2011) ................................................................. 3
`
`H.R. Rep. No. 112-98, pt 1 (June 1, 2011) ............................................................... 4
`
`RESTATEMENT OF TORTS (2d.) § 682 (1979) ..........................................................7, 8
`
`S. Rep. No. 110-259 (Jan. 24, 2008) .......................................................................... 4
`
`
`
`ii
`
`
`
`
`
`Rules
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`FED. R. EVID. 404(b)(2) ............................................................................................13
`
`Regulations
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`37 C.F.R. § 42.1(b) ................................................................................................2, 8
`
`37 C.F.R. § 42.12 ...................................................................................................2, 3
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`37 C.F.R. § 42.12(a)(7) .............................................................................................. 9
`
`
`
`iii
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`
`
`
`
`PATENT OWNER’S UPDATED EXHIBIT LIST
`
`Pharmacyclics
`Exhibit No.
`
`DESCRIPTION
`
`2001
`
`2002
`
`2003
`
`2004
`
`2005
`
`2006
`
`2007
`2008
`
`2009
`
`2010
`
`2011
`
`FDA Press Release, “FDA Approves Imbruvica For Rare Blood
`Cancer” (Nov. 13, 2013), available at
`http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncement
`s/ucm374761.htm
`Howard, O., “Mantle Cell Lymphoma.” Malignant Lymphomas
`Ed. Grossbard, ML London: BC Decker Inc. 2002 135-51)
`Wang, M., et al., Targeting BTK with Ibrutinib in Relapsed or
`Refractory Mantle-Cell Lymphoma, 369 N. Eng. J. Med. 507
`(2013)
`European Medicines Agency, “Assessment Report for Torisel”
`(August 25, 2009), available at
`http://www.ema.europa.eu/docs/en_GB/document_library/EPAR
`_-_Assessment_Report_-
`_Variation/human/000799/WC500039918.pdf
`Ohio State University Medical Center. "Drug shows surprising
`efficacy as treatment for chronic leukemia, mantle cell
`lymphoma." ScienceDaily (June 19, 2013) available at
`www.sciencedaily.com/releases/2013/06/130619195217.htm.
`Johnson & Johnson Press Release, “Ibrutinib Receives Two
`Oncology Breakthrough Therapy Designations from U.S. Food
`and Drug Administration” (Feb. 12, 2013), available at
`http://www.jnj.com/news/all/ibrutinib-receives-two-oncology-
`breakthrough-therapy-designations-from-us-food-and-drug-
`administration
`S. 3187 Prescription Drug User Fee Amendments of 2012
`Office Action, Non-Final Rejection (March 13, 2013), U.S.
`Patent App. No. 13/340,522
`Notice of Allowability (March 31, 2014), U.S. Patent App. No.
`13/340,522
`Chang, B.Y., et al “Egress of CD191CD51 cells into peripheral
`blood following treatment with the Bruton tyrosine kinase
`inhibitor ibrutinib in mantle cell lymphoma patients” Blood,
`122(14): 2412-2424
`Schlette, E., et al, “CD23 Expression in Mantle Cell Lymphoma:
`Clinicopathologic Features of 18 Cases” Am J. Clin. Pathol.
`
`iv
`
`
`
`
`
`Pharmacyclics
`Exhibit No.
`
`2012
`
`2013
`
`2014
`
`2015
`
`2016
`
`2017
`
`2018
`
`2019
`
`2020
`
`2021
`
`2022
`
`2023
`
`DESCRIPTION
`
`2003;120:760-766
`Form ADV Brochure of Hayman Capital Management L.P. (Mar.
