U.S. Healthcare, Inc. v. Blue Cross of Greater Philadelphia
| Decision Date | 04 April 1990 |
| Docket Number | No. 88-1205,88-1205,Nos. 88-1180,s. 88-1180 |
| Citation | 898 F.2d 914 |
| Parties | , 14 U.S.P.Q.2d 1257, 17 Media L. Rep. 1681 U.S. HEALTHCARE, INC., United States Health Care Systems of Pennsylvania, Inc. and Health Maintenance Organization of New Jersey, Inc., Appellants in 88-1180, v. BLUE CROSS OF GREATER PHILADELPHIA, Pennsylvania Blue Shield and David Markson. Appeal of BLUE CROSS OF GREATER PHILADELPHIA ("BLUE CROSS") and Pennsylvania Blue Shield ("Blue Shield"), in |
| Court | U.S. Court of Appeals — Third Circuit |
David F. Simon (argued), David I. Bookspan, Gary L. Leshko, Wolf, Block, Schorr & Solis-Cohen, Philadelphia, Pa., for appellants-cross-appellees, U.S. Healthcare, Inc., U.S. Health Care Systems of Pennsylvania, Inc. and Health Maintenance Organization of New Jersey, Inc.
Jay H. Calvert, Jr. (argued), John H. Lewis, Jr., Ronald B. Hauben, Morgan Henry Kolowrat, Dechert, Price & Rhoads, Philadelphia, Pa., James A. Young (argued), Timothy I. McCann, Sprecher, Felix, Visco, Hutchison & Young, Philadelphia, Pa., for appellee-cross-appellant, Pennsylvania Blue Shield.
Lewis & Bockius, Philadelphia, Pa., for appellees-cross-appellants, Blue Cross of Greater Philadelphia and David S. Markson.
Before STAPLETON, SCIRICA and COWEN, Circuit Judges.
U.S. Healthcare, Inc. and its subsidiaries, United States Health Care Systems of Pennsylvania, Inc. and Health Maintenance Organization of New Jersey, Inc. (collectively, "U.S. Healthcare"), appeal from the district court's post-trial entry of judgment in favor of Blue Cross of Philadelphia, its president David Markson, and Pennsylvania Blue Shield (collectively, "Blue Cross/Blue Shield"), directed under Fed.R.Civ.P. 50(b) on U.S. Healthcare's federal and pendent state law claims alleging violations of Sec. 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a) (1982), commercial disparagement, defamation and tortious interference with contractual relations. Blue Cross/Blue Shield, in turn, appeals from the entry of judgment on the verdict in favor of U.S. Healthcare on Blue Cross/Blue Shield's counterclaims alleging the same causes of action brought by U.S. Healthcare. Additionally, Blue Cross/Blue Shield appeals the pre-trial dismissal of the abuse of process counts in its counterclaims. We will reverse the grant of the Rule 50(b) motions, the judgment on the verdict in favor of U.S. Healthcare on Blue Cross/Blue Shield's counterclaims and the dismissal of the counts on abuse of process.
These cross appeals arise from a comparative advertising war between giants of the health care industry in the Delaware Valley--U.S. Healthcare on the one side and Blue Cross/Blue Shield on the other. The thrust of these claims is that each side asserts the other's advertising misrepresented both parties' products.
For over fifty years, Blue Cross/Blue Shield operated as the largest health insurer in Southeastern Pennsylvania by offering "traditional" medical insurance coverage. 1 Traditional insurance protects the subscriber from "major" medical expenses, with the insurer paying a negotiated amount based upon the services rendered, and the subscriber generally paying a deductible or some other amount. The subscriber has freedom in choosing hospitals and health care providers (i.e., doctors).
In the early 1970's, U.S. Healthcare began providing an alternative to traditional insurance in the form of a health maintenance organization, generically known as an "HMO." An HMO acts as both an insurer and a provider of specified services that are more comprehensive than those offered by traditional insurance. Generally, HMO subscribers choose a primary health care provider from the HMO network who coordinates their health care services and determines when hospital admission or treatment from a specialist is required. Usually, subscribers are not covered for services obtained without this permission or from providers outside this network. By 1986, U.S. Healthcare was the largest HMO in the area, claiming almost 600,000 members. 2 During the same period, Blue Cross/Blue Shield experienced a loss in enrollment of over 1% per year, with a large number of those subscribers choosing HMO coverage over traditional insurance, and a majority of those defectors choosing a U.S. Healthcare company.
