Why Softbank Patent Troll's Promise Of 'Royalty Free' License On Theranos Patents For COVID-19 Is Bullshit

from the an-offer-everyone-should-refuse dept

As noted earlier this week, a Softbank-owned patent troll, Fortress Investment Group, spun up a shell company Labrador Diagnostics this month, and days after the company came into existence, it sued a company working on COVID-19 diagnostics, claiming that the technology it used for those tests violated the patents it had bought from Theranos -- the sham of a company that went down in flames, and whose founders are still facing federal charges for fraud. Oh, and Fortress/Labrador/Softbank was using the law firm Irell & Manella, the same law firm that once sued on behalf of a monkey over copyright. On a related note, the current head of the US Patent Office, Andrei Iancu, used to be the managing director of that law firm, and to this day insists that there's no such thing as a patent troll. He should perhaps talk to his former partner, Morgan Chu.

As you probably heard (because Irell & Manella made sure to reach out to everyone mocking them for this lawsuit), within hours of my post going viral, "Labrador Diagnostics" (again, a company that literally did not exist a few weeks ago) put out a press release saying that (1) it didn't know that BioFire was working on a COVID-19 test (which is questionable, given that the Wall Street Journal and other publications had mentioned it, but I guess Labrador didn't even exist when that article came out, so...), and (2) that it had "offered" a royalty-free license on COVID-19 tests once it realized. As we pointed out, the details and conditions of that "offer" still have not been made clear.

However, as Josh Landau at Patent Progress notes, even if Labrador/Fortress/Softbank is actually offering such a license, it's completely worthless, because the lawsuit is still claiming patent infringement on the machine BioFire is using to run the diagnostic:

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....

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.

Got that? Saying that you'll grant a royalty-free license on one part of the system, but not the part needed to make that "royalty-free" part work, is still seeking to block the use of COVID-19 tests. The lawsuit still seeks an injunction on the testing device, even if it will let COVID-19 pouches operate royalty free. Even worse, we don't know (and Labrador has so far refused to reveal the details of the "offer") what the terms of the offer are, and you can almost guarantee that if BioFire "accepts" the deal that would be used against them, as "evidence" that they admit the patents are valid, since they agreed to a "license" for one product. It's sham deal.

As Landau further notes, this is still likely to create a real chilling effect on other test developers as well:

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.

Separately, Landau highlights another detail in all of this: how Fortress/Softbank got the patents in the first place. It wasn't a straight up "oh we'll buy your patents," but rather a more complicated deal in which Fortress lent money to Theranos, and when the company defaulted, took the patents:

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.

So, no, Morgan Chu and Irell & Manella should not be off the hook for this blatant pandemic profiteering. They're engaging in the worst kind of patent trolling: ones that will create a real chilling effect and potentially block the ability to create COVID-19 tests at a time when millions of lives literally depend on those tests.

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Filed Under: covid-19, diagnostics, patent troll, patents, tests
Companies: biofire, fortress investment group, irell & manella, labrador diagnostics, softbank