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`Paper No. ___
`Filed: August 20, 2015
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`UNITED STATES PATENT AND TRADEMARK OFFICE
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`__________________
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`BEFORE THE PATENT TRIAL AND APPEAL BOARD
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`COALITION FOR AFFORDABLE DRUGS IV LLC
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`Petitioner
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`v.
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`PHARMACYCLICS LLC
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`Patent Owner
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`__________________
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`Case IPR2015-01076
`Patent No. 8,754,090
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`__________________
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`PATENT OWNER’S REPLY IN SUPPORT OF ITS MOTION FOR
`SANCTIONS PURSUANT TO 37 C.F.R. § 42.12
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`Table of Contents
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`Page
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`I.
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`Congress Did Not Authorize Misconduct ....................................................... 1
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`II.
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`The Noerr-Pennington Doctrine Is Inapposite Here ....................................... 2
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`III. Due Process Was Not Violated ....................................................................... 3
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`IV. The Public Interest Favors Sanctioning Misconduct ....................................... 4
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`i
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`Cases
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`Table of Authorities
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`Page(s)
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`BE & K Const. Co. v. NLRB,
`536 U.S. 516 (2002) ................................................................................................ 3
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`Loral Space & Comm’ns., Inc. v. Viasat, Inc.,
`IPR2014-00236, Paper 9 (PTAB July 7, 2014) ...................................................... 2
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`Nader v. Democratic Nat’l Comm.,
`555 F. Supp. 2d 137 (D.D.C. 2008) ....................................................................2, 3
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`Statutes
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`35 U.S.C. § 311(a) ..................................................................................................... 1
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`35 U.S.C. § 316(a)(6) ................................................................................................. 1
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`Other Authorities
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`157 Cong. Rec. S5319-03 (Sept. 6, 2011) ................................................................. 4
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`Rules
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`37 C.F.R. § 42.11 ....................................................................................................... 1
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`37 C.F.R. § 42.12 ....................................................................................................... 1
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`ii
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`By its briefing, Petitioner concedes that its primary motive for filing the
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`Petition is to use the IPR process to influence stock prices of publicly traded
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`companies. Petitioner’s position that its use of the process to manipulate stock
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`markets is shielded from sanctions by the standing requirements, the Noerr-
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`Pennington doctrine, and public policy is wrong. Petitioner is exploiting what it
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`perceives to be a loophole in the IPR process, and its actions must be sanctioned.
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`I.
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`CONGRESS DID NOT AUTHORIZE MISCONDUCT
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`Petitioner conflates the issue of whether it has standing to file the Petition
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`with whether its use of the process constitutes misconduct, but they are separate
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`inquiries. 35 U.S.C. § 311(a)—the statutory provision Petitioner argues confers
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`standing—is independent from the one authorizing sanctions for misconduct—§
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`316(a)(6). See also 37 C.F.R. § 42.12. Moreover, under § 311(a), a petitioner is
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`“subject to the provisions of this chapter,” which includes the sanctions provision.
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`All parties must also obey a duty of candor and good faith. 37 C.F.R. § 42.11.
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`Thus, even if “any person” can file an IPR petition, that person still has a duty not
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`to abuse or make improper use of the process or risk being subject to sanctions.
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`Petitioner does not identify which statute or regulation is “unambiguous”
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`and why reviewing the legislative history is therefore “unwarranted.” (Resp. at 4.)
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`The legislative history shows why the sanctions provisions were implemented and
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`are therefore relevant to understanding their language. While curbing frivolous
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`1
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`petitions or repetitive claims against the same patents and parties may be
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`exemplary types of misconduct, the plain language and legislative history make
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`clear a broader range of misconduct is sanctionable. Petitioner offers no support
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`for its position that Congress intended that its conduct—notably repetitive against
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`the pharmaceutical industry as a whole—be exempt from sanctions.