Blue Cross/Blue Shield considered a number of strategies to regain its market position, including the acquisition of its own HMO. 3 In late 1985, in an admitted attempt to compete with HMO, Blue Cross/Blue Shield introduced a new product that it called "Personal Choice," known generically as a preferred provider organization or "PPO." PPO insurance provides subscribers with a "network" of health care providers and hospitals, and generally "covers" subscribers only for services obtained from the network providers and administered at the network hospitals. Subscribers must obtain permission to receive treatment from providers outside the network, and in such instances receive at most only partial coverage.
Thereafter, Blue Cross/Blue Shield consulted with two separate advertising agencies before arriving at a marketing strategy for its new product. 4 In July 1986, Blue Cross/Blue Shield launched what it termed a deliberately "aggressive and provocative" comparative advertising campaign calculated "to introduce and increase the attractiveness of its products"--in particular, Personal Choice--at the expense of HMO products. Blue Cross/Blue Shield's campaign, which included direct mailings, as well as television, radio and print advertisements, ran for about six months at a total cost of approximately $2.175 million. According to a Blue Cross memorandum that purported to reflect the directions of Markson, the campaign was designed specifically to "reduce the attractiveness of [HMO]."
The Blue Cross/Blue Shield advertising campaign consisted of eight different advertisements for the print media, seven different advertisements for television, three different advertisements for radio, and a direct mailing including a folding brochure. The eight print advertisements compare the features of HMO and Personal Choice. Seven of the eight represent that with HMO, the subscriber selects a "primary care physician" who, in turn, must give permission before HMO will provide coverage for examination by a specialist. (The eighth print advertisement simply states that with Personal Choice, the subscriber may be examined by a specialist whenever he chooses, without "permission.") After describing HMO's referral procedure, however, three of the eight print advertisements--as well as the brochure--say the following:
You should also know that through a series of financial incentives, HMO encourages this doctor to handle as many patients as possible without referring to a specialist. When an HMO doctor does make a specialist referral, it could take money directly out of his pocket. Make too many referrals, and he could find himself in trouble with HMO. 5
One of the print advertisements and the brochure also feature a senior citizen under the banner heading "Your money or your life," juxtaposed with Blue Cross/Blue Shield's description of "The high cost of HMO Medicare."
Of the seven television advertisements run by Blue Cross/Blue Shield, four are innocuous, mentioning HMO only in the closing slogan common to all seven of the ads: The fifth features an indignant every man, who simply states "I resent having to ask my HMO doctor for permission to see a specialist," before a spokesperson extols the benefits of Personal Choice without reference to HMO until, again, the closing slogan. The sixth features a cab driver who says, "I don't like those HMO health The three radio advertisements of Blue Cross/Blue Shield compare the features of HMO and Personal Choice. All represent that HMO limits choice of hospitals and physicians and requires plan permission to see a specialist, but that Personal Choice provides unlimited choice of network hospitals and physicians and affords unrestricted access to specialists.
plans. You get one doctor, no choice of hospitals," before a shopper tells him about the virtues of Personal Choice--again, without reference to HMO until the closing slogan. The seventh television advertisement used by Blue Cross/Blue Shield, while following the same general format, seems to us a dramatic departure from the others in that it appears consciously designed to play upon the fears of the consuming public. The commercial features a grief-stricken woman who says, "The hospital my HMO sent me to just wasn't enough. It's my fault." The implication of the advertisement is that some tragedy has befallen the woman because of her choice of health care
U.S. Healthcare responded immediately to Blue Cross/Blue Shield's promotional campaign. Within a week, U.S. Healthcare filed suit in Philadelphia County Court of Common Pleas alleging commercial disparagement, defamation and tortious interference with contractual relations. U.S. Healthcare also issued concurrent press releases describing the basis of the litigation. In addition, the company embarked upon its own aggressive, comparative advertising blitz.
The responsive advertising campaign, which began sometime after the Blue Cross/Blue Shield campaign and ran until late February 1987, cost $1.255 million. U.S. Healthcare's campaign consisted of five different advertisements for the print media, four different television advertisements, and two different radio advertisements. Of these, two advertisements were adapted for all three media as a response to Blue Cross/Blue Shield's most serious criticisms.
The first of these multi-media advertisements--apparently attempting to counteract the Blue Cross/Blue Shield...
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