1 1 American Intellectual Property Law Association Inter Partes Review: Recent Cases STEVEN F. MEYER AIPLA IP in Japan Committee Annual Pre-Meeting October 20-21,

2 2 Overview of PGR & IPR Trial Process

3 3 I. Filing IPR Petitions For Profit Coalition For Affordable Drugs VI v. Celgene

4 4 Identified Real Parties In Interest: –Hayman hedge funds –J. Kyle Bass (hedge fund manager) –nXn Partners, LLC –IP Navigation Group (from , sued 1,638 companies) –Erich Spangenberg (self-described “patent troll”) Hedge fund investment strategy: Effectuate changes in the stock prices of the targeted pharmaceutical companies: –Acorda Therapeutics’ share price dropped 9.6% when first petition filed, and another 4.8% when second petition filed. –Shire’s stock price dropped 2.5% when petition filed. IPR : Ex. 2032; Ex at p. 2; Ex at p

5 5 Coalition For Affordable Drugs VI v. Celgene  Fifteen Shell Companies, Coalition For Affordable Drugs (“CFAD”) I-XV, filed 17 IPR petitions against: CFAD: Acorda Therapeutics CFAD II: Shire (first institution, against U.S. Patent No. 6,773,720) CFAD III: Jazz Pharmaceuticals CFAD IV: Pharmacyclics CFAD V: Biogen IDE CFAD VI: Celgene CFAD VII: Pozen CFAD VIII-XV: no IPR Petitions filed yet.  Each CFAD entity is a wholly-owned subsidiary of Hayman Credes Master Fund, which through a series of other investment firms, is controlled by J. Kyle Bass

6 6 Coalition For Affordable Drugs VI v. Celgene April 22, 2015: IPR Petition filed June 3, 2015: Celgene’s requesting permission to file sanctions motion under 37 C.F.R. § June 9, 2015: PTAB authorizes filing of motion for sanctions under §42.12(a)(6) & (b)(8). June 28, 2015: Preliminary Response and motion for sanctions June 28 – August 20, 2015: Sanctions motion briefing September 25, 2015: Decision denying sanctions ? : Decision on Institution

7 7 Coalition For Affordable Drugs VI v. Celgene 37 C.F.R. §42.12 Sanctions (a)The Board may impose a sanction against a party for misconduct, including: * * * (2) Advancing a misleading or frivolous argument or request for relief; * * * (6) Abuse of process; … (b)Sanctions include entry of one or more of the following: * * * (6) An order providing for compensatory expenses, including attorney fees; * * * (8) Judgment in the trial or dismissal of the petition

8 8 Celgene’s Motion for Sanctions: Argument CFAD VI’s IPR Petition is contrary to AIA and its legislative history. –AIA enacted to reduce abusive litigation tactics, with a specific focus on patent trolls. –Implies that IPR petitioners were intended to be parties to patent suit or have a litigable patent claim. Abuse of process can exist where a party seeks to financially benefit itself by financially harming another, such as by filing an IPR petition to accomplish some end not intended by the law to be accomplished

9 9 Celgene’s Motion for Sanctions: “Evidence of Intent” In January 2014, E. Spangenberg, on behalf of IP Nav, threatened Celgene with two draft IPR petitions. In July 2014, differently named entity threatened Celgene with nearly the same draft petitions. E. Spangenberg and his companies, IP Nav and nXnP, became paid consultant to J. Kyle Bass and Hayman investment companies. Strategy: filing and publicizing IPR petitions against pharmaceutical companies while shorting their stocks. Admitted profit motive and lack of any “legitimate competitive interest” in the validity of the challenged patent (i.e., no competing product) IPR : Ex

10 CFAD IV’s Opposition To Sanctions Motion “[A]t the heart of nearly every patent and nearly every IPR, the motivation is profit.” –Celgene’s patents allow higher drug prices. –Generics challenge patents in order to profit from generic sales. “Poor quality patents enable pharmaceutical companies to maintain artificially high drug prices and reap unjust monopoly profits paid by consumers and taxpayers”. Congress created IPR process to eliminate low quality patents

