Anne Wojcicki's bid to buy back 23andMe may not end legal fight over DNA customer data
Anne Wojcicki's winning bid to reclaim control of 23andMe (MEHCQ) doesn't necessarily end the fight over what happens to the DNA of 15 million people collected by the bankrupt consumer genomics company.
A nonprofit controlled by Wojcicki, TTAM Research Institute, has outbid large-cap drugmaker Regeneron (REGN) amid mounting opposition to a proposed sale. Wojcicki was the co-founder and former CEO of 23andMe.
A hearing to discuss approval of the purchase is set for Wednesday. A bankruptcy judge's approval is required to go ahead with the transaction.
The winning bid came days after members of Congress questioned Wojcicki about the fate of the DNA data. More than half of the states across the country sued 23andMe's bankruptcy estate to stop the sale of its consumers' biological samples, health-related traits, and medical records.
On Tuesday, regulators from the UK and Canada fined 23andMe $2.3 million for a data breach in 2023 that exposed DNA on thousands of customers and health, race, gender, and family information on 7 million people.
The regulators said they had been in contact with the US Trustee's office that is overseeing 23andMe's bankruptcy.
Brian Focht, a data privacy lawyer, said the sensitivity of the data is a good reason for the court and consumers to view TTAM's proposal with caution.
"This is information that's immutable. It's a permanent part of your identity," Focht said. "You can't change the way that you can change almost everything, including your Social Security number, your name, and your bank account number."
Although TTAM's ownership of the data may resolve some of the privacy concerns, a consumer watchdog report filed with the bankruptcy court last Wednesday said a sale of 23andMe to any buyer, including TTAM, creates unique challenges.
That's because it involves the possible transfer of consumer data that is "significantly more sensitive" than consumer data involved in prior bankruptcy cases.
While Wojcicki has pledged to effectively run TTAM as the same type of business as 23andMe, Focht noted that she was in charge during that period in 2023, when 23andMe disclosed privacy and cybersecurity lapses.
"So it's probably a bit foolishly optimistic to think that her re-takeover of the company will somehow make all the concerns disappear," he said.
The bankruptcy court's watchdog expressed the same concern in a report filed Wednesday with the court.
Because TTAM is a nonprofit, it said, it could possibly operate outside the scope of many data protection laws, potentially creating a "privacy and security enforcement and accountability vacuum."
"That's a legitimate concern," said Gary Kibel, a privacy and data security partner with the law firm Davis+Gilbert, because most state consumer privacy laws do not apply to nonprofit entities.
23andMe did not respond to a request for comment on the proposed bid.
The question of 23andMe's right to sell the data has not been tested in court. And because it is a direct-to-consumer company, as opposed to a healthcare provider, the data is not protected by federal laws, such as HIPAA.
Nineteen states do have laws that require a company to obtain consent to process sensitive customer information. Some states have adopted stand-alone consumer health data privacy laws that create a higher standard of consent for the transfer of consumer health data to third parties, Kibel said.
A regulator could consider whether a transfer of sensitive consumer data complies with those state laws.
Outside of those state rules, Kibel said, every state has "UDAAP" laws that protect consumers against unfair or deceptive acts and practices. The US Federal Trade Commission has made it clear that bankruptcy does not automatically entitle a company to transfer consumers' personal information.
Last week, 28 state attorneys general and the attorney general for the District of Columbia filed complaints in 23andMe's bankruptcy case claiming that the company's assets don't include its consumers' DNA and other personal information.
And that's especially for those who signed agreements with the company prior to June 8, 2022, when terms stated that "23andMe will not sell, lease, or rent your individual-level information to a third party for research purposes without your explicit consent," the states alleged.
23andMe later amended its privacy policy to include the transfer of consumer data in the event of a bankruptcy. The privacy lawyers said that whether the policy change holds up under a challenge would depend on whether or not state law prohibits it.
Daniel Gielchinsky, a bankruptcy lawyer with DGIM Law, said, "In light of the [watchdog's] report and the objections filed by the various states, it is likely that the bankruptcy court would not give [TTAM] the same rights in the data that 23andMe currently has."
Another wrinkle for the bankruptcy court, according to Focht, is that the state law that applies to each of 23andMe's consumers depends on where they currently live and not where they lived at the time they consented to 23andMe's terms.
The watchdog's report raised a third concern over TTAM's purchase of 23andMe.
It said the company's telemedicine subsidiary, Lemonaid Health, would potentially be included in a sale, and the relationship between the companies could prove complicated given the "evolving legal landscape for personal health records and the sensitivity with health data."
Lawmakers have expressed concern that foreign nations could gain access to Americans' genetic data.
In 2015, 23andMe accepted a $10 million investment from WuXi Healthcare Ventures, which had ties to the Chinese Communist Party. The company has since been bought by Frontline BioVentures, which formed a new healthcare investment venture known as 6 Dimensions Capital.
During testimony before the House Oversight Committee on Wednesday, Wojcicki promised that 23andMe would not sell customers' DNA data to foreign adversaries, specifically China, Russia, and North Korea.
Uttara Ananthakrishnan, a professor of information systems at Carnegie Mellon University, said use of genetic data should be held to a higher level of consent than the consent required for other data, such as credit scores, search data, and location data.
"I don't think people have realized the seriousness of this all, because it's really novel," Ananthakrishnan said.
"Thirty years down the line, we don't know what's going to happen with this data, what kind of new technologies are going to come in. You might have [an AI model] trained on really granular genetic data that can predict job outcomes, insurance."
But Kibel said, "Maybe this spurs Congress to realize, 'You know what? We need a federal comprehensive consumer privacy law, because we don't have one.'"
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.
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