The Mangrove Partners Master Fund Ltd. is the latest hedge fund to get into the PTAB/short-sell stock game, successfully petitioning the Board to institute IPRs on two network security patents (IPR2015-01046 and IPR2015-01047). Interestingly, the two patents owned by VirnetX, a patent licensing company, were the subject of prior unsuccessful IPR petitions by other companies as well as district court litigation. Similar to the Patent Owners in the Kyle Bass petitions, VirnetX argued that the petition was a move by Mangrove Partners to use the IPR process to move stock prices and reap benefits. According to VirnetX, before the petitions were filed, Mangrove Partners held a short position of 270,000 shares of VirnetX stock, yet a month after the petitions were filed, Mangrove Partners no longer held a short position.
In deciding to institute the trials, the PTAB reiterated the position set forth in the Bass proceedings that an AIA petitioner’s motives are immaterial and “[p]rofit is at the heart of nearly every patent and nearly every inter partes review. As such, an economic motive for challenging a patent claim does not itself raise abuse of process issues.”
VirnetX also attacked Mangrove Partners’ identification of the real parties-in-interest based in large part on Mangrove Partners’ own SEC filings. The PTAB did not find this persuasive, noting the Petitioner could amend the real parties-in-interest in the future, something to watch as the trials proceed.
After the three failed Bass attempts and the failed attempts by other companies to institute IPRs on the very same VirnetX patents, perhaps the PTAB is attempting to prove it’s not the “kangaroo court” Bass has labeled them as and are willing to institute even when the petitioner is a hedge fund. Congress however may have the last word and is considering legislation that would effectively ban hedge funds from filing AIA petitions (Innovation Act, H.R. 9). Stay tuned!