Invoking Equity in the Time of COVID-19

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Talk about bad timing. On Friday, March 6, 2020, non-practicing patent holding company Labrador Diagnostics formed in Delaware and obtained a patent portfolio directed to testing patients for the presences of coronavirus—when the United States had 282 cases. Three days later, Labrador Diagnostics decided to file a lawsuit seeking damages and injunctive relief against a practicing company that was in the process of securing emergency FDA approval for a COVID-19 test utilizing technology that Labrador Diagnostics alleged infringed two of its patents.

Specifically, on Monday, March 9, 2020, Labrador Diagnostics sued BioFire Diagnostics LLC and parent company bioMerieux S.A. in the United States District Court for the District of Delaware for the alleged infringement of U.S. Patent No. 8,283,155, titled “Point-of-Care Fluidic Systems and Uses Thereof,” and U.S. Patent No. 10,533,994, titled “Systems and Methods of Sample Processing and Fluid Control in a Fluidic System.”  By then, the novel coronavirus had infected 108,000 people around the world and killed more than 3,800.

Not surprisingly, Labrador Diagnostic’s lawsuit engendered public outrage. Some of that outrage is overstated – a standard request for permanent injunctive relief was seen by commentators as an attempt to curtail further the United States’ already anemic ability to test for COVID-19 in the midst of a pandemic. And there is no indication Labrador Diagnostics intends to seek preliminary injunctive relief. In reality, COVID-19 will likely be in our rearview mirror by the time the court considers a request for permanent injunctive relief years from now. Even then, obtaining injunctive relief will be an uphill battle for Labrador Diagnostics, given that it does not contend, nor does it appear, that it actually practices the patented systems itself. Ultimately, the United States government could always jump in and subject the Labrador Diagnostics patents to the compulsory licensing provisions of 28 U.S.C. § 1498(a).

Labrador Diagnostics seems to have attempted to repair the negative impression created by the timing of its lawsuit by agreeing to extend the defendants’ deadline to respond to the complaint by three months and vaguely alluding to an offer of a zero-royalty license for COVID-19 tests. But it might be a case of too little too late.

The bad timing of its lawsuit thrust to the forefront other issues that Labrador Diagnostics will have to work to overcome throughout the litigation. Fortress Investment Group has a history of acquiring patent assets through loans to distressed companies secured by the company’s patent portfolio. The patents being asserted against BioFire and bioMerieux were obtained by Fortress following its loan to Theranos Inc. of $65 million. Theranos shortly defaulted on that obligation after its founder, Elizabeth Holmes, and former president, Ramesh “Sunny” Balwani, were charged by the SEC with misleading investors regarding Theranos’ technology, business and financial performance, and were indicted by a federal grand jury for wire fraud and other charges alleging they defrauded investors, doctors and patients.

The hundreds of Theranos patents, touted by Theranos to investors and the public as game-changing technology, have been criticized as being at most incremental improvements over the prior art. Theranos itself was never able to commercialize its alleged inventions, even after 15 years of research and development, which raises questions regarding the patents’ utility and enablement. The timing of its lawsuit and the allegations of fraud permeating all operations of Theranos may give Labrador Diagnostics a hill to climb in the eyes of the court, which will be deciding matters of equity, and in the eyes of the public, who will ultimately decide whether Labrador Diagnostics deserves to succeed on the merits.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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