By Scott Graham, From The Recorder

The first pharmaceutical company to come under fire from a well-known Dallas-based hedge fund formally asked the Patent Trial and Appeal Board on Wednesday not to play ball with what it describes as a cynical stock price manipulation scheme.

Acorda Therapeutics asked the PTAB to reject a petition for inter partes review filed in March by Kyle Bass’ Hayman Capital Management and its Coalition for Affordable Drugs. “There can be no dispute that allowing hedge funds to use the IPR process to manipulate financial markets is inconsistent with congressional intent and the directives given to the office,” Paul Hastings partner Gerald Flattmann wrote in Acorda’s opposition. “Instituting inter partes review here will only encourage more such filings.”

Flattmann also takes aim at the individual investors underwriting Hayman Capital, saying the coalition should have disclosed them as real parties in interest. He further argues that the prior art advanced by the coalition hasn’t been published and has already been considered by the PTO.

Bass and the coalition kicked off a storm of controversy after petitioning to invalidate an Acorda patent on Ampyra, a multiple sclerosis treatment that has generated $1.37 billion in sales. Bass and his investors are widely assumed to have shorted Acorda stock, which then plunged 10 percent the day the petition was filed.

Companies controlled by Bass have since brought 14 more petitions targeting various drug companies, according to Acorda’s opposition. The coalition says its goal is to knock out spurious patents and lower the price of drugs for the public. The strategy has caused a furor in the pharmaceutical industry, which has asked Congress to rein in the practice.

As written, though, the America Invents Act doesn’t appear to block it. The law explicitly permits third parties to file IPR petitions. The question now is whether the Patent Trial and Appeal Board will take motive into account when deciding whether to institute proceedings. Acorda argues that the PTAB should exercise its discretion under 35 U.S.C. 314(a) to reject the petition and “preserve the office’s resources for proper petitions.”

Emory University associate dean Timothy Holbrook said he doesn’t believe the AIA gives the PTAB discretion to turn down petitions based on the nature of the petitioning party. If a petition makes out a strong case for invalidity, it probably ought to be taken up “regardless of the impact on the stock market,” he said.

But, he noted, the decision whether to institute proceedings is final and unappealable, so as a practical matter the board can deny petitions for almost any reason. “There’d be no ground to challenge it,” he said.

With AIA proceedings before the PTAB in only their third year, there’s no track record yet on the issue.

But the PTAB has been a stickler about the disclosure of real parties in interest. Many petitions have been denied on such grounds, some even retroactively.

Flattmann argues in Wednesday’s opposition that the coalition has fallen short of the requirement by failing to disclose the individual investors who underwrite the Hayman Capital Fund that’s financing the Coalition for Affordable Drugs. Flattmann points to news coverage that states Hayman Capital required a minimum $1 million investment in the fund. “The undisclosed investors that provided substantial funding for the petition are the parties that stand to gain or lose, and, therefore, are RPIs,” he argues.

He compares it to an RPX Corp. petition that was denied on the grounds that Apple Inc. was funding the challenge behind the scenes, though there also was evidence in that case that Apple was directing the litigation.

The Coalition for Affordable Drugs stated in its petition that Bass and consultant Erich Spangenberg of IPNav are the only individuals with authority to direct or control its litigation.

While some patent holders have played coy in their preliminary oppositions, Flattmann appears to be emptying all chambers. Even setting aside that the coalition is using IPR “as a tool for driving down patent owner’s stock price,” its prior art doesn’t meet statutory requirements and was previously considered during patent prosecution, he argues. Plus the coalition’s obviousness arguments are “flawed and incomplete,” and it failed to address evidence of secondary considerations.

The PTAB is expected to decide by August whether to institute proceedings.

IMAGE: Gerald Flattman, Paul Hastings partner

For more on this story go to: http://www.therecorder.com/id=1202727635188/Acorda-Goes-on-Attack-Against-Hedge-Funds-IPR#ixzz3bRKC7pwf