The lesson from Theranos is that investors do not know how to read a patent.
As the Theranos debacle continues to be unpacked, one tidbit has nagged commentators. If Theranos was a fraud the whole time, how did Holmes manage to get so many patents on the technology? Some estimates have Theranos racking up over 200 patents. Recently, commentators have suggested that the lesson from Theranos actually illustrates a failure of the patent system.
That misses the point. Theranos’ patents may have assured investors that the company was a good bet, but that does not mean those patents were a failure of the patent system. Rather, the patents illustrate a deficiency of IP literacy. Investors—and recent commentators still—have taken the patents to mean something they are not. Indeed, the patents—and the file histories behind them—have been public for years. Those patents and file histories revealed many red flags that were apparently ignored.
For one thing, the initial Theranos patent blatantly lacked any indication that a prototype had been built that actually worked. Moreover, the file history blatantly showed that the Patent Office never blessed the invention as actually “working.” And patent lawyers know that the Patent Office rarely makes that determination during examination. Finally, the file history also illustrated this art was more crowded than Theranos may have suggested.
The patent system is far from perfect, and most commentators agree that it needs fixing. But to chalk up the Theranos episode to a failure of the patent system is to misconstrue what patents are—and what they are not. And that, more than anything, illustrates a deficiency of IP literacy, as Gaston Kroub has written elsewhere.
A closer look at Theranos’ first patent
Theranos’ first patent was U.S. Patent No. 7,291,497. In its most basic, the patent covers a disposable mini-lab. The first independent claim shows that the patent is directed to a disposable patch for detecting an analyte. The analyte can be antibodies, cholesterol, drugs, markers, genes protein, metabolites, etc.
The patch includes a microneedle that draws blood (or other bodily fluids, including urine, tears, saliva, and so forth.) The blood is then channeled into an inlet where it is mixed with a buffer to diffuse the desired analyte. The analyte then interacts with a bioactive agent via the microarray. The patch then detects the interaction between the analyte and the bioactive agent, and the results are then displayed on an interface.
Did this patent sail through examination at the Patent Office? In other words, was the response by the Patent Office to Elizabeth Holmes’ first invention indicative that this was a groundbreaking technological breakthrough?
Not really. The file history for the ‘497 patent shows that the path from filing the patent application to allowance was relatively par for the course. The Patent Office rejected the application at least four times. Perhaps, more importantly, the Patent Office identified several prior art references that were close to what Theranos was touting as an allegedly revolutionary technology.
For instance, the Patent Office identified the Aceti reference, which also covered an analyte monitoring device that could purportedly draw bodily fluid and “initiate analyte testing of the fluid sample.” The Patent Office also identified the Steine reference, which also covered a patch with a microneedle and microchannels for drawing bodily fluid and detecting analyte concentrations.
Holmes’ attorneys eventually distinguished her invention over these, and other prior art references, and the patent was eventually allowed. For instance, Holmes distinguished her invention over one prior art reference, the Beebe reference, on the basis that Beebe specifically lacked a buffer reservoir. Holmes also distinguished over Beebe on the basis that her invention detected analytes of unknown concentration, rather than of known concentrations.
None of this is to suggest that the ‘497 patent, as eventually allowed, was not inventive and worthy of a patent—at least under the patent rules as they currently exist. But it does show that Holme’s alleged “invention” may have actually been minor tweaks over existing technology, rather than something truly revolutionary. And rather than being obscured by the patents, that was actually apparently from the patents’ file histories.
In other words, the file history for Theranos’ first patent—which has been public since at least 2005—laid plain for plain for the public what Holmes’ invention was and what it was not. And it was not necessarily ground-breaking a technological breakthrough for which there was no close prior art.
The Patent Office never purported to bless Theranos’ invention as workable.
But what about the bigger question—did the Patent Office find that Elizabeth Holmes’ purportedly breakthrough invention actually worked? The Wall Street Journal bombshell exposed that Theranos was not using its own technology. As Ars Technica illustrates, several scientists were skeptical that the technology really worked.
And yet, for some inexplicable reason, the patents appeared to allay those fears of investors. Both investors and the public believed that if the Patent Office had handed out several patents to Holmes, that surely blessed the invention as something that really worked. Indeed, commentators continue to ask how could someone acquire so many patents on an invention that doesn’t actually work?
