Highmark Inc v. ALLCare Health Mgmt. Sys. Inc

• Decision Date: 01 April 2010
• Docket Number: Civil No. 4:03-CV-1384-Y.
• Citation: 706 F.Supp.2d 713
• Parties: HIGHMARK, INC.v.ALLCARE HEALTH MANAGEMENT SYSTEMS, INC.
• Court: U.S. District Court — Northern District of Texas

706 F.Supp.2d 713

HIGHMARK, INC.v.ALLCARE HEALTH MANAGEMENT SYSTEMS, INC.

Civil No. 4:03-CV-1384-Y.

United States District Court,

N.D. Texas,

Fort Worth Division.

March 31, 2010.

As Amended April 1, 2010.

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COPYRIGHT MATERIAL OMITTED

Cynthia E. Kernick, Frederick H. Colen, Kevin S. Katona, Robert D. Kucler, Reed Smith LLP, Pittsburgh, PA, Craig B. Florence, Robert T. Slovak, Gardere Wynne Sewell, Dallas, TX, Eugene Ledonne, Reed Smith LLP, New York, NY, for Highmark, Inc.

Joseph F. Cleveland, Jr., Brackett & Ellis, Fort Worth, TX, Alfredo L. Silva, Christopher J. Harrington, Luke F. McLeroy, Mike McKool, Jr., R. Darryl Burke, McKool Smith, P.C., V. Bryan Medlock, Jr., Sidley Austin LLP, Dallas, TX, John E. Hall, Eckert Seamans Cherin & Mellott, Pittsburgh, PA, Steven G. Hill, Hill Kertscher & Wharton LLP, Atlanta, GA, for Allcare Health Management Systems, Inc.

OPINION AND ORDER GRANTING MOTION FOR EXCEPTIONAL-CASE FINDING AND ATTORNEY'S FEES

TERRY R. MEANS, District Judge.

Pending before the Court is the Motion for Exceptional Case Finding and Award of Attorney Fees and Expenses (doc. # 513) filed by plaintiff, Highmark, Inc. (“Highmark”). After review, the Court concludes that this case is exceptional under 35 U.S.C. § 285 as a consequence of certain acts of defendant Allcare Health Management Systems, Inc. (“Allcare”), over the course of the litigation. The Court further concludes that sanctions under Federal Rule of Civil Procedure 11 are appropriate. Highmark's motion will, therefore, be granted.

Also before the Court is Allcare's Motion for Hearing (doc. # 552) in which Allcare requests that the Court conduct a hearing on the motion for exceptional-case finding. Because the Court has ruled on the motion for exceptional-case finding based on the briefing, the Court DENIES the motion for hearing as MOOT.

I. Background

Allcare is a Virginia corporation with its principal place of business in Fort Worth, Texas. Allcare's business is the licensing of intellectual-property assets. Among the assets handled by Allcare is U.S. Patent No. 5,301,105 (“the '105 patent”). After conducting a survey of various healthcare management and insurance companies, Allcare filed suit against twenty-four such companies in four separate suits asserting that the companies' computerized information-management systems infringed the '105 patent.

Highmark was among the companies surveyed by Allcare. In April 2002, Allcare's vice president of licensing, Robert Shelton, wrote a letter to Highmark stating that Allcare believed Highmark's system infringed the '105 patent, requesting that Highmark consider purchasing a license to the '105 patent, and raising the potential for litigation if Highmark refused. Allcare sent additional letters to Highmark, encouraging Highmark to purchase a license, threatening litigation, and warning Highmark of the “substantial damages” Allcare would pursue, as well as the high costs of litigation. (Mot. App. at 354 (December 11, 2002, letter from counsel for Allcare, Steven Hill, noting that over $2 million in fees had been expended in approximately 6 months by an entity defending against a related infringement suit by Allcare and that Allcare would be seeking “substantial damages” against Highmark).)

Among the suits instituted by Allcare based on alleged infringement of the ' 105 patent is Allcare Health Management Systems, Inc. v. Trigon Healthcare, Inc., 1:02-CV-756-A (E.D.Va. Feb. 3, 2003). Trigon Healthcare, Inc., was also surveyed by Allcare. Based apparently on Trigon's responses, Allcare determined that Trigon's system infringed the '105 patent. After sending Trigon a letter and suggesting it license the '105 patent from Allcare, Allcare filed an infringement suit against Trigon in May 2002. (Resp. App. at 138.) According to Allcare, Trigon and Highmark's defenses to Allcare's allegations of infringement of claim 52 were the same in that both Trigon and Highmark challenged the validity of the '105 patent in light of undisclosed prior art and each claimed that their respective systems lacked a “diagnostic smart system” as required by claim 52. A diagnostic smart system, as contemplated by the '105 patent, is a system in which a physician enters codes symbolizing patient symptoms that are then compared by the computer system to stored data on the usual symptoms of common diseases and ailments. (Cl. Constr. Rep., doc. # 367, at 2-3.) After this comparison, the system generates a list of conditions that are likely the cause of the specific patient's symptoms, along with recommended treatments. ( Id.) Allcare filed a motion for summary judgment and, on February 3, 2003, the United States District Court for the Eastern District of Virginia entered its order. (Resp. App. at 41-66.) The court concluded that claim element 52(c) did not require a diagnostic smart system and that the entry of data symbolic of patient symptoms did not have to be for the purpose of suggesting a mode of treatment. (Resp. App. at 45, 51-52). The court also concluded that the '105 patent is enforceable. ( Id. at 57-62, 66.)