11 CFAD IV’s Opposition To Sanctions Motion Any person who is not patent owner may file an IPR petition, except: –Petitioner previously filed DJ action; –filed petition more than one year after service of patent infringement complaint; or –estopped from filing (i.e., lost on earlier petition). Abuse of process has two elements: –existence of ulterior motive; and –an act in the use of process other than such as would be proper in the regular prosecution of the matter. Petitioner has not performed any act that is not legally obtainable

12 PTAB Decision Denying Celgene’s Sanctions Motion “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.” –short-selling is legal and regulated Covered business method (“CBM”) review requires petitioner to be sued, IPR does not. Congress did not limit IPRs to petitioners having a specific competitive interest in the patented technology. AIA was designed to encourage filing of meritorious patentability challenges, by a person who is not the patent owner, to improve patent quality. −no allegation of non-meritorious patentability challenge

13 More Promising Sanctions Options Available 37 C.F.R. §42.12 Sanctions (a)The Board may impose a sanction against a party for misconduct, including: * * * (2) Advancing a misleading or frivolous argument or request for relief; * * * (6) Abuse of process; … (b)Sanctions include entry of one or more of the following: * * * (6) An order providing for compensatory expenses, including attorney fees; * * * (8) Judgment in the trial or dismissal of the petition

14 II. What Is Appealable To The Federal Circuit?

15 Decisions by PTAB

16 Statutory Provisions IPR Proceedings: –35 U.S.C. §314(d) No Appeal -- The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable. −35 U.S.C. §319 Appeal – A party dissatisfied with the final written decision of the [PTAB] under section 318(a) may appeal the decision pursuant to sections 141 through 144. PGR & CBM Proceedings −35 U.S.C. §324(e) No Appeal – The determination by Director whether to institute a post-grant review under this section shall be final and nonappealable. −35 U.S.C. §329 Appeal – A party dissatisfied with the final written decision of the [PTAB] under section 328(a) may appeal the decision pursuant to sections 141 through

17 St. Jude Medical v. Volcano Corp., 749 F.3d 1373 (Fed. Cir. 2014) IPR Petition denied under 35 U.S.C. §315(b) because it was filed more than one year after service of complaint alleging infringement. §314(d) “certainly bars an appeal of the non-institution decision here.” “The final written decision is the only decision that authorizes a dissatisfied party to appeal to this court.”

18 GTNX, Inc. v. INTTRA, Inc., 789 F.3d 1309 (Fed. Cir. 2015) PTAB instituted a CBM trial. After due date for rehearing requests, Patent Owner moved to dismiss for failure to comply with§325(a)(1) because Petitioner’s parent filed a DJ action prior to filing Petition; and Board granted motion. “The Board decision [Petitioner] GTNX is seeking to appeal was not reached after conduct of the review and did not make a determination with respect to patentability. The decision is therefore” not appealable. Administrative Procedure Act does not give Federal Circuit jurisdiction

19 In re Cuozzo Speed Techs., 793 F.3d 1268 (Fed Cir. 2015) Petition: –Claim 10: § 102(e) by Aumayer §103 over Tegethoff & Awada §103 over Tokunaga & Hamamura –Claim 14: §103 over Aumayer & Evans §103 over Tegethoff, Awada & Evans –Claim 17: §103 over Aumayer, Evans & Wendt §103 over Tegethoff, Awada, Evans & Wendt

20 In re Cuozzo Speed Techs., 793 F.3d 1268 (Fed Cir. 2015) Institution Decision: –Claim 10: § 102(e) by Aumayer §103 over Aumayer, Evans & Wendt –Claim 14: §103 over Aumayer, Evans & Wendt §103 over Tegethoff, Awada, Evans & Wendt –Claim 17: §103 over Aumayer, Evans & Wendt §103 over Tegethoff, Awada, Evans & Wendt

