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The IP Side of the Theranos Mess

by Patents Integrated
September 22nd 2021

The trial of Theranos founder Elizabeth Holmes is dominating Silicon Valley headlines at the moment, but the real story is in how the company built and profited from its IP portfolio.

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Hello and welcome to the novel and non obvious podcast where we discuss the intellectual property topics impacting the startup world. My name is Yuri Komori to the host of this podcast and founder of patents integrated. Today we're gonna be discussing the Theranos patent portfolio. So you may have heard on the news about United States versus Elizabeth a Homes at all, which is a court case that is being pursued right now by the U. S. Attorney's office in the northern district of California. There have been a lot of interest in this case because it is a company that became a billion dollar valuation unicorn and then crashed spectacularly. In fact, there was so much media coverage of the rise and fall of Theranos back in the day that potential jurors for this court case had to fill out a 25 page questionnaire that asked about everything from your family relationships to whether or not you'd ever had a job handling blood samples. So this rise of Theranos, the company was happening around the time when I was at a medical device company developing a similar product really, a multiplex point of care s a product.

And at my company at a tiny little startup company in boulder colorado. There was a lot of interest by the management that was looking at Theranos raising millions of dollars saying we don't even know these guys have ever even published a peer reviewed journal article about their product or their process or anything like that. It was really all very mysterious to us. So today I don't want to talk about the ethics of pitching a product that doesn't work yet. Or even the vicious cycle of venture capital funding pushing founders to take risks using other people's money. You can find books and documentaries about those topics. And specifically for the Theranos story, there's a book called Bad Blood by john Carew. He's got a podcast as well and a documentary from HBO called the inventor Up for Blood in Silicon Valley. They're both very good. So you can go and find out the gory details about the whole Theranos situation in those publications.

But today let's talk about patents more specifically, I want to talk about what the publicly available information about the Theranos patent assets can tell us about I. P. Strategy. So Theranos, when I looked it up today has a patent portfolio of about 859 items published that are assigned to Theranos the company. This kind of number isn't unusual for a VC backed medical device company, especially in the medical device industry. I. P. Assets can be a significant part of the company evaluation. So it's not a surprise that they have hundreds of patent applications filed and several patents issued. Now one thing that is a little bit concerning to me is an IP professional looking from the outside is that 540 for Of these 859 items list Elizabeth Holmes as an inventor. So that's not surprising since Theranos is first patent application was filed naming Elizabeth Holmes as the sole inventor.

So that was back in 2003. My understanding from the stories that have been told about her founder story is that she had this idea while she was still a stanford student and filed a patent application. So that's great. There's nothing stopping you from filing patent applications on raw ideas. So that's totally fine. The latest items that are still continuing to issue as patents from this portfolio have been issuing this year. So this portfolio is still very much an active patent portfolio. The thing about listing Elizabeth on so many of the patents is a bit concerning as I mentioned because it does raise a little bit of a question of inventor ship Having hundreds of patents under your name is not unusual according to the latest counts. There are at least 16 inventors That are listed on 1000 or more issued patents in the United States.

So 540 for sure. That's pretty prolific in about an 18 year period. But you know it's not unusual however, you do need to be careful with us. Patent law. The U. S. Patent law says that inventor is essentially whoever contributed to the claimed invention in that patent. So the key word here is claimed. So you can write a patent application about all sorts of things. Say you have a widget with 100 parts but you only claimed 50 out of those 100 parts in your patent application and your issued patent only included claims that cover 10 out of the 100 parts. So unless you contributed to one of those 10 claims, then you should not be listed as an inventor on the issued patent. So as patent practitioners, as you're going through patent prosecution, so that's essentially going back and forth with the examiner to convince the examiner that your patent application should be allowed to issue as a patent.

As you're going back and forth, you end up amending claims. So in that example, maybe you started with 100 claims. Each claim covering each one of the 100 parts. And then you start narrowing those claims, maybe have it down to 50 and then maybe you finally get a patent issued with 10 of those claims. If different people contributed to each one of those claims, then the patent practitioner should be revising the inventor ship every time the actual contributing inventor name changes. So inventor ship and getting inventor ship correct is one of those really difficult and rather amorphous aspects of patent prosecution that you really need to be careful about. In fact, in patent litigation. If somebody were to challenge a particular issued patent, one of the things that they will look for is to see if the inventor ship or the list of inventors listed on an issued patent is actually correct.

So, having Elizabeth Holmes as listening, a majority of the Theranos patent portfolios when she was busy running the company rather than contributing technically to the company that can be a red flag for someone looking at the Theranos patent portfolio. You know, inventor ship is a little bit different from things like journal articles or white papers where you might list basically everybody that contributed even a little bit to that article and you can list everyone and their dog and it'll be okay inventor ship in U. S. Patent law is much more rigorous. So you need to be careful about that. The other interesting thing about the Theranos patent portfolio and I don't want to get into whether or not the scientists or the inventors of these patents, whether they knew that the technology actually worked because the U. S. Patent law doesn't require you to prove that you're filed.

