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Tuesday, May 28, 2024

Put the System That Enabled Elizabeth Holmes on Trial

It’s 2022! Welcome to another year of choosing between house arrest or reckless endangerment.

The Plain View

The jury in the Elizabeth Holmes case had hardly returned with convictions on four of 11 counts of fraud when the pundit verdicts started rolling in. It was a reckoning for Silicon Valley. It was the end of an era. It wasn’t the end of an era. Everybody had to have a take. (Including, I guess, me. Did you think I was going to ignore this?)

First, let’s get one thing straight: The huge amount of coverage of this trial came not because of its implications for the tech economy or founders who “fake it till they make it.” People fixated on this spectacle for the same reason they fixated on Theranos to begin with: a fascination with its charismatic leader. Here was a brainy, attractive risk-taker barely out of her teens who consciously channeled Steve Jobs. It was always about the drama, both in Holmes’ rise and in her fall. It’s hard to argue that the proceedings were all about the future of Silicon Valley when those same sources were devoting so much attention to the defendant’s fashion choices.

There are real issues behind what went wrong with Theranos, but we didn’t need a glamorous trial to figure them out. In short, we’ve got an out-of-whack financial system based on ludicrous rewards and a broken health system where patient needs are secondary to profit-taking. The vast majority of the actors in those systems don’t break laws or commit fraud. Nonetheless, these systems are messed up. Beyond the defendant’s hairstyle, and the charges of domestic abuse, the Holmes case rubs our faces in that mess.

Could Theranos have possibly raised its money from august investors if the pathway to making billions had not been so well established? No way. The startup investment ecosystem encourages funders to shovel cash at companies with outlandish promises, in hopes of lottery-style winnings. Look at a company like Facebook/Meta, which went from nothing to a trillion dollars in 16 years and made billions for its investors. Sure, innovators deserve to be financially rewarded and investors are entitled to substantial payback for risking their money. But with rewards and paybacks soaring to unimaginable figures, it’s not surprising that grifters and greedheads wind up playing the game too. Holmes was clearly shooting for the stratospheric status of zillionaires like Zuckerberg, Bezos, and Musk—fortunes that some people are beginning to call immoral in themselves. Back in the days when Holmes was lionized in cover stories, few questioned that ambition. In retrospect, the prospect of mega-riches might have affected her candor in dealing with Theranos’ shortcomings.

Even more troubling is that such fortunes can be made in proprietary health care advances. Big Pharma keeps jacking up the price of medicine, because it can. Meanwhile, some surgeons who discover a cool new technique in the operating room are rushing to the patent office instead of sharing the life-saving innovation, ethics be damned. At one time, a breakthrough health care idea by an undergraduate in one of the US’ great universities might have led to a collaboration with senior faculty, a government grant, exacting lab tests, and a peer-reviewed examination of the results. Instead, Holmes did what we now seem to expect of bright people in this economy—start a company that makes sure the idea is proprietary. When reporters or scientists asked to see her work, or even proof that her technology functioned, she invoked “trade secrets,” which seems a reasonable excuse when we take for granted that profits trump patients. We’re a long way from Jonas Salk, who responded to a question about why he didn’t patent his polio vaccine by saying, “Can you patent the sun?

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End of an era? Hah. In US vs. Elizabeth Holmes, we had a newsworthy defendant on the docket. But the system itself was not on trial. And that’s too bad.

Time Travel

Patents have always been critical to internet business models. In this 1999 Newsweek story, I discussed the approach of Jay Walker, whose Walker Digital firm hatched Priceline and other companies.

Walker isn't your typical Internet start-up CEO. At 43, he's a Scarsdale, New York-born veteran of more than a dozen companies. Marketing, not technology, has been his focus. "I was the kid who had the lemonade stand," he says. The Internet, of course, is sort of a marketer's nirvana, a gathering place for millions of credit-card-holding consumers. Walker, however, was clever enough to realize … that the Net can enable heretofore unimaginable business models. Models that could—and would–change virtually every industry on the planet.

Walker believes that those who think up such ideas should own them, a conviction reinforced by recent legal rulings holding that business methods could be patented. This opportunity was confirmed to him by a dozen patent lawyers he hired to eat lunch with him in the law firm's boardroom (“It cost me about $2,000,” he says).

The first big idea was Priceline, which allows people to name their own price for flights, if they offer flexibility on carrier and times. The airlines can sell unused seats, and won't lose their regular customers, since Priceliners can't specify which airline they want. Walker patented the scheme. Then, after his brain trust figured out a way that airlines might fight the idea (an "anytime ticket" sold cheaper in exchange for letting the airline choose the flight), he patented that scheme, too. Just in case.

Ask Me One Thing

Michael asks, “Do you think people will buy a virtual good over the same physical good?”

Timely question, Michael. In the strictest sense, you already have an affirmative answer. Having a mighty virtual sword in an online game is much more useful than having a steel scimitar in the house. (Also, it’s much messier to decapitate someone with a real machete than a virtual one.) Ergo, the billions of dollars paid in virtual materiel are absolutely worth it to those gamers. Or consider fashion, which is largely about impressing others with a show of good taste or creativity. Since we’re getting out less frequently these days, a virtual wardrobe might turn more heads than clothes from your actual closet. For now, though, virtual goods are strictly luxury items. Those on a budget will find more value in paying rent for an actual place to live than buying property on a virtual beachfront.

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But the metaverse might turn sinister when you have no choice but to buy goods that don’t exist. Picture a workplace with a dress code that could only be met by buying pixelated duds from a company store. This is why it’s critical that people be able to take handbags and glad rags from one metaverse to another. Anyone invited to a metaverse gala should be welcome, even if they are garbed in open source couture.

You can submit questions to mail@wired.com. Write ASK LEVY in the subject line.

End Times Chronicle

In a modern equivalent to Gilligan’s “three-hour tour,” a short commute on Route 95 in Virginia led to a more than 24-hour nightmare for people desperately stuck in the freezing cold.

Last but Not Least

Noam Cohen notes that the convictions in the Holmes case came from defrauding the investors—not the patients who submitted to phony blood tests.

Yes, there was a CES this year, available in person to the intrepid and foolish. Our team was wise and savvy enough to report remotely.

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Supersonic commercial travel may be on its way back. But would you get into a plane made by a company called Boom?

Want a safe prediction? We’ll always be lousy at predicting the future.

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