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FIVE

The Childhood Neighbor

While Elizabeth was busy building Theranos, an old family acquaintance was taking an interest in what she was doing from afar. His name was Richard Fuisz. He was an entrepreneur–cum–medical inventor with a big ego and a colorful background.

The Holmes and Fuisz families had known each other for two decades. They first met in the 1980s as neighbors in Foxhall Crescent, a leafy neighborhood of stately homes in Washington, D.C., surrounded by woodlands and abutting the Potomac River.

Elizabeth’s mother, Noel, and Richard’s wife, Lorraine, struck up a close friendship. Both were stay-at-home mothers back then, raising children of similar ages. Lorraine’s son was in Elizabeth’s class at St. Patrick’s Episcopal Day School, the neighborhood’s private elementary school.

Noel and Lorraine were in and out of each other’s houses. They shared a weakness for Chinese food and often went out for lunch while the children were in school. Elizabeth and her brother attended the Fuisz children’s birthday parties and frolicked in the Fuiszes’ pool. One evening, the power went out in the Fuisz home while Richard was away, so the Holmeses took Lorraine and her two children, Justin and Jessica, in for the night.

The relationship between their husbands wasn’t as warm. While Chris Holmes had to make do on a government salary, Richard Fuisz was a successful businessman and wasn’t shy about flaunting it. A licensed doctor, he had sold a company that made medical-training films for more than $50 million a few years earlier and drove a Porsche and a Ferrari. He was also a medical inventor who licensed out his patents and reaped the royalties. During one excursion the families made together to the zoo, Justin Fuisz remembers, Elizabeth’s younger brother, Christian, told him, “My dad thinks your dad is an asshole.” When Justin later repeated the comment to his mother, Lorraine chalked it up to jealousy.

Money was indeed a sore point in the Holmes household. Chris’s grandfather, Christian Holmes II, had depleted his share of the Fleischmann fortune by living a lavish and hedonistic lifestyle on an island in Hawaii, and Chris’s father, Christian III, had frittered away what was left during an unsuccessful career in the oil business.

Whatever simmering resentments Chris Holmes harbored did not prevent Noel Holmes and Lorraine Fuisz from being good friends. The two women stayed in regular contact even after the Holmeses moved away, first to California and then to Texas. When the Holmeses returned to Washington for a brief period in between, the Fuiszes took them out to a nice restaurant to celebrate Noel’s fortieth birthday. Lorraine arranged the outing to make up for the fact that Chris hadn’t thrown his wife a party.

Lorraine later visited Noel in Texas several times, and they also traveled to New York City together to shop and sightsee. They brought the children along once and booked rooms at the Regency Hotel on Park Avenue. In a photo from that trip, Elizabeth can be seen standing arm in arm between her mother and Lorraine in front of the hotel. She’s wearing a light blue summer dress and pink bows in her hair. On subsequent trips, Noel and Lorraine left the children at home and stayed in an apartment the Fuiszes purchased in the Trump International Hotel and Tower on Central Park West.

In 2001, Chris Holmes hit a rough patch in his career. He had left Tenneco to take a position at Enron, Houston’s most prominent corporation. When Enron’s fraudulent practices were exposed and it went bankrupt in December of that year, he lost his job like thousands of other employees. In the aftermath, he paid a visit to Richard Fuisz in search of job leads and business advice. With one of his sons from a previous marriage, Fuisz had started a new company around one of his inventions: a thin strip that dissolved in the mouth and delivered drugs to the bloodstream faster than traditional pills. He and his son, Joe, ran it from a suite of offices in Great Falls, Virginia.

Chris Holmes came in looking haggard and glum, Joe Fuisz recalls. He mused aloud about trying his hand at consulting and indicated that he and Noel were desperate to move back to Washington. Having just purchased a new house in the affluent Beltway suburb of McLean, Richard Fuisz offered him use of the one he and Lorraine had just vacated across the street, rent-free. They hadn’t bothered to list it yet. Chris mouthed a “thank you” but didn’t take him up on the offer.

CHRIS AND NOEL HOLMES DID eventually move back to Washington four years later when Chris got a job at the World Wildlife Fund. At first, they stayed with friends in Great Falls while they looked for a new place to live. As Noel toured houses, she called Lorraine frequently to update her on her search.

