Guardant claims Illumina suit is retaliation for role in FTC probe of cancer-screen deal

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One of the office complexes of Illumina in San Diego, California, U.S. REUTERS/Mike Blake

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(Reuters) - America is on the verge of a revolution in cancer detection that will allow patients to be screened for early-stage disease simply by providing a blood sample. The market for these DNA-based tests could be soon be tens of billions of dollars a year.

A lawsuit in Delaware federal court will help decide who controls a big chunk of that market.

On Wednesday night, the cancer detection pioneer Guardant Health Inc filed a motion to dismiss a patent and trade secrets suit initiated in March by Illumina Inc, a DNA sequencing company that acquired the cancer detection test maker Grail Inc in a $7.1 billion deal last August. From Guardant’s motion, it’s obvious that the Illumina case is no ordinary business dispute.

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Illumina’s complaint, filed by Covington & Burling, contends that two Guardant founders who previously worked for Illumina misappropriated critical technology about a decade ago, as they prepared to depart Illumina and establish their new company.

One of the scientists, according to Illumina, downloaded more than 50,000 Illumina documents just before leaving. Dozens of the patents that Guardant later obtained, according to the complaint, incorporate that misappropriated Illumina IP.

Illumina said in the lawsuit that it only learned about the scientists' breach in 2019, when Illumina was a third-party witness in a Guardant patent suit against another Illumina customer. Illumina is seeking a declaration that it is the true owner of key Guardant patents. It also wants damages for the alleged theft of its proprietary technology.

Guardant’s newly filed motion argues not only that Illumina’s suit is baseless and "hopelessly time-barred” but also that the entire litigation is part of Illumina’s strategy to drive a rival out of business and seize control of the inchoate cancer detection industry.

It’s no accident, according to Guardant’s lawyers at Gibson, Dunn & Crutcher, that Illumina launched a suit just two months ago based on allegations dating back 10 years: Illumina brought the case, according to the dismissal motion, to punish Guardant for cooperating with the U.S. Federal Trade Commission’s investigation of Illumina’s deal to acquire Grail.

Illumina rejected Guardant's assertions in an email statement.

"Illumina filed a lawsuit against Guardant to protect its intellectual property rights," said Illumina spokesperson Adi Ravel. "There is no merit to Guardant’s claim that the lawsuit was filed to suppress competition in the market."

Ravel also said that Illumina, which provides gene-sequencing services to Guardant, "has no plans to change its business relationship with Guardant due to the filing of the lawsuit."

The backstory on Guardant’s retaliation assertion is complicated, but crucial to understanding Guardant’s assertion that Illumina is angling for monopoly control of the market for DNA-based cancer screening.

Those tests – including Guardant’s just-announced blood test to detect early-stage colorectal cancer – rely on gene sequencing, a business Illumina dominates in the United States.

Several years ago, to capitalize on its gene sequencing expertise, Illumina created an in-house group to develop a cancer screening test.

It spun off that group in 2016, creating a new company called Grail, which sought to create a single blood test that could detect an array of early-stage cancers. Grail's business was promising enough to attract a bevy of high-profile investors, including Jeff Bezos and Bill Gates.

Illumina eventually decided to re-absorb its former spinoff. In September 2020, it announced a deal for Grail, emphasizing that the acquisition would "extend Illumina’s portfolio” beyond its core gene sequencing business.

The FTC was concerned. In March 2021, regulators sued to block Illumina from consummating the Grail deal, alleging that the acquisition would stifle competition in the nascent cancer detection industry because Grail's rivals rely on Illumina’s gene sequencing technology.

Despite the FTC's objections, Illumina completed the Grail acquisition last summer. The FTC pressed ahead with an administrative hearing that took place this spring. (European antitrust regulators are also investigating the Grail acquisition.)

Last month, both Illumina and the FTC submitted post-hearing briefs to FTC Administrative Law Judge Michael Chappell, who will decide whether to grant the government’s proposed order directing Illumina to divest Grail.

Guardant, along with other industry start-ups, helped the FTC make its case. The agency’s closing brief cited testimony from three Guardant executives, who discussed Guardant’s symbiotic relationship with Illumina and their fears that the Grail deal would incentivize Illumina to favor its own cancer detection business over Guardant’s.

Illumina’s closing brief argued that Grail’s prospective multi-cancer screening test, called Galleri, is a fundamentally different product than single-cancer tests being developed by Guardant and other companies.

Illumina’s acquisition of Grail, the company said, won’t hurt competition – and moreover will save untold lives and billions of dollars in health care costs by accelerating the timetable for Galleri’s debut.

Months after Guardant witnesses testified for the FTC and against Illumina, Illumina filed the Delaware suit against Guardant.

Guardant said in its newly filed motion that Illumina’s message was unmistakable. Illumina's suit does not even "identify any specific competitive harm or damages Illumina suffered as a result of the purported misappropriation," Guardant said. Neither, Guardant said, does Illumina explain why it never expressed concerns about the Guardant founders' alleged wrongdoing until Guardant executives testified publicly against the Grail deal.

“Illumina brought this retaliatory lawsuit to punish Guardant for cooperating in a federal law enforcement investigation,” the dismissal motion said.

“Illumina has no valid basis for challenging the ownership of Guardant’s patents. It is using this vindictive and retaliatory lawsuit to impede our mission,” Guardant added in an email statement. “We will not stand by and allow a monopolist like Illumina to make false claims about our company.”

Legally speaking, Illumina's motivations aren't directly relevant to the adequacy of its pleadings, as I'm sure Covington will note in Illumina's brief opposing dismissal.

But even if they're just atmospherics, Guardant's retaliation claims are certainly eye-catching, especially in light of the FTC judge's pending decision on the Grail deal.

The only thing Illumina and Guardant seem to agree on is the potential of DNA-based cancer-detection to lead to life-saving improvement in treatment of these diseases. The Delaware case will help decide which of them reaps the benefits.

Read more:

EU court to rule July 13 on Illumina challenge of EU review of Grail -sources

EXCLUSIVE Illumina remedies on Grail bid unconvincing to EU antitrust regulators, sources say

Illumina closes $7.1 bln deal for cancer test maker Grail amid regulatory hurdles

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.