21 In re Cuozzo Speed Techs., 793 F.3d 1268 (Fed Cir. 2015) PTAB’s Final Written Decision: Claims 10, 14 & 17 invalid under §103 over (1) Aumayer, Evans and Wendt; and, alternatively (2) Tegethoff, Awada, Evans, and Wendt. Patent Owner Cuozzo: PTAB improperly instituted IPR on claims 10 and 14 because PTAB relied on prior art (Evans and/or Wendt) identified as to claim 17, but not as to claims 10 and 14. Patent Owner Cuozzo: § 314(d) merely postpones review of PTO’s decision to institute until after issuance of Final Written Decision. Federal Circuit: “§ 314(d) prohibits review of the decision to institute IPR even after a final decision.”

22 In re Cuozzo Speed Techs., 793 F.3d 1268 (Fed Cir. 2015) 37 C.F.R.§42.100(b): “A claim in an unexpired patent shall be given its broadest reasonable construction in light of the specification of the patent in which it appears.” The broadest reasonable interpretation standard has been applied by the PTO and its predecessor for more than 100 years in various types of PTO proceedings involving unexpired patents. “Even if approval of the broadest reasonable interpretation standard were not incorporated into the IPR provisions of the statute, the standard was properly adopted by PTO regulation.” For expired patent in IPR, apply claim construction principles of Phillips v. AWH Corp

23 Versata Dev. Group v. SAP America, 793 F.3d 1306 (Fed. Cir. 2015) AIA, § 18(d)(1): “’Covered business method patent’ means a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.” Institution Decision: –Versata’s ‘350 patent is a covered business method; and –Claims 17 & are more likely than not unpatentable under 35 U.S.C. § §101 and 102. Final Written Decision: Claims 17 & are invalid under §

24 Versata Dev. Group v. SAP America, 793 F.3d 1306 (Fed. Cir. 2015) Patent Owner Versata: ‘305 patent is not a covered business method patent. SAP & Intervenor Patent Office: Whether the ‘305 patent falls within the scope of the PTAB’s authority under §18 as a “covered business method patent” was decided by the PTAB at the decision to institute stage, and is therefore immunized from later judicial review. Federal Circuit: “It would … run counter to the language of §324(e) to read it as barring review of whether the PTAB exceeded statutory limits on its authority to invalidate.”

25 Apple Inc. v. Achates Reference Publishing, (Fed. Cir., Sept. 30, 2015) Initiation Decision: IPR petition not time barred under §315(b) because originally named codefendants were not real parties in interest relative to Apple. Final Written Decision: Reaffirmed earlier decision that IPR petition not time-barred. Apple & Intervenor Patent Office: PTAB’s determination that an IPR petition is timely is part of the determination whether to institute and is therefore nonappealable, even after final written decision. Federal Circuit: –Versata is limited to unique circumstances of CBMR. –Determination to initiate IPR in this case is not subject to review under § 314(d)

26 III. Remand From Federal Circuit To What Point? Faster to decide: Initial determination of specific grounds within 6 months from date of filing Final decision within 12 months after institution (up to

27 Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292 (Fed. Cir. 2015) Because the PTAB’s determination that certain claims were unpatentable was based on an unreasonably broad construction of three claim terms, the Federal Circuit vacated the Board’s finding of unpatentability, and remanded for proceedings consistent with the opinion. The parties were unable to reach agreement on post-remand procedures and, therefore, Petitioner sought the Board’s guidance. Both parties ordered to file an additional 15-page brief on September 11, 2015: –effect of Federal Circuit’s decision on Final Written Decision, as to patentability of claims –no new prior art references or other evidence beyond that considered in Final Written Decision

28 Thanks for your attention! Questions? Steven F. Meyer Partner Locke Lord LLP 3 World Financial Center New York, NY Chair of Locke Lord’s IPR Practice Group