`
`IN THE
`Supreme Court of the United States
`
`HIGHMARK INC.,
`
`Petitioner,
`
`v.
`
`ALLCARE HEALTH MANAGEMENT SYSTEM, INC.,
`
`Respondent.
`
`On Petition for a Writ of Certiorari to
`the United States Court of Appeals
`for the Federal Circuit
`
`BRIEF IN OPPOSITION
`
`Of Counsel:
`ERIK R. PUKNYS
`FINNEGAN, HENDERSON,
`FARABOW, GARRETT &
`DUNNER, LLP
`3300 Hillview Avenue
`Palo Alto, CA 94304-1203
`(650) 849-6600
`
`June 13, 2013
`
`DONALD R. DUNNER
`Counsel of Record
`FINNEGAN, HENDERSON,
`FARABOW, GARRETT &
`DUNNER, LLP
`901 New York Avenue, NW
`Washington, DC 20001-4413
`(202) 408-4000
`don.dunner@finnegan.com
`
`
`
`- i -
`
`RULE 29.6 STATEMENT
`
`Respondent Allcare Health Management
`System, Inc. has no parent company and no publicly
`held corporation owns 10 percent or more of its
`stock.
`
`
`
`
`
`
`
`
`
`
`
`- ii -
`
`
`TABLE OF CONTENTS
`
`Page
`
`RULE 29.6 STATEMENT ........................................... i
`
`TABLE OF CONTENTS ............................................ ii
`
`I.
`
`II.
`
`PRELIMINARY STATEMENT .......................1
`
`FACTUAL BACKGROUND .............................5
`
`A.
`
`The Parties and Their Dispute .............5
`
`1.
`
`2.
`
`3.
`
`4.
`
`5.
`
`6.
`
`7.
`
`Allcare and Its Patent .................5
`
`Allcare’s Infringement
`Investigation ...............................8
`
`The Trigon Rulings and
`Allcare’s Licensing Efforts ..........9
`
`Allcare’s Response to the
`Trigon Rulings .......................... 11
`
`Highmark’s Declaratory
`Judgment Action ....................... 12
`
`The Special Master’s
`Reports ...................................... 13
`
`Highmark’s ECF Motion,
`Allcare’s Response, and
`the ECF Order ........................... 17
`
`
`
`
`
`8.
`
`- iii -
`
`Events Between the ECF
`Order (April 1, 2010) and
`the Order Vacating Rule
`11 Sanctions Against
`Counsel (August 9, 2010) .......... 22
`
`9.
`
`The Federal Circuit’s
`Decision ..................................... 24
`
`10. The Denial of Highmark’s
`Petition for Rehearing En
`Banc ........................................... 29
`
`III. ARGUMENT ................................................... 32
`
`A.
`
`The Federal Circuit’s Decision Is
`Consistent with this Court’s
`Jurisprudence ...................................... 32
`
`1.
`
`2.
`
`3.
`
`This Court’s Decisions
`Establish That “Objective
`Reasonableness” Is an
`Issue of Law Reviewed De
`Novo ........................................... 32
`
`This Court’s Cases Cited
`by Highmark as Being in
`Conflict with the Decision
`Below Do Not Involve
`Constitutional Rights................ 34
`
`The Decision Below Does
`Not Conflict with Fed. R.
`Civ. P. 52 ................................... 37
`
`
`
`
`
`4.
`
`5.
`
`- iv -
`
`The Decision Below Is Not
`in Conflict with Earlier
`Federal Circuit or Other
`Circuit Decisions ....................... 38
`
`The Policy Arguments
`Presented by Highmark
`and Blue Cross Are
`Inadequate ................................ 40
`
`IV. CONCLUSION ............................................... 42
`
`
`
`
`
`- v -
`
`TABLE OF AUTHORITIES
`
`CASES
`
`Bard Peripheral Vascular, Inc. v. W.L. Gore &
`Assocs., Inc.,
`682 F.3d 1003 (Fed. Cir. 2012) ........................... 26
`
`Bose Corp. v. Consumers Union of United
`States, Inc.,
`466 U.S. 485 (1984) ....................................... 34, 37
`
`Brooks Furniture Manufacturing, Inc. v.
