Why, because of a broken patent system, the shadow of Theranos still hangs over us

Elizabeth Holmes, like Benjamin Franklin and Edith Clark, questioned the basic assumption. She asked herself: Do doctors and researchers really need to take so much blood for testing? Elizabeth has proven that this is not necessary. Her innovation, which she patented, requires the patient to donate one drop of blood, and this small sample is then used for many experiments. Not surprisingly, the company it has created to promote this technology is flourishing.

- Director of the United States Patent and Trademark Office (USPTO) Michelle Li, May 25, 2015

When the Director of the Patent Office, Michelle Lee, 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 did not “prove” anything. The informants told The Wall Street Journal that Theranos does not even use its own devices for most blood tests. Obviously, Holmes has spent more than a decade building a company based on unrealistic and frankly false statements about its revolutionary technology.

Of course, such a large-scale disaster as Theranos had many culprits. Holmes and the former managing director of the company Sunny Balvani have been charged with fraud by the federal authorities. The board of directors of Theranos, which included many famous personalities, failed to implement adequate control. The Walgreens pharmacy chain ignored the warning signals before entering into a partnership agreement. Venture capitalists and some journalists were too eager to believe the unconfirmed statements of Theranos.
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In this situation, the patent system has played an important and often underestimated role. The USPTO was too willing to grant patents, giving Theranos confidence that it did not deserve. Theranos then used these patents to attract employees, investors, and business partners. The company lasted for more than ten years and digested half a billion dollars before the truth finally came out.

Patent-based company

In 2002, the energetic student of Stanford, Elizabeth Holmes, shared her idea with the professor. (The ABC podcast The Dropout tells this story in its first episode .) Holmes turned to Phillis Gardner, a professor at Stanford University School of Medicine, with a radical proposal. She wanted to create a micro-jet patch capable of analyzing blood for the presence of infectious organisms and delivering 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. The provisional application , filed 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 relevant therapeutic agents”. This provisional application eventually turned into many issued patents. In fact, patent applications that are of priority along with the Holmes 2003 application are still being reviewed.

But the 2003 Holmes application was not a “real” invention in any meaningful sense. We know that Theranos has spent many years and hundreds of millions of dollars trying to develop working diagnostic devices. The desktop machines, which Theranos focused on developing, were far less ambitious than Holmes' initial idea about the patch. It is fair to say that the first Holmes patent application was simply inspirational science fiction written by an energetic student.

How could an unrealistic application Holmes lead to real patents, for example, to US patent No. 7,291,497 ? If you study the history of the filing of a patent application , you will see that the examiner has carried out her careful examination. He twice gave two preliminary waivers and two final waivers, before finally disagreeing with her statements. (For the United States Patent and Trademark Office, the “final” disclaimer is not really final ). Failures were argued prior art and other technical reasons. However, what the expert did not do was not ask whether Holmes’s “invention” really works .

Two legal doctrines apply here. The requirement of “utility” (utility) patent law requires that the invention work. And the requirement of “realizability” (enablement) means that the application must describe the invention in such a detailed manner as to allow a person with the appropriate skills to create and use it. If the applicant herself could not create an invention for almost infinite time and money, then it seems that the requirement of feasibility cannot be satisfied.

Usually the USPTO does a terrible job of ensuring 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 performance. To some extent this can be understood. The expert has only a few hours to revise each application; therefore, one cannot expect that they will conduct complex experiments to verify the applicants' statements. But this practice can lead to serious mistakes.

At the beginning of 2014, at about the same time that Theranos began to increase its fame, the USPTO was criticized for awarding a patent to a Korean researcher for a job whose fraudulent nature had already been proven. Even the court accused the applicant of falsifying relevant results. The representative of the USPTO told the New York Times that the Office "is guided by a code of honor and patent examiners cannot independently verify the applicants' claims." Professor James Grimmelmann commented : “The USPTO is a storehouse of weapons that distributes legal howitzers, using the honor code system. What could possibly go wrong here? ”

The answer to Professor Grimmelmann’s rhetorical question is Theranos. The original patent application Holmes has become a key part of the company's mythology. For example, the notorious article in Fortune for 2014 reverently tells the story of how Holmes, during sleepless nights, wrote her application, and suggests that Theranos is based on the foundation of her original vision. And if you visited the Theranos website in 2014, you would see the page “ Our Mission ”, on which it was written that Holmes left Stanford to “build Theranos on the basis of their patents and their own vision of the health care system”.