`30, 2015)
`Form ADV of Hayman Capital Management L.P. (Mar. 30,
`2015)
`Delaware Certificates of Formation for Coalition for Affordable
`Drugs (ADROCA) LLC and Coalition for Affordable Drugs II
`LLC through XV
`Request for Continued Examination and Information Disclosure
`Statement (January 31, 2014), U.S. Patent App. No. 13/340,522
`Argyriou, A.A., et al., “Bortezomib-induced peripheral
`neurotoxicity: an update,” Arch Toxicol (2014) 88:1669–1679
`PRNewswire, “Pharmacyclics Reports Fourth Quarter and Full
`Year 2014 Financial Results and Provides Business Updates”
`(Feb. 18, 2015), available at http://www.prnewswire.com/news-
`releases/pharmacyclics-reports-fourth-quarter-and-full-year-
`2014-financial-results-and-provides-business-updates-
`300038067.html
`Highlights of Prescribing Information: Imbruvica (ibrutinib),
`available at
`http://www.accessdata.fda.gov/drugsatfda_docs/label/2014/2031
`47s000lbl.pdf
`The Wall Street Journal, “New Hedge Fund Strategy: Dispute the
`Patent, Short the Stock;” (2015) available at
`http://www.wsj.com/articles/hedge-fund-manager-kyle-bass-
`challenges-jazz-pharmaceuticals-patent-1428417408.
`Law360, “Shire Drugs Are Next Targets of Hedge Fund’s AIA
`Reviews;” (2015), available at
`http://www.law360.com/articles/638836/shire-drugs-are-next-
`targets-of-hedge-fund-s-aia-reviews.
`Hayman Capital Management, L.P. “Statement of J. Kyle Bass
`Chief Investment Officer, Hayman Capital Management, L.P.;”
`(2015).
`Delaware Department of State: Division of Corporations,
`“Coalition for Affordable Drugs IV LLC – Entity Details”
`IP Watchdog, “Senator Coons – Patents Are about the American
`Dream;” (2015), available at
`
`v
`
`
`
`
`
`Pharmacyclics
`Exhibit No.
`
`2024
`
`
`
`DESCRIPTION
`
`http://www.ipwatchdog.com/2015/03/05/senator-coons-patents-
`are-about-the-american-dream/id=55442/.
`Pharma: The Catalyst, “What They Are Saying: Close Patent
`Loopholes That Threaten Innovation for Patients;” (2015),
`available at http://catalyst.phrma.org/what-they-are-saying-close-
`patent-loopholes-that-threaten-innovation-for-patients.
`
`vi
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`
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`
`
`I.
`
`INTRODUCTION
`
`The Leahy-Smith America
`
`Invents Act
`
`(“AIA”) established new
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`administrative trial proceedings, including inter partes reviews (“IPRs”), to
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`provide efficient, quick, and cost-effective alternatives to district court litigation
`
`before the Patent Trial and Appeal Board (“Board”). In designing those
`
`proceedings, Congress did not intend to provide a tool for hedge funds to affect the
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`stock prices of public companies for private financial gain to the detriment of those
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`companies and the investing public. Correctly anticipating the potential for abuse,
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`Congress empowered the Patent Office to sanction any misconduct before the
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`Board including abuse of process. See 35 U.S.C. § 316(a)(6); 35 U.S.C. § 316(b).
`
`Here, hedge fund subsidiary the Coalition for Affordable Drugs IV, LLC’s
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`(“Petitioner” or “Coalition”) recent IPR campaign, which includes the instant
`
`petition for inter partes review (“Petition”) along with fifteen others,1 is a prime
`
`example of the type of abuse Congress predicted and authorized the Patent Office
`
`to end. Pharmacyclics is confident in the strength of its patent, but should not be
`
`required to expend extensive resources defending them in the face of Petitioner’s
`
`abuse of process.
`
`
`1 See IPR2015-0070, -817, -988, -990, -1018, -1086, 1092, -1093, -1096, -1002, -
`
`1003, -1136, -1169, -1241, -1344 (“Coalition Petitions”).
`
`1
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`
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`
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`Following Congress’s directive, the Patent Office implemented 37 C.F.R.
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`§ 42.12, which outlines types of sanctionable misconduct, e.g., abuse of process
`
`and other improper use, and available sanctions, e.g., dismissal of the Petition.
