   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MEDICALGORITHMICS S.A.,                 )
                                        )
                                        )
                                        )
           Plaintiff,                   )
                                        )
     v.                                 )   C.A. No. 10948-CB
                                        )
AMI MONITORING, INC. d/b/a              )
SPECTOCOR and SPECTOCOR LLC,            )
                                        )
                                        )
           Defendants.                  )
                                        )
     v.                                 )
                                        )
MEDICALGORITHMICS S.A.,                 )
                                        )
           Counterclaim Defendant.      )

                         MEMORANDUM OPINION

                         Date Submitted: May 10, 2016
                         Date Decided: August 18, 2016

Philip Trainer, Jr. and Marie M. Degnan, ASHBY & GEDDES, P.A., Wilmington,
Delaware; Madlyn Gleich Primoff, Daniel Reisner, Michael Lynn and Kyle D.
Gooch, KAYE SCHOLER LLP, New York, New York; Attorneys for Plaintiff.

Blake Rohrbacher, Kelly E. Farnan, Robert L. Burns, Rachel E. Horn, Thomas R.
Nucum and Brian F. Morris, RICHARDS, LAYTON & FINGER, P.A.,
Wilmington, Delaware; Attorneys for Defendants.




BOUCHARD, C.
      In 2011, Medicalgorithmics S.A. and AMI Monitoring, Inc. entered into a

Strategic Alliance Agreement under which AMI received an exclusive license to

market and distribute in the United States a cardiac monitoring device that

Medicalgorithmics invented. A critical term of the agreement, which was updated

in 2014, prohibited AMI from seeking or developing a product to replace the

Medicalgorithmics device unless AMI first provided a notice of termination, which

would begin a two-year period at the end of which the remaining obligations under

the agreement would expire. The purpose of this provision was to deter AMI,

Medicalgorithmics’ exclusive licensee in the United States, from seeking to

develop or use a competing device and to afford Medicalgorithmics a two-year

runway to transition to another distributor if it did.

      In this post-trial decision, I conclude that AMI materially breached the

Strategic Alliance Agreement by no later than April 2014 by secretly seeking to

develop a device for use in the United States to replace the Medicalgorithmics

device without first providing the required notice to Medicalgorithmics. Because

of AMI’s material breach, Medicalgorithmics’ later termination of the agreement

was valid, and it is entitled to damages, although significantly less than it sought at

trial. Medicalgorithmics also is entitled to recover its attorneys’ fees and costs for

this litigation under an indemnification provision in the agreement, and to

judgment in its favor dismissing AMI’s counterclaims.

                                            1
I.       BACKGROUND

         The facts recited in this opinion are my findings based on the stipulations of

the parties, documentary evidence, and testimony presented during a five-day trial

during which seven fact and three expert witnesses testified. I accord the evidence

the weight and credibility I find it deserves.

         A.     The Parties

         Plaintiff and counterclaim defendant Medicalgorithmics S.A. is a public

company incorporated and headquartered in Poland. 1 Medicalgorithmics is the

developer and manufacturer of a remote cardiac monitoring system known as the

PocketECG, a medical device marketed in the United States under a premarket

clearance       from      the   United   States   Food   and   Drug    Administration.

Medicalgorithmics holds the intellectual property rights to the PocketECG.2

Marek Dziubinski, the founder and CEO of Medicalgorithmics, 3 invented the

PocketECG technology. 4




1
    PTO ¶ 10.
2
    PTO ¶ 13-14.
3
    Tr. 5 (Dziubinski).
4
    Tr. 7-8 (Dziubinski).

                                              2
         Defendant and counterclaim plaintiff AMI Monitoring, Inc. (“AMI”) is a

privately held corporation incorporated and headquartered in Texas. 5          Joseph

Bogdan (“Joe”) founded AMI in 2002 and serves as its President. 6 Defendant

Spectocor LLC is a limited liability company organized under Nevada law and

headquartered in Texas. Joe is Spectocor’s sole managing partner. 7 AMI and

Spectocor run cardiac monitoring centers known as independent diagnostic testing

facilities.8 At the times relevant to this action, Joe owned and controlled both

Spectocor and AMI, which were operated in a coordinated fashion as a single

business.       For simplicity, I generally refer to both entities interchangeably as

“AMI.”