`Dutailier International, Inc.,
`393 F.3d 1378 (Fed. Cir. 2005) ................. 1, 24, 25
`
`California Motor Transport Co. v. Trucking
`Unlimited,
`404 U.S. 508 (1972) ............................................. 33
`
`Cooper Indus., Inc. v. Leatherman Tool Group,
`Inc.,
`532 U.S. 424 (2001) ............................................. 34
`
`Cooter & Gell v. Hartmarx Corp.,
`496 U.S. 384 (1990) ................................... 4, 34, 35
`
`Covad Commc’ns Co. v. Bell Atlantic Corp.,
`398 F3d 666 (D.C. Cir. 2005) ................................ 2
`
`Crescent City Live Stock Co. v. Butchers
`Union Slaughter–House Co.,
`120 U.S. 141 (1887) ............................................. 32
`
`
`
`
`
`- vi -
`
`FilmTec Corp. v. Hydranautics,
`67 F.3d 931 (Fed. Cir. 1995) ................2, 32, 38, 39
`
`iLOR, LLC v. Google, Inc.,
`631 F.3d 1372 (Fed. Cir. 2011) ..................... 25, 26
`
`In re Seagate Technology, LLC,
`497 F.3d 1360 (Fed. Cir. 2007) ........................... 26
`
`Jacobellis v. Ohio,
`378 U.S. 184 (1964) ............................................. 34
`
`Koon v. United States,
`518 U.S. 81 (1996) ................................3, 25, 26, 32
`
`Lighting Ballast Control, LLC v. Philips
`Electronics North America Corp.,
`500 Fed. Appx. 951 (Fed. Cir. 2013) ................... 27
`
`Markman v. Westview Instruments,
`517 U.S. 370 (1996) ............................................. 27
`
`Miller v. Fenton,
`474 U.S. 104 (1985) ............................................. 34
`
`Ornelas v. United States,
`517 U.S. 690 (1996) ............................................. 33
`
`Phillips v. AWH Corporation,
`415 F.3d 1303 (Fed. Cir. 2005) ........................... 19
`
`Pierce v. Underwood,
`487 U.S. 552 (1988) ................................... 4, 34, 36
`
`
`
`
`
`- vii -
`
`Pitt v. District of Columbia,
`491 F3d 494 (D.C. Cir. 2007) .............................. 39
`
`Professional Real Estate Investors, Inc. v.
`Columbia Pictures Indus., Inc.,
`508 U.S. 49 (1993) ........................................ passim
`
`Raylon v. Complus Data Innovations, Inc.,
`700 F.3d 1361 (Fed. Cir. 2012) ........................... 41
`
`United States v. Garzon,
`119 F.3d 1446 (10th Cir. 1997) ........................... 39
`
`United States v. Legros,
`529 F.3d 470 (2d Cir. 2008) ................................ 33
`
`United States v. Nerber,
`222 F.3d 597 (9th Cir. 2000) ............................... 39
`
`
`
`
`
`
`
`- 1 -
`
`Respondent Allcare Health Management
`System, Inc.
`(“Allcare”) respectfully
`files
`this
`opposition to the petition for a writ of certiorari filed
`by Highmark, Inc. (“Highmark”).
`
`
`
`I.
`
`PRELIMINARY STATEMENT
`
`There are many reasons a case may be found
`exceptional under Section 285. For instance, a case
`may be 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). Or a case may be exceptional when
`an “objectively baseless” litigation is brought in
`subjective bad faith. Id.
`
`Many, perhaps even most, of these bases
`require extensive fact-finding, but not all of them do.
`In particular, determining whether a case
`is
`“objectively baseless” is a legal conclusion requiring
`“a retrospective assessment of the merits of the
`entire litigation and does not rely on the facts
`present at a particular time and is ‘based on the
`record ultimately made
`in
`the
`infringement
`proceedings.’”
`(Pet.App.11a, n.1.) As a result,
`determining whether a case is “objectively baseless”
`“does not require fact-finding” because it considers
`
`
`
`
`- 2 -
`
`the
`in
`the record established
`“whether
`only
`[underlying] proceeding supports a reasonable
`argument as to the facts and law.” (Id.)