`
`Here, Petitioner’s misconduct warrants dismissal. Petitioner did not file the
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`Petition as an alternative to district court litigation. Instead, Petitioner is using this
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`proceeding primarily to advance its own agenda shorting pharmaceutical stocks to
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`enrich its hedge fund investors unrelated to the purpose of the AIA, as set forth in
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`the bill itself and its legislative history, and unrelated to any competitive interest in
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`the validity of the challenged patents. The Board should take this opportunity to
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`end further abuse of the IPR system at the hands of non-practicing investment
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`funds and set a precedent by dismissing the Petition. Petitioner’s perversion of the
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`IPR process for its own private gain constitutes both an abuse of process and an
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`improper use of the IPR system. The Board should sanction Petitioner and dismiss
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`the Petition in its entirety.
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`II. RELIEF REQUESTED
`
`Pursuant to 37 C.F.R. § 42.12, the Board should dismiss the Petition to
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`sanction Petitioner’s abuse of process and “improper use” of these proceedings.2
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`2 If the Board dismisses the Petition pursuant to this motion, Pharmacyclics intends
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`to seek authorization for a motion for compensatory expenses, including attorneys’
`
`
`
`2
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`
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`III. REASONS FOR REQUESTED RELIEF
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`As a whole, the AIA was designed to reduce abusive patent litigation tactics
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`and offer more streamlined litigation alternatives. The legislative history of the
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`AIA makes clear that Congress’s intent in designing IPR proceedings specifically
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`was to provide an efficient and affordable alternative to litigation. Publicly
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`available evidence shows at least a reasonable likelihood that Petitioner did not file
`
`the Petition to seek an alternative to litigation. Indeed, district court litigation is
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`not available to hedge fund subsidiary Petitioner. Instead, Petitioner filed the
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`Petition with the primary purposes of affecting Pharmacyclics’s stock price and
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`generating publicity to attract more investors. Because Petitioner primarily filed
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`the Petition for those purposes, Petitioner has both abused the process and
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`improperly used this IPR proceeding. The Board should sanction that misconduct
`
`to end the abuse and dismiss the Petition under 37 C.F.R. § 42.12(a)(6) and (7).
`
`
` The Legislative History Shows Inter Partes Reviews Were A.
`Designed To Offer An Efficient, Cost-Effective Litigation
`Alternative
`
`Congress passed the AIA to crack down on patent “litigation abuses. . . that
`
`have done serious harm to American businesses.” 157 Cong. Rec. S5319-03 (Sept.
`
`6, 2011). To that end, Congress designed administrative proceedings such as inter
`
`fees, from the Petitioner associated with preparing and filing its Patent Owner
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`Preliminary Response and this motion pursuant to 37 C.F.R. § 42.12(b)(6).
`
`3
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`
`
`
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`partes reviews to “provid[e] quick and cost effective alternatives to litigation.”
`
`H.R. Rep. No. 112-98, pt. 1, at 48 (June 1, 2011); see also 157 Cong. Rec. S5411
`
`(Sept. 8, 2011); 153 Cong. Rec. E774 (Apr. 18, 2007); 112 Cong. Rec. S952 (Feb.
`
`28, 2011). Congress felt that creating a second avenue to challenge the validity of
`
`patents only made sense “if such proceedings substitute for a phase of district-court
`
`litigation.” S. Rep. No. 110-259 at 66 (Jan. 24, 2008).
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`In enacting the AIA, Congress intended that the Board have wide discretion
`
`to award sanctions for misconduct. With the creation of inter partes reviews,
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`Congress encouraged the enactment of “procedural safeguards to prevent a
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`challenger from using the process to harass patent owners.” 112 Cong. Rec. S952
`
`(Feb. 28, 2011). Congressional leaders recognized that there was a real risk of
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`“frivolous types of lawsuits” or repetitive, unjustified claims in the post-grant
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`review setting and proposed empowering the Office to issue regulations to take
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`action against abuse of processes:
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`In the administrative process I think empowering the PTO to take
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`action against abuses of its processes is the way to go there. I don’t
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`think you need artificial limits on how it works, you could certainly
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`prevent people from bringing some repetitive administrative claims
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`but also just giving the PTO the power to issue regulations to prevent
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`abuse of its processes I think would do the trick.