Over lunch one day, the topic turned to Elizabeth and what she was up to. Noel proudly told Lorraine that her daughter had invented a wrist device that could analyze a person’s blood and started a company to commercialize it. The reality was that Theranos was already moving on from Elizabeth’s original patch idea at that point, but that lost nuance hardly mattered in the chain of events Noel’s lunchtime confidence unleashed.

When she got home, Lorraine repeated what Noel had told her to her husband, thinking it might be of interest to him as a fellow medical inventor. What she probably didn’t anticipate is how he would react.

Richard Fuisz was a vain and prideful man. The thought that the daughter of longtime friends and former neighbors would launch a company in his area of expertise and that they wouldn’t ask for his help or even consult him deeply offended him. As he would put it years later in an email, “The fact that the Holmes family was so willing to partake of our hospitality (New York apartment, dinners, etc.) made it particularly bitter to me that they would not ask for advice. Essentially the message was, ‘I’ll drink your wine but I won’t ask you for advice in the very field that paid for the wine.’?”

FUISZ HAD A HISTORY of taking slights personally and bearing grudges. The lengths he was willing to go to get even with people he perceived to have crossed him is best illustrated by his long and protracted feud with Vernon Loucks, the CEO of hospital supplies maker Baxter International.

Throughout the 1970s and early 1980s, Fuisz traveled a lot to the Middle East, which had become the biggest market for Medcom, his medical film business. On his way back, he usually spent a night in Paris or London and from there took the Concorde, the supersonic passenger jet operated by British Airways and Air France, back to New York. During one of these stopovers in 1982, he ran into Loucks at the Plaza Athénée hotel in Paris. At the time, Baxter was eager to expand into the Middle East. Over dinner, Loucks offered to buy Medcom for $53 million and Fuisz accepted.

Fuisz was supposed to stay on to head the new Baxter subsidiary for three years, but Loucks dismissed him shortly after the acquisition closed. Fuisz sued Baxter for wrongful termination, alleging that Loucks had fired him for refusing to pay a $2.2 million bribe to a Saudi firm to get Baxter off an Arab blacklist of companies that did business with Israel.

The two sides reached a settlement in 1986, under which Baxter agreed to pay Fuisz $800,000. That wasn’t the end of it, however. When Fuisz flew to Baxter’s Deerfield, Illinois, headquarters to sign the settlement, Loucks refused to shake his hand, angering Fuisz and putting him back on the warpath.

In 1989, Baxter was taken off the Arab boycott list, giving Fuisz an opening to seek his revenge. He was leading a double life as an undercover CIA agent by then, having volunteered his services to the agency a few years earlier after coming across one of its ads in the classified pages of the Washington Post.

Fuisz’s work for the CIA involved setting up dummy corporations throughout the Middle East that employed agency assets, giving them a non-embassy cover to operate outside the scrutiny of local intelligence services. One of the companies supplied oil-rig operators to the national oil company of Syria, where he was particularly well connected.

Fuisz suspected Baxter had gotten itself back in Arab countries’ good graces through chicanery and set out to prove it using his Syrian connections. He sent a female operative he’d recruited to obtain a memorandum kept on file in the offices of the Arab League committee in Damascus that was in charge of enforcing the boycott. It showed that Baxter had provided the committee detailed documentation about its recent sale of an Israeli plant and promised it wouldn’t make new investments in Israel or sell the country new technologies. This put Baxter in violation of a U.S. anti-boycott law, enacted in 1977, that forbade American companies from participating in any foreign boycott or supplying blacklist officials any information that demonstrated cooperation with the boycott.

Fuisz sent one copy of the explosive memo to Baxter’s board of directors and another to the Wall Street Journal, which published a front-page story about it. Fuisz didn’t let the matter rest there. He subsequently obtained and leaked letters Baxter’s general counsel had written to a general in the Syrian army that corroborated the memo.

The revelations led the Justice Department to open an investigation. In March 1993, Baxter was forced to plead guilty to a felony charge of violating the anti-boycott law and to pay $6.6 million in civil and criminal fines. The company was suspended from new federal contracts for four months and barred from doing business in Syria and Saudi Arabia for two years. The reputational damage also cost it a $50 million contract with a big hospital group.

For most people, this would have been ample vindication. But not for Fuisz. It irked him that Loucks had survived the scandal and remained CEO of Baxter. So he decided to subject his foe to one last indignity.