         Non-party Medi-Lynx Cardiac Monitoring, LLC is a competitor of AMI that

was formed in 2013 after disagreements arose between Joe and his brother,

Andrew Bogdan (“Andy”), who were the original co-owners of AMI.                  Andy

currently serves as President of Medi-Lynx. 9



5
    PTO ¶ 11.
6
 PTO ¶ 11. I refer to the Bogdan brothers in this opinion by their first names to avoid
confusion. No disrespect is intended.
7
    PTO ¶ 12.
8
    Tr. 28-29 (Dziubinski).
9
    Tr. 855 (Andy).

                                            3
         B.      The PocketECG Technology

         The PocketECG is a system for diagnosing heart arrhythmia that

Medicalgorithmics sells to its licensees around the world.10 Medicalgorithmics has

manufactured two versions of the PocketECG: the PocketECG II and the

PocketECG III.11 The PocketECG II is a Bluetooth device that a patient wears. It

transmits electrocardiography (“ECG”) 12 data digitally via Bluetooth to an off-the-

shelf smartphone, which then processes the ECG signal using an algorithm

designed by Medicalgorithmics and uploads the data to a remote server.13 The

PocketECG III contains the smartphone technology within the device, avoiding the

need for a separate off-the-shelf smartphone device. 14

         The PocketECG devices are known as 3-in-1 devices because they offer

three types of cardiac monitoring services: Holter, event monitoring, and mobile

cardiac telemetry (“MCT”). 15 Holter is the oldest of the three methods and the

most commonly used method worldwide. Holter involves recording a continuous

ECG signal for 24 to 48 hours and downloading the data to a computer for
10
     Tr. 5-6 (Dziubinski).
11
     PTO ¶ 15.
12
     Tr. 1243 (Scher).
13
     Tr. 10 (Dziubinski).
14
     Tr. 12 (Dziubinski).
15
     Tr. 19 (Dziubinski).

                                          4
subsequent analysis. Event monitoring is a longer process, lasting up to 30 days,

during which time the device transmits only certain fragments of the ECG signal

arising during noteworthy events or symptoms, and discarding the remaining data.

MCT also provides intermittent monitoring but frequently sends transmissions,

which are then classified as being an arrhythmia or not an arrhythmia. 16 The 3-in-1

designation is a creature of the United States healthcare insurance market, in which

all three methods are reimbursable. Mobile cardiac telemetry is largely unknown

elsewhere in the world. 17

         Cardiac monitoring services using the PocketECG and similar devices are

provided through independent diagnostic testing facilities such as AMI, which

receive the data and have cardiac technicians provide diagnostic reports to the

patient’s physician.18 Private insurers or Medicare reimburse these facilities for

providing the device and the diagnostic services to the patient. 19 The amount of

reimbursement depends on which of the three services is used, with mobile cardiac

telemetry receiving a significantly higher level of reimbursement. 20

16
     Tr. 19-21 (Dziubinski); Tr. 321-24 (Moss).
17
     Tr. 21 (Dziubinski); Tr. 320-21, 376-77 (Moss).
18
     Tr. 325 (Moss); Tr. 23-25 (Dziubinski).
19
     Tr. 24-25 (Dziubinski).
20
   Tr. 25-26 (Dziubinski) (noting that telemetry is reimbursed at a rate of approximately
ten times the reimbursement rate for Holter monitoring).

                                               5
         C.     Medicalgorithmics and AMI Enter into Business Together

         In May 2009, Medicalgorithmics received approval from the FDA to market

the PocketECG in the United States under Section 510(k) of the Food, Drug, and

Cosmetic Act. 21        After receiving this approval, Medicalgorithmics contacted

different independent diagnostic testing facilities, including AMI, about working

together to provide PocketECG devices in the United States.22 At the time, Joe and

Andy were 50/50 co-owners of AMI,23 and Medi-Lynx did not yet exist. 24 In

2010, AMI and Medicalgorithmics began working together on a non-exclusive

basis, with AMI purchasing PocketECG devices from Medicalgorithmics. 25

         During this period, the parties discussed possible business arrangements,

including the possibility of AMI purchasing Medicalgorithmics 26 as well as an

exclusive licensing arrangement between Medicalgorithmics and AMI. Joe’s goal

was to have AMI either “own or uniquely license” a mobile cardiac telemetry

device like the PocketECG in order to stand out in the monitoring community. 27

21
     JX-817 at 4.
22
     Tr. 28-29 (Dziubinski).
23
     Tr. 858 (Andy); Tr. 29 (Dziubinski);
24
     Tr. 880 (Andy).
25
     Tr. 29-30 (Dziubinski); Tr. 453 (Joe).
26
     Tr. 453 (Joe); JX-6.
27
     Tr. 449 (Joe).
                                              6
Ultimately, the companies went the route of an exclusive licensing agreement. It

