In a move no one could have seen coming, hedge funds have devised a strategy to turn a few rules on their heads in order to drive down stocks they’re shorting. Thanks to a changes in patent laws implemented in 2012, hedge funds can now challenge patents for the bargain price of just $23,000 (which effectively means deep pocketed fund managers can have as many reviewed as they want) in a process that is now far more efficient than it once was. As Bloomberg explains, those who drafted the new laws could not have foreseen that the system would one day be exploited by evil money managers and after all, Congress was trying to do the right thing for the country by stifling innovation: A patent office review costs $23,000 to file, and the whole process is a fraction of the millions of dollars in legal fees a challenger would spend in a civil suit. Congress created the process in 2012 as part of a sweeping overhaul of the U.S. patent system, designed to counteract what was seen as an overabundance of patents being awarded. That makes sense. When too many people are inventing things, one way to stop such nonsense is to make suing inventors cost far less than it used to. And while the new process — which basically just involves a review by a judge — is being used five times more than anyone anticipated, Bloomberg notes that fortunately, the chances that a challenge will be considered is actually quite low at “only” 70%: The mere filing of a petition is no guarantee the patent office will invalidate a patent owner’s rights to an invention, or even consider the case. In the past three months, the agency has agreed to hear only 70 percent of the petitions it’s received… Kyle Bass is one high profile name who may be employing the strategy and although he won’t say if he’s short the stock, he did file a review of two patents owned by Acorda Therapeutics ($1.4 billion market cap), causing the company’s stock to dive on two separate occasions: His first petitions targeted two of the five patents covering multiple sclerosis drug Ampyra, which accounts for 91 percent of the revenue of Acorda Therapeutics Inc. Acorda’s stock dropped after each of the filings: by 9.7 percent on Feb. 10 and 4.8 percent on Feb. 27. The short-stock-file-patent-review approach has another advantage: it leaves you the option of simply extorting the patent holder: Drugmakers only have anecdotal reports of third parties asking for money to drop a patent challenge. In other industries, the practice has led to at least one lawsuit. Chinook Licensing LLC said in a lawsuit it was threatened with a patent challenge by Iron Dome LLC unless it gave the company three transferable licenses. A judge dismissed the suit after Iron Dome argued that it had the right to make a settlement offer and that a demand letter can’t be “a crime of extortion.” As usual though, this is just another case of the media villainizing hedge funds who, as Ferrum Ferro’s Kevin Barnes will explain to you, are really just fighting for lower perscription drug prices: Questions about outsiders challenging patents are “a distraction from the core public policy issue of monopolistic pricing for branded pharmaceuticals with low-quality patents,” he said. So while the media is busy “distracting” the public from the real issues with crazy accusations about fund managers seeking to capitalize on the unintended consequences of a Congressional misstep, hedge funds are busy securing your right to cheap drugs and if they have to extort some folks in the process, well that’s a small price to pay for paying a cheaper price at the pharmacy counter.