`
`This Court has repeatedly recognized the legal
`nature of an “objectively baseless” finding. For
`instance, the Court has explained that the “sham”
`litigation exception to Noerr immunity cannot apply
`if the plaintiff’s claim was “objectively reasonable,”
`and thus the plaintiff had probable cause to sue. See,
`e.g., Professional Real Estate Investors, Inc. v.
`Columbia Pictures Indus., Inc., 508 U.S. 49, 62-63
`(1993) (“PRE”). The test of whether a plaintiff had
`probable cause is fundamentally a legal one. Id. at
`63 (stating that where “there is no dispute over the
`predicate facts of the underlying legal proceeding, a
`court may decide probable cause as a matter of law”).
`Past decisions from the Federal Circuit and other
`circuit courts of appeal have made similar
`observations. See, e.g., FilmTec Corp. v.
`Hydranautics, 67 F.3d 931, 938 (Fed. Cir. 1995)
`(stating that “[t]he facts of this case have been
`established by prior litigations” so “there is no
`dispute over the facts, [and] the question of whether
`or not a cause of action is reasonable or an abuse of
`process is a question of law”); Covad Commc’ns Co. v.
`Bell Atlantic Corp., 398 F.3d 666 (D.C. Cir. 2005)
`(stating that because the objective baselessness
`determination was based solely on “the opinions of
`the patent courts” (the district court’s and Federal
`Circuit’s decisions in the underlying litigation), the
`issue was a “question of law”).
`
`
`
`
`
`- 3 -
`
`Just as in FilmTec and Covad, the district
`court’s “objective baselessness” determination below
`was based solely on the record of the underlying
`merits litigation. Accordingly, the relevant facts
`were undisputed and the question of “objective
`baselessness” was a purely legal one.
`
`Highmark argues that the Federal Circuit
`should have deferred to the district court’s “objective
`baselessness” determination, but none of the cases
`cited in its petition supports that argument. To the
`contrary, this Court’s decisions concerning the
`appropriate scope of appellate review demonstrate
`that the panel was right. For instance, while no one
`disputes that a district court’s exceptional-case
`determination is reviewed for an abuse of discretion
`(Pet.App.183a), not every aspect of the district
`court’s decision is entitled to deference. Indeed, this
`Court has stated that “[a] district court by definition
`abuses its discretion when it makes an error of law.”
`Koon v. United States, 518 U.S. 81, 100 (1996). And,
`this Court has stated numerous times that the
`question of “objective baselessness” is one of law.
`PRE, 508 U.S. at 63. Accordingly, even under
`ordinary abuse-of-discretion review, the district
`court’s legal conclusion of “objective baselessness” is
`not entitled to deference.
`
`Moreover, this Court demands de novo review
`of legal conclusions where Constitutional rights are
`at risk. In the context of “objective reasonableness”
`under PRE, the Constitutional right of concern is a
`citizen’s First Amendment right “to petition the
`
`
`
`
`
`- 4 -
`
`Government for a redress of grievances,” a right that
`has long been recognized as including access to the
`courts. PRE, 508 U.S. 56-57. The right to access the
`courts that is protected by the “objectively baseless”
`test of PRE is the same right protected by the
`“objectively baseless” test used for Section 285.
`
`Against this weight of authority, Highmark
`cites two cases—Pierce v. Underwood, 487 U.S. 552
`(1988) and Cooter & Gell v. Hartmarx Corp., 496
`U.S. 384 (1990)—where this Court applied a more
`relaxed standard of appellate review. Highmark
`claims that the issues addressed by these cases are
`analogous to the “objectively baseless” test under
`Section 285, but they are not. In particular, neither
`case concerns issues that implicate Constitutional
`rights. Pierce addresses when attorneys’ fees can be
`assessed against the government pursuant to the
`Equal Access to Justice Act
`(“EAJA”), which
`obviously does not raise any First Amendment
`concerns. Similarly, Cooter addresses sanctions
`awarded pursuant to Rule 11, which are intended to
`punish misconduct and, as the Cooter court itself
`recognized, do “not preclude the refiling of a
`complaint.” 496 U.S. at 396. Accordingly, Rule 11
`sanctions, unlike a sanction under Section 285, will
`rarely, if ever, act to effectively deprive a plaintiff of
`his First Amendment right to seek redress in the
`courts.
