Why, due to a broken patent system, the shadow of Theranos still looms over us
Elizabeth Holmes, like Benjamin Franklin and Edith Clark, questioned the basic assumption. She wondered: Do doctors and researchers really need to take so much blood for testing? Elizabeth proved this to be optional. Her innovation, which she has patented, requires the patient to donate one drop of blood, and this small sample is then used for many experiments. Not surprisingly, the company that she created to advance this technology is booming.
- Director of the United States Patent and Trademark Office (USPTO) Michelle Lee, May 25, 2015
When Michelle Lee, Director of the Patent Office, gave this speech, Theranos seemed to be one of the most impressive companies in Silicon Valley. But in the same year, the public learned that Holmes had not "proved" anything. Informants told The Wall Street Journal that Theranos doesn’t even use its own devices for most blood tests. Obviously, Holmes spent more than a dozen years building a company based on unrealistic and frankly fake claims about its revolutionary technology.
Of course, such a large-scale catastrophe as Theranos had many culprits. Federal authorities Holmes and former managing director of the company Sunny Balvani charged with fraud. Theranos board of directors, which included many well-known personalities, failed to implement adequate control. The Walgreens pharmacy chain, before concluding a partnership agreement, ignored the alarm signals. Venture capitalists and some journalists were too eager to believe the unconfirmed statements of Theranos.
In this situation, the patent system played an important and often underestimated role. USPTO toowillingly granted patents, giving Theranos a trust that she did not deserve. Theranos then used these patents to attract employees, investors, and business partners. The company lasted more than ten years and digested half a billion dollars before the truth finally surfaced.
A company built on patents
In 2002, an energetic Stanford student Elizabeth Holmes shared her idea with the professor. (ABC's new podcast, The Dropout, tells the story in its first episode .) Holmes turned to Phillis Gardner, professor at Stanford University School of Medicine, with a radical offer. She wanted to create a micro-jet patch capable of analyzing blood for the presence of infectious organisms and deliver antibiotics through the same micro-jet channels. The professor replied that this idea was completely unsustainable.
But Holmes found a more supportive audience at the USPTO. She said she spent five full days writing a patent application. Preliminary applicationRegistered in September 2003, when Holmes was only 19 years old, describes "medical devices and methods capable of detecting biological activity in real time, as well as carrying out controlled and localized release of appropriate therapeutic agents." This provisional application has over time evolved into many patents issued. In fact, patent applications are still pending, with priority along with the 2003 Holmes application.
But the 2003 Holmes application was not a “real” invention in any meaningful sense. We know that Theranos spent many years and hundreds of millions of dollars trying to develop working diagnostic devices. The desktop machines that Theranos focused on were much lessmore ambitious than Holmes's original idea of a patch. It will be fair to say that Holmes's first patent application was simply an inspirational science fiction written by an energetic student.
How could the unrealistic application of Holmes lead to real patents, for example, to US patent No. 7,291,497 ? If you study the history of filing a patent application , you will see that the examiner carefully examined it. He twice gave two preliminary refusals and two final refusals before finally disagreeing with her allegations. (For the U.S. Patent and Trademark Office, the “final” waiver is not really final) Failures were argued by the prior art and other technical reasons. However, what the expert did not do was not ask if the "invention" of Holmes really works .
Two legal doctrines are applicable here. The utility utility requirement of patent law requires the invention to work. And the requirement of “feasibility” (enablement) means that the application should describe the invention in such a detailed way as to allow a person with the appropriate skills to create and use it. If the applicant herself was not able to create the invention in practically infinite time and money, then it seems that the feasibility requirement cannot be satisfied.
Usually, the USPTO does a terrible job of delivering standards of utility and feasibility. In practice, if the application does not describe an obviously impossible device (for example, a perpetual motion machine), then the expert does not question its operability. To some extent, this can be understood. An expert has only a few hours to audit each application, so they cannot be expected to conduct complex experiments to verify the applicants' allegations. But this practice can lead to serious errors.
In early 2014, at about the same time that Theranos began to increase its fame, the USPTO was criticized for granting a patent to a Korean work researcher, whose fraudulent nature is alreadyhas been proven. Even the court accused the applicant of falsifying the relevant results. A USPTO spokesperson told the New York Times that the Office was “guided by a code of honor and patent examiners could not independently verify applicants' allegations.” Professor James Grimmelmann commented on this: “The USPTO is a weapons depot distributing legal howitzers using a code of honor system. What can go wrong here? ”The
answer to the rhetorical question of Professor Grimmelmann is that Theranos could happen. Holmes's initial patent application became a key part of the company's mythology. For example, a notorious Fortune articlefor 2014 reverently tells the story of how Holmes wrote her application sleepless nights, and suggests that Theranos is based on the foundation of her original vision. And if you had visited Theranos website in 2014, you would have seen the Our Mission page that said Holmes left Stanford to “build Theranos based on her patents and her own vision of the healthcare system.”