was “very important” to Joe that the agreement would be exclusive in the United

States.28

         In late 2011, AMI and Medicalgorithmics negotiated a strategic alliance

agreement under which AMI would become the exclusive licensee of the

PocketECG in the United States. 29 At the end of December, Medicalgorithmics

and AMI completed negotiations and signed the agreement (the “2011 SAA”).30

As discussed below, the 2011 SAA was updated in 2014 (the “2014 SAA”) after

Joe and Andy split, but the key provisions relevant to this dispute remained

substantively identical. 31      The 2011 SAA and the 2014 SAA are sometimes

referred to together as the “SAA” or “SAAs.”

         Section 3.3 of the SAA restricts AMI from seeking or developing

technology that would replace Medicalgorithmics’ products, such as the

PocketECG, without first providing notice of termination:

         Without first providing notice of termination of this Agreement to
         Supplier [Medicalgorithmics], Buyer [AMI] agrees that it shall not



28
     Tr. 455 (Joe).
29
     Tr. 30-32 (Dziubinski).
30
     JX-38 (“2011 SAA”) at 17.
31
     See JX-248 (“2014 SAA”) §§ 3.3, 7.1, 10.1, Attachments 1 & 2.

                                            7
         seek, develop, engage, promote or market any technology to replace
         Supplier’s products or services.32

This provision was the result of arm’s-length negotiations. Medicalgorithmics

added the restriction (without the notice of termination exception) after AMI

requested exclusivity, 33 and the parties eventually agreed on the language quoted

above, which included the option to extinguish the restriction by providing prior

notice of termination. The evident purpose of Section 3.3 was to deter AMI—

Medicalgorithmics’ exclusive licensee in the United States—from seeking to make

or use a competing product, and to afford Medicalgorithmics a two-year period to

make arrangements to transition to another distributor if AMI nevertheless did so.

         Under Section 7.1, AMI could terminate the SAA by providing

Medicalgorithmics with written notice 24 months in advance. 34 Thus, reading

Sections 3.3 and 7.1 together, AMI could extinguish the restrictions of Section 3.3

immediately by providing a written notice of termination, thereby allowing AMI to

begin product development otherwise restricted under Section 3.3, but termination

of its remaining obligations under the agreement would not become effective until

24 months later under Section 7.1. Such continuing obligations included AMI’s

32
     2011 SAA § 3.3.
33
    JX-18 § 3.3 (redline of draft SAA); Tr. 31-33 (Dziubinski) (explaining that
Medicalgorithmics added protections to the draft SAA, including Section 3.3, in response
to Joe’s request that the agreement be exclusive).
34
     2011 SAA § 7.1.

                                           8
agreement to “solely use” Medicalgorithmics’ products for all diagnostic work

AMI was capable of performing,35 and to achieve certain minimum growth targets

for active PocketECG devices. 36

          Section 10.1 of the SAA sets forth Medicalgorithmics’ delivery

requirements:

          1. Fill Buyer’s orders for Products within thirty (30) days in a
          professional manner and shall advise Buyer as soon as possible if it
          appears that Supplier may not be able to fill Buyer’s orders for any
          reason, or of any delay or anticipated delay in delivery or
          performance. Supplier shall be required to maintain a reasonable
          inventory (the percentage of inventory should equal the % growth
          requirements within this agreement) to satisfy orders within thirty (30)
          days of request by Buyer. Failure of Supplier to fulfill buyer’s order
          for Products not exceeding 1000 units within sixty (60) days,
          assuming the orders are not made more frequently than every sixty
          (60) days, or any number of units in hundred and twenty (120) days,
          assuming such orders are not made more frequently than every
          hundred and twenty (120) days, is a material breach of this Agreement
          subjecting the Agreement to immediate termination at the discretion
          of Buyer. 37

          Attachment 1 to the SAA specifies that the product to be sold under the

agreement is the PocketECG II model and provides technical specifications

relevant to that model.38        Attachment 1 also specifies that “[p]erformance of