Technology actually works before you can file it as a patent application. So there are a couple of things here. So one requirement of U. S. Patent law in order for you to get an issued patent is what's called reduction to practice. And there are two ways of fulfilling the reduction to practice requirement. So one is actual reduction to practice This. one has to do with the way that most people would think of as a proof of concept or actually making the invention, it's essentially a showing of the invention in a physical or tangible form that shows every element of the invention. So for an actual reduction to practice, the invention must have been sufficiently tested and demonstrated that it will work for its intended purpose. Now it doesn't need to be ready for sale, but you need to have a proof of concept that shows that your invention works. So that is the U. S. Patent law definition of actual reduction to practice.

Now there is another way to satisfy the reduction to practice requirement. And it's called constructive reduction to practice. That essentially just has to do with filing a patent application. So describing your invention enough to convince someone else that if someone were to put the money and resources into actually building a prototype, then this invention would work. That's called constructive reduction to practice. And that's something that you can do without building a thing. You can do it with thought experiments just thinking about it, or even modeling it on a computer or anything like that? The key thing here though is that the inventor must recognize that this is an inventive concept and appreciate the significance of the invention and then describe the invention in a way that would allow someone else of scaling the art to reproduce an invention. So then there is the question with the Theranos patent applications and the issued patents since there have been a number of publications that say, well these Theranos innovations actually didn't work.

Is there a problem with the patents that did issue that if the inventors knew these innovations didn't work? Are the patents invalid, does it satisfy the reduction to practice requirement? So that's a big question in my mind. So the bottom line in looking at the Theranos patents is that in some industries like medical devices, investment in creating a sizeable I. P. Portfolio makes sense. Especially in a VC rich environment like Theranos was operating the expectation is that everything that you do contributes to your company's valuation and having a sizable patent portfolio can certainly do that. Another aspect is that getting the inventor ship correct? Can be a big deal. As far as I can tell, none of the Theranos patents have been challenged in the courts or even with the U. S. P. T. O. Yet. But if they are challenged, they're one of the things that could happen is that inventor ship of listing some of these inventors could become problematic in proving that the patent is actually valid.

So that's something to keep an eye out for in the Theranos case as well as in your own patent portfolios. Another lesson to be learned from the Theranos patents is that you can file for patent protection on ideas that you haven't even perfected or prototype yet and that's totally okay. This aspect of US patent law is intended to encourage and equalize the playing field for all inventors. So you don't have to have millions of dollars in prototyping budget in order to file for patent applications? If you know that if you had all the resources and all the time in the world, you are convinced that your invention would work, then you are perfectly allowed to file for patent protection on that idea regardless of whether or not you've actually prototype. So that's something to keep in mind for early stage companies that may not have a whole lot of money for prototyping or even manufacturing, you can still get protection on your innovations using patents.

There is an interesting epilogue to the Theranos CP story. There's a whole transfer of ownership involved in the Theranos patent applications and the instant patents. So the inventors assigned the original patent filings to Theranos inc And then Walgreens filed a suit for breach of contract in 2016. Things got a little messy. Then Theranos inc set up a holding company for intellectual property called Theranos I. P. Company. Then Theranos inc assigned all of their I. P. To this holding company. Now this holding company within months then turned around and assigned these patent filings to a company called Fortress Credit Corporation. The parent company of Fortress Credit appears to be Fortress Investment Company, Which put about $100 million 2017. Now as a side apple in Intel filed antitrust lawsuits in late 2019 against fortress investments for aggregating patents for use in litigation.

But that's a separate story. Fortress then assigned the patent filings of Theranos I. P. Company To yet another company called Labrador Diagnostics. In early 2020, Labrador then launched a poll patent infringement lawsuit campaign. This was right around the start of Covid against companies that were making point of care diagnostics products. Labrador got a whole bunch of really bad press and then decided to turn around and say we're offering free licenses to anybody who was making COVID-19 diagnostics tests. Well by then the damage had been done. They had already gotten a bad rap. They also got on the radars of a whole bunch of medical device companies and at this point that infringement lawsuit campaign appears to be on hold. Now the Theranos trial will continue for several more weeks. Labrador diagnostics hasn't made its next move yet. And from what I can tell as I mentioned, none of the Theranos patents has yet to be challenged in the courts or at the U.

S. P. T. O. So the story continues. We hope you enjoyed this episode of the novel and non obvious podcast. Feel free to send us comments or suggestions for startup in I. P. Related topics you'd like us to discuss on this podcast. At info at Pence integrated dot com. Our producer is Joel Davis of analog digital. Our marketing specialist is Tim Sprinkle of lay up content. Our theme music used with permission is the Workday Takata from a life in a day, composed by sri slider and performed by Michelle Stanley and flute, Jeff look, watch on guitar and yours truly angel. Here's our obligatory disclaimer. The content of this podcast is information, not only and not intended to be legal advice. The novel and non obvious podcast is the production of patents integrated and all rights are reserved. See you next time.

The IP Side of the Theranos Mess
The IP Side of the Theranos Mess
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