`
`4
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`
`
`
`
`HR’G, HOUSE JUD. COMM., SUBCOMM. ON INTELL. PROP. at 53 (Statement of Rep.
`
`Pincus) (March 10, 2011). Although Congress had not yet at that point seen “no
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`kind of money that tends to change hands with [administrative proceedings]. . . so
`
`far”, Congress anticipated that individuals and companies may find new ways to
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`abuse the process that Congress could not necessarily forecast. Id. at 53-54. To
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`that end, Congress intentionally provided the Patent Office with the express
`
`authority to promulgate regulations to protect patent owners from harassment by
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`unscrupulous petitioners. 35 U.S.C. § 316(a)(6). Congress also instructed that IPR
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`proceedings are “not to be used as [a] tool[] for harassment.” Id.
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`Under Congress’s directive, the Office implemented regulations governing
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`conduct before the Board, including regulations governing sanctions. Those
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`regulations provide that “the Board may impose a sanction against a party for
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`misconduct, including:”
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`(2) Advancing a misleading or frivolous argument or request for
`
`relief;
`
`. . .
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`(6) Abuse of process; or
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`(7) Any other improper use of the proceeding, including actions that
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`harass or cause unnecessary delay or an unnecessary increase in the
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`cost of the proceeding.
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`37 C.F.R. § 42.12(a) (emphasis added).
`
`5
`
`
`
`
`
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`B.
`
`The Board Should Dismiss the Petition As A Sanction For
`Petitioner’s Abuse Of Process And Improper Use
`
`Petitioner’s misconduct using this inter partes review proceeding as a means
`
`to affect the market should not be tolerated. Petitioner’s actions in creating entities
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`to file serial petitions against pharmaceutical companies divert judicial resources
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`from deciding real issues and are tantamount to at least some degree of harassment.
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`For the reasons set forth below, the Board should curb Petitioner’s abuse and
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`misuse of the inter partes review process3 and dismiss the Petition in its entirety.
`
`1.
`
`The Board Should Adopt The Traditional Approach
`To Abuse Of Process And Improper Use4
`
`By its usual meaning, “abuse of process” requires (1) the use of a legal
`
`process against another (2) primarily to accomplish a purpose for which that
`
`3 While the instant motion focuses on the “abuse of process” and “any other
`
`improper use of the proceeding” prongs pursuant to 37 C.F.R. § 42.12(a)(6) and
`
`(7), the Coalition has also engaged in advancing a seemingly frivolous argument.
`
`Its petition does nothing more than raise the patent owner’s own alleged prior art
`
`references, all of which Patent Owner submitted to the Patent Office, and all of
`
`which the Examiner considered during prosecution. See 37 C.F.R. § 42.12(a)(2).
`
`4 In the Order authorizing this motion, the Board requested that the parties brief the
`
`elements for “abuse of process” and “other improper use” sanctions under 37
`
`C.F.R. § 42.12(a)(6) and (7) respectively. Paper 15, at 2.
`
`6
`
`
`
`
`
`process is not designed.5 RESTATEMENT OF TORTS (2d.) § 682 (1979) (“One who
`
`uses a legal process, whether criminal or civil, against another primarily to
`
`accomplish a purpose for which it is not designed, is subject to liability to the other
`
`for harm caused by the abuse of process.”) The Board should adopt those elements
`
`in adjudicating abuse of process sanctions under 37 C.F.R. § 42.12(a)(6) and
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`“improper use” sanctions under 37 C.F.R. § 42.12(a)(7) for several reasons.