`
`Moreover, as the panel below noted, typical
`EAJA or Rule 11 awards are insignificant in
`comparison to awards resulting from violations of
`
`
`
`
`
`- 5 -
`
`Section 285. Indeed, in this case the Rule 11
`sanctions that were awarded (but later vacated)
`against Allcare’s counsel amounted to a total of
`$35,000, a tiny fraction of the nearly $5,000,000
`assessed against Allcare under Section 285. This
`disparity between EAJA and Rule 11 awards on the
`one hand, and Section 285 awards on the other, also
`demonstrates that de novo review of a district court’s
`“objectively baseless” determination is appropriate.
`
`In sum, the Federal Circuit’s decision below is
`entirely consistent with this Court’s precedent,
`which defines the “objectively baseless” inquiry as a
`legal question and demands that legal conclusions,
`especially those that could jeopardize Constitutional
`rights, should be reviewed de novo. Accordingly,
`Highmark’s petition should be denied.
`
`
`FACTUAL BACKGROUND
`
`II.
`
`A.
`
`The Parties and Their Dispute
`
`1.
`
`Allcare and Its Patent
`
`Allcare, the owner of U.S. Patent No.
`5,301,105 (“the ’105 patent”), was incorporated to
`develop the system described in it and to license
`rights to it. (A2778-80; A1039-50). The ’105 patent is
`directed to “managed health care systems” used by
`managed care organizations, such as insurance
`companies, to interact with health care providers
`(physicians or hospitals). (A160[1:4]). Managed care
`
`
`
`
`
`- 6 -
`
`organizations contract with providers who their
`members/patients are eligible to see, and who
`administer complex policies to assure that medical
`services do not exceed contractually obligated
`benefits. The process of determining whether a given
`procedure is appropriate for a patient’s particular
`circumstances
`is
`called
`“utilization
`review.”
`(A170[21:31-42]). The methods covered by asserted
`claims 52, 53 (a dependent claim based on claim 52)
`and 102 involve a computer system that determines,
`based on criteria provided by the managed care
`organization and data from the provider concerning
`the patient and his or her symptoms, whether a
`proposed mode of treatment requires utilization
`review. (Id.). If it does, the system ensures that
`payment is not made until the utilization review has
`been performed and approval has been given. (Id.).
`
`There are two embodiments of the invention
`described in the patent: a “diagnostic smart system”
`and
`a
`“utilization
`review
`smart
`system.”
`(Pet.App.19a). A “diagnostic smart system” analyzes
`the symptoms reported by the provider and
`“prepares a list of the most likely medical condition
`corresponding to such symptoms, together with the
`generally approved and/or recommended treatment
`protocols.” (id.; A162[6:64-67]). In other words, in a
`“diagnostic smart system” there is a “cause-and-
`effect” relationship such that the entry of symptoms
`data causes the system to respond with a treatment
`proposal. In a “utilization review system,” however,
`the system does not propose a treatment in response
`to symptoms data. Instead, the symptoms data and
`
`
`
`
`
`- 7 -
`
`the proposed treatment are entered into the system
`by,
`for
`example,
`the
`treating
`physician.
`(Pet.App.19a; A164[9:53-10:17).
`
`The principal non-infringement issue in the
`district court and the prior appeal concerned element
`52(c):
`
`(c) entering through said input means
`into said data processor data symbolic
`of patient symptoms for tentatively
`identifying a proposed mode of
`treatment . . ..
`
`(A6697-99). In particular, while both parties
`agreed that this language covered at least the
`“diagnostic
`smart
`system” embodiment,
`they
`disagreed as to whether
`it also covered the
`“utilization review smart system” embodiment.
`Specifically, the parties disputed whether the claim
`language covered systems, like Highmark’s, where
`the doctor entered both patient symptoms and a
`proposed mode of treatment. (A6698). As explained
`below in more detail, at the claim-construction stage
`of
`the
`litigation
`the district
`court
`rejected
`Highmark’s attempt to limit element 52(c) to a
`“diagnostic smart system.”