Loucks was a Yale alumnus and served as a trustee of the Yale Corporation, the university’s governing body. He was also chairman of its fund-raising campaign. As he did every year in his capacity as a trustee, he was scheduled to attend Yale’s commencement exercises in New Haven, Connecticut, that May.

Through his son Joe, who had graduated from Yale the year before, Fuisz got in touch with a student named Ben Gordon, who was the president of the Yale Friends of Israel association. Together, they organized a graduation day protest featuring “Loucks Is Bad for Yale” signs and leaflets. The crowning flourish was a turboprop plane Fuisz hired to fly over the campus trailing a banner that read, “Resign Loucks.”

Three months later, Loucks stepped down as a Yale trustee.

DRAWING TOO CLOSE a parallel between Fuisz’s vendetta against Loucks and the actions he would take with respect to Theranos would be an oversimplification, however.

As much as he was annoyed by what he perceived as the Holmeses’ ingratitude, Fuisz was also an opportunist. He made his money patenting inventions he anticipated other companies would someday want. One of his most lucrative plays involved repurposing a cotton candy spinner to turn drugs into fast-dissolving capsules. The idea came to him when he took his daughter to a country fair in Pennsylvania in the early 1990s. He later sold the public corporation he formed to house the technology to a Canadian pharmaceutical company for $154 million and personally pocketed $30 million from the deal.

After Lorraine relayed what Noel had told her, Fuisz sat down at his computer in the sprawling seven-bedroom home they occupied in McLean and googled “Theranos.” The house was so spacious that he had turned its great room, which had a high vaulted ceiling and a massive stone fireplace, into his personal study. His Jack Russell liked to lie in front of the fireplace while he worked.

Fuisz came upon the startup’s website. The home page gave a cursory description of the microfluidic system Theranos was developing. Under the website’s News tab, he also found a link to a radio interview Elizabeth had given to NPR’s “BioTech Nation” segment a few months earlier, in May 2005. In the interview, she’d described her blood-testing system in more detail and explained the use she foresaw for it: at-home monitoring of adverse reactions to drugs.

Fuisz listened to the NPR interview several times while gazing out the window at the koi pond in his yard and decided there was some merit to Elizabeth’s vision. But as a trained physician, he also spotted a potential weakness he could exploit. If patients were going to test their blood at home with the Theranos device to monitor how they were tolerating the drugs they were taking, there needed to be a built-in mechanism that would alert their doctors when the results came back abnormal.

He saw a chance to patent that missing element, figuring there was money to be made down the road, whether from Theranos or someone else. His thirty-five years of experience patenting medical inventions told him such a patent might eventually command up to $4 million for an exclusive license.

At 7:30 on the evening of Friday, September 23, 2005, Fuisz sent an email to his longtime patent attorney, Alan Schiavelli of the law firm Antonelli, Terry, Stout & Kraus, with the subject line “Blood Analysis—deviation from norm (individualized)”:

Al, Joe and I would like to patent the following application. It is a know [sic] art to check variou [sic] blood parameters like blood glucose, electrolytes, platelet activity, hematocrit etc. What we would like to cover as an improvement is the presence of a memory chip or other such storage device which could be programmed by a computer or similar device and contain the “normal parameters” for the individual patient. Thus if results would differ significantly from these norms—a notice would be given the user or health professional to repeat the sampling. If the significant difference persists on the retest, the device using existing technology well known in the art, to contact the physician, care center. [sic] pharma company or other or all.

Please let me know next week if you could cover this. Thx. Rcf

Schiavelli was busy with other matters and didn’t respond for several months. Fuisz finally got his attention on January 11, 2006, when he sent him another email saying he wanted to make a modification to his original idea: the alert mechanism would now be “a bar code or a radio tag label” on the package insert of the drug the patient was taking. A chip in the blood-testing device would scan the bar code and program the device to automatically send an alert to the patient’s doctor if and when the patient’s blood showed side effects from the drug.

Fuisz and Schiavelli exchanged more emails refining the concept, culminating in a fourteen-page patent application they filed with the U.S. Patent and Trademark Office on April 24, 2006. The proposed patent didn’t purport to invent groundbreaking new technology. Rather, it combined existing ones—wireless data transmission, computer chips, and bar codes—into a physician alert mechanism that could be embedded in at-home blood-testing devices made by other companies. It made no secret of which particular company it was targeting: it mentioned Theranos by name in the fourth paragraph and quoted from its website.