35
  Id. ¶ 9 (“Buyer agrees to solely use Supplier’s products for all diagnostic work the
Products are capable of performing at the time of this Agreement . . . .”).
36
     Id. at Attachment 3 (Cumulative Product Activation Targets).
37
     Id. § 10.1.
38
     See id. at Attachment 1.
                                             9
subsequent versions may differ from those presented. The New devices may also

have other or additional functionalities.”39 Under the SAA, the “Product” that is

the subject of the agreement includes “any variations, advancements,

improvements, or modifications made to the Product during the term of this

Agreement.” 40 The 2011 SAA envisioned the eventual creation of an all-in-one

device such as the PocketECG III. Specifically, Medicalgorithmics’ “Continuous

Improvement” commitments under the 2011 SAA included a 2012 task of creating

a fully-functional prototype of an integrated all-in-one PocketECG device, and a

2013 task of receiving FDA approval for said device. 41

          Payment terms for the PocketECG II were included in Attachment 2 to the

2011 SAA. For instance, each PocketECG II order required a prepayment of $303

per device. That amount would be credited toward the monthly service fees paid to

Medicalgorithmics for using the devices, which were calculated using a formula,

also contained in Attachment 2, that assessed charges based on the number of

Holter, event, and telemetry sessions that were undertaken each month. 42


39
     Id. at Attachment 1.
40
     Id. ¶ 2.
41
   Id. § 3.1(n), (r). These tasks, including the years in which they were to be achieved,
remained the same in the 2014 SAA even though that agreement was signed after the
timelines envisioned for the tasks had passed. 2014 SAA § 3.1(n), (r).
42
     2011 SAA at Attachment 2.

                                           10
         D.     Joe and Andy Split Up AMI’s Business

         By 2013, significant disagreements had developed between Joe and Andy

about AMI’s business and how best to manage it. 43 In mid-2013, Andy informed

Joe that he wanted to leave AMI. 44 In June, he let Medicalgorithmics know the

same in an e-mail stating that he would be selling his 50% stake either to Joe or to

a third party and encouraging Medicalgorithmics to consider buying his stake.45

That sale did not materialize. Instead, the brothers ended up splitting the business

in two, with Joe owning AMI/Spectocor and Andy owning a new business called

Medi-Lynx Monitoring, Inc. 46          Each business was to become a co-exclusive

licensee of the PocketECG, thus requiring Medicalgorithmics to sign new license

agreements. 47        The separation was troubling to Dziubinski, who recalled the

difficulties Medicalgorithmics had experienced with AMI early in their

relationship and worried that it would experience similar growing pains with

Medi-Lynx. 48


43
     Tr. 507-10 (Joe); Tr. 872-79 (Andy).
44
     Tr. 509 (Joe).
45
     JX-146 at 1; Tr. 58-59 (Dziubinski).
46
     See generally JX-246 (Agreement and Plan of Separation).
47
     Tr. 59 (Dziubinski); 2014 SAA; JX-249.
48
     Tr. 59-60 (Dziubinski).

                                              11
          Despite these reservations, Medicalgorithmics proceeded with the brothers’

now-separate businesses and signed separate strategic alliance agreements with

AMI and with Medi-Lynx on January 2, 2014.49                   Because AMI and

Medicalgorithmics already were working under the 2011 SAA, the primary change

reflected in the 2014 SAA was to update the licensing provisions such that AMI

became a co-exclusive U.S. licensee of the PocketECG with Medi-Lynx, rather

than the sole exclusive U.S. licensee as it was under the 2011 SAA.

          E.     The PocketECG III

          In July 2013, before the 2014 SAA had been entered, Medicalgorithmics

sent AMI a draft amendment to the 2011 SAA regarding pricing for the new

PocketECG III model it was developing.50 The PocketECG III would be a 3-in-1

device like the PocketECG II, but unlike the PocketECG II, it would integrate the

data transmission technology into the device so that a separate smartphone would

not be required to transmit the patient’s data. The proposed amendment required a

prepayment of $505, an increase from the $303 required for the PocketECG II

under the 2011 SAA. 51         As with the PocketECG II, the first $303 of the

prepayment would be credited against the device’s monthly service charges

49
     2014 SAA; JX-249 (the “Medi-Lynx 2014 SAA”).
50
     JX-156 at 1.
51
     Id. at 3.

