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Business Observer Friday, Oct. 31, 2003 15 years ago

Patently Offended

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BillingNetwork.com, an Internet medical-billing company, notified 250 competitors they may be in violation of federal patent laws. It has sued four of them.

Patently Offended

BillingNetwork.com, an Internet medical-billing company, notified 250 competitors they may be in violation of federal patent laws. It has sued four of them.

By David R. Corder

Associate Editor

Richard Krumholz saw an entrepreneurial opportunity in the medical-billing industry during the late 1990s. The increasing availability and dependability of the Internet, coupled with the industry's cumbersome and inefficient business practices, convinced the Sarasota physician the time was right for online medical-billing services.

Over 12 months, Krumholz joined with Susan Lowrey, a medical-billing specialist, to create an integrated billing, data processing and communication system that allows subscribers to enter and access information through a secure Internet home page (www.billingnetwork.com). They organized in 1999 as BillingNetwork.com Inc. and applied for a federal patent a month later. In April 2002, the U.S. Patent & Trademark Office awarded them a patent on their Internet medical-billing process.

Meanwhile, Krumholz noticed a trend as he searched the Internet for prospective customers. "A lot of people who are doing what we do have been willy-nilly going out on the net and setting up their own Internet billing process," he says. "The unfortunate part for them is we were the first with the patent and are actually doing business."

Earlier this year, Krumholz notified about 250 Internet medical-billing companies they may be in violation of his company's patented process and subject to litigation if they don't cease and desist or buy a license.

"We're taking the conservative approach," Krumholz says. "We don't want to put anybody out of business. We want to give people the opportunity to do the right thing. We've written to over 250 companies we think are using our patented process. We've offered them licenses instead of litigation."

Earlier this month, Krumholz accused four companies of patent infringement violations in three lawsuits filed Oct. 16 in the Tampa division of the U.S. District Court.

Seeking permanent injunctions, BillingNetwork.com filed patent infringement claims against St. Petersburg's Island Automated Medical Services Inc., Tampa-based Healthcentrics Inc., Jacksonville-based Accadia Billing Consultants Inc. and Bothell, Wash.-based Prodata Systems Inc. John Adams of Pittsburgh-based Price & Adams PC represents BillingNetwork.com in the three new federal lawsuits. Harry Wagner Haskins of Sarasota-based Porges Hamlin Knowles and Prouty PA is the local counsel.

The stakes are high for the company that employs 17 workers and produces nearly $15 million in annual sales. While precise data is unavailable, more than 28,000 companies that provide billing services, such as BillingNetwork.com, produced more than $6.2 billion a year in gross sales in 1997 - the most recent business data available from the U.S. Census Bureau.

"We want to become the major national Internet billing company, but there are so many big players," Krumholz says. "If the lawsuits go our way, who knows? We don't want to bring lawsuits; we just want them to license our technology."

This is only the most recent of several entrepreneurial ventures for Krumholz, who first established himself as a specialist in pulmonary disease and allergies about 38 years ago in Ohio.

In the early '70s, Krumholz' interest in technology produced a computerized billing system for his medical practice. He later invested in Ohio-based Trans-Med Systems, which developed a patented process for transmitting pulmonary-function tests across analog telephone lines.

Then he invested in Midwestern Diagnostic Laboratories, which developed an in vivo process of diagnosing allergies. He also served as chairman of Clinical Research Testing Laboratories, which developed a test to detect osteoporosis.

In 1991, Krumholz retired to Sarasota. But he tired of the leisurely life and reopened a medical practice in 1994. That's when he met Lowrey, who contracted to handle his medical billing. "We just got to talking over a period of time about how inefficient billing was in the medical industry," he recalls.

Soon their discussion centered on the possibilities of providing medical-billing services across the Internet. As he suspected, Krumholz says BillingNetwork.com grew quickly. "We're growing between 20% to 30% a quarter," he says. "Our sales are more than $10 million, butting up against $15 million."

