Cardionet, LLC v. Mednet Healthcare Techs., Inc.

• Decision Date: 23 November 2015
• Docket Number: CIVIL ACTION No. 12-2517
• Citation: 146 F.Supp.3d 671
• Parties: Cardionet, LLC, et al. v. Mednet Healthcare Technologies, Inc., et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

146 F.Supp.3d 671

Cardionet, LLC, et al.

v.Mednet Healthcare Technologies, Inc., et al.

CIVIL ACTION No. 12-2517

United States District Court, E.D. Pennsylvania.

Signed November 23, 2015

Todd M. Simpson, Alexandra O. Fellowes, Bradford J. Badke, Ching-Lee Fukuda, Crystal L. Parker, Josef B. Schenker, Khue V. Hoang, Rodrigo N. Valle, Ropes & Gray LLP, New York, NY, James J. Rodgers, John W. Goldschmidt, Jr., James J. Rodgers, Dilworth Paxson, Philadelphia, PA, for Cardionet, LLC, et al.

Benjamin E. Leace, Andrew Koopman, Ratner Prestia, Berwyn, PA, Christopher H. Blaszkowski, Ratner Prestia, Valley Forge, PA, Thomas G. Southard, Ratner Prestia, Washington, DC, Joseph J. Hamill, Jr., Fineman Krekstein & Harris, Matthew I. Cohen, Cohen Law Group, Philadelphia, PA, for Mednet Healthcare Technologies, Inc., et al.

MEMORANDUM

Juan R. Sánchez, District Judge.

Plaintiffs CardioNet, LLC and Braemar Manufacturing, LLC (collectively, CardioNet) ask this Court to find Defendant MedTel24, Inc. (MedTel) in contempt of the January 31, 2014, Consent Judgment by which the parties agreed to resolve this patent infringement action and to impose appropriate contempt sanctions. CardioNet also asks the Court to impose sanctions on MedTel and its counsel for making false statements and frivolous arguments in its motions for relief from, and to stay enforcement of, the Consent Judgment, which this Court denied on July 22, 2015. This Court heard argument on the motions on May 7, 2015, and held a contempt hearing on September 21 and 29, 2015. On October 2, 2015, the Court issued an Order finding MedTel in contempt of ¶ 16 of the Consent Judgment and directing MedTel to comply with its obligations under that provision within 21 days. The Court reserved ruling on whether MedTel is also in contempt of ¶¶ 14 and 19 of the Consent Judgment and CardioNet's request for damages. The Court issues this Memorandum to address these issues as well as CardioNet's motion for sanctions.

Upon consideration of the arguments and evidence presented by the parties in their written submissions, at the oral argument, and at the contempt hearing, and for the reasons set forth below, the Court finds CardioNet has proved by clear and convincing evidence that MedTel is in contempt of ¶ 14 as well as ¶ 16 of the Consent Judgment, and will award CardioNet damages for lost profits and attorneys' fees and costs as set forth herein. CardioNet's motion for sanctions will be denied.

FACTS

In the underlying patent infringement action, CardioNet sued Mednet Healthcare Technologies (Mednet), three companies affiliated with Mednet,¹ and three customers of Mednet, including MedTel,² alleging Defendants were infringing five patents owned by CardioNet by making, using, selling, and/or offering for sale the Heartrak ECAT System, a cardiac monitoring system used to monitor, analyze, and report patient cardiac activity during a period prescribed by the patient's physician. The Heartrak ECAT System consists primarily of two devices—a Monitor and a Communicator—and software, known as CardioStation, which is configured to operate at a monitoring center in conjunction with the devices. See Defs.' Pretrial Mem. 12, ECF No. 239; see also Consent J. ¶ 13 (defining the Heartrak ECAT System as including a Monitor, a Communicator, and CardioStation or eCardioStation software). The Monitor is carried by the patient and is used to acquire data about the patient's cardiac activity during the monitoring period. See Defs.' Pretrial Mem. 12; Finkelmeier Decl. ¶ 6, ECF No. 274-2. The Communicator is also carried by the patient and is used to receive data regarding the patient's cardiac activity from the Monitor and transmit the data to a monitoring center through cellular networks. See Defs.' Pretrial Mem. 12; Finkelmeier Decl. ¶ 6. The software is used to process signals received from the Monitor and Communicator so that a report can be provided to the patient's physician. See Contempt Hr'g Tr. 108, 224, Sept. 21, 2015 (hereinafter “Contempt Hr'g Tr. I”); Alima Dep. 14, 18-19.

