8th Cir. Doubtful That Trade Secrets Claim Accounted for 78 Percent of Legal Expenses

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By Anandashankar Mazumdar  

A federal district court must develop a more detailed record to justify a $1.9 million award for attorneys' fees in favor of the Mayo Clinic against a former employee who led development of medical records software, the U.S. Court of Appeals for the Eighth Circuit ruled Aug. 27 in a decision designated as not for publication (Mayo Clinic v. Elkin, 8th Cir., No. 11-2959, 8/27/13, unpub.).

Vacating the award, the court remanded the matter for further consideration by the district court.

Software Developer Leaves With Source Code

The Mayo Clinic, founded in 1889, is a renowned not-for-profit medical research institute and medical practice based in Rochester, Minn., with a staff of about 55,000 physicians, scientists, and health care specialists in Rochester, Phoenix, and Jacksonville, Fla.

One of the areas in which the Mayo Clinic has traditionally sought to improve is in the area of medical recordkeeping. Peter L. Elkin, now of New York, was a physician who was employed by the Mayo Clinic starting in 1996 to develop what is known as natural language processing, or NLP, software, which is artificial intelligence software to manage medical records. The aim of the software is to aid computers in interpreting and recording information about patients that has been written by medical practitioners who use many different ways of expressing ideas.

In a 2002 employment agreement, Elkin acknowledged that the Mayo Clinic held the rights in all the intellectual property related to the development of the NLP software, and the Mayo Clinic compensated him with a salary and a share of royalties. The Mayo Clinic formed Conceptual Health Solutions to license the NLP software to other health care institutions.

During this time, Elkin registered in the name of his wife, Margaret A. Elkin, an internet domain name that Conceptual Health Solutions sought to use for its internet presence. When CHS sought transfer of the registration, Margaret Elkin demanded a share of the ownership of CHS. In response, the Mayo Clinic changed the name of CHS to LingoLogix, which marketed the NLP software under the name GoCode.

In the meantime, Elkin tried to sell a version of GoCode to the pharmaceutical company Merck & Co. When Merck learned of the Mayo Clinic's ownership of GoCode, it cut off negotiations with Elkin. In 2008, LingoLogix was acquired by Cerner Corp. of Kansas City, Mo., which became the exclusive licensee of GoCode.

Elkin left his position at the Mayo Clinic in August 2008 to accept a position at the Mount Sinai Hospital, New York, but he maintained a residence in Rochester, Minn. Upon his departure, he left an executable copy of GoCode with the Mayo Clinic, but deleted all copies of the source code that was in the Mayo Clinic's possession. Elkin also began giving presentations at conferences about the software that Cerner believed would diminish the proprietary value of its exclusive license. Elkin also attended an industry conference and offered to sell copies of the software.

The Mayo Clinic sought to have Elkin surrender his copies of the source code for the software and to stop publicly disclosing proprietary information about the software, according to the clinic's complaint. Elkin claimed that the version of the software he was demonstrating and marketing was different from GoCode and that he owned the intellectual property rights associated with it.

The Mayo Clinic sued Elkin in the Minnesota District Court for the Third Judicial District, alleging misappropriation of trade secrets and several other claims under Minnesota state law. Elkin moved to have the proceeding removed to the U.S. District Court for the District of Minnesota. A jury handed down a verdict finding that Elkin had “maliciously” misappropriated the Mayo Clinic's trade secrets, as well as finding for the Mayo Clinic on employment law, contract law, and other claims.

Judge David S. Doty of the U.S. District Court for the District of Minnesota issued an injunction barring Elkin from using or disclosing information about GoCode and to return data and copies in his possession. The district court also awarded attorneys' fees and costs of $1.9 million in favor of the Mayo Clinic. Elkin appealed.

More Detail Needed to Justify Award

In a per curiam decision, the court first rejected Elkin's objections to certain evidentiary decisions by the court and the breadth of the injunction, finding no abuse of discretion by the district court.

However, the court expressed concern about the $1.9 million attorneys' fees and costs award. In particular, the court noted that the Mayo Clinic had brought 10 claims against Elkin and of those 10, only the trade secrets claim was associated with a statutory attorneys' fees provision. The Mayo Clinic's legal expenses totaled $2.45 million, and the court was suspicious of the claim that $1.9 million of those expenses was attributable to just the trade secrets claim, as opposed to the nine other claims.

Acknowledging that Elkin had engaged in questionable litigation practices that arguably prolonged the case, the court nevertheless found that the evidence in the record was not sufficiently detailed to conclude that 78 percent of the Mayo Clinic's litigation costs were attributable to the trade secrets claim alone.

Thus, the court vacated the attorneys' fees award and remanded the matter, directing the district court to reconsider the question.

The appellate panel comprised Judge Kermit E. Bye, Judge C. Arlen Beam, and Judge Bobby E. Shepherd.

The Mayo Clinic was represented by John Cameron Adkisson of Fish & Richardson, Minneapolis. Elkin represented himself.


Text is available at http://www.bloomberglaw.com/public/document/Mayo_Clinic_et_al_v_Peter_L_Elkin_MD_Docket_No_1102959_8th_Cir_Se.


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