`
`Although Allcare also asserted claim 102
`earlier in the litigation, Allcare withdrew it before
`the district court ruled on the parties’ summary
`judgment motions. (A11574; A11517). Before then,
`the principal dispute concerning claim 102 was
`whether the preamble term “integrated health care
`
`
`
`
`- 8 -
`
`management system” required direct interaction
`between the patient and his employer. (A1357-58;
`A6701-02; A54-55). At the claim-construction stage,
`the special master
`rejected
`the
`construction
`Highmark proposed and chose instead a construction
`of claim 102’s preamble that was essentially the
`same as Allcare’s. (A1357-58; A6701-02).
`
`2.
`
`Allcare’s
`Investigation
`
`Infringement
`
`In July 2001, Allcare engaged Seaport
`Surveys, Inc. (“Seaport”), an independent market
`research firm, to conduct telephone interviews with
`various managed care companies to ascertain their
`capabilities
`for
`processing
`authorizations
`electronically. (A12214-15). Seaport completed about
`328 telephone interviews of such firms, including
`Highmark, a member of the Blue Cross Blue Shield
`organization (A12215; A1046).
`
`Highmark’s answers to the survey suggested
`it was
`infringing the
`’105 patent, so Allcare
`conducted an additional investigation. (A12215).
`This
`investigation
`included publicly available
`sources, including Highmark’s website, the websites
`of third parties who used and serviced Highmark’s
`system, and other materials available on the
`internet concerning Highmark’s system. (A12215-
`18). Allcare also consulted with its patent litigation
`counsel, Steven Hill, who confirmed that Allcare had
`a viable case of infringement against Highmark.
`(A12454; A12479-80). Thus, Allcare contacted
`
`
`
`
`
`- 9 -
`
`Highmark and encouraged it to consider taking a
`license to the ’105 patent. (A12216).
`
`Over the next ten months, Allcare (directly
`and through attorney Hill) held a number of
`meetings with Highmark. (A12454-56). During the
`course of these discussions, Highmark argued it did
`not infringe the ’105 patent because, in Highmark’s
`view,
`its claims required a “diagnostic smart
`system,” and thus did not cover Highmark’s system.
`(A12216-17). Highmark also argued that the ’105
`patent was unenforceable for inequitable conduct.
`(Id.).
`
`3.
`
`The Trigon Rulings and Allcare’s
`Licensing Efforts
`
`At the time Allcare was negotiating with
`Highmark, it was also enforcing the ’105 patent
`against
`another Blue Cross Blue
`Shield
`organization, Trigon Healthcare, Inc., in the Eastern
`District of Virginia, Allcare Health Management
`System, Inc. v. Trigon Healthcare, Inc., No. 02-756-A
`(Hilton, C.J.). Allcare’s infringement theory against
`Trigon was similar to its infringement theory
`against Highmark. (A12455). In particular, both
`systems were similar to the “utilization review smart
`system” disclosed in the ’105 patent in that both
`enabled a physician to enter symptom data and a
`proposed treatment to obtain authorization from the
`insurance
`company.
`(A12455-56). Highmark’s
`counsel did not deny Hill’s description of the
`similarities between the Trigon and Highmark
`systems. (Id.).
`
`
`
`
`- 10 -
`
`With Highmark’s counsel present in the
`courtroom, Trigon’s summary-judgment argument
`focused on the same issues that Highmark raised in
`its defense. (A12459). In particular, the parties
`argued over whether the claims were limited to a
`“diagnostic smart system” and thus excluded any
`system that did not provide a proposed mode of
`treatment in response to the physician’s entry of
`symptoms data. (A12458; A12544-53). The parties
`also argued whether the patent was invalid or
`unenforceable for inequitable conduct. (Id).