MedTel is in the business of “remote cardiac monitoring.” MedTel's Opp'n to Pls.' Contempt Mot. 2. Prior to the entry of the Consent Judgment, MedTel's business included selling Heartrak ECAT devices (Monitors and Communicators) to physicians and providing monitoring services for those devices.³ See Contempt Hr'g Tr. I 223-24. Under an October 2011 Purchase, Resale and License Agreement (License Agreement) with UMI, a Mednet-affiliated company, MedTel purchased Heartrak ECAT devices from UMI and resold the devices to physicians who then entered into monitoring services agreements with MedTel. See DX-13 (hereinafter “License Agreement”) 1 & Ex. A; PX-26 (sample monitoring services agreement); Contempt Hr'g Tr. I 108-09. MedTel also licensed CardioStation software from UMI for use in connection with the devices.⁴ See License Agreement 5 & Ex. B. Using the CardioStation software, MedTel provided monitoring services to physicians pursuant to the monitoring services agreements, earning revenue from the monitoring on a fee-for-service basis.⁵ See Contempt Hr'g Tr. I 118, 160, 221; DX-1 at 6. According to Lee Sanders, MedTel's CEO, in 2012, MedTel's first year of operations, sales of ECAT devices accounted for 40% of MedTel's net profits. See Contempt Hr'g Tr. I 180-81, 235. These devices then became a source of ongoing monitoring revenue for MedTel. See id. at 224. Although MedTel functioned as both a seller of Heartrak ECAT devices and a provider of monitoring services for the devices, the Complaint in this action singled out the company's role as a monitoring services provider. See Compl. ¶¶ 13, 19-21, 30.

On January 31, 2014, days before the February 3, 2014, trial date, the parties agreed to settle this action and presented this Court with a fully executed Consent Judgment, which the Court signed the same day. In ¶ 13 of the Consent Judgment, the parties agreed “[m]aking, using, offering to sell or selling in the United States of the accused Heartrak ECAT System, including (i) a Heartrak ECAT Monitor, (ii) a Heartrak ECAT Communicator; and (iii) CardioStation or eCardiostation software infringes [the five CardioNet patents at issue in the case].”⁶ Consent J. ¶ 13. The Consent Judgment goes on, in ¶ 14, to “permanently enjoin[ ] and restrain[ ]” all Defendants, including MedTel, “from infringing, contributorily infringing or inducing the infringement of the Patents in Suit,” except as licensed or otherwise agreed to by the parties. Id. ¶ 14. While ¶ 16 of the Consent Judgment grants MedTel and the other customer Defendants (i.e., RhythmWatch and AMI) “a limited, non-exclusive license to make, use, sell or offer for sale, the Heartrak ECAT System in the United States for a period of one (1) year from the date of this Consent Judgment,” it provides that “[t]hereafter, all inventories of the Heartrak ECAT System in the United States belonging to or held by Medtel24⁷ ..., including all related software/source code, including CardioStation and eCardioStation , hardware, including the Heartrak ECAT Monitor and Communicator, and documentation shall be delivered, at Medtel24's...expense [ ], to Plaintiffs...to be received by Plaintiffs no later than 15 days after the one year date.” Id. ¶ 16 (emphasis added). Finally, ¶ 19 of the Consent Judgment prohibits all Defendants from

transfer[ring], assign[ing], sell[ing] or otherwise disclos[ing] or mak[ing] available to any third party any inventory or materials belonging to or held by them relating to the Heartrak ECAT System, including all related software/source code, CardioStation, eCardioStation, hardware, including the Heartrak ECAT Monitor and Communicator, and documentation, outside the scope of their conventional activities as cardiac monitoring service providers, without obtaining prior written permission from CardioNet and Braemar.

Id. ¶ 19.

After the Consent Judgment was entered, MedTel continued to sell Heartrak ECAT devices to physicians to some extent⁸ and continued to provide monitoring services for such devices using CardioStation software during the one-year license period contemplated by ¶ 16 of the Consent Judgment. See Contempt Hr'g Tr. I 38-39, 124. MedTel also sought to negotiate an extension of the one-year license period with CardioNet. See id. at 138. Toward that end, Mr. Sanders, MedTel's CEO, had some 33 different conversations and email or text message exchanges with Joseph Capper, CardioNet's CEO.⁹ See Contempt Hr'g Tr. I 138-39. Mr. Sanders explained an extension was necessary because one year was not enough time for MedTel to “develop a new product” so as to be able to “complete the transfer of [MedTel's] many accounts to new technology.” Pls.' Hr'g Ex. PX-10, at 1-2. Although CardioNet eventually offered MedTel a three-month extension of the license period, MedTel did not accept the offer. See Contempt Hr'g Tr. I 61, 64-65.

During the one-year license period, MedTel also contracted with a software engineering firm in Israel to advise the company on “how to build [its] own software” and/or to modify or enhance the CardioStation software. Id. at 271; see also Alima Dep. 115 (explaining MedTel hired the Israeli company to find an alternative to the CardioStation software for MedTel's monitoring). In connection with the Israeli company's work for MedTel, MedTel gave the company access to its system, including the CardioStation software, and the company reviewed the source code for the software. See Alima Dep. 116-17.¹⁰

On January 30, 2015, the day before the one-year license period was to expire, MedTel, having failed to obtain an extension of the license period, filed a motion for relief from the Consent Judgment pursuant to Federal Rule of Civil Procedure 60(b)

, asserting the Judgment should be set aside because MedTel was not represented by counsel when the Judgment was entered, accepted the Judgment under duress, and was precluded from presenting a full and fair...