Several commentators have thus interpreted the Theranos debacle as a failure of the patent system. An op-ed in Ars Technica wrote, “[t]he USPTO gave out patents much too easily, giving Theranos early credibility it didn’t deserve. Theranos then used these patents to attract staff, investors, and business partners.” Another op-ed in Above The Law labeled Theranos the “The Great Patent Scam,” and wrote that Theranos was based on “fake patents,” i.e., “patents that should never have been granted [and] propped up a company and helped Holmes defraud Theranos’s investors.”
As both op-eds point out, one reason the Theranos patents allegedly fell through the cracks is because the Patent Office did not examine Holmes’ inventions for meeting the “utility” or “enablement” requirements. Briefly, the “utility” requirement addresses whether the proposed invention actually works, and the “enablement” requirement asks whether enough has been disclosed by the inventor to recreate the invention without endless trial-and-error.
It may seem reasonable to ask, how could the Patent Office not examine these seemingly critical questions? But the fact is, the Patent Office does not regularly examine utility and enablement issues before granting a patent. Nor is there any requirement that patent examiners do so before issuing a patent. Put another way, just because I have a patent, that does not mean that the Patent Office has determined that utility and enablement criteria have necessarily been met.
Patent applications are primarily assessed for whether they are novel—i.e., is there prior art that has already disclosed the invention. The Office does not typically review data submitted by applicants to ensure that it is accurate. As both the op-eds in Ars Technica and Above The Law point out, doing so would require considerable time and effort for an agency that is already overburdened and understaffed by a backlog of patent applications. And the statute does not require examiners to do so—as least, as of now.
The Theranos patents were guide-posts for further diligence—not a blessing that investing in the
company was a “good bet”.
Both the Ars Technica and Above The Law op-eds put the blame on the Patent Office for propping up a company with fake technology. The ATL op-ed writes, “patents can play a critical role in helping startups secure venture capital that allows their companies to grow and thrive. Patents lend credibility and provide an ‘asset’ that assure investors that the company is a good bet.”
That may be true, but where was the diligence by these investors? The grand irony here is that, rather than covering up the fact that Theranos was built on a lie, Holmes’ patents actually exposed what was lacking in her claims about her technology.
For instance, the file history for the ‘497 patent is public, and it has been public for years. To write this blog post, I was able to review the ‘497 patent’s file history in relatively short order and assess with fair precision what the Patent Office did—and didn’t do—in the course of allowing this patent. I was able to get a sense of how crowded the art was, and whether the Patent Office questioned the utility or enablement of the invention.
The patent itself has also been public since at least 2005. The patent’s specification does not show any data or confirmation that the claimed medical patch has been tested and that it does, in fact, work. Example 2 in the patent shows “design specifications” for a preferred patch, but no representation that it has been constructed and actually works. These facts, which were in plain sight for years, actually charted the course for pursuing more diligence from the company.
The Above The Law op-ed is correct—patents are meaningful to investors, and they can often add credibility to a start-up. But that does not mean that investors are always accurately assessing what a patent means, and what it does not mean. The Theranos debacle is a case in point. The Patent Office’s views on the Theranos patents have been public for years. To interpret issuance of a patent as bestowing credence into a whether an investment is worthy is to misconstrue what a patent really is.
Rather, the Theranos patents themselves were potentially guides to unearthing what it took years for investors to discover. The ‘497 patent—on its face—blatantly lacks any suggestion that a working prototype has been created and tested. Because of the way patent law works, that is not a bar to getting a patent, but it should be a red flag for any investor. Also, the file history shows that the art is more crowded than Theranos may have suggested to investors. That was another potential red flag.
The patent system may have many deficiencies, and experts can debate that there are multiple ways that the patenting process needs fixing. But Theranos is not necessarily an instance of a scam or failure of the patent system. The writing was on the wall—and publicly disclosed in the patent filings—for years.
Instead, Theranos illustrates a failure of patent literacy. Had investors actually understood what the Theranos patents meant, and didn’t mean, and how those patents raised red flags rather than providing assurances, the trajectory of the company could have been different.