`
`First, the Board should adopt the Restatement approach because it is
`
`consistent with the plain language of the statute. “Abuse of process” is a term
`
`derived from common law torts. Nothing in the AIA or its legislative history
`
`suggests that “abuse of process” should mean anything other than its commonly
`
`understood meaning. Accordingly, the term “abuse of process” should be given its
`
`commonly understood meaning. E.g., BLACK’S LAW DICTIONARY (10th ed. 2014).
`
`Second, the Board should adopt the Restatement approach because of its
`
`ease of application. The simplicity of the traditional approach would help the
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`Board fulfill its mandate to secure “the just, speedy, and inexpensive resolution of
`
`
`5 To the extent the Board is inclined to adopt “harm” as a separate element of abuse
`
`of process, that element is met as well. Pharmacyclics been harmed by having to
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`incur significant attorneys’ fees and other expenses in defending against this
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`improperly filed Petition.
`
`7
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`
`
`
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`every proceeding.” 37 C.F.R. § 42.1(b). Under that approach, the Board need not
`
`consider the Petition on its merits to reach a conclusion of misconduct.
`
`RESTATEMENT OF TORTS (2d.) § 682, cmt. A (“it is immaterial that the process was
`
`properly issued, that it was obtained in the course of proceedings that were brought
`
`with probable cause and for a proper purpose, or even that the proceedings
`
`terminated in favor of the person instituting or initiating them.”). Accordingly, the
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`Board could remedy misconduct without wasting unnecessary resources reviewing
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`abusive petitions on the merits.
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`Third, the Board should adopt the Restatement approach for consistency.
`
`Other federal agencies, including the Federal Communications Commission, apply
`
`a definition of abuse of process identical to the Restatement approach. In re
`
`Applications of High Plains Wireless, L.P., 15 F.C.C. Rcd. 4620, 4623 (2000)
`
`(“‘[A]buse of process’ has been defined as ‘the use of a Commission process,
`
`procedure or rule to achieve a result which that process, procedure or rule was not
`
`designed or intended to achieve.’”). Many states have adopted the Restatement’s
`
`definition of abuse of process as well. E.g., Dassault Systemes, S.A. v. Childress,
`
`No. 09-10534, 2014 WL 6865498, at *10 (E.D. Mich. Dec. 3, 2014); Wenger Mfg.,
`
`Inc. v. Coating Mach. Sys., Inc., No. 4-98-CV-90083, 1999 WL 33268173, at *4
`
`(S.D. Iowa Sept. 30, 1999); Vitronics Corp. v. Conceptronic, Inc., No. C-91-696-L,
`
`1993 WL 300882, at *2 (D.N.H. Mar. 29, 1993). Finally, Celgene Corporation,
`
`8
`
`
`
`
`
`another target of Petitioner’s recent campaign, also has advocated this same
`
`approach to the Board in its motion for sanctions. Coalition for Affordable
`
`Drugs VI LLC v. Celgene Corp., Case IPR2015-01092, Paper 11, at 11. For at
`
`least those reasons, the Board should consider abuse of process to require (1) the
`
`use of a legal process against another (2) primarily to accomplish a purpose for
`
`which that process is not designed.
`
`With respect to “other improper use”, it is clear from the plain language of
`
`the statute that that phrase is intended to capture additional misconduct, which
`
`includes but is not limited to “actions that harass or cause unnecessary delay or an
`
`unnecessary increase in the cost of the proceeding.” 37 C.F.R. § 42.12(a)(7).
`
`Accordingly, the Board should consider “improper use” under 37 C.F.R. §
`
`42.12(a)(7) to broadly encompass culpable conduct, including abuse of process,
`
`malicious prosecution, actions that harass, cause unnecessary delay or unnecessary
`
`increase in the cost of the proceeding, and any other misconduct in which a party
`
`misuses a proceeding. See also Coalition for Affordable Drugs VI LLC v. Celgene
`
`Corp., Case IPR2015-01092, Paper No. 11, at 11 (arguing in favor of an expansive
`
`definition of “improper use” under 37 C.F.R. § 42.12(a)(7)).
