throbber
Paper No. __
`Filed: July 28, 2015
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`UNITED STATES PATENT AND TRADEMARK OFFICE
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`________________
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`BEFORE THE PATENT TRIAL AND APPEAL BOARD
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`________________
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`COALITION FOR AFFORDABLE DRUGS VI LLC
`Petitioner,
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`v.
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`CELGENE CORPORATION
`Patent Owner
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`________________
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`Case IPR2015-01103
`Patent 6,315,720
`________________
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`PATENT OWNER MOTION FOR SANCTIONS
`PURSUANT TO 35 U.S.C. § 316(a)(6) AND 37 C.F.R. § 42.12
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`Patent Owner Motion For Sanctions
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`TABLE OF CONTENTS
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`IPR2015-01103
`Patent 6,315,720
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`Page
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`I.
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`II.
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`INTRODUCTION ...............................................................................................................1
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`PRIOR THREATS AND RELEVANT FACTS..................................................................2
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`III.
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`ARGUMENT .......................................................................................................................7
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`A.
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`B.
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`This petition is contrary to the AIA and its legislative history ................................7
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`The Board should dismiss the Petition as a sanction against the RPI for
`their abuse and improper use of these proceedings .................................................9
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`IV.
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`CONCLUSION ..................................................................................................................15
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`Patent Owner Motion For Sanctions
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`I.
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`INTRODUCTION
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`IPR2015-01103
`Patent 6,315,720
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`Inter partes review (“IPR”) was designed as an expeditious and less costly
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`alternative to federal district court litigation. It was not designed for the purpose to
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`which it is aimed here—as a tool to affect the stock prices of public companies for
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`financial gain, to the detriment of those companies and the investing public. By
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`their own admission, the real parties in interest (“RPI”) filed this and other
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`petitions as part of their strategy to profit from affecting stock prices. Their
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`petitions represent an ongoing abuse of the IPR process that has been and will
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`continue to be an unwarranted burden on the Patent Trial and Appeal Board
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`(“Board”), and on innovators like patent owner Celgene Corporation (“Celgene”)
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`and its shareholders. Celgene is confident in the strength of its patents, but should
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`not be required to expend extensive resources defending them in the face of the
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`RPI’s abuse of process.
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`The RPI’s abuse of process began in 2014 when they twice threatened to file
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`IPRs against two Celgene patents, including those at issue in IPR2015-01092,
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`-1096, -1102, and -1103. Specifically, RPI and self-described “patent troll” Erich
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`Spangenberg (and his company IPNav, also an RPI) first threatened Celgene with
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`IPRs in January 2014. Then in July 2014, they assisted a third party in its effort to
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`obtain payment from Celgene in exchange for not filing nearly identical IPRs
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`against the same patents. Notably, none of the threats came from anyone with a
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`legitimate business interest in the targeted patents or the technology that they
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`cover. Instead, the threats were nothing more than an improper use of the IPR
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`process solely for the RPI’s financial gain.
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`When Celgene did not pay, Mr. Spangenberg/IPNav no longer had any
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`financial incentive to file the IPRs, and did not do so at that time. Instead, they
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`teamed up with RPI and hedge fund manager J. Kyle Bass, and together, they
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`concocted a new scheme to profit from affecting companies’ stock prices by filing
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`IPRs. The Petition in this matter, which counsel for the RPI admitted is just a
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`“rewrite” of the earlier threatened petitions, is part of that scheme. It is driven
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`entirely by an admitted “profit motive” unrelated to the purpose of the American
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`Invents Act (“AIA”), as set forth in the bill itself and its legislative history, and
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`unrelated to any competitive interest in the validity of the challenged patents.
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`Pursuant to 35 U.S.C. § 316(a) and 37 C.F.R. § 42.12, the Board has the power to
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`and should sanction the RPI by dismissing this Petition as an abuse of process and
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`an improper use of these proceedings.
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`II.
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`PRIOR THREATS AND RELEVANT FACTS
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`From 2008 to 2013, Mr. Spangenberg was “very proud to be America’s
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`biggest patent troll,” using IPNav to sue at least 1,638 companies. Ex. 2033 at 1.
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`IPNav’s business model involved sending vague demand letters, implicitly
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`demanding payment. “The implied ‘or else!’ ooze[d] from th[e] letter.”
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`Renaissance Learning v. Doe, No. 11-166, 2011 WL 5983299, at *4 (W.D. Wisc.