Patent applications don’t become public until eighteen months after they’re filed, so neither Elizabeth nor her parents were initially aware of what Fuisz had done. Lorraine Fuisz and Noel Holmes continued to see each other regularly. The Holmeses settled into a new apartment they purchased on Wisconsin Avenue near the Naval Observatory. Lorraine drove over from McLean on several occasions and accompanied Noel, clad in her jogging suit, on walks through the neighborhood.

One day, Noel came over to the Fuisz home for lunch. Richard joined them out on the house’s big stone patio and the conversation drifted to Elizabeth. She had just been profiled in Inc. magazine alongside several other young entrepreneurs, including Facebook’s Mark Zuckerberg. The press her daughter was beginning to garner was a source of great pride to Noel.

As they nibbled on a meal Lorraine had picked up from a McLean gourmet shop, Fuisz suggested to Noel in a syrupy singsong voice he employed when he turned on the charm that he could be of assistance to Elizabeth. It was easy for a small company like Theranos to be taken advantage of by bigger ones, he noted. He didn’t reveal his patent filing, but the comments may have been enough to put the Holmeses on alert. From that point on, interactions between the two couples became fraught.

The Fuiszes and Holmeses met twice for dinner in the waning months of 2006. One dinner was at Sushiko, a Japanese restaurant down the road from Chris and Noel’s new apartment. Chris didn’t eat much that evening. While visiting Elizabeth in Palo Alto, complications from a recent surgery had forced him to make a detour to Stanford Hospital. Fortunately, Elizabeth’s boyfriend, Sunny, had arranged for him to stay in the hospital’s VIP suite and covered the bill, he told the Fuiszes.

The conversation turned to Theranos, which had completed its second round of funding earlier in the year. Chris mentioned that the fund-raising had attracted some of the biggest investors in Silicon Valley, which was a good thing, he added, because he and Noel had put the $30,000 they’d saved for Elizabeth’s Stanford tuition into the company.

The dinner then apparently grew testy for reasons that aren’t entirely clear. Richard and Chris had never gotten along and Richard may have said something that got under the other man’s skin. Whatever the case, according to Lorraine, Chris Holmes criticized the Chanel necklace she was wearing and later, after they’d settled the bill and wandered out onto Wisconsin Avenue, made what seemed like a veiled threat by bringing up the fact that John Fuisz, another one of Fuisz’s sons from his first marriage, worked for his best friend. John Fuisz was indeed an attorney at the law firm McDermott Will & Emery, where Chris Holmes’s closest friend, Chuck Work, was a senior partner.

Afterward, Noel and Lorraine’s friendship began to fray. It had always been an odd pairing. Lorraine was originally from working-class Queens, a background betrayed by her coarse New York City accent. Noel, by contrast, was the epitome of the worldly Washington establishment woman. She’d spent part of her youth in Paris, when her father was assigned to the headquarters of the European Command.

In the following months, the two women got together for coffee several more times. But Chris Holmes, perhaps because he suspected that Richard Fuisz was up to something, always insisted on joining them, making their interactions awkward and tense. During one encounter, at Dean & DeLuca in Georgetown, the conversation became strained as they discussed the recent death of Lorraine’s brother and the cat he’d left behind. Lorraine agonized about what to do with the cat, which seemed to exasperate Chris. He told her to just get rid of it and mimicked grabbing it and putting it in a bag. “The cat is not important,” he said impatiently.

Since the Holmeses’ move back to Washington, Noel had been going to the same hair salon as Lorraine in Tysons Corner, Virginia. They shared a hairdresser there named Claudia. As she was cutting Lorraine’s hair one day, Claudia asked whether she and Noel were having problems. Noel had apparently been venting to Claudia. Embarrassed, Lorraine said she didn’t want to talk about it and changed the subject.

Lorraine Fuisz and Noel Holmes saw each other one more time when Lorraine paid a visit to the Holmeses’ apartment bearing cakes around Christmas 2007. Elizabeth, who was in town for the holidays, must have known that her parents and the Fuiszes were on the outs. She didn’t say much and stole sidelong glances at her mother’s friend.

Fuisz’s patent application became available about a week later, on January 3, 2008, to anyone who performed a search in the USPTO’s online database. However, Theranos didn’t learn of its existence for another five months until Gary Frenzel, the head of Theranos’s chemistry team, came across it and called it to Elizabeth’s attention. By then, the Holmeses and the Fuiszes were no longer on speaking terms and Fuisz was referring to his patent filing in conversations with his wife as “the Theranos killer.”

