Friday, August 14, 2015

Barron's on the IPR strategy of Kyle Bass: "The political winds may be blowing against Bass"

Barron's discusses the IPR patent strategy of Kyle Bass

Finally, Bass is courting controversy with a new investment tactic recently adopted by his fund. He teamed up with Erich Spangenberg, CEO of IPNav, to challenge what they argue are questionable patents held by pharmaceutical companies to stifle competition from the generic marketplace. (It’s worth noting that Bass’ new partner, Spangenberg, has been described as the world’s most notorious patent troll. IPNav says it has generated over half a billion dollars in licensing revenue in patent-infringement penalties for its clients, which include individual investors, corporations, and universities.)

Bass will not discuss this investment because it has become a hot-button issue in Washington, D.C. Members in both the House and the Senate are in the process of changing the law on patent challenges to exclude persons who actively short the target company’s shares.

Indeed, just the news that Bass and Spangenberg have filed a patent challenge at the U.S. Patent and Trademark Office is enough to send a stock tumbling, and drug makers contend this will hurt their companies and raise the cost of new medicines. Consider that shares of Acorda Therapeutics, maker of Ampyra, a multiple sclerosis drug, fell almost 10% in February when Bass filed a challenge that claimed its patent on the drug should have expired years ago. But Bass contends that about 1% of branded pharmaceutical companies have gamed the patent system in order to keep charging top dollar for medicines that rightly should be available in generic form for more patients.

The political winds may be blowing against Bass, with the pharmaceutical industry pushing to narrow the universe of persons who have standing to file a patent challenge for review by a panel appointed by the Patent Office. A bill easily passed the House Judiciary Committee in June and awaits a floor vote. A related bill has cleared the Senate Judiciary Committee. The pharmaceutical industry is hoping for passage in both chambers in August. The change would cut the legs from under this particular Bass strategy.

A recent blog by a lawyer at the white-shoe firm of Steptoe & Johnson seemed to capture the growing consensus in Washington on the Bass strategy, when the blog described it as “the dawn of reverse monetization, in which a party may extract value by eroding another party’s patent rights.”

But Bass, the man who gained acclaim playing long odds (he would say making calculated risks), seems unlikely to fold his cards any time soon.



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