Medfusion says it has settled its multi-million lawsuit with Allscripts in a legal fight around whether Allscripts paid all the money due the Cary firm under a services contract. But which company prevailed? The stakes could have been much higher for Medfusion (tripled) if it prevailed in the North Carolina Business Court where the suit was filed. Are there lessons to be learned from what happened?

It’s a David (led by entrepreneur Steve Malik) vs. Goliath (Allscripts $2.65B market cap) case – something that’s not rare as startups and patent holders (in some cases trolls) sue the big guys. (For example, Triangle startup Valencell sued Apple and Fitbit last week.)

The Medfusion-Allscripts case centered in part around a comma – proving how every I is dotted and t is crossed is not a cliche.

In a ruling issued on March 31, 2014 by the Business Court and first reported by lawyer Mack Sperling of the firm Brooks Pierce in the National Law Review on Friday, Sperling noted:

“that the comma before ‘or goodwill’ is an Oxford, or serial, comma that sets apart three independent categories of damages barred by the agreement. . . . [U]nder this interpretation, lost revenues are barred.”

So was it an Oxford? We the public may never know.

When asked early Monday, a top Triangle tech attorney did offer his insight, and he says no one outside the two companies as well as their lawyers are likely to find out.

Reached by WRAL TechWire, a spokesperson for Medfusion remained mum ofther than to say: “Medfusion has no further comment on the settlement.”

Why? Because terms of the settlement were declared “confidential.”

The case also is not football, so who wins or loses is not always clear, says well-known Triangle attorney Jim Verdonik (a veteran of investing, IPOs and all things tech law) of the law firm Ward and Smith.

“People often think litigation is like a football game. They think there must be a winner and a loser. Litigation is different,” he says.

“Often people settle because both sides are simply tired of fighting.

“Or both sides conclude they will never achieve what they want.

“It’s kind of like two coaches getting together at half time of a tied game and deciding the second half will be as pointless as the first half so everyone should just go home before someone gets hurt for no reason.

“I’m sure that at some point during Seattle vs Vikings game this weekend played at minus six degrees both teams wish they could settle and call it a tie.”

The back story

First, a bit of history:

Medfusion told WRAL TechWire in May 2014 that it filed the complaint against Allscripts for “three main reasons:”

  • Allscripts did not meet its development commitments significantly impacting Medfusion’s ability to deliver innovation to clients
  • Allscripts did not meet its sales and marketing commitments
  • Allscripts withheld payment to Medfusion

Last week, Medfusion issued a brief press release about the case:

Settlement for Medfusion and Allscripts

CARY, N.C.- Medfusion and Allscripts completed terms of a settlement this week over a legal dispute. The two organizations entered into a five-year contract in 2009 to integrate Medfusion’s patient portal technology with Allscripts’ electronic health records solutions and to market the portal. Payment and other disputes arose, the contract terminated in April 2014, and litigation ensued. The parties have reached confidential terms to resolve all claims between them.

So what might inquisitive minds learn …?

Since Medfusion isn’t talking, The Skinny reached out to Verdonik to talk about the case, knowing “I’m asking you to speculate.” His response offer a great deal of insight into how such agreements work.

  • Do you believe Medfusion won given that terms were kept confidential?

I don’t think confidentiality tells you very much about who won and who lost. Both sides often have an interest in competitors not knowing the terms. For example, if company A sues company B for infringement, company B may settle by agreeing to pay a royalty.

That could be viewed as company B losing, but if the royalty was very low Company A may not want others to know the royalty settlement was so low. The low settlement may be viewed as setting a low value on the technology that was infringed. If the settlement involved an ongoing commercial relationship both sides want to keep competitors in the dark.

  • Isn’t it traditional for the bigger company loser in such cases seeking to settle quietly? If so, why?

Big company don’t want to become targets for patent trolls. If they develop a reputation that they are easy marks for extortion, it just encourages more law suits. That’s true whether the issues in dispute are employment issues or intellectual property issues.

  • What happens if a party discloses the terms?

First, they tell the world they cannot be trusted. So, it’s difficult to negotiate with other people who want confidentiality. Beyond that, it depends on wat the settlement terms involved. If the settlement involved a long term contractual relationship, breaching confidentiality may give the other side grounds to terminate the contract.

Beyond that, however, its often difficult to prove damages. So,companies often don’t have an effective remedy if someone breaches a confidentiality agreement.

That’s why you should always investigate the trustworthiness of the people you tell your secrets to.

  • Will Allscripts have to disclose something via an SEC filing or can they just declare any terms as inconsequential to the firm’s finances?

They will only have to disclose the terms to the extent the terms are material. Announcing a confidential settlement is a signal that they have determined the settlement is not material.

Medfusion moves on

For its part, Medfusion moves on. it continues to launch new products and last September rasied $3 million in investment capital. And Malik has moved into professional sports, buying the Carolina RailHawks soccer franchise.

If Medfusion offers any more information, this story will be updated.

For the rest of us … watch out for the dots and the crosses in your deals.