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`Finally, Loral Space & Comm’ns., Inc. v. Viasat, Inc., the only authority
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`Petitioner offers to support that IPRs are not an alternative to litigation, does not
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`support Petitioner’s position and is quoted out of context. IPR2014-00236, Paper 9
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`at 7 (PTAB July 7, 2014). There, the petitioner sought to broaden the scope of the
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`IPR procedure, which the Board declined to do in the quoted passage. Id. at 7.
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`II. THE NOERR-PENNINGTON DOCTRINE IS INAPPOSITE HERE
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`Petitioner essentially admits it is manipulating the IPR process, but then
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`argues that the Noerr-Pennington doctrine provides a safe haven for it to continue
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`its misbehavior without consequence. But Noerr-Pennington, typically applied
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`only in an antitrust context, only protects “defendants who petition the government
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`for redress of grievances.” (Resp. at 5) (citing Nader v. Democratic Nat’l Comm.,
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`555 F. Supp. 2d 137, 155 (D.D.C. 2008)). Petitioner does not and cannot allege
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`that it suffered any grievance. Petitioner is not a licensee, a patentee, or an
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`interested party. Because Petitioner has no grievance, Noerr-Pennington does not
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`apply. Whether the Petition falls within its sham exception is irrelevant.
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`2
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`In any event, Noerr-Pennington cannot immunize Petitioner’s misconduct
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`from litigation sanctions. BE & K Const. Co. v. NLRB, 536 U.S. 516, 537 (2002)
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`(Noerr-Pennington does not “question
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`the validity of common
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`litigation
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`sanctions”). Noerr-Pennington only protects “defendants who petition the
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`government…from liability” stemming from their petitions. Nader, 555 F. Supp.
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`2d at 156 (emphasis added). It has never protected a petition or lawsuit from
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`dismissal as a sanction for abuse of process or improper use. Indeed, Petitioner’s
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`cases only show Noerr-Pennington protects a litigant from tort liability. Thus, even
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`if the doctrine applied, it only shields Petitioner from liability, not sanctions.
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`Finally, Pharmacyclics’s claims are not legally deficient. (Resp. at 10.)
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`Notably, Petitioner offers no competing definitions for “abuse of process” or
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`“improper use” and no support for its position that misconduct can only occur after
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`institution. As Petitioner itself concedes, some of the abuse Congress contemplated
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`included filing repetitive or frivolous petitions. (Resp. at 5.) Thus, “abuse of
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`process” and “improper use” can clearly include filing itself.
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`III. DUE PROCESS WAS NOT VIOLATED
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`Petitioner’s due process concerns are meritless. 37 C.F.R. § 42.12 clearly
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`provides that misconduct is sanctionable and lists exemplary sanctionable
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`behavior. Congress was not required to—and cannot have been expected to—list
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`every possible form of misconduct; it only had to provide reasonable notice.
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`3
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`Moreover, the Patent Office provided public notice of the rule before it took effect,
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`and Petitioner had an opportunity to comment. Thus, denying Petitioner’s creative
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`attempt to misuse this proceeding would not violate due process.
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`IV. THE PUBLIC INTEREST FAVORS SANCTIONING MISCONDUCT
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`Petitioner’s public interest argument fails for several reasons. First, the ’090
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`patent is not a “poor-quality” patent the public has an interest in eliminating. Nor is
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`the ’090 patent “evergreening,” as it is not a “minor modification to existing
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`products.” (Resp. at 13-14.) The FDA granted ibrutinib rare “breakthrough
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`therapy” designation for its unexpected results in preliminary clinical trials, and it
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`was only the second designated therapy the FDA approved. (Exs. 2001, 2006.)
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`Second, Petitioner ignores the strong public interest in protecting public
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`companies from misconduct. The AIA was founded by a strong public desire to
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`curb misconduct that “ha[s] done serious harm to American businesses,”
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`particularly by non-practicing entities. 157 CONG. REC. S5319-03 (Sept. 6, 2011).
