PublishedMarch 18, 2020

Patents in the Time of Coronavirus

Most of the time, the patents I cover involve investment in technology and who gets how much money.  Innovation is important, but the patent lawsuits I write about usually don’t directly threaten public health and welfare.

Usually.  Today’s a little different.

Earlier this week, Mike Masnick at Techdirt reported on what might be the single least likable patent troll ever to exist.  Labrador Diagnostics, a “patent troll which does not seem to exist other than to file this lawsuit,” sued a medical device testing company, BioFire, for patent infringement.  Labrador, like many patent trolls, didn’t actually invent the technology it’s asserting.  But in this case, that technology came from a dubious source—Theranos, the fraudulent medical device company.  And Labrador’s law firm, Irell & Manella, is the alma mater of the current Patent Office Director—the one who claims that patent trolls are a myth.  Unsurprisingly, Labrador is asking for an injunction against sales of BioFire’s testing devices—a tactic that is used by trolls to try to extract a fee far higher than the value of their technology, and one that courts and economists alike are skeptical of.

Oh, did I mention that the devices that Labrador is trying to block the sale of can be used in testing for COVID-19?

So, to recap: that’s a patent troll, using a patent acquired from a fraudulent medical device company whose technology never worked, represented by a law firm with a prominent alum who claims trolls are a myth, suing to block sales of a device which might be useful in increasing the availability of testing for a virus currently causing a global pandemic.

Labrador, of course, isn’t the only company exploiting medical patents during a pandemic.  An Italian company was recently reported to have threatened someone who 3D-printed respirator valves with a patent infringement lawsuit.  But they’ve certainly managed to pack a lot of common patent assertion issues into a single lawsuit.

Mike’s article has tons of details and is well worth a read, but there’s a few things he didn’t address that I think are worth considering.

Patents and Platforms

Almost immediately after Mike’s story came out, Labrador issued a press release claiming it would issue a royalty-free license for use of its patents in testing for COVID-19.  (Mike’s follow-up piece is here.)  Labrador also claimed it had no idea BioFire was working on a coronavirus test.  Honest mistake, problem solved, right?

Not so fast.  While we can acknowledge that Labrador has made this commitment, it’s difficult to credit the commitment given that the commitment doesn’t seem to be a meaningful one.  Suing a company that makes (extremely complicated) “razor handles” and “razor blades”, Labrador has essentially offered to freely license COVID-19 blades—but it’s still trying to block sales of the razor the blades require.

An Offer You Can’t Accept

That’s the thing—Labrador’s offer isn’t meaningful in practice.  BioFire’s product, FilmArray, uses a technology called PCR (polymerase chain reaction).  And their product is pretty cool.  Essentially, FilmArray is a two-piece system—a durable test device and a consumable test pouch containing test-specific reagents.  You take the pouch, inject the sample to be tested into the chamber, and stick the pouch into the test device. The test device does some complex mechanical and biomolecular magic—PCR—and delivers a test result for the doctor.  (And as Mike noted, the patent isn’t on the biomolecular magic—it’s on using a barcode on the test pouch to trigger the PCR reaction.)

But in BioFire’s system, no matter what disease you’re testing for, you use the same test device.  The test-specific aspects are entirely contained in the pouch—a respiratory pouch, a gastrointestinal pouch, etc.  Each one tests for a couple dozen diseases. A respiratory pouch might check for COVID-19, common flu strains, and pneumonia all at once.  And what Labrador is seeking to block is the whole system, not just the pouches.

So an offer to allow a royalty-free license for the COVID-19 test appears to be meaningless—they’re still trying to block the technology that’s needed to run the COVID-19 test.  A razor blade without a handle to hold it isn’t much use. The offer would seem to be made purely for the sake of making Labrador look less like ghouls trying to benefit from a pandemic—in practice, Labrador’s injunction request would still effectively shut down COVID-19 testing or make it more expensive.  Even though it’s theoretically offering a royalty-free license to test for COVID-19.

A Chilling Offer

Second, the offer of a license in one instance doesn’t require the patent owner to offer that license to others.  (And as we’ve seen with Qualcomm, even a legal commitment won’t stop a determined patent holder from trying to avoid offering licenses they’ve committed to offer.)  If you’re a medical startup thinking about developing a COVID-19 test, you could invest in that—and hope that Labrador licenses you royalty-free—or you could spend your money somewhere without the risk of a well-financed patent troll coming after you.  That risk will chill investment in public health and innovation, even though this particular case might be licensed.

Implausible Claims

Finally, Labrador claims it had no idea BioFire was working on a coronavirus test.  It’s possible Labrador somehow ignored that BioFire’s existing test panels diagnose other coronavirus strains and that testing for COVID-19 is a pressing need—information that would lead any reasonable person to think they were likely to develop a COVID-19 test.  Even if they ignored all that, it was reported on March 3 in the Wall Street Journal that BioFire was developing a COVID-19 screen.

According to the Delaware Division of Corporations, Labrador Diagnostics was formed on March 6—three days after national news specifically identified BioFire as developing a COVID-19 test.  Given that Labrador was created and filed its lawsuit in the midst of a pandemic, immediately after a news story describing how BioFire’s technology was being adapted to test for COVID-19, it’s an open question how much credence should be given to its claims that it had no idea that its lawsuit might impact coronavirus testing.

Litigation, Finance, and Private Equity

Mike also notes that Theranos sold its patents to Fortress, a private equity firm.  There’s additional context to that transaction. As reported in John Carreyrou’s Bad Blood, Fortress loaned Theranos money to help them wind down, securing the loan by stating that if Theranos failed to make specified payments, then Fortress would take ownership of the patents.

Unsurprisingly, the medical device company which didn’t have a functional medical device failed to make those payments, and Fortress took the patents.

But why would a private equity company want to own patents created by a company who never had the ability to do what they claimed?  After all, if the patents covered technology Theranos actually knew how to make, then Elizabeth Holmes probably wouldn’t be facing a trial for defrauding Theranos’s investors.

But it’s actually simple to explain why Fortress wanted those patents—Fortress had just launched a $400 million fund whose entire purpose was to fund patent troll activity.  This wasn’t a new business for Fortress—they’d been financing patent trolls in a similar fashion since at least 2014.  One might conclude that they liked the business so much that they decided to jump in with both feet.

This is all part of a recent trend for private equity companies to finance patent troll litigation in exchange for a share of the profits—something known as “litigation finance.”  But that comes with a cost—private equity is focused on its own benefit, not the costs of its tactics. And as a private equity company that invested in another patent troll might recall, over-financialization of an asset class can have serious negative consequences for the global economy.

Or, in this case, on global health.

Josh Landau

Patent Counsel, CCIA

Joshua Landau is the Patent Counsel at the Computer & Communications Industry Association (CCIA), where he represents and advises the association regarding patent issues.  Mr. Landau joined CCIA from WilmerHale in 2017, where he represented clients in patent litigation, counseling, and prosecution, including trials in both district courts and before the PTAB.

Prior to his time at WilmerHale, Mr. Landau was a Legal Fellow on Senator Al Franken’s Judiciary staff, focusing on privacy and technology issues.  Mr. Landau received his J.D. from Georgetown University Law Center and his B.S.E.E. from the University of Michigan.  Before law school, he spent several years as an automotive engineer, during which time he co-invented technology leading to U.S. Patent No. 6,934,140.

Follow @PatentJosh on Twitter.

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