`
`9
`
`
`
`
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`2.
`
`The Board Should Apply A “Reasonable Likelihood”
`Standard Of Proof In Adjudicating Motions For
`Sanctions For Abuse Of Process Or Improper Use6
`
`For inter partes reviews, Congress has set forth a “reasonable likelihood of
`
`success” standard to the threshold issues affecting whether the Board should
`
`institute trial, and that standard should govern here. See 35 U.S.C. § 314(a);
`
`Herman & Maclean v. Henderson, 459 U.S. 375, 389 (1983) (holding when
`
`Congress prescribes by statute a standard of proof for federal agency proceedings,
`
`that standard of proof governs); Steadman v. SEC, 450 U.S. 91, 95-96 (1981)
`
`(same). Pharmacyclics’s motion for sanctions addresses a threshold issue: whether
`
`the Board should permit the Petition to proceed to institution and trial, or whether
`
`the Board should sanction the Petitioner and dismiss the Petition outright for abuse
`
`of process and improper use of the IPR system. Because sanctions for misconduct
`
`like abuse of process and improper use are threshold issues, the Board should
`
`apply a “reasonable likelihood” standard to evaluate sanctions motions for abuse of
`
`process under 37 C.F.R. § 42.12(a)(6) or improper purpose under 37 C.F.R. §
`
`42.12(a)(7). See also Coalition for Affordable Drugs VI LLC v. Celgene Corp.,
`
`Case IPR2015-01092, Paper No. 11, at 10 n.3 (advocating the same standard).
`
`
`6 In the Order authorizing this motion, the Board requested that the parties address
`
`the appropriate standard of proof. Paper 15, at 2.
`
`10
`
`
`
`
`
`If the Board declines to treat abuse of process and improper use as threshold
`
`issues, the Board should not apply any standard of proof higher than a
`
`preponderance of the evidence in considering motions for sanctions for abuse of
`
`process or improper use. 5 U.S.C. § 556(d); Steadman, 450 U.S. at 96-102
`
`(holding that default standard of proof in federal agency proceedings is a
`
`preponderance of the evidence); see also Herman & Maclean, 459 U.S. at 389-91
`
`(noting preponderance of the evidence is employed as standard of proof in federal
`
`agency proceedings even when “severe civil sanctions” are at issue).
`
`3.
`
`The Petitioner Is Improperly Using This Proceeding
`To Affect Pharmacyclics’s Stock Price, A Purpose For
`Which It Was Not Designed
`
`Petitioner did not file the Petition with the primary purpose of seeking a low-
`
`cost and efficient alternative to litigation over the validity of U.S. Patent No.
`
`8,754,090 (“the ’090 Patent”). Instead, publicly available evidence proves that
`
`Petitioner filed the Petition for the primary purposes of affecting Pharmacyclics’s
`
`stock price and attracting additional investors to Petitioner and its related hedge
`
`funds through press coverage. Accordingly, Petitioner used a legal process (IPR)
`
`against another (Pharmacyclics) primarily to accomplish a purpose for which that
`
`process is not designed (affecting Pharmacyclics’s stock price and gaining
`
`investors). Accordingly, Petitioner is abusing this IPR process and/or using it for
`
`an improper use and should be sanctioned.
