Tuesday, December 22, 2015

A Trade Secrets Strategy May Protect IP, But Can Harm Business

Source:  Theranos

The MIN-Corps blog has had several postings (here, here and here) using Theranos as a case study in how not to build a science-based business. Theranos is an 11-year old “startup” with a possibly revolutionary technology to do comprehensive testing using tiny amounts of blood.  Earlier this year, Theranos was a “unicorn,” a young(ish) Silicon Valley company with a multi-billion dollar valuation.  But then a series of Wall Street Journal articles (here, here,  here, and here) questioning the effectiveness of the technology and the validity of its blood tests.  What then followed were FDA investigations, and withdrawal by marketing partners Walgreens and Safeway.  Since there hasn’t been a funding round since these articles and events, the current valuation of Theranos is anyone’s guess, but you can be sure it’s less today than it was six months ago.

Now the Wall Street Journal has another article about investigations by both the Food and Drug Administration (FDA) and the Centers for Medicare and Medicaid Services (CMS) into the blood testing equipment and protocols.  What’s striking is that it still isn’t clear what’s going on with the technology itself, probably because Theranos has chosen not reveal it via patents, but to protect their IP via a trade secrets strategy.

Let’s assume that the technology is the real deal.  Then wouldn’t it be in Theranos’ interest to prove it?  But, that means sharing details about the technology to impartial third parties – the most common means being via peer-reviewed journal articles.  A trade secrets strategy makes that tough, and Theranos has been tying itself into knots trying to defend itself without revealing anything proprietary.  To quote from the most recent WSJ article:
  • “Theranos has said that all its lab work is accurate and reliable. In recent weeks, Elizabeth Holmes, the company’s founder and chief executive, has defended Theranos in public appearances and pledged to publish peer-reviewed data on its tests. Ms. Buchanan, the spokeswoman, said the data aren’t ready and declined to specify when the information will be published. After working on a technology for 11 years and submitting info to the FDA for regulatory approval, wouldn’t you think that they’d be able to produce the data more quickly?
  • “In response to questions from the Journal, Theranos last week made available three senior company scientists, who discussed their work and certain documents and regulatory submissions by Theranos. However, the company said the documents couldn’t be disclosed by the Journal or reflected in this article because they contained confidential information and trade secrets.  Huh?
  • “Theranos’s spokeswoman, Ms. Buchanan, said Theranos believes that the former employee who filed the FDA complaint is ‘uninformed’ and ‘disgruntled.’ The FDA’s approval was ‘hard earned and the product of significant efforts by dozens of exemplary scientists and engineers—honest, hardworking, highly qualified individuals.’” Wouldn’t it be better just to produce your proof rather than start hurling insults? Wouldn’t it be better to make those “exemplary” scientists available on the record?
For all its issues, the disclosure inherent in patenting allows for vetting, as well as for others to build on your innovation while you hold exclusive rights for 20 years after filing.  Assuming that their technology works, Theranos’ business would probably be in better shape if they had chosen a less secretive IP strategy.

If you are a university-based inventor, go talk with your tech transfer office about an IP strategy that allows for peer-reviewed validation of your science.