`
`In February 2002, Chief Judge Claude Hilton
`issued “the Trigon rulings,” which rejected Trigon’s
`argument that claim 52 required “a ‘cause and effect’
`relationship whereby entry of the data symbolic of
`symptoms
`causes
`the
`automatic
`tentative
`identification of a proposed mode of treatment”
`(A12349) (the touchstone of a “diagnostic smart
`system”). Based on the ordinary meaning of the term
`“for,” in “entering through said input means into
`said data processor data symbolic of patient
`symptoms for tentatively identifying a proposed
`mode of treatment” (i.e., that “for” simply means
`“corresponding to” or “with a view towards”), Judge
`Hilton held that the entry of data symbolic of patient
`symptoms did not have to cause the system to
`suggest a proposed mode of treatment. (A12349,
`A12455-60). Applying this claim construction—
`which Highmark itself conceded is “remarkably
`similar” to the claim construction in this case (see
`A11974)—Judge Hilton denied Trigon’s motion for
`summary judgment of non-infringement as to claim
`
`
`
`
`
`- 11 -
`
`52. (A12369-70; A12460). Judge Hilton also rejected
`Trigon’s inequitable-conduct defense. (Id.).
`
`4.
`
`Allcare’s Response to the Trigon
`Rulings
`
`increased Allcare’s
`rulings
`The Trigon
`confidence in its conclusion that health insurance
`companies using
`systems
`like Trigon’s and
`Highmark’s infringed its patent. (A12477). And, in
`fact, shortly after the Trigon rulings, Trigon licensed
`the ’105 patent, as did many other health insurers.
`(A12455-57; A12460; A12476-79). But even with this
`record of
`success, Allcare was not blindly
`threatening healthcare companies to take a license
`or
`face
`certain
`litigation.
`In
`fact, Allcare’s
`investigations sometimes led Allcare to conclude that
`asserting its patent would be inappropriate. For
`instance, Allcare investigated Lakewood Health, but
`after examining Lakewood’s system, Allcare advised
`Lakewood that it did not need to take a license.
`(A12431).
`
`Amid this flurry of licensing activity, Allcare
`and Highmark continued to talk. (A12461). Knowing
`that Allcare’s
`infringement analysis against
`Highmark was similar to its infringement analysis
`in the case against Trigon, Highmark asked to see
`Allcare’s infringement claim chart against Trigon,
`and Hill forwarded a copy in August, 2002. (A12456-
`57; A12522-23). Highmark did not refute Hill’s
`comparison of Highmark’s system to Trigon’s or any
`of Hill’s other characterizations of Highmark’s
`system during
`their discussions, but
`instead
`
`
`
`
`- 12 -
`
`insist that Judge Hilton’s claim
`continued to
`construction was wrong—that the claims required a
`“diagnostic smart system,” which Highmark’s system
`lacked. (A12458).
`
`During these negotiations, Allcare repeatedly
`expressed its preference for an amicable resolution.
`(A12430, A12435-39). On or about April 3, 2003,
`Highmark responded to an earlier proposal by
`Allcare that the parties mediate their dispute.
`(A12461). As
`a
`condition
`for Highmark’s
`participation, Highmark’s counsel asked Hill to
`guarantee that if mediation did not succeed, any suit
`would be filed in Highmark’s home venue of western
`Pennsylvania. (Id.) When Hill declined, Highmark’s
`counsel placed him on hold, rejoined the call and
`informed him that Highmark had sued Allcare for
`declaratory judgment in the Western District of
`Pennsylvania. (Id.)
`
`5.
`
`Highmark’s
`Judgment Action
`
`Declaratory
`
`After the case was transferred to Texas,
`Allcare counterclaimed for infringement. (A1039-50).
`Before filing its counterclaim, Hill reconfirmed
`Allcare’s earlier conclusion that Highmark was
`infringing by comparing Highmark’s system to
`certain claims of the ’105 patent using the Trigon
`claim construction and then confirmed this analysis
`with technical experts. (A12479-80). The attorney
`who filed the counterclaim—V. Bryan Medlock, a
`patent litigator with nearly 50 years of experience
`and the head of Sidley & Austin’s intellectual
`
`
`
`
`- 13 -
`
`studied Allcare’s
`group—also
`law
`property
`allegations and found them to have merit. (A12832,
`A12837).
`
`In addition to asserting that Highmark
`infringed the ’105 patent, Allcare also contended
`that Highmark was bound by the Trigon rulings
`under res judicata and collateral estoppel, based on
`Allcare’s understanding of the Blue Cross Blue
`Shield relationship between Highmark and the
`Trigon defendants, as well as the observation that
`Highmark, through its counsel, had collaborated
`with Trigon’s counsel to develop one or more of the
`defenses that Trigon presented to the Virginia court.