However, more than a decade after Holmes’s first patent application, Theranos was never able to create a reliable blood test device. At that time, the USPTO issued hundreds of patents to the company. From the very moment when Holmes began writing her first application, she built a fictional world, and the Patent Office gladly supported her in this.


Theranos President Elizabeth Holmes speaks at the annual meeting of the Clinton Global Initiative in New York on September 29, 2015.

All will be rewarded according to merit

On September 23, 2005, when Theranos was still a young company, a man named Richard Fuits sent a 135 word letter to his lawyer. This email described the idea he wanted to patent: a technique for processing the results of blood tests and notifying therapists of the results. This letter resulted in US patent No. 7,824,612 . In his book “Bad Blood” (Bad Blood), John Carrera reports that Fuitz, in a private conversation, called this patent “the killer of Theranos”.

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 just started collecting patent fees.

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 the item “Fuits, Richard, Vengefulness”). Whatever the Fuitsa motives, the fact of getting a patent so easy 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 the analyzed substances exceeds the threshold value”.

Having learned about the Fuitsa patent, Theranos went on the attack. One of the sons of Fuitsa worked in a law firm that dealt with some of the Theranos patents. Presented by David Boyes, Theranos accused his son of stealing confidential information and transferring him to his father. There was no evidence that this happened. However, the struggle resulted in many legal cases. As a result, Fuitz abandoned the patent for the Theranos Killer.

Under normal circumstances, Theranos might be sympathetic, but Theranos itself was accused of alleged fraud with useless patents. But Richard Fuits didn't know that. He considered Theranos a successful startup. He wanted to take advantage of his patent-sucked patent in order to receive deductions. 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, gets the opportunity to see how the invention works. Sometimes this principle is called a “patent deal.” The history of Theranos shows us that the system fails to bring this ideal to life.

The first skeptics of Theranos were usually scientists who heard about the extravagant statements of the company and asked the obvious question: does this technology really work ? In 2014, a laboratory diagnostician wrote that he was skeptical about Theranos’s claims that the company uses its own technology 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, and did not provide any evidence of the applicability of these methods.

In April 2015, when most of the press still praised Theranos, Business Insider published an article with quotes from skeptical scholars. The article said that "the technical details of the seemingly revolutionary Theranos analyzes are almost impossible to find." It is noteworthy that at that time Theranos already had hundreds of patents. However, a scientist trying to understand how Theranos actually conduct these analyzes would not find anything useful in the typical Theranos patent . This happened because the companies publish in the application only approximate descriptions of their processes, omitting key details , and nevertheless, they still receive patents. Recent legal reforms have only simplified this process .

Business Insider wrote that if Theranos came up with a "killer application" for microjet 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 generally accessible by their nature. That is, the “patented details” are required to be publicly available .

This offer makes sense only if we realize that the patent transaction is absolutely broken. People working inside the patent system understand this. That is why no one started beating all the bells when Theranos received hundreds of patents, without telling the scientific community anything about how its devices actually work.

Do not worry about the future

In September 2015, just a few weeks before The Wall Street Journal broke the curtain and destroyed the 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 safe hands."

What is the future for Theranos patents? It is noteworthy that after the exposure of John Carrera, the company stretched its existence for almost three years . Toward the end, the company remained afloat thanks to a loan from Fortress Investment Group LLC. A guarantee of this loan of $ 100 million was the patents of Theranos. Fortbank is owned by Softbank , and it has completed other major patent deals, including a shadow loan agreement with the infamous Uniloc patent “collector”. It is difficult to imagine that Fortress did not expect the default of Theranos when transferring the loan. In fact, Theranos declared that it was impossible to fulfill its obligations less than a year later, after which it transferred the portfolio of its patents to Fortress.

It seems logical that the Theranos patents have ended in this way. Accused of lying to investors and endangering the lives of patients, the company gave us a farewell gift: a portfolio of mines that any company could explode, in fact solving problems that Theranos could not solve.

About the author: Daniel Nazer is a senior staff lawyer and chairman of the Mark Kuban Foundation for the destruction of stupid patents at the Electronic Frontier Foundation.