In 2004, 19-year-old college sophomore Elizabeth Holmes dropped out of Stanford University to create a company that would change the world. Theranos, Inc. was going to revolutionize medicine with its proprietary blood testing devices that could detect high cholesterol, cancer, and other medical conditions with a single finger pinprick. In 2014, the company’s valuation peaked at over $9 billion, making Holmes the youngest self-made female billionaire in the world with a net worth of about $4.5 billion. Four years later, in June 2018, Holmes was indicted on eleven counts of fraud. On January 3, 2022, Holmes was convicted on one count of conspiracy to defraud investors and three counts of wire fraud. She faces a maximum sentence of twenty years in prison, and a fine of $250,000, plus restitution, for each count.

Hulu’s new limited series, The Dropout, chronicles the rise and fall of Theranos through the lens of its CEO, played by Amanda Seyfried. Episode 7, Heroes, touches on Holmes’s well-documented preoccupation with trade secrets. During its first decade, Theranos operated in stealth mode – no media communications, no public disclosures, and no product releases. Anyone who visited Theranos headquarters signed non-disclosure agreements before entering the building. Security guards escorted visitors everywhere, even to bathrooms. Employees were discouraged from communicating with each other about their work and were advised not to share the company’s name on social media platforms like LinkedIn. Holmes filed suit against three former Theranos employees, alleging misappropriation of trade secrets.

These practices became the building blocks of the prosecution’s case against Holmes. Prosecutors argued that Holmes misrepresented the capabilities of Theranos devices, doctored test results, inflated revenue projections, and fabricated partnerships and endorsements with outside entities like the U.S. military and pharmaceutical companies. In response, Holmes argued that she withheld information from investors, patients, and the public in order to protect trade secrets. For example, Holmes testified that she concealed the use of commercial blood-testing devices from investors because she was advised that the alterations Theranos made to the devices were trade secrets. Prosecutors urged jurors to refuse Holmes’s position that “trade secrets give her permission to make false statements.”

The story demonstrates the limits of trade secrets protection. Unsuccessful products and failed business strategies cannot be concealed indefinitely behind a curtain of alleged trade secrets. Eventually, one must demonstrate that the “information derives independent economic value” from not being generally known or readily ascertainable. 18 U.S.C. § 1839(3)(B). A strategy of concealing damaging information under the guise of trade secrets can constitute fraud. Not all secrets, even the most closely guarded, qualify as trade secrets.