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`Petitioner’s misconduct seriously harms businesses because it is designed to profit
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`purely from the proceedings without any investment in their outcome. Unlike an
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`“interested party”, such as a competitor,
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`licensee, patentee, or generic
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`pharmaceutical company trying to obtain freedom to operate, hedge-fund
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`Petitioner is not invested in the end result of this IPR. Instead, Petitioner profits
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`from shorting large quantities of stock based on the mere act of filing a petition
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`4
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`regardless of its underlying merit. It further profits from an institution decision
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`regardless of the final outcome, and a final outcome is, at best, one last way to
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`profit. Petitioner lacks real incentive to file a thoughtful, meritorious petition
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`because, as a non-practicing hedge fund, it will never face litigation or litigation
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`estoppel from a final written decision. That enables Petitioner to file petitions like
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`this one, in which it relies solely upon the patent owner’s own references that
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`already went before the Patent Office. Petitioner’s misconduct harasses innovators
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`by forcing them to expend unnecessary resources defending against meritless
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`petitions and makes the Board waste resources adjudicating them.
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`Third, Petitioner does not and cannot explain how the Petition can possibly
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`facilitate generic entry or lower the cost of Imbruvica®. Exhibits 1027 and 1028,
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`which Petitioner argues support its conduct, only recognize the general benefits of
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`IPRs. Those are not affiliated with Petitioner or the Petition and do not
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`contemplate the benefits of non-interested parties (like hedge funds) filing IPRs.
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`Petitioner’s identification of one conceivable secondary benefit to the public from
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`its misconduct does not outweigh its serious detriments.
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`For these reasons, Pharmacyclics respectfully requests that the Board
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`dismiss the Petition as a sanction for Petitioner’s misconduct.
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`Dated: August 20, 2015
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`Respectfully submitted,
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`/kkm/
`Kevin K. McNish (Reg. No. 65,047)
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`5
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`CERTIFICATE OF SERVICE
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`Pursuant to 37 C.F.R. § 42.6(e), the undersigned certifies that on August 20,
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`2015, a complete copy of the foregoing was served on counsel of record for the
`Petitioner by filing this document through the Patent Review Processing System
`and by sending this document via electronic mail to the following addresses:
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`Jeffrey S. Ward
`Registration No. 32,774
`MERCHANT & GOULD, P.C.
`10 E. Doty Street
`Suite 600
`Madison, WI 53703-3376
`Telephone: (608) 280-6751
`Facsimile: (612) 332-9081
`jward@merchantgould.com
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`Jeffrey D. Blake, Esq.
`Registration No. 58,884
`MERCHANT & GOULD, P.C.
`191 Peachtree Street N.E.
`Suite 4300
`Atlanta, GA 30303
`Telephone: (404) 954-5040
`Facsimile: (404) 954-5099
`jblake@merchantgould.com
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`Brent E. Routman
`(Pro Hac Vice)
`MERCHANT & GOULD, P.C.
`3200 IDS Center
`80 South 8th Street
`Minneapolis, MN 55402-2215
`Telephone: (612) 332-5300
`Facsimile: (612) 332-9081
`broutman@merchantgould.com
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`Shane A. Brunner
`(Pro Hac Vice)
`MERCHANT & GOULD, P.C.
`10 E. Doty Street
`Suite 600
`Madison, WI 53703-3376
`Telephone: (608) 280-6753
`Facsimile: (612) 332-9081
`sbrunner@merchantgould.com
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`Dated: August 20, 2015
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`Respectfully submitted,
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`/kkm/
`Kevin K. McNish (Reg. No. 65,047)
`kmcnish@desmaraisllp.com
`DESMARAIS LLP
`230 Park Avenue
`New York, NY 10169
`Telephone: 212-351-3400
`Facsimile: 212-351-3401
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`Counsel for Patent Owner
`Pharmacyclics LLC
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`6
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