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`Nov. 29, 2011). The AIA was specifically enacted to curb such abusive tactics.
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`But the AIA did not deter Mr. Spangenberg and IPNav. Rather, they saw the
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`AIA (and IPRs in particular) as an easier and more profitable opportunity than their
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`normal “troll” business. They began abusing and misusing IPRs by threatening to
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`file petitions with the goal of extracting “settlement” payments. They had no
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`interest in the patents or the life-saving therapies that the patents protect. They
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`simply saw a way to profit by using the IPR process for an improper purpose—
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`coercing businesses into paying demands to avoid costly proceedings.1
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`Mr. Spangenberg, on behalf of IPNav, first threatened Celgene in a January
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`2014 email to Celgene’s attorneys (Ex. 2034) that attached draft IPRs (and
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`supporting expert declarations) against two Celgene patents: (1) the patent at issue
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`in IPR2015-01092, U.S. Patent No. 6,045,501 (the “’501 patent”) (Ex. 2035; Ex.
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`2036); and (2) U.S. Patent No. 6,315,720 (the “’720 patent”) (Exs. 2037-2040), at
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`issue in IPR2015-01096, -1102, and -1103. See also Ex. 2041. His email was
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`1 Under New Jersey law (where Celgene is headquartered), this conduct amounts
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`to extortion. See N.J. Stat. § 2C:20-5(g); State v. Roth, 289 N.J. Super 152 (1996)
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`(finding extortion where defendant’s threat was solely calculated to harm victim,
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`and the only benefit to defendant was payment to make him go away).
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`cryptic, but its purpose was clear; as in Renaissance, “[t]he implied ‘or else’
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`ooze[d] from th[e]” email. See Ex. 2034.
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`Celgene never responded to that threat, but on July 15, 2014, Celgene’s
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`attorneys received another email threatening the ’501 and ’720 patents. See Ex.
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`2042. This email was sent by an attorney allegedly representing the Initiative for
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`Responsibility in Drug Pricing (“IRDP”), but attached nearly the same draft
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`petitions and expert declarations that Mr. Spangenberg had used to threaten
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`Celgene in January 2014. Compare Exs. 2035-2041 with Exs. 2043-2049. It is
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`apparent that Mr. Spangenberg/IPNav assisted IRDP.
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`IRDP’s email stated that its “mission is to improve America’s access to low
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`cost generic pharmaceuticals.” Ex. 2042. Celgene soon learned, however, that the
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`Spangenberg/IPNav-assisted IRDP would readily forego its purported altruistic
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`mission in exchange for cash. Celgene again did not pay, and the threatened
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`petitions were never filed, likely because Mr. Spangenberg realized that there was
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`no profit in filing—the money would come only if Celgene agreed to pay his
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`demands.
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`In any event, Mr. Spangenberg was not done targeting Celgene for his own
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`profit. Last year, he met Mr. Bass, and shortly thereafter, Mr. Spangenberg and his
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`companies, IPNav and nXnP (also an RPI), became paid consultants to Mr. Bass
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`and several “Hayman” investment companies (all RPI). See Ex. 2028 at 3.
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`Together they formed fifteen shell companies (Coalition for Affordable Drugs I-
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`XV, or “CFAD”) for the sole purpose of “filing and publicizing [IPR] patent
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`challenges against pharmaceutical companies while also betting against their
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`shares.” Id. at 1. Each CFAD entity is a wholly-owned subsidiary of Hayman
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`Credes Master Fund, L.P. (“Credes”), which through a series of other investment
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`firms, is controlled by Mr. Bass. See, e.g., Pet. at 1-2.
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`Mr. Bass then publicly trumpeted his investment strategy of attacking
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`patents in the pharmaceutical industry in what he termed a “short activist strategy.”
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`Ex. 2029 at 1. “Mr. Bass was pitching wealthy individuals and institutions to
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`invest in a dedicated fund that would bet against, or short, the shares of [target]
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`companies . . . and wager on rivals that could benefit.” Ex. 2028 at 4. The RPI’s
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`plan was to file petitions on “a big-selling drug [to] rattle investors,” anticipating
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`that the filing of petitions would cause a change in public companies’ stock prices.