`(A1046-47). Shortly after Highmark filed its answer
`to the counterclaims and a motion to dismiss these
`claim-preclusion counts, Allcare’s and Highmark’s
`counsel met-and-conferred
`about Highmark’s
`relationship to the Trigon defendants and its lack of
`involvement in that case, and Allcare voluntarily
`withdrew those contentions.
`(A1064-65; A1085;
`A12484-85).
`
`6.
`
`The Special Master’s Reports
`
`initially
`Although the district court had
`concluded that a special master would not be
`necessary for resolving the parties’ disputes over
`claim construction, it later changed its mind after
`realizing how complex the claim-construction issues
`were (A6638-39).
`
`court appointed Don
`the
`Accordingly,
`Martens, an experienced patent litigator, as special
`
`
`
`
`- 14 -
`
`master. After extensive briefing and a full day of oral
`argument, the special master filed his report on
`claim construction. (A6658). As noted, the principal
`dispute for claim 52 involved element (c) and in
`particular, whether it was limited to a “diagnostic
`smart system” or whether it could also cover a
`“utilization review smart system.” (A6698).
`
`claim-construction
`special master’s
`The
`recommendation, like Judge Hilton’s Trigon rulings,
`rejected Highmark’s attempt to limit the claims to
`the “diagnostic smart system” embodiment. (A6699).
`On the other hand, however, the special master (and
`the court in later adopting his recommendations)
`refused to resolve whether the claims covered
`“utilization review smart systems,” like Highmark’s,
`that require a doctor to enter both the patient
`symptoms and a mode of treatment. (A6699). Indeed,
`the Special Master went even further and said that
`he was refusing to decide “whether the accused
`method is covered by element 52(c)” because “[t]hat
`is an infringement issue for the trier of fact, not a
`claim construction issue.” Id. (emphasis added). The
`special master’s report also indicated elsewhere that
`he expected a jury would be required to resolve the
`dispute between Allcare and Highmark, suggesting
`that “in preparing jury instructions, the parties and
`the Court should consider whether construing [the
`claims] for [the] jury will add confusion, rather than
`reducing it.” (A6667). The special master also found
`for Allcare on the principal dispute concerning claim
`102, adopting its proposed construction of the term
`“integrated health care management system.”
`
`
`
`
`
`- 15 -
`
`(A6701-02). The district court adopted the special
`master’s report in its entirety. (A7144-45).
`
`Because Allcare had defeated Highmark’s
`attempt to limit claim 52 to a “diagnostic smart
`system” and convinced the district court that its
`construction of claim 102 was the correct one, at this
`point it seemed to Allcare that it was prevailing in
`its infringement position just as it had in the Trigon
`case. Accordingly, Allcare continued to assert claims
`52, 53 and 102. (A12475-78).
`
`Highmark subsequently moved for summary
`judgment of invalidity and non-infringement of
`claims 52 and 53, and non-infringement of claim 102.
`(A11574). While Allcare opposed Highmark’s motion
`with regard to claims 52 and 53, Allcare did not
`challenge Highmark’s arguments that claim 102 was
`not infringed, and ultimately voluntarily withdrew
`that claim from the case. (Id.; A11517).
`
`The district court re-appointed Mr. Martens
`as special master to make recommendations for
`summary judgment. (A10251-53). On April 25, 2008,
`the special master filed his report (A11566) which,
`contrary to his earlier statement concerning claim 52
`that the “infringement issue [was] for the trier of
`fact” (A6684), found that there was no infringement
`as a matter of law, and thus recommended that
`summary judgment of non-infringement be granted.
`
`
`
`
`
`- 16 -
`
`(A11588).1 The special master also recommended
`that Highmark’s motion for summary judgment as to
`invalidity be denied. (A11928). The district court
`adopted these recommendations, entering
`final
`judgment of non-infringement and dismissing
`Highmark’s claims of invalidity and unenforceability
`without prejudice. (A11926-29; A11934).