However, more than a dozen years after Holmes's first patent application, Theranos failed to create a reliable blood test device. At that time, the USPTO issued hundreds of patents to the company . From the very moment that Holmes began writing her first application, she was building a fantasy world, and the Patent Office was happy to support her in this.
Theranos President Elizabeth Holmes speaks at the annual Clinton Global Initiative in New York on September 29, 2015.
Everyone will be rewarded
On September 23, 2005, when Theranos was still a young company, a man named Richard Fuitz sent a 135-letter letter to his lawyer. This email described the idea that he wanted to patent: a methodology for processing the results of blood tests and notifying therapists about the results. This letter led to U.S. Patent No. 7,824,612 . In his book , Bad Blood, John Carrera reports that Fuitz, in private conversation, called this patent the “Theranos killer.”
Fuitz is a former family friend of Elizabeth Holmes. Knowing only the most vague outlines of what Theranos plans to do, he realized that sooner or later companies would need to send data from devices to doctors. Fuitz patented this simple step, and then simply set about collecting patent royalties.
Why did Fuitz do this to his friend’s family? You should read Bad Blood to find out the whole story (in the alphabetical index of the book there is an item “Fuits, Richard, revenge”). Whatever the motives of Fuitz, the fact that patent is so easy to obtain demonstrates the weakness of the patent system. Fuits simply stated the idea of programming a “data storage module” with threshold values, and then “displaying a notification if the measured level of analytes exceeds a threshold value”.
Upon learning of Fuitz's patent, Theranos launched an attack. One of Fuitz's sons worked for a law firm working on some of Theranos's patents. Represented by David Boyes, Theranos accused the son of stealing confidential information and passing it on to his father. There was no evidence that this had happened. Nevertheless, the struggle resulted in a lot of legal litigation. As a result, Fuits waived the patent for Theranos Killer.
In ordinary circumstances, Theranos might be sympathetic, but Theranos herself was accused of alleged fraud with worthless patents. But Richard Fuitz did not know this. He considered Theranos a successful startup. He wanted to use his patent, obviously sucked out of his finger, to receive royalties. This is how the patent system often works.
Broken Patent Deal
The patent system is often explained as an interchange between inventors and society. By registering a patent, the inventor receives a temporary right to exclusive use. Society, for its part, is given the opportunity to see how the invention works. This principle is sometimes referred to as a “patent transaction”. The Theranos story shows us that the system fails to translate this ideal into reality.
Theranos' first skeptics were usually scientists who heard about the company's extravagant statements and asked the obvious question: does this technology really work ? In 2014, a laboratory diagnostic specialist wrotethat he is skeptical of Theranos claims that the company uses proprietary technologies in many of its analyzes. Other scientists expressed their dissatisfaction with the fact that Theranos did not share any of its methods with the scientific community, nor did it provide any evidence of the applicability of these methods.
In April 2015, when most of the press still praised Theranos, Business Insider published an articlewith quotes from skeptical scientists. The article said that "the technical details of Theranos' seemingly revolutionary analyzes are almost impossible to find." It is noteworthy that at that time Theranos already had hundreds of patents. However, a scientist trying to figure out how Theranos actually conduct these analyzes would not find anything useful in a typical Theranos patent . It happened because companies publish in the application only rough descriptions of their processes, omitting key details , and nevertheless, they still get patents. Recent legal reforms have only simplified this process .
Business Insider wrotethat if Theranos came up with a “killer application” for micro-jet systems, “this may explain the reluctance to demonstrate the patented features that make the technology unique.” This proposal does not make sense because patents are publicly available by nature. That is, "patented details" must be publicly available .
This proposal makes sense only if we recognize that the patent transaction is completely broken. People working within the patent system understand this. That is why no one began to sound all the bells when Theranos received hundreds of patents without telling the scientific community anything about how its devices actually work.
Don't worry about the future
In September 2015, just a few weeks before The Wall Street Journal broke the curtain and destroyed Theranos, Elizabeth Holmes was on the same stage as President Bill Clinton. The former US president asked Holmes how old she was when she founded Theranos. She replied that she was 19 years old. Clinton turned to the audience, smiled and said : "Do not worry about the future - we are in good hands."
What is the future for Theranos patents? It is noteworthy that after exposing John Carrera, the company extended its existence by almost another three years . Toward the end, the company remained afloat thanks to a loan from Fortress Investment Group LLC. $ 100 million guarantee for this loanwere Theranos patents. The owner of Fortress is Softbank , and it has entered into other major patent transactions, including a shadow loan agreement with the infamous Uniloc patent collector. It is hard to imagine that Fortress did not expect the default of Theranos when transferring the loan. In fact, Theranos stated that it was impossible to fulfill its obligations less than a year later, after which it transferred the portfolio of its Fortress patents .
It seems logical that Theranos patents ended their way this way. Accused of lying to investors and endangering the lives of patients, the company left us a farewell present: a portfolio of mines that could blow up any company that actually solves the problems that Theranos failed to solve.
About the Author: Daniel Nazer is a senior staff lawyer and chairman of the Mark Kuban Foundation for the Elimination of Dumb Patents at the Electronic Frontier Foundation.