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`See Ex. 2031 at 2.2 Indeed, RPI Hayman Capital Management L.P. admitted, in a
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`2 For example, the RPI achieved their goal when they filed petitions against
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`Acorda Therapeutics (“Acorda”) and Shire LLC (“Shire”). Acorda’s value
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`dropped nearly 10% ($150 million) when the RPI filed their first petition, and
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`nearly another 5% when they filed their second petition. See id. at 2. Shire’s stock
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`price similarly dropped 2.5% upon filing. See Ex. 2050 at 2.
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`June 1, 2015 Securities Exchange Commission (“SEC”) filing, that the “primary
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`purpose” of at least two RPI (Credes and Hayman Orange Fund SPC-Portfolio A)
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`is to “generate superior risk-adjusted returns through long or short positions with
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`regard to selected companies, primarily in the pharmaceuticals sector.” Ex. 2030
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`at 5. IPRs were not designed for this purpose, which is nothing more than another
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`nefarious means for achieving the same goal that Mr. Spangenberg and IPNav
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`sought to achieve through previous threats to file IPRs: to line their own pockets at
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`the expense of public pharmaceutical companies and their shareholders.
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`Attempting to downplay the RPI’s true motives, Mr. Bass has claimed
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`publicly that his IPRs are designed to support generic drug entry and lower drug
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`prices for consumers (Ex. 2051 at 2-4)—the same alleged motive set forth by
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`IRDP. Notably, however, all of the RPI, including each CFAD entity, are for
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`profit organizations that have no competitive interest in the patents that they
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`challenge or the technology that those patents cover. See Ex. 2027 at 1-2 (defining
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`“General” entity status as not including non-profit companies).
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`Put simply, CFAD is a front, and the RPI’s purported altruistic motives are
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`pretext; each CFAD entity’s sole purpose is to “benefit [Mr. Bass’s] investments”
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`by filing IPRs and profiting from resulting changes in stock prices. See Ex. 2052
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`at 1 (Mr. Bass explaining his plan to halve the combined market capitalization of
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`his target companies—$450 billion—to “benefit[] his investments”). Any other
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`motive would be a breach of Mr. Bass’s fiduciary duty to his investors. See Ex.
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`2030 at 18 (Hayman SEC filing noting the funds’ “fiduciary duty to clients”).
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`To date, CFAD I-VII have filed a combined sixteen IPRs against ten
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`innovator companies, including Celgene. See IPR2015-00720, -817, -988, -990, -
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`1018, -1076, -1086, -1092, -1093, -1096, -1102, -1103, -1136, -1169, -1241, -1344.
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`The remaining eight CFAD entities (see Ex. 2026) appear to be lying in wait to
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`similarly abuse the AIA by filing petitions solely to execute the RPI’s investment
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`strategy. This is contrary to the AIA’s purpose, and the Board should not allow it.
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`If the Board permits this strategy to continue, it will be inundated with
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`similar petitions, and no public company that relies on patents to protect its
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`innovations will be safe from threats or unnecessary petitions from for-profit
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`organizations misusing IPRs as investment strategies. The Board should exercise
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`its discretion and dismiss the Petition.
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`III. ARGUMENT
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`A. This petition is contrary to the AIA and its legislative history
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`The AIA was conceived and enacted to reduce abusive litigation tactics,
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`with a specific focus on non-practicing entities (“NPEs”) or “patent trolls”—
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`companies that “don’t produce any products . . . [and] exist for one purpose only,
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`to bring patent cases.” 153 Cong. Rec. H10276 (Sept. 7, 2007); see also, e.g., 157
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`Cong. Rec. S5319 (Sept. 6, 2011) (AIA “will cure some very clear litigation
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`abuses”). In other words, the AIA was enacted to hinder those “whose sole
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`purpose is not to create but to sue”:
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`I am talking about patent trolls—those entities . . . whose only
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`innovations occur in the courtroom. . . . This bill is designed to help
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`all inventors and ensure that small businesses will continue to be a
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`fountain for job creation and innovation.
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`157 Cong. Rec. H4485-86 (June 23, 2011). The AIA therefore introduced
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`“important litigation reforms to rein in abusive lawsuits . . . so that aggressive trial
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`lawyers do not make patent litigation their next gold mine.” 153 Cong. Rec.
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`H10276 (Sept. 7, 2007).