`
`11
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`
`
`
`
`Petitioner is a wholly owned subsidiary of a Cayman Islands hedge fund,
`
`Hayman Credes Master Fund, L.P. (Pet. at 3.) Hayman Credes Master Fund,
`
`L.P.’s stated primary purpose is to generate superior risk-adjusted returns through
`
`long or short positions with regards to selected companies, primarily in the
`
`pharmaceutical sector. (Ex. 2012 at 5.) Petitioner filed this Petition to serve the
`
`primary purpose of its parent fund: attempting to profit from a fall in
`
`Pharmacyclics’s stock price triggered by Petitioner’s filing of the Petition. Indeed,
`
`one of Petitioner’s sister entities has all but admitted that the primary purpose
`
`behind this Petition and others is to profit from holding short positions in the stock
`
`of companies whose patents are challenged. Coalition for Affordable Drugs V LLC
`
`v. Biogen MA Inc., IPR2015-01086, Paper No. 17 at 11 (July 3, 2015) (“Petitioner
`
`admits that it does have an economic interest in filing and pursuing these petitions
`
`to final decisions”). Further, with respect to the campaign of IPR petitions filed by
`
`Petitioner and its sister entities, Hayman Capital Management, also an identified
`
`real party-in-interest to this proceeding, collects twenty percent from all profits
`
`earned on the shorted stocks. (Ex. 2019 at 4.) And the evidence in other IPR
`
`proceedings filed by Bass-affiliated indicates that this Petition was filed for the
`
`same primary purpose as other Bass-directed and Hayman Credes-affiliated
`
`petitions: extracting profit from pharmaceutical companies. E.g., Coalition for
`
`Affordable Drugs VI LLC v. Celgene Corp., Case IPR2015-01092, Paper 11
`
`12
`
`
`
`
`
`(Patent Owner Motion for Sanctions), at 1-7 (describing real parties-in-interest
`
`Kyle Bass’s and Erich Spangenberg’s efforts to profit from filing IPR petitions
`
`against Celgene Corp.).7
`
`Additionally, Mr. Bass, one of the real parties-in-interest, has used this
`
`Petition and others for the primary purpose of attracting investors to his flagging
`
`hedge fund. Indeed, Mr. Bass has publicly stated that one of the goals of his IPR
`
`campaign is to grow his fund, (ex. 2020 at 1), which requires a $1 million initial
`
`investment. (Ex. 2019 at 4.) Following recent struggles in which last year Hayman
`
`Capital posted a loss, (Id.), Mr. Bass has been pitching the IPR-based investment
`
`strategies that led to this Petition to “wealthy individuals and institutions to invest
`
`in a dedicated fund that would bet against, or short, the shares of companies whose
`
`patents Mr. Bass believed to be specious, and wager on rivals that could
`
`benefit.” (Id.) Mr. Bass even plugged his firm, Hayman Capital Management—
`
`another real party-in-interest—in a public statement to Congress about his IPR
`
`campaign. (Ex. 2021 at 2-3.)
`
`Despite Petitioner’s carefully vetted public statements to the contrary,
`
`Petitioner cannot plausibly claim that it has any purportedly altruistic motives for
`
`
`7 Petitioner’s and the real parties-in-interests’ behavior in other proceedings is
`
`evidence of Petitioner’s plan, motive, or intent here. FED. R. EVID. 404(b)(2).
`
`13
`
`
`
`
`
`filing the Petition. Despite the Coalition’s given name, all Coalition entities are
`
`strictly for-profit entities. (Ex. 2022.) Mr. Bass, who admittedly controls and
`
`directs the Coalition’s IPR filings, has one job: maximizing returns for his hedge
`
`fund’s investors. (Ex. 2012 at 5.) Indeed, he has a fiduciary duty to maximize his
`
`investors’ returns, not to serve any manufactured public interest that Petitioner and
`
`its related entities have adopted as a smokescreen. Petitioner’s and the real
`
`parties-in-interests’ pattern of filing IPR petitions only against publicly held
`
`companies further illustrates that Petitioner is primarily seeking returns for his
`
`investors through short position. See Coalition Petitions.
`
`Petitioner has no competitive purpose for filing the Petition, either.
`
`Petitioner does not compete with Pharmacyclics in any way. Petitioner does not
`
`research, develop, or deliver breakthrough therapies that address serious medical
`
`needs of terminally ill cancer patients. Nor has Petitioner filed any Abbreviated
`
`New Drug Application under the Hatch-Waxman Act to suggest that Petitioner is
`
`entering the generics market.