                                          12
beginning when the unit is activated.52 The remaining $202 would be an additional

cost for AMI, although it presumably would be offset by some savings from

avoiding the purchase of a separate smartphone device. 53

          Medicalgorithmics anticipated, and AMI acknowledged, that the PocketECG

III devices would require more time to manufacture—initially five months,

compared to the three-month timeframe of the PocketECG II—although it planned

to bring the production timeline for the PocketECG III down to three months

within a year. 54 Medicalgorithmics also knew that the technology would take time

to perfect, and it informed AMI that the technology would need to be released

gradually to work out bugs without causing significant damage to the business.55

          Medicalgorithmics was concerned that AMI was facing liquidity constraints

that could make it difficult for AMI to make prepayments for the new PocketECG

III devices, particularly given the distractions the brothers’ splitting of the business

had caused.56 Medicalgorithmics came up with a way to ship PocketECG III


52
     Id. at 3.
53
  AMI alleges these savings were not necessarily significant because the wireless carrier
sometimes provided phones at no charge, depending on how a given deal was negotiated.
Tr. 1142-44 (Velez).
54
     JX-171 at 2-3.
55
     Tr. 73-74 (Dziubinski).
56
     Tr. 73-75 (Dziubinski).

                                           13
devices to AMI without receiving the $505 prepayment fee required under

Attachment 2 of the SAA.               By charging interest, Medicalgorithmics could

essentially turn the prepayment fee into a loan, allowing AMI to make the payment

90 days after delivery, with a modest premium of $8.83 per device reflecting the

accrued interest, for a total cost of $513.83.57 Joe responded enthusiastically to

this proposal.58 Unlike with the PocketECG II, Medicalgorithmics required signed

purchase orders in light of the fact that it was manufacturing devices for AMI

without receiving any prepayment. 59

         On November 13, 2013, in accordance with this arrangement and without

making a prepayment, AMI e-mailed Medicalgorithmics four purchase orders,

each of which sought 1,000 PocketECG III devices, to be delivered in April, May,

June, and July, 2014, respectively. 60 In total, this order requested four times as

many devices as the 1,000 PocketECG III units AMI initially had requested in

August, before Medicalgorithmics gave AMI the prepayment workaround.61 The

order form Medicalgorithmics provided did not contain a delivery date field, but

57
     JX-190; Tr. 74-77 (Dziubinski).
58
  JX-190 (“Thank you! That sounds great and resolves the upfront pricing on so many
units.”).
59
     Tr. 79 (Dziubinski); JX-190.
60
     JX-205; JX-207.
61
     See JX-171 at 2.

                                             14
AMI added these dates to the forms when placing the orders. 62 After receiving

these orders, AMI reminded Medicalgorithmics that the 2011 SAA only covered

the PocketECG II, and that AMI needed to sign the amendment adding Attachment

4 to the 2011 SAA.           As discussed above, that amendment, which AMI had

received in July but still had not signed, covered the PocketECG III and its

pricing. 63 Internally, Medicalgorithmics expressed concern about being unable to

fill the large order AMI had placed within the timeframes it had requested. 64

           At the end of November 2013, after much back-and-forth discussion, AMI

and Medicalgorithmics executed the amendment to the 2011 SAA incorporating

the PocketECG III as a product under the 2011 SAA. 65 The amendment included

Attachment 4, which provided for a prepayment fee of $505 per PocketECG III

device, the same price circulated in the draft from July. 66

           On December 3, 2013, AMI asked Medicalgorithmics for an anticipated

delivery schedule for the 4,000 units, acknowledging that the dates “may not be




62
     See JX-910 at 2.
63
     JX-205 at 1; supra note 50.
64
     JX-210.
65
     JX-223.
66
     Id.

                                          15
exact.”67      The next day, AMI informed Medicalgorithmics that the original

purchase order forms for the 4,000 PocketECG III devices had been mailed. 68 On

December 9, Medicalgorithmics provided a tentative delivery schedule to AMI that

was significantly behind the timeline AMI had requested in its order forms: a total

of 245 units out of the 1,000 requested by April, a total of 545 out of total 2,000

requested by May, 945 out of 3,000 by June, and 1,645 out of 4,000 by July. 69

Medicalgorithmics estimated it would not reach the 4,000 unit mark until

November 2014. AMI expressed disappointment with this timeline, noting that it

could not effectively market the PocketECG III until there were enough units to

provide them to a critical mass of customers, and it considered whether the launch

should be delayed until production could meet AMI’s expectations.70 Neither

company otherwise questioned whether the order should be withdrawn or rejected,

or whether the delivery timeframe was unacceptable, or merely suboptimal.