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`As part of its reforms, the AIA introduced post-grant patent challenges,
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`including IPRs. The RPI have taken the position that anyone can file an IPR. See
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`Ex. 2051 at 5. But “[t]he post-grant procedure [was] designed to allow parties to
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`challenge a granted patent through a[n] expeditious and less costly alternative to
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`litigation.” 153 Cong. Rec. E774 (Apr. 18, 2007) (emphasis added); see also 157
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`Cong. Rec. S5411 (Sept. 8, 2011) (Sen. Hatch explaining that AIA proceedings
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`“will decrease litigation costs”). The AIA did not introduce IPRs to provide hedge
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`funds (who have no litigable patent claim) with a vehicle to profit by affecting a
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`public company’s stock price by taking advantage of the stigma associated with
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`IPRs.
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`Indeed, as the former General Counsel of the Patent Office explained,
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`“When we developed [IPRs], we never thought people would use them this way, in
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`an effort to move stock or as an investment vehicle.” Ex. 2053 at 2. Here, the RPI
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`are doing just that. Their sole purpose is not to create, or even to compete, but to
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`file IPRs in an effort to move markets and to reap profits from their investments,
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`while harming public companies and the investing public. See, e.g., Ex. 2030 at 5;
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`Ex. 2052 at 1. This is directly contrary to the intent of Congress in enacting the
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`AIA.
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`B.
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`The Board should dismiss the Petition as a sanction against the
`RPI for their abuse and improper use of these proceedings
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`Congress gave the PTO broad authority to prescribe and enforce sanctions
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`against abusive IPRs. See 35 U.S.C. § 316(a)(6); see also In re Cuozzo Speed
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`Techs., LLC., 778 F.3d 1271, 1281 (Fed. Cir. 2015) (Ҥ 316 provides authority to
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`the PTO to conduct rulemaking”). Pursuant to 35 U.S.C. § 316(a)(6) and 37
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`C.F.R. §§ 42.12(a)(6)-(7), the Board may prescribe and issue sanctions for, among
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`other things, “abuse of process” or “any other improper use of the proceeding.”
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`Congress directed the PTO to consider several factors in drafting its regulations,
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`including “the economy, the integrity of the patent system, the efficient
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`administration of the Office, and the ability of the Office to timely complete
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`proceedings.” 35 U.S.C. § 316(b).
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`Here, the Board instructed the parties to address the elements required to
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`IPR2015-01103
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`establish an abuse of process. Paper 7 at 2. The PTO has not yet defined the
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`elements required to establish “abuse of process” or “improper use of the [IPR]
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`proceeding” pursuant to § 42.12(a)(6)-(7). Courts and another agency have
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`explained, however, that a party abuses a process when it uses it to achieve a goal
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`for which the process was not designed. See, e.g., Heck v. Humphrey, 512 U.S.
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`477, 486 n.5 (1994) (an abuse of process is a “perversion of lawfully initiated
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`process to illegitimate ends”); In re Applications of High Plains Wireless, L.P., 15
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`F.C.C. Rcd. 4620, 4623 (2000) (“‘[A]buse of process’ has been defined as ‘the use
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`of a Commission process, procedure or rule to achieve a result which that process,
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`procedure or rule was not designed or intended to achieve.’”).3
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`3 The Board also instructed the parties to address the standard of proof that applies
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`when deciding a motion for sanctions. The PTO has placed the burden on the
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`moving party (see 37 C.F.R. § 42.20(c)), but has not defined a standard of proof.
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`That said, the two standards used in other aspects of IPR proceedings are
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`instructive: (1) “reasonable likelihood” for institution (35 U.S.C. §§ 314(a)); and
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`(2) “preponderance of the evidence” for instituted IPRs (35 U.S.C. § 316(e)).
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`Since Celgene’s motion addresses the threshold, gatekeeping issue of whether the
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`RPI’s petition is an abuse of process or misuse of the proceedings, the “reasonable
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`likelihood” standard should apply. Even assuming that the Board requires
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`IPR2015-01103
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`Abuse of process can exist where a party seeks to financially benefit itself by
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`financially harming another, such as filing “patent office pleadings [that] were
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`essentially designed ‘to accomplish some end which the process was not intended
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`by law to accomplish’--such as frightening off [the target company’s] investors.”
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`Neumann v. Vidal, 710 F.2d 856, 860 (D.C. Cir. 1983); see also 5 FCC Rcd. 3911,
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`3912 (1990) (petitions filed “for private financial gain” are “abusive” and a
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`disservice to the public interest). Notably, “an abuse of process action can be
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`maintained even where the earlier suit was ostensibly legitimate, so long as the
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`reasons for the suit are found illegitimate.” Neumann, 710 F.2d at 860.
