Two weeks ago, Theranos was a blood-testing company frequently associated with adjectives like "innovative" and nouns like "unicorn." On October 16, the Wall Street Journal published a nearly 3,000-word story about the company that said it didn't deserve either descriptor. In short, the story said that the company's claims about its transformative diagnostic technology---painless tests, with faster results, that are comparable to the industry standard---were false.
A week later, Theranos pushed back against the Journal, attacking the paper's reporting, reputation, and even its motivations for writing the piece.
In summary: Them's fightin' words. And at this point it's not so crazy to think that the rhetoric being passed back and forth could eventually land one or both of the pugilists in court. Theranos' story has moved from the science section to the business section; the next jump is when the lawyers get involved.
If the Journal is incorrect, Theranos could sue the paper on the grounds its reputation has been unfairly tarnished. But legal experts say Theranos isn't the only potentially wronged party here. We talked to lawyers familiar with health care and regulatory law who say the company could be exposed to class action lawsuits on behalf of consumers and investors, or even action from government regulators.
Theranos has some serious legal muscle on hand. Its top representative is David Boies, whom you might remember as the guy who brought Microsoft to its knees in the early aughts, helped make gay marriage legal in California, and advised Sony after it was hacked. Recently Theranos also appointed Boies to its board of directors. (The New York Times reports that Theranos is shrinking the overall size of the board, and losing such luminaries as Henry Kissinger and George Schulz.) All of which, yes, does look strategic. Boies, however, characterized his appointment as "a formalization of a working relationship that we've had for a while."
He was less vague about how he sees the Journal.
"What's been published in the Wall Street Journal weaves together some things that are simply not accurate with some things that are accurate but misleadingly portrayed," Boies says. The article suggested, he continues, that the company was cheating on its proficiency tests, and said the FDA had made surprise inspections to the company's lab. "If by surprise they mean unannounced, that’s what regulators always do," Boies says. "The words they use, the way it's woven together---it's an effort to make things seem unusual, sinister, colorful, when there just isn't much there."
This is Theranos' standard rebuttal, and the Journal has re-rebutted in kind: "We carefully reviewed the company's claims; nothing in Theranos's report undermines the accuracy of the articles. Our journalism was free of any preconceived notions and was conducted in an entirely appropriate fashion," the Journal wrote in a statement after Theranos' CEO Elizabeth Holmes challenged the paper's accuracy and motives at the WSJ's own tech conference.
Boies and Holmes maintain that the Journal's allegations are invented. So why hasn't Theranos sued the newspaper for libel? "That's a really good question," says Boies. "I think that it's always one of the alternatives you have."
He's right. You can always sue. "The question is whether you can win," says Hank Greely, a lawyer at Stanford Law School who specializes in biology and medicine. "They'd have to show that the Journal acted recklessly or with malice." In other words, they don't just have to prove that the newspaper is wrong, they have to prove that the newspaper knew it was wrong.
And a libel lawsuit might actually end up supporting the Journal's initial article. Theranos would have to present evidence about its technology to the Journal's legal team. "There are very serious trade secrets there that the Wall Street Journal has indicated if it had access to it would try to publish," says Boies. That has always been the substance of Theranos' explanation for why it wouldn't show data on how its finger-prick microfluidic technology worked---that the information was proprietary intellectual property. (A gag order might stop these documents from leaking, but the Journal's lawyers could fight that as well.)
"Having said that, I would not preclude the possibility of a defamation case if this continues," Boies says. "I think enough has now been put on the record so people are chargeable with being knowledgable with what the facts are."
On the flip side, law professors we talked to say Theranos itself could be on the receiving end of legal action. You can lump the potentially aggrieved into three broad categories: the public, the investors, and the government.
"In individual cases you might be able to show that a test was inaccurate and led to you getting an intervention or procedure didn’t need," Greely says. But this is rare. "You have to show how you were damaged." More likely, he says, would be a class action lawsuit, where attorneys would seek to recoup financial damages to the thousands of customers who have paid $10 to $200 for individual tests.
And if enough people did come forward showing that the company's tests had caused them harm, that might attract regulatory attention as well, say attorneys. "Attorneys general would get involved if there's a perception of consumer fraud or harm to public health from withholding information," says Aaron Kesselheim, a doctor and lawyer at Harvard School of Public Health who studies regulation and health care. There's no evidence of this yet. Theranos might yet attract state prosecuters' attention for other reasons, like accusations that it skirted regulatory rules, says Kesselheim.
Theranos currently sells its tests in California, Arizona, and Pennsylvania, and prosecutors in those states would be the most likely to bring the proverbial heat. California's AG office would not comment on potential or ongoing investigations, and complaints regarding any particular company remain confidential in the state until any legal action. Pennsylvania's AG office said it is not pursuing any case on Theranos. Arizona's attorney general did not respond by the time this article was published.
The least likely possibility, say the lawyers we talked to, is that investors might sue. Only the most extreme scenario---that Theranos has been a fraud, a con-job, from day one---would spark that, says Greely. From the start, Theranos has had investments from hugely influential venture capitalists---including ATA Ventures, Draper Fisher Jurvetson, and the Lawrence J. Ellison Revocable Trust. A lawsuit from any one of them would undermine the company, like getting a vote of no-confidence. "If a major investor sues for fraud, it will pretty much kill the company off," Greely says. Say goodbye to any return on investment.
At the same health conference where Theranos CEO Elizabeth Holmes announced Boies would be joining the company's board, she also said she would release data proving their machines work---the data academics, clinicians, and doctors have been asking to see for over a year, comparing Theranos' tests to industry standards. Boies says proprietary concerns still exist, but the need to dispel negative public perception now outweighs them. "I think Ms. Holmes has made the right choice in saying we are going to publish this data, because it will finally put this stuff to rest," he says. It's definitely what people writing about Theranos have been waiting for.