           Because it has the smartphone technology built into the device, the

PocketECG III unit needs to be built to work on one of the two major cellular

network types in the United States, namely CDMA or GSM. Different wireless


67
     JX-225.
68
     Id.
69
     JX-226.
70
     Id.

                                        16
carriers use different networks: CDMA is used primarily by Sprint and Verizon,

while GSM is used mostly by T-Mobile and AT&T. 71 AMI asserts that it needed

both types of the device because some of its patients had access to one network but

not the other, although Medicalgorithmics contends this percentage is small. 72 It

also was preferable for AMI to have access to CDMA PocketECG III devices

because the vast majority of its patients using the PocketECG II already were on

the Verizon (CDMA) network, and AMI had a strong business relationship with

Verizon.73

         AMI’s order for 4,000 PocketECG III devices did not specify whether those

devices should be designed for use on the GSM or the CDMA networks.

Attachment 4 to the 2011 SAA did not specify which network the devices would

use either. On December 9, 2013, in the same e-mail describing the production

timeline for the PocketECG III, Medicalgorithmics asked AMI to estimate the

percentage of GSM and CDMA devices they would need.74 Medicalgorithmics

indicated that it would need to begin with the GSM units, and only later could

begin producing CDMA units, which it had not yet developed. The CDMA units


71
     Tr. 1102 (Velez).
72
     Tr. 1102 (Velez); Tr. 69-70 (Dziubinski).
73
     Tr. 496-98 (Joe).
74
     JX-226.

                                                 17
had the longest lead time for components, requiring them to place orders as soon as

possible. 75 AMI requested 2,000 of each. 76 Although Medicalgorithmics noted the

longer timeline for beginning production of CDMA units, it did not tell AMI that

the order was unacceptable or that filling it would not be possible.

           Around mid-December 2013, AMI placed additional orders for a total of

4,360 PocketECG II devices.77 Medicalgorithmics did not require AMI to prepay

for these devices. 78 AMI placed this order to “last us until we can transition fully

to [PocketECG III].” 79 Medicalgorithmics projected that the order would be filled

over the next few months, and it was filled by about June 2014.80

           F.   The 2014 SAA

           Joe and Andy’s separation agreement became effective at the end of

December 2013. On January 2, 2014, Medicalgorithmics and AMI signed a new

strategic alliance agreement (as defined above, the “2014 SAA”) replacing the



75
     Id.
76
     Tr. 86 (Dziubinski); JX-482.
77
     JX-232.
78
     Tr. 692 (Joe).
79
     JX-251 at 3.
80
  See id. at 5; JX-328 at 4. AMI does not contend that a breach of the SAA occurred in
connection with the December 2013 order for PocketECG II devices. Tr. Post-Trial Arg.
52.

                                         18
2011 SAA. The 2014 SAA updated the 2011 SAA to account for the fact that

Andy’s part of the business, Medi-Lynx, was now a co-exclusive licensee.81 The

attachments from the 2011 SAA were included in the 2014 SAA, including the

product description and fee schedule for the PocketECG II, but Attachment 4 from

the amendment to the 2011 SAA signed in November, which described the

PocketECG III device and fees, was not included.82 The omission of Attachment 4

from the 2014 SAA was not intended to alter the previously agreed-upon pricing

for the PocketECG III. To the contrary, both sides understood and expected that

the pricing for that device would remain the same under the 2014 SAA as it was

under the 2011 SAA. 83

         Medicalgorithmics did not fill the PocketECG III orders within the

timeframe it envisioned. It sent the first 50 units at the end of April 2014, and 100

more in late June 2014, for a total of 150 devices rather than the 945 it had

81
     2014 SAA at 1.
82
     Id. at 18-20.
83
   See Tr. 101-03 (Dziubinski) (explaining that they learned AMI had not signed an
Attachment 4 for the 2014 SAA after a pricing dispute discussed below); Tr. 726-31 (Joe)
(opining that the parties expected Medicalgorithmics would send a new Attachment 4
amending the 2014 SAA); see also JX-234 (e-mail from AMI’s counsel informing
Medicalgorithmics that, after entering into the 2014 SAA, for convenience
Medicalgorithmics could “send new amendments in identical form as before for the new
devices”); Tr. 103 (Dziubinski) (noting that Medi-Lynx promptly signed a new
Attachment 4 upon learning that it had not been included in the Medi-Lynx 2014 SAA);
Dziubinski Dep. 298-300 (opining that not signing amendment including Attachment 4 in
the 2014 SAA was an inadvertent mistake).

