By P.J. D’Annunzio, From The Legal Intelligencer

A federal judge has ruled that a cardiac monitoring service involved in patent infringement litigation is in contempt of a settlement prohibiting it from selling the plaintiff’s technology.

U.S. District Judge Juan R. Sanchez of the Eastern District of Pennsylvania held that defendant MedTel violated a consent judgment it entered into with plaintiff CardioNet, which sued it and others for infringing patents for its Heartrak ECAT heart monitoring system. For that, the defendant was ordered to pay attorney fees and lost profits to CardioNet in an amount to be determined.

According to Sanchez, the agreement between MedTel and CardioNet stipulated that MedTel could continue the sale of the Heartrak system for one year after the settlement had been reached, but after that time MedTel had to cease its sales and use of the system and turn over any software and hardware related to it back to CardioNet.

But MedTel continued to utilize the monitoring system after the one-year period had passed, according to Sanchez.

“Indeed, MedTel admitted it was doing nothing different with respect to the provision of monitoring services for Heartrak ECAT devices at the time of the [contempt] hearing from what it was doing before the consent judgment was entered,” Sanchez said. This included use of the CardioStation software that accompanied the heart monitors.

“It is undisputed that, as of the date of the contempt hearing, MedTel had not delivered these materials, or any documentation it possessed regarding the Heartrak ECAT system, to CardioNet,” Sanchez added. “In fact, MedTel admitted it had no intention of stopping its ongoing use of the CardioStation software unless directed to do so by the court.”

CardioNet alleged MedTel broke the settlement in three ways: first, by violating the permanent injunction against infringing the patent by continuing to provide monitoring services; by continuing to possess multiple copies of the CardioStation software; and by giving an Israeli company access to the CardioStation software in MedTel’s attempt to develop alternative software.

Sanchez said while MedTel was admittedly using the CardioStation software for the Heartrak units it had previously sold, the question was whether operation of the monitoring system constituted infringement.

MedTel argued that because the Heartrak system includes three components—the monitor, the communicator and the software—that it must use all three parts for it to be considered using the system. MedTel maintained that it only used the CardioStation component while physicians used the monitors and communicators.

According to Sanchez, CardioNet agreed that all three components had to be used in order to operate the system, but it took issue with MedTel’s assertion that it was not using all three. Sanchez agreed with CardioNet.

“As CardioNet notes, without a monitor to collect patient data and a communicator to transmit the data to MedTel, MedTel cannot use the software to provide monitoring services,” Sanchez said. “While MedTel does not own or physically possess the monitors and communicators, it must nevertheless employ those devices or put them into service in order to provide Heartrak ECAT monitoring services.”

Sanchez said MedTel was in violation of the settlement for not delivering the software back to CardioNet after the one-year period had expired, but not for sharing software information with the Israeli company because it could be considered an agent of MedTel and not necessarily a third party, which was prohibited by the agreement.

CardioNet argued that because of MedTel’s violation of the settlement it was entitled to damages from lost profits and expenses as well as attorney fees.

CardioNet asked for roughly $1.36 million in damages for lost profits for every monitoring session MedTel provided during the contempt period, from Feb. 1, 2015, to Aug. 31, 2015. However, Sanchez said that had MedTel complied with the judgment, it would be unlikely that CardioNet would have drawn in 100 percent of MedTel’s clients who used the system. Sanchez said it was more likely CardioNet would have converted half of that figure, although a final number has yet to be agreed upon by the parties.

CardioNet’s attorney, Jim Badke of Ropes & Gray in New York, said the entire recovery would most likely be in the neighborhood of $1.5 million to $1.7 million, split 50-50 between damages and attorney fees.

Of the contempt ruling, Badke said, “It sends a message to parties that settle and agree to phase out of infringing activities that they need to honor their agreement.”

MedTel’s attorney, Paul Silverberg of Silverberg & Weiss in Weston, Florida, did not return a call seeking comment.

P.J. D’Annunzio can be contacted at 215-557-2315 or [email protected]. Follow him on Twitter @PJDannunzioTLI.

(Copies of the 42-page opinion inCardioNet v. MedNet Healthcare Technologies,PICS No. 15-1772, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •

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