`
`Even though the special master ruled against
`Allcare, he did not state that Allcare’s position was
`in any way frivolous or unreasonable. To the
`contrary, at the conclusion of the summary judgment
`hearing, he stated: “Argument on both sides has
`been very helpful, very helpful. This has been a
`helpful day for me and there are some difficult issues
`here and I will do my very, very best to do them
`right, and that’s all I can promise you.” (A12477)
`(emphasis added).
`
`Allcare appealed the district court’s judgment.
`(A11936). On July 13, 2009, after oral argument, the
`Federal Circuit affirmed the summary judgment
`without issuing a written opinion. (A12607-09).
`
`
`1 Judge Dyk, one of the Federal Circuit judges who presided
`over both the merits appeal and the sanctions appeal,
`explained that it appeared to him “that what happened here
`was that you had an initial claim construction from the Special
`Master which was then elaborated, if you will, in connection
`with the summary judgment decision.” (A12615).
`
`
`
`
`
`7.
`
`- 17 -
`
`Motion,
`ECF
`Highmark’s
`Allcare’s Response, and the ECF
`Order
`
`the merits appeal was pending,
`While
`Highmark moved for an exceptional-case finding and
`Rule 11 sanctions. (Pet.App.6a). Highmark’s motion
`cast Allcare as a “troll” who “sells no products” and
`“offers no services,” but who instead tries to make
`money by
`licensing
`its patent or threatening
`litigation. (A12022). Although its motion strongly
`implied it, Highmark presented no evidence that
`Allcare’s claims against other parties (e.g., Trigon)
`lacked merit or that it had baselessly threatened the
`other healthcare companies that willingly took
`licenses.
`
`Highmark also presented a series of actions
`that it claimed made the case exceptional. These
`included allegations that the claim of infringement
`as to claim 52 “was not a close one” (A12020); that
`Allcare
`failed
`to perform a proper pre-suit
`investigation (A12021); that Allcare’s assertions of
`claim preclusion were frivolous (A12028); that
`Allcare’s claim-construction positions, particularly
`its construction of element 52(c), kept shifting
`(A12028-29); that Allcare submitted false arguments
`concerning whether the interview of Highmark by
`Seaport could qualify as an Allcare “contact” with
`the Western District of Pennsylvania in support of
`Allcare’s motion to dismiss (A12024); and that
`Allcare had a pattern of asserting and withdrawing
`allegedly meritless claims. (A12020).
`
`
`
`
`
`- 18 -
`
`its pre-suit
`Allcare’s response described
`investigation (A12317-20) and showed that it had
`sought mediation with Highmark both before and
`after Highmark filed its suit (A12320-21). Allcare
`also argued that there was no evidence of litigation
`misconduct, objective baselessness, or subjective bad
`faith. (A12338-39).
`
`With regard to Highmark’s allegation that
`Allcare shifted its claim-construction positions, Hill
`explained that he proposed the wording changes to
`Allcare’s claim constructions “for the purpose of
`trying
`to
`forge
`consensus
`(i.e.,
`to be
`less
`disagreeable), or at least clarify language, and
`perhaps narrow issues on claim construction by
`accommodating
`the
`relative
`strengths
`and
`weaknesses as I perceived them at the time.”
`A12463-64. And indeed, in all its complaints about
`Allcare’s shifting positions, Highmark had never
`identified any material change in Allcare’s proposed
`constructions. (A12028-29; A11953-56). For instance,
`the principal disagreement between the parties on
`element 52(c) was whether it limited the claim to a
`“diagnostic smart system” (see supra pages 9-14, 17-
`20) and all
`of Allcare’s
`claim-construction
`submissions consistently argued it did not. Compare
`A1352-53 with A1970-71 and A6698. Hill also
`explained,
`in
`response
`to Highmark’s broad
`complaints of
`“extensive additional briefing,”
`“delay[],” and significant additional and unnecessary
`expense” (A11953-56), that Highmark never suffered
`any prejudice from any change in Allcare’s claim-
`construction language. Indeed, explained Hill, after
`
`
`
`
`
`- 19 -
`
`the initial round of briefing was complete, the
`Federal Circuit issued its seminal en banc claim-
`construction decision in Phillips v. AWH Corp., 415
`F.3d 1303 (Fed. Cir. 2005), and both parties told the
`distric