In a ruling issued last week, a federal appeals court affirmed that a Texas-based health management systems company must pay Pittsburgh health insurer Highmark Inc.'s legal bill for fending off the Texas firm's patent infringement suit, whose origins date back a decade.
But the U.S. Court of Appeals for the Federal Circuit, in affirming the ruling, also remanded the case back to the trial judge, asking him to further explain how he arrived at a $5 million reimbursement figure.
The saga began in 2009, when Allcare Health Management Systems sued Highmark in U.S. District Court in Fort Worth, Texas, alleging infringement of a patent covering "managed health care systems" for electronically connecting doctors, insurers and patients.
Highmark's lawyers at Reed Smith dispatched Allcare's case on summary judgment, and then moved for an order finding case was "exceptional" and awarding attorney fees. Highmark called Allcare "a patent troll that uses litigation as a sword to attack health care-related companies and, with no risk to itself, potentially raises the cost of health care even though it has not made a single contribution."
As a result, two years ago, a judge brought sanctions against law firms McKool Smith and Sidley Austin LLP for bringing supposedly "frivolous" patent claims on behalf of their client, Allcare. The firms managed to get the sanctions vacated soon afterward, but their efforts to redeem their client and undo the $5 million attorney fee award haven't fared so well.
In granting Highmark's motion in March 2010, U.S. District Judge Terry Means of the Northern District of Texas imposed monetary sanctions, as well as attorney fee awards, on the four firms involved in Allcare's case -- McKool; Sidley; Hill, Kertscher & Wharton; and Brackett & Ellis.
McKool and Sidley fought back hard, hiring attorneys to clear their names.
The lawyers' efforts paid off in August 2010, when Judge Means issued a lengthy opinion vacating his earlier sanctions awards against all four firms. The judge, however, refused to lift the attorney fee award, because Allcare pursued frivolous infringement claims, asserted meritless legal positions, and repeatedly shifted its claim construction positions.
Allcare's appeal of that 2010 ruling has now come up short. The Federal Circuit, in a 2-1 majority opinion penned by Judge Timothy Dyk, concluded that Allcare adopted an argument on claim construction that it knew or should have known was unreasonable.
The majority disagreed, however, with Judge Means' finding that Allcare engaged in litigation misconduct. Because Judge Means didn't explain what part of the $5 million attorney fee award resulted from each accusation of wrongdoing, the court remanded the case for a new calculation.
The ruling drew a dissent from Judge Haldane Mayer, who argued that his colleagues should have given more deference to the district court's findings.
Reed Smith partner Cynthia Kernick, who represented Highmark, did not return a request for comment.
Allcare owns U.S. Patent No. 5,301,105, which lawyers claim to having invented "a fully integrated and comprehensive health care system that includes the integrated interconnection and interaction of the patient, health care provider, bank or other financial institution, insurance company, utilization reviewer and employer."
Based on the ownership of that patent, Allcare filed suit against 24 health companies in four separate suits, "asserting that the companies' computerized information-management systems infringed the '105' patent," according to the March 2010 opinion.
The suit arose from an April 2002 letter from Allcare's vice president of licensing, Robert Shelton, who wrote to Highmark, saying that "Allcare believed Highmark's system infringed the 105 patent, [and raised] the potential for litigation if Highmark refused" to buy Allcare's licensed product.
Once Highmark won its defense, in its fee motion, it said that "16,019.67 hours were expended by attorneys working on its case and that an additional 2,640.54 hours were expended by non-attorneys" over the course of seven years of fighting the frivolous patent infringement charges.
Jan Wolfe is a reporter for The American Lawyer, a Legal Intelligencer affiliate based in New York.