Kyle Bass’ Hayman Made First Official Statement on the controversial pharma strategy to a House Committee. The document was first posted earlier today on Harvest.com – see the full document in text and PDF below. April 14, 2015
Statement of J Kyle Bass
Chief Investment Officer, Hayman Capital Management, L.P.U.S. House of RepresentativesCommittee on the JudiciaryHearing: H.R. 9, The “Innovation Act”The Honorable Bob GoodlatteThe Honorable John Conyers, Jr.
[drizzle]ChairmanRanking MemberHouse Judiciary CommitteeHouse Judiciary Committee2138 Rayburn Office BuildingB-351 Rayburn Office BuildingWashington, DC 20515Washington, DC 20515Dear Chairman Goodlatte and Ranking Member Conyers:We applaud your recent efforts to examine ways to strengthen the patent system. As you continue your work in this area, we strongly urge you to preserve important statutory provisions that provide vital patent protections, while promoting industry competition and consumer relief. Specifically, we believe that the United States Patent and Trademark Office’s (USPTO) Patent Trial and Appeals Board (PTAB) is effectively serving an important purpose as currently structured under the America Invents Act of 2011 (AIA).As you know, as part of the AIA, Congress created the administrative trial proceedings to be conducted by the PTAB to improve patent quality and create a more effective and efficient way to challenge patent validity. This is achieved through conducting inter partes reviews (IPR) and other post-grant reviews. The IPR process was designed to overturn a small minority of patents that are particularly vague or lack novelty – regardless of a patent’s technology class.Indeed, Mr. Jason Piché, a Medtronic Inc. patent counsel for spinal and biologics recently commented that as a result of IPR challenges to pharmaceutical patents,“the drafting of obtuse patents will go away, he said, which is ‘a good thing.’”1 By helping identify the few ‘bad apples’, IPR helps strengthen the integrity of the vast majority of legitimate and important patents.The implementation of PTAB IPR proceedings has resulted in significant benefits to both consumers and industry. In particular, IPR proceedings are highly beneficial because they appropriately allow patent validity to be examined by a panel of agency experts rather than a court, and provide a faster, more affordable alternative to the judicial system in challenging patents. The PTAB system as currently structured has thus far been highly effective in eliminating particularly egregious invalid patent claims. We believe the PTAB IPR processes should be left in their current form as the USPTO continues to carry out Congress’ directives outlined in the AIA.The abuse of the patent system by entities acquiring and enforcing weak patents is not limited to one particular industry or type of patent – and for that reason the AIA did not limit its IPR procedures to particular technology classes. And while weak patents in the electrical and computer technology sectors impose costs on large technological companies, weak patents in the pharmaceutical sector impose economic costs that reverberate throughout the U.S. economy in the form of high prices for prescription drugs.A small number of companies in the pharmaceutical industry have engaged in abusive practices by acquiring and enforcing weak patents. The sheer ridiculousness of simple concepts that are claimed to be “novel” in certain pharmaceutical patents like “siliconized rubber stoppers” (US Pat No. 8,476,010), an “exclusive pharmacy” using “exclusive databases” (US Patent No. 7,895,059), taking an old drug for “at least two weeks” for a chronic condition (8,007,826), taking an old oral contraceptive for “24 days” instead of 21 days (US Patent No.5,552,394), and certain others, keep these few drug companies’ monopolies on old products alive. These abuses of the patent system are taxes on the US economy, public welfare, and every citizen afflicted by diseases that range from Multiple Sclerosis to Narcolepsy and a number of other conditions. If nothing novel is disclosed, a patent owner should not be rewarded with a government grant of a 20-year monopoly.Hayman Capital Management is a $2 billion investment management firm based in Dallas, Texas. Hayman has been in operation for nine years and has had a1 “Pharma Moves From ‘Denial’ To ‘Acceptance’ Of Post-Grant Patent Challenges,”Brenda Sandburg, The Pink Sheet, April 6, 2015.successful track record in spotting global imbalances over the past decade. Hayman has been historically successful in identifying, in advance, the subprime mortgage crisis, European sovereign debt crisis, and current stresses in Japan, and counseling politicians and corporate actors about potential consequences. In all cases, we took a simple, common sense approach to each situation, analyzed the specific nuances, and implemented a sound investment policy around our conclusions.Over the past year, a small number of monopolistic drug franchises that have gone unchecked have become our special focus. We intend to challenge less than 1% of the existing branded drug universe (which includes 3,522 branded prescription drugs, according to IMS data) in order to police the abusive patent tactics used by the worst offending drug companies. Unlike many historical challenges by generic drug companies in the Federal court system and the PTAB, Hayman will NOT accept settlement payments in order to drop our challenges. We are filing merit-based IPRs at the USPTO with the full expectation of seeing the challenge through to a final decision by the PTAB. These actions provide one of the few impartial arbiters of abusive patent monopolies in the marketplace.There are three