The partners relied on their own resources to finance the venture. "We're totally self-financed," Krumholz says. "We didn't go to the venture capitalists. We put into our business a giant sum of money. We only had two investors. We had a tremendous investment in (computer) servers and (software) programs. Our business itself has a very large investment; it's almost seven figures."

To protect their investment, Krumholz and Lowrey also invested from $10,000 to $12,000 to cover the cost to secure the patent on the medical-billing process. Not long after they won the patent they exercised their rights as patent-holders.

In March 2001, a representative of Wellbody Clinic Inc., a BillingNework.com customer, contacted Lowrey about possible investment opportunities in the Sarasota company. About 30 days later, the representative's husband, Francois Lucien Labrecque, signed a confidentiality agreement in exchange for access to proprietary information about BillingNetwork.com.

In January this year, however, Krumholz learned Labrecque formed Terra Ceia-based Advanced Healthcare Billing Inc. as an Internet medical-billing service (www.ahbonline.com), according to federal court records. When threatened with a patent-infringement action, Labrecque, a general contractor and president of Palmetto-based Novimo Constructors Inc., purportedly agreed to settlement negotiations over the dispute. Dissatisfied with the results of the settlement, Krumholz filed a patent-infringement complaint in May against Advanced Healthcare.

Speaking on behalf of Labrecque, Clay Brown, an Advanced Healthcare employee who formerly worked at BillingNetwork.com, declined comment for this article. Brown referred all inquiries to Tampa attorney Michael Linsky, who was unavailable for information.

In a June 6 federal affidavit, Labrecque denied the allegations. "If there were any trade secrets disclosed to affiant or other AHB employees, affiant is unaware of them," Labrecque stated.

Later that month, BillingNetwork.com experienced a setback in defending its patent. Federal Judge James S. Moody Jr. denied the Sarasota company's motion for a preliminary injunction against Advanced Healthcare. He cited actual differences between the two medical-billing services.

"These differences in access are not insubstantial, because defendant's system does not allow access in a similar way (it does not perform in a similar way)," according to the judge's order. "Therefore, an element of the (plaintiff's) patent or its equivalent appears not to be present in defendant's system."

Although he dismissed the case, Moody denied Advanced Healthcare's claim for a "bill of costs" against BillingNetwork.com. "It wasn't really as much about the patent as it was about (Labrecque) and the confidentiality agreement," Krumholz says.

In another federal action, BillingNetwork.com prevailed in May against Bradenton's Professional Consulting Services Inc. The parties agreed to a confidential settlement agreement. Four months later, Professional Consulting dissolved rather than buy a license to BillingNetwork.com's medical-billing process.

The Sarasota company also prevailed earlier this year in another action filed against it by Chicago-based Infosys Inc., a provider of health care information technology, in the federal court's Northern District of Illinois.

Some Infosys customers - Internet medical-billing providers - voiced concern to Infosys officials about BillingNetwork.com's effort to enforce its patent against them. Anticipating possible patent-infringement actions, Infosys sought a declaratory judgment against BillingNetwork.com.

"Infosys takes a billing company as a customer and allows them to use their computer services," Krumholz says. "We would write to clients of theirs and say they were using the patented technology. Then those people would call Infosys and say, 'Hey, I thought you said that was your technology.' "

In response to the Infosys complaint, BillingNetwork.com successfully argued the Illinois federal court lacked jurisdiction over the Sarasota company.

"We were not selling," Krumholz says. "All we said is you need to license it from us. The ability to do that was approved by the Illinois federal judge. He wrote a nine-page decision because he thought it was so important."

Last month, attorney Steven Garmisa of Chicago's Hoey Farina & Downes argued in a white paper the judge's decision refined the "rules for jurisdiction in lawsuits involving interactive websites."

The success against Professional Consulting and Infosys accounts for why the Sarasota company decided to proceed against the four other companies, despite losing the case against Advanced Healthcare. More lawsuits are possible.

"We continue to write people about licensing," Krumholz says. "What happens is most of them think, 'What is this?' So they don't pay any attention. We felt therefore our next step was to pick some companies that were violating the license. We had written to them multiple times, sending out a series of three letters. This will be the watershed for us."

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