                                          19
expected to deliver by the end of June. 84        In September 2014, AMI sent

Medicalgorithmics an e-mail expressing concern over the behind-schedule

production of PocketECG III devices, pointing out that Medicalgorithmics was in

violation of the delivery requirements of Section 10 of the SAA, while expressing

confidence that Medicalgorithmics would be able to address the issues.85 By mid-

October 2014, Medicalgorithmics had sent all 2,000 GSM devices, 86 but it still had

not completed development of the CDMA version.

         On November 7, AMI sent Medicalgorithmics another letter, this time

informing Medicalgorithmics that it was in material breach of the SAA due to

alleged warranty issues, inventory deficiencies, and Medicalgorithmics’ intent to

phase out the PocketECG II. The letter requested that Medicalgorithmics cure the

alleged breaches within 30 days and noted that the failure to do so could result in

consequences “including and up to immediate termination.”87 According to Joe,

AMI never intended to terminate the agreement but instead sent this notice to



84
  The monthly totals of Medicalgorithmics’ shipments to AMI from April 2014 to April
2015 are summarized in an exhibit (JX-823) prepared from a database Medicalgorithmics
operated in the ordinary course of its business. Tr. 776-77 (Zolkiewicz). AMI did not
challenge the data in this exhibit, which I find to be reliable.
85
     JX-372.
86
     JX-823.
87
     JX-416.

                                         20
encourage Medicalgorithmics to comply with the SAA. 88              Medicalgorithmics

responded to AMI’s letter, disputing the alleged breaches and noting that AMI had

been late on a number of payments under the SAA. 89

         G.     AMI’s Discussions with Vasomedical

         Unbeknownst to Medicalgorithmics, AMI began exploring alternative

technologies to the PocketECG even as it entered the 2014 SAA.

         In August 2013, Juan Velez, the Chief Operations Officer of AMI, 90 had a

phone call and exchanged e-mails with David Nierle, a sales representative for

Vasomedical, Inc., a medical device manufacturer. 91          Nierle provided Velez

information regarding Vasomedical’s products, including its combined ECG Holter

and ambulatory blood pressure monitor.92 Over the following months, Velez and

Nierle corresponded by e-mail a few times. On October 15, Nierle inquired about

AMI’s potential interest in Vasomedical’s Holter and ambulatory blood pressure




88
     Tr. 523 (Joe).
89
     JX-421.
90
     Tr. 1092 (Velez).
91
     Tr. 1161-62 (Velez); JX-186; Tr. 339 (Moss).
92
    JX-186 at 5. For simplicity, I refer to both Vasomedical and its manufacturing
subsidiary, Biox, as Vasomedical. Certain quoted e-mails that mention Biox are referring
to this subsidiary.

                                            21
monitors.93 On October 24, Velez informed Nierle that AMI was “very interested”

but was still working out the details for the possible addition of a Vasomedical

product. 94 On December 17, Velez told Nierle that he wished to focus on a

“possible joint venture” between the companies starting in early January, after

AMI had finished urgent company business, apparently referring to the split of

AMI and Medi-Lynx that was underway. 95

          On January 2, 2014, the effective date of the 2014 SAA, Velez met with

Nierle and Kelly Rodriguez, a consultant for Vasomedical.96             Rodriguez

summarized the details of their meeting in an e-mail she sent later that day to Jun

Ma, the President and CEO of Vasomedical. Rodriguez described AMI’s business

with the PocketECG and explained that AMI was “interested in a win-win

relationship whereas we can work together to develop future products they have

identified with a focus on the USA and their new market India.” 97 On January 6,




93
     JX-233.
94
     Id. at 2.
95
     Id. at 1.
96
     JX-250; Tr. 1163-65 (Velez).
97
     JX-250.

                                        22
Nierle further explained to Ma that AMI was interested in, among other things,

having Vasomedical “design/build a combo Event, Holter, MCOT device.”98

         Vasomedical and AMI met several more times over the following months,

with Joe becoming more involved in the dialogue over time. On or about February

5, 2014, Joe, Ma, Velez, Rodriguez, and Nierle had a teleconference during which

Ma gave a presentation called “Original Equipment Development and

Manufacturing for Spectocor,” copies of which were distributed to Joe and Velez.99