THAT SUMMER, Chris Holmes went to see his old friend Chuck Work at the Washington offices of McDermott Will & Emery, two blocks east of the White House. Chris and Chuck were longtime friends. They’d met in 1971 when Chuck gave Chris a ride to an Army Reserve meeting. Although Chuck was five years older, they’d quickly realized they had a lot in common: they were both from California and had attended the same high school and college, the Webb Schools in Claremont, California, and Wesleyan University in Middletown, Connecticut.

Through the years, Chuck had often lent Chris a helping hand. After Enron collapsed, he let Chris use a visitor’s office at his firm to conduct his job search. When Elizabeth’s brother, Christian, had to leave St. John’s high school in Houston because of what Chris described as a prank involving a film projector, Chuck was able to help Christian get into Webb because he served on the school’s board. And when Elizabeth later dropped out of Stanford and needed help filing her first patent, Chuck put her in touch with colleagues at McDermott who specialized in that kind of work.

That was precisely the subject of Chris Holmes’s visit on that summer day in 2008. Chris was agitated. He told Chuck someone named Richard Fuisz had stolen Elizabeth’s idea and patented it. Fuisz, Chris noted pointedly, had a son who worked at McDermott named John. Chuck vaguely knew who John Fuisz was. Their paths had crossed once or twice at the firm when they’d overlapped on a case. He was also aware that McDermott had served as Theranos’s patent attorneys for several years, since he was the one who’d made the initial introduction. But the rest of what Chris was saying was out of left field. He had no idea who Richard Fuisz was nor what patent he was referring to. As a favor to his old friend, he nevertheless agreed to see Elizabeth.

She came by a few weeks later, on September 22, 2008, and met with Chuck and another attorney named Ken Cage. Chuck had been McDermott’s managing partner when the firm moved to the Robert A. M. Stern limestone building it occupied on Thirteenth Street, so he had the biggest and nicest corner office on the eighth floor. Elizabeth came in wheeling her blood-testing machine and sat down in one of two love seats placed catty-corner next to the office’s big bay window. She didn’t offer to demonstrate how the device worked, but Chuck thought it looked impressive at first glance. It was a big, shiny black-and-white cube with a digital touchscreen that bore a clear resemblance to an iPhone’s.

Elizabeth got straight to the point. She wanted to know if McDermott would agree to represent Theranos against Richard Fuisz. Ken said they could look into filing a patent interference case if that’s what she had in mind. Interference cases are contests adjudicated by the Patent and Trademark Office to determine who of two rival applicants vying to patent the same invention came up with it first. The winner’s application gets priority even if it was filed later. Ken specialized in these types of cases.

Chuck was hesitant to do that, though. He told Elizabeth he would have to think about it and talk to some of his colleagues. Fuisz had a son who was a partner at the firm, which made the situation awkward, he said. Elizabeth didn’t blink at the mention of John Fuisz. It was the opening she was waiting for. She asked whether it was possible that John had accessed confidential information from McDermott’s Theranos file and leaked it to his father.

That seemed far-fetched to Chuck. It was the sort of thing that would get an attorney fired and disbarred. John was a patent litigator. He wasn’t part of McDermott’s separate patent prosecution team that drafted and filed patents. He had no reason or justification for accessing Theranos’s file. Besides, he was a partner at the firm. Why would he commit career suicide? It didn’t make sense. What’s more, Theranos had moved all its patent work to the Silicon Valley law firm Wilson Sonsini two years earlier, in 2006. Chuck remembered Chris calling him and telling him apologetically at the time that Larry Ellison insisted Elizabeth use that firm. McDermott had obliged and transferred everything over to them. There was nothing for a McDermott attorney left to access.

After Elizabeth departed, Chuck consulted the heads of the firm’s patent prosecution and patent litigation teams. The latter was John Fuisz’s boss. He was told Theranos might have a plausible interference case against Richard Fuisz, but John Fuisz was a partner in good standing and the optics of the firm going up against the parent of one of its own partners were messy. Chuck decided to turn down Elizabeth’s request. He informed her of his decision with a phone call a few weeks later. That was the last Chuck and McDermott expected to hear of the matter.

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