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`Celgene submits that the Board should adopt a similar definition for “abuse
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`of process” in this proceeding, and sanction the RPI by dismissing the Petition.
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`See 37 C.F.R. § 42.12(b)(8).4 As Senator Coons recently explained, Mr.
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`“preponderance of the evidence,” Celgene respectfully submits that it has met that
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`burden as well.
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`4 Celgene also submits that the showing necessary to prove “[a]ny other improper
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`use of the proceeding” is even broader than “abuse of process,” and should be
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`interpreted in light of the proper use of the proceedings as discussed during the
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`legislative history. Here, CFAD’s actions independently amount to both an abuse
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`of process and an improper use of the proceedings.
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`Spangenberg’s and Mr. Bass’s attack on the pharmaceutical industry is an “abuse”
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`and “misuse of post grant proceedings.” Ex. 2054 at 4. In other words, the RPI are
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`using this proceeding for an illegitimate purpose not contemplated by the statute:
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`causing changes in the stock prices of public companies and thereby harming the
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`investing public. Their scheme is no different than Mr. Spangenberg’s original
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`plan to financially profit by demanding payment in exchange for not filing the
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`IPRs. The only difference here is the means—the RPI have come up with a new
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`strategy whereby they aim to profit by filing, instead of demanding payment not to
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`file. Either way, the RPI’s “sole purpose is not to create but to litigate.” 157
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`Cong. Rec. H4485-86 (June 23, 2011).
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`The Board further instructed the parties to address any evidence of intent
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`that supports the allegation of abuse of process. Paper 7 at 2. That evidence is
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`discussed in detail above. See supra at §§ I-II. To recap, the RPI began
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`intentionally misusing the IPR process when Mr. Spangenberg/IPNav threatened to
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`file IPRs against Celgene’s ’501 and ’720 patents, and later expanded their scheme
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`into a monetary demand through IRDP. Mr. Spangenberg continued his efforts,
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`but changed tactics when he met Mr. Bass, and the RPI now stand to gain far more
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`by taking financial positions in the stock market and then filing IPRs hoping to
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`move the market. See, e.g., Exs. 2028-2031; Ex. 2050; Ex. 2052; Ex. 2054.
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`To be clear, the RPI have no competitive interest in invaliding the patents on
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`which they file, whether to operate a business or otherwise compete in the space
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`covered by the patents. Rather, they are motivated by their desire to profit by
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`impacting the stock market. As in Neumann, the RPI are filing “patent office
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`pleadings [that are] essentially designed ‘to accomplish some end which the
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`process was not intended by law to accomplish’--such as frightening off [the target
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`company’s] investors.” 710 F.2d 856. This is contrary to the AIA’s purpose, and
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`an improper use of IPRs. Likely recognizing this, Mr. Bass has publicly stated that
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`he is filing the IPRs as part of an altruistic mission to get rid of “weak” patents and
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`to lower drug prices for consumers. See generally Ex. 2051. This is disingenuous
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`at best.
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`RPI Hayman Capital Management is a $2 billion investment management
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`firm. Ex. 2028 at 3. Mr. Bass has a fiduciary duty to his investors that must take
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`precedence over any allegedly altruistic purpose. See Ex. 2030 at 18. Mr. Bass
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`and the Hayman investment firms had to investigate whether their IPR investment
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`strategies would monetarily benefit their investors before they filed, and have a
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`duty to continue that investigation while prosecuting their IPRs. Mr. Bass is not
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`filing IPRs so that he can market his own competing generic drugs or to allow the
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`public to use patented technology; he is first and foremost a Chief Investment
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`Officer with a fiduciary duty to make money for his clients. Any alleged altruistic
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`motive is therefore a tactic designed to conceal the RPI’s true motive.
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`Indeed, if altruism meant anything to the RPI, then they would have filed
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`their threatened IPRs in 2014 instead of demanding payment. In truth, however,
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`they care only about profit, and when they realized that there was no money to be
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`made from filing in 2014, they went back to the drawing board and came up with
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`their current strategy to misuse IPRs to affect the stock market. Tellingly, the RPI
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`have only filed IPRs against patents owned by public companies.
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`In light of their admitted “profit motive” and lack of any legitimate
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`competitive interest in the validity of the challenged patent, the RPI are unlike
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`generic drug companies, who may seek to invalidate patents that would otherwise
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`block their ability to market competing products. The RPI also have nothing in
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`common with nonprofits, especially those that seek to invalidate patents to make
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`technology available to the public. See generally, e.g., Assoc. for Molecular
`
`Pathology v. Myriad Genetics, Inc., No. 12-398, 569 U.S. ____ (2013) (describing
`
`nonprofits’ efforts to invalidate patents covering BRCA genes so that the public
`
`would have unfettered access to breast-cancer screens without fear of an injunction
`
`or lawsuit). Rather, the RPI merely seek, as they must, to maximize profits for
`
`their investors. Their sole motive is to move stock markets by filing IPRs. Unlike
`
`a hypothetical nonprofit interested in eliminating drug patents as part of an attempt
`
`to speed generic entry, the RPI’s mission ultimately does not turn on whether
`
`04841.00006/7046930.1
`
`- 14 -
`
`
`
`

`
`Patent Owner Motion For Sanctions
`
`
`
`IPR2015-01103
`Patent 6,315,720
`
`patents are upheld or invalidated—instead, they are interested in whether and how
`
`stock prices move within the time horizon of the positions they have strategically
`
`taken in the market. They are therefore using the proceedings for an illegitimate
`
`purpose, and the sanction of dismissal is appropriate.
`
`IV. CONCLUSION
`
`For the foregoing reasons, the Board should sanction Petitioner and the RPI,
`
`and dismiss this Petition.
`
`Date: July 28, 2015
`
` Respectfully submitted,
`
`By: /F. Dominic Cerrito (Reg. No. 38,100)/
`F. Dominic Cerrito (Reg. No. 38,100)
`QUINN EMANUEL URQUHART &
`SULLIVAN, LLP
`51 Madison Avenue, 22nd Floor
`New York, NY 10010
`Tel: (212) 849-7000
`Fax: (212) 849-7100
`nickcerrito@quinnemanuel.com
`
`Anthony M. Insogna (Reg. No. 35,203)
`JONES DAY
`12265 El Camino Real
`Suite 200
`San Diego, CA 92130
`Tel: (858) 314-1200
`Fax: (858) 314-1150
`aminsogna@jonesday.com
`
`Attorneys for Celgene Corporation
`
`04841.00006/7046930.1
`
`- 15 -
`
`
`
`

`
`
`
`
`
`
`
`
`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`
`________________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`
`________________
`
`COALITION FOR AFFORDABLE DRUGS VI LLC
`Petitioner,
`
`v.
`
`CELGENE CORPORATION
`Patent Owner
`
`________________
`
`Case IPR2015-01103
`Patent 6,315,720
`________________
`
`
`CERTIFICATE OF SERVICE
`
`04841.00006/7046930.1
`
`
`
`
`
`

`
`
`
`CERTIFICATE OF SERVICE
`
`Pursuant to 37 C.F.R. § 42.6(e), the undersigned hereby certify that
`
`PATENT OWNER MOTION FOR SANCTIONS PURSUANT TO 35 U.S.C.
`
`§ 316(a)(6) AND 37 C.F.R. § 42.12 and accompany exhibits (Exs. 2026-2031,
`
`2033-2054) were served on July 28, 2015 by filing these documents through the
`
`Patent Review Processing System, as well as e-mailing copies to
`
`sarah.spires@skiermontpuckett.com, parvathi.kota@skiermontpuckett.com, and
`
`paul.skiermont@skiermontpuckett.com.
`
`Date: July 28, 2015
`
` Respectfully submitted,
`
`By: /F. Dominic Cerrito (Reg. No. 38,100)/
`F. Dominic Cerrito (Reg. No. 38,100)
`QUINN EMANUEL URQUHART &
`SULLIVAN, LLP
`51 Madison Avenue, 22nd Floor
`New York, NY 10010
`Tel: (212) 849-7000
`Fax: (212) 849-7100
`nickcerrito@quinnemanuel.com
`
`Anthony M. Insogna (Reg. No. 35,203)
`JONES DAY
`12265 El Camino Real
`Suite 200
`San Diego, CA 92130
`Tel: (858) 314-1200
`Fax: (858) 314-1150
`aminsogna@jonesday.com
`
`Attorneys for Celgene Corporation

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