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9 October 2015Patents

PTAB institutes hedge fund’s IPRs with echoes of Kyle Bass

The Patent Trial and Appeal Board (PTAB) has decided to institute inter partes reviews (IPRs) of two patents owned by internet security company VirnetX, despite its protestations that the challenger filed the petitions in order to “manipulate the financial markets”.

On Wednesday, October 7, the PTAB ruled that there is a reasonable likelihood that hedge fund The Mangrove Partners Master Fund will demonstrate that VirnetX’s patents are ineligible at trial.

Both patents cover a system and method for sending secure messages over the internet.

Mangrove filed the petitions in April, alleging that the patents are obvious.

VirnetX hit back, arguing that the petitions should be rejected because they were “filed in an apparent attempt to manipulate the financial markets”.

But three judges at the PTAB said that they do not take a position on the petitioner’s financial motivation.

“Profit is at the heart of nearly every patent and nearly every IPR. As such, an economic motive for challenging a patent claim does not itself raise abuse of process issues. We take no position on the merits of petitioner’s investment strategy.”

The dispute echoes the IPRs filed by Kyle Bass, head of hedge fund Hayman Capital. Bass has been accused by biotechnology company Celgene of using the IPR process to “bet against, or short, the shares of companies ... and wager on rivals that could benefit”.

Celgene, whose patents have been opposed by Bass, called the petitions “abusive” and asked the PTAB to sanction Bass.

But Bass was victorious after the PTAB ruled on September 25 that he will not be sanctioned.

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