After the summary-judgment rulings in Trigon, Allcare sent another letter to Highmark. The letter apprised Highmark of the rulings favorable to Allcare in Trigon, again requested that Highmark purchase a license and suggested that litigation may be necessary if Highmark refused. After some discussion between Highmark and Allcare, Highmark filed this action against Allcare seeking a declaratory judgment of invalidity, noninfringement, and unenforceability of the '105 patent. Allcare filed a counterclaim alleging infringement of the '105 patent.

In August 2006, Don W. Martens was appointed special master in this case, and the issue of claim construction was referred to him. Martens submitted a report and recommendation (doc. # 367) that the Court adopted in March 2007 (doc. # 375). Martens's report construed the claims at issue in this case-claim 1, 52, 53, and 102.¹ After Martens's report, in February 2008, Allcare withdrew its counterclaim of infringement as to claim 102 (doc. # 481). Highmark also withdrew its contention of invalidity and unenforceability of claim 1 (doc. # 505). Martens also issued a report on Highmark's motion for summary judgment (doc. # 484). The Court adopted Martens's report and entered summary judgment in favor of Highmark on August 28, 2008 (doc. # 503), concluding that the ' 105 patent is not unenforceable but that Highmark's system did not infringe claim 52 or 53. As the prevailing party in this patent case, Highmark now seeks attorneys' fees and other expenses.

II. DiscussionA. Legal Standards

1. 35 U.S.C. § 285

“The court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. The evaluation of whether attorneys' fees should be awarded under § 285 is a two-step process. See Digeo, Inc. v. Audible, Inc., 505 F.3d 1362, 1366-67 (Fed.Cir.2007). First, a court must determine whether there is clear and convincing evidence that the case is exceptional. See id. at 1367. “The ‘clear and convincing’ standard is an intermediate standard which lies somewhere in between the ‘beyond a reasonable doubt’ and the ‘preponderance of the evidence’ standards of proof.” Pfizer, Inc. v. Apotex, Inc., 480 F.3d 1348, 1360 n. 5 (Fed.Cir.2007) (citing Addington v. Texas, 441 U.S. 418, 425, 99 S.Ct. 1804, 60 L.Ed.2d 323 (1979) and SSIH Equip. S.A. v. United States Int'l Trade Comm'n, 718 F.2d 365, 380-81 (Fed.Cir.1983) (Nies, J., additional views)). “Although an exact definition is elusive, ‘clear and convincing evidence’ has been described as evidence that ‘place[s] in the ultimate factfinder an abiding conviction that the truth of its factual contentions are highly probable.’ ” Id. (quoting Colorado v. New Mexico, 467 U.S. 310, 316, 104 S.Ct. 2433, 81 L.Ed.2d 247 (1984)). It is such evidence as to form in the mind of the trier of fact a “firm belief or conviction” as to the truth of the allegations sought to be established. See Trans-World Mfg. Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552, 1559-60 (Fed.Cir.1984) (discussing use of clear-and-convincing standard in proving prior use of a patented invention in overcoming presumption of patent's validity).

“A case may be deemed exceptional when there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Fed.R.Civ.P. 11, or like infractions.” Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (Fed.Cir.2005). A court may find a case exceptional because the case is frivolous. See Stephens v. Tech Int'l, Inc., 393 F.3d 1269, 1273-74 (Fed.Cir.2004) (noting that a case may be deemed exceptional due to, inter alia, the frivolity of the suit); see also Beckman Instruments, Inc. v. LKB Produkter AB, 892 F.2d 1547, 1551 (Fed.Cir.1989) (stating that “unjustified litigation” or a “frivolous suit” can form the basis of an exceptional-case finding). “A frivolous infringement suit is one [that] the patentee knew or, on reasonable investigation, should have known was baseless.” Stephens, 393 F.3d at 1273-74.

An award of attorneys' fees is not made mandatory by an exceptional-case finding. As the second step of the analysis under section 285, once a case is shown by clear and convincing evidence to be exceptional, a court must assess whether, in its discretion, an award of fees is justified. See Digeo, Inc., 505 F.3d at 1366-67. A court may exercise its discretion and decline to award attorneys' fees despite such an exceptional-case finding. In assessing whether an exceptional-case finding justifies an award of fees, a court must weigh factors-such as the relative merits of the parties' positions, the tactics of counsel, and the conduct of the parties-that contribute to a fair allocation...