New Law Could End Kyle Bass’s Patent Review Strategy

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Hayman Capital’s Kyle Bass’s strategy of using a patent review process to seek invalidation of intellectual property protection on blockbuster pharmaceutical drugs and then shorting the firms has been roundly criticized by a variety of concerned parties, especially the pharma industry. Moreover, despite the fact the patent review requests are legitimate, Bass has gone so far in his quest for profits it has drawn the attention of Capitol Hill.

According to FINAlternatives, the House Judiciary Committee is considering revisions to a bill designed to prevent so-called patent trolls that would require any party seeking an inter partes review (IPR) of a granted patent to certify that it does not have a financial interest in seeing the stock of the patent holder decline.

This amendment would mean only altruistic parties could request an IPR, and prevent hedge funds like Bass’s Hayman Capital Management from establishing short positions in pharma stocks and then challenging the firms’ patents.

More on Kyle Bass IPR requests

Of note, government records indicate Bass has filed at least 14 IPR challenges so far, including on Celgene’s drug Revlimid, Acorda’s Ampyra, Horizon’s Vimovo and Biogen’s drug Ampyra. Notably, the drugs in question account for a large percentage of the annual revenue of the firm that owns it.


IPR was originally created as part of the 2012 America Invents Act, with the idea that some patents granted to pharmaceutical companies relied on previously known technology and/or minor changes to such things as dosage and packaging, and should therefore not be protected as intellectual property.

Kyle Bass (and others) have argued that these over-broad patents are limiting competition and maintaining high drug prices.

A recent challenge against Horizon Pharmaceuticals’ arthritis drug Vimovo, for example, highlights the active ingredients in the medication are just the combination of two generic drugs (a pain reliever and an acid inhibitor) that can be acquired separately for a small fraction of the cost of Vimovo.

This patent review strategy has alarmed the pharmaceutical industry, which has called Bass’s new approach “abusive”.

Given the lobbying pull of the pharma industry, it’s really not surprising that House of Representatives Judiciary Committee Chairman Bob Goodlatte, R-VA, has introduced amendments to the Innovation Act of 2015, a bill designed to further reform the patent litigation process. If it passes the committee as expected, the bill must still be voted on by the full House of Representatives, then the Senate, and finally approved by the president.


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