`
`Petitioner’s recent campaign has not gone unnoticed by Congress. Recently,
`
`U.S. Senator Chris Coons has characterized Petitioner’s assault on pharmaceutical
`
`patents as an “abuse” and a “misuse of post grant proceedings” that “is not
`
`intended to increase competition but to instead to scare away investment.” (Ex.
`
`14
`
`
`
`
`
`2023 at 4.) And the Patent Office’s former General Counsel never expected
`
`petitioners to exploit the IPR process as an investment vehicle. (Ex. 2024 at 2.)
`
`Simply put, the evidence in this proceeding establishes at least a reasonable
`
`likelihood that Petitioner filed the Petition for the primary purposes of profiting
`
`from short sales of Pharmacyclics’s stock and attracting investors to Mr. Bass’s
`
`various investment vehicles and hedge funds. No other primary purpose is
`
`plausible in light of the evidence.
`
`IV. CONCLUSION
`
`Pharmacyclics has established at least a reasonable likelihood that
`
`Petitioner’s primary purpose in filing this Petition was not to seek a low-cost
`
`litigation alternative, but rather to drive down Pharmacyclics’s stock price and
`
`generate publicity for the Coalition. For the reasons explained above, the Court
`
`should sanction Petitioner’s misconduct by dismissing the Petition in its entirety.
`
`Dated: July 30, 2015
`
`
`
`Respectfully submitted,
`
`By: /kkm/
`Kevin K. McNish (Reg. No. 65,047)
`kmcnish@desmaraisllp.com
`DESMARAIS LLP
`230 Park Avenue
`New York, NY 10169
`Telephone: 212-351-3400
`Facsimile: 212-351-3401
`
`Counsel for Patent Owner
`Pharmacyclics LLC
`
`
`
`15
`
`
`
`
`
`CERTIFICATE OF SERVICE
`
`Pursuant to 37 C.F.R. § 42.6(e), the undersigned certifies that on July 30,
`
`2015, a complete copy of the foregoing was served on counsel of record for the
`Petitioner by filing this document through the Patent Review Processing System
`and by sending this document via electronic mail to the following addresses:
`
`Jeffrey S. Ward
`Registration No. 32,774
`MERCHANT & GOULD, P.C.
`10 E. Doty Street
`Suite 600
`Madison, WI 53703-3376
`Telephone: (608) 280-6751
`Facsimile: (612) 332-9081
`jward@merchantgould.com
`
`Jeffrey D. Blake, Esq.
`Registration No. 58,884
`MERCHANT & GOULD, P.C.
`191 Peachtree Street N.E.
`Suite 4300
`Atlanta, GA 30303
`Telephone: (404) 954-5040
`Facsimile: (404) 954-5099
`jblake@merchantgould.com
`
`Brent E. Routman
`(Pro Hac Vice)
`MERCHANT & GOULD, P.C.
`3200 IDS Center
`80 South 8th Street
`Minneapolis, MN 55402-2215
`Telephone: (612) 332-5300
`Facsimile: (612) 332-9081
`broutman@merchantgould.com
`
`Shane A. Brunner
`(Pro Hac Vice)
`MERCHANT & GOULD, P.C.
`10 E. Doty Street
`Suite 600
`Madison, WI 53703-3376
`Telephone: (608) 280-6753
`Facsimile: (612) 332-9081
`sbrunner@merchantgould.com
`
`Dated: July 30, 2015
`
`
`
`Respectfully submitted,
`
`/kkm/
`Kevin K. McNish (Reg. No. 65,047)
`kmcnish@desmaraisllp.com
`DESMARAIS LLP
`230 Park Avenue
`New York, NY 10169
`Telephone: 212-351-3400
`Facsimile: 212-351-3401
`
`Counsel for Patent Owner
`Pharmacyclics LLC
`
`
`
`
`
`16
`
`
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