By Vrushab Gowda
Competition between rival telehealth providers spilled into open conflict last month, as incumbent Teladoc Health, Inc. (Teladoc) filed a patent infringement suit against relative upstart American Well Corporation (Amwell).
This development marks a significant escalation in what has been a lengthy arms race between the two publicly traded entities. Both having witnessed skyrocketing sales in recent months, aided by a shift to virtual care and a host of regulatory flexibilities, although neither has turned a profit to date.
A Contentious History
Teladoc is an established player in the telemedicine space, at one point boasting a domestic market share of 75% and having been listed on the NYSE since 2015. It currently holds an $18 billion market capitalization and is on track to service over 9 million patient encounters this year alone, while simultaneously maintaining an active presence in government affairs at both federal and state levels.
Amwell has not sat idle during this time; the Google-backed and Boston-based corporation has engaged in a number of lucrative partnerships with Big Tech, including Apple, Cisco, Epic, and Philips. It went public this September in a gargantuan IPO, surpassing projections to raise $742 million.
Although both have engaged in multiple high-profile acquisitions, it is Teladoc’s merger activity which has drawn the greatest attention. The past three years have seen nine-figure transactions closed with Best Doctors, Advance Medical, and most recently Livongo in June. Of relevance to the lawsuit in question, Teladoc completed its purchase of InTouch Technologies, Inc. in July, expanding its portfolio to include robotic telemedicine carts, kiosks, and a variety of digital equipment for use in health care institutional settings.
The parties share a legal history, albeit with the roles reversed in a 2015 lawsuit brought in the District of Massachusetts. Seemingly foreshadowing the present dispute, Amwell alleged that Teladoc infringed upon a number of patent claims pertaining to its method of computerized care delivery. It ended rather anticlimactically, with the judge not only dismissing the case, but further invalidating the underlying patent altogether on subject matter grounds.
Teladoc Health, Inc. v. American Well Corporation
Teladoc now seeks monetary as well as injunctive relief in a case filed in the District of Delaware. It issued a letter to Amwell on September 14, just days prior to the latter’s IPO, alleging infringement of a swath of intellectual property acquired through the merger with InTouch. This extends to 68 claims across 9 distinct patents, all of which pertain to telehealth hardware, such as digital stethoscopes and monitoring equipment.
Amwell thereafter amended its S-1 prospectus to reflect Teladoc’s allegations, while contending that its products violated no valid patent claims and holding that even if they did, sales attributable to the hardware equipment in dispute are minimal, constituting only 5% of its annual revenues. Moreover, “if Teladoc attempts to bring these claims to court, [Amwell] intend[s] to defend against them vigorously.”
The lines in the sand appear to have been drawn. Teladoc’s letter did not forestall Amwell’s oversized IPO in September, although Amwell stock trended downward upon filing of the lawsuit in mid-October. Unlike the 2015 case, Teladoc’s complaint applies to multiple utility patents, whose claims are furthermore substantive and relate to physical hardware; they are thus unlikely to again face a similar, relatively expedient dismissal on a subject matter basis. Both sides will dig in for what appears to be a protracted legal battle ahead.
Irrespective of the merits of the infringement claims, the lawsuit’s timing belies its strategic value – Teladoc’s complaint was likely calibrated to coincide with Amwell’s mid-September IPO. Aside from affecting stock valuation, the potential of legal liability sends a strong signal to potential acquirers, disrupts marketing campaigns, and invites further regulatory scrutiny at a uniquely sensitive juncture in the corporate lifecycle.
Settlement of patent disputes is accompanied by a particular set of legal risks, rendering the prospect of a litigated fight to the finish a virtual necessity. Although this represents the first major lawsuit between major telehealth players, one can only expect many to follow in its wake as the industry matures and new players expand into the increasingly competitive space.