On February 10, Rodriguez provided a summary of the companies’ discussions to

Velez, noting that, per the discussion, AMI would “explore the contractual terms of

[its] existing OEM [Original Equipment Manufacturing] agreement, expiration

dates, etc. and determine what OEM opportunities may exist within US and outside




98
    JX-253.      “MCOT” means “Mobile Cardiac Outpatient Telemetry.”                  See
http://www.fcminc.com/Mobile-Cardiac-Outpatient-Telemetry.html (defining MCOT).
Christian Taconet, a former employee of AMI, testified in deposition that Joe had
discussed his frustrations with the PocketECG and his interest in AMI developing its own
cardiac monitoring device in January 2014, although his testimony is unclear as to
whether Joe hoped to develop his own device for use domestically or abroad. Taconet
Dep. 29-34.       AMI challenges Taconet’s credibility because he had expressed
dissatisfaction with working at AMI and reached out to Dziubinski in search of a job. Tr.
281-82 (Dziubinski); Taconet Dep. 113. Because Taconet did not testify at trial and I did
not have the opportunity to observe his testimony, I reach no conclusion concerning his
credibility and place no independent weight on his testimony, except to note that it
corroborates my finding that AMI was seeking to develop a replacement for the
PocketECG in early 2014.
99
     JX-272.

                                           23
of US.”100        Depending on the outcome of that inquiry, the companies might

“pursue the opportunity for a custom design build of a special product to meet

Spectocor’s specifications.”101        Both companies were to look for “other

opportunities for partnership” both inside and outside the United States.102

Commenting on Rodriguez’s summary, Velez noted that AMI “would be more

interested in a custom build in which we have sole rights to distribute using our

model.” 103      In a March 2014 presentation, Vasomedical touted its ability “to

complement and supplement Spectocor’s current offering” and to use its talents

“for the development of future proprietary products.”104

            On March 10, 2014 Ma, Rodriguez, and Nierle visited AMI’s office in

Texas, meeting Velez and Joe.105 Rodriguez prepared a summary of the meeting

for Ma the next day, which indicated that AMI had issues with the PocketECG,

including late product deliveries, and that there were ways Vasomedical “could

develop products that would [be] viable options to move from their existing


100
      JX-273.
101
      Id.
102
      Id.
103
      JX-279 at 2.
104
      JX-282 at 23.
105
      Tr. 636-37 (Joe); Rodriguez Dep. 42; Ma Dep. 51.

                                            24
relationship.”106 According to the summary, which I credit, Joe demonstrated the

“features and functionality” of the PocketECG to Vasomedical during the

meeting.107 Ma’s deposition testimony is consistent with Rodriguez’s summary.

He testified that “it is always [Vasomedical’s] belief to combine everything [into]

one” device, that Joe said at the meeting that Medicalgorithmics was having

problems getting AMI the products it needed on time, and that the companies

explored during the meeting the possibility of Vasomedical supplying a new device

for AMI.108

         At the end of March 2014, Rodriguez and Joe had another meeting.

Rodriguez sent notes on the meeting to Ma on March 27, which indicated that AMI

was seeking to “work towards a way out of [its Medicalgorithmics] relationship

permanently,” and that AMI was ready to work toward the development of a new

product, which would not pose a legal problem for AMI as long as the product was

different from the current one. 109       According to the notes, Joe stated that

106
      JX-288 at 1.
107
   Id. Although Joe denied doing this, Tr. 545 (Joe), I do not credit this testimony given
the specific and contemporaneous nature of Rodriguez’s notes summarizing the meeting
between representatives of Vasomedical and Joe that occurred in Texas the day before,
given Ma’s testimony that Joe performed a similar demonstration for him in China in
April, Ma Dep. 184-85, and given Joe’s overall lack of credibility. See infra notes
252-61 and accompanying text.
108
      Ma Dep. 51-55.
109
      JX-296.

                                           25
Vasomedical’s current products probably would not meet AMI’s immediate needs,

and that he wanted to visit Vasomedical in China during 2014 but was not prepared

to do so yet. 110

            On April 1, Nierle, Rodriguez, Joe, and Velez met again. According to

Rodriguez’s notes to Ma regarding this meeting, AMI was frustrated with a

software update from Medicalgorithmics that had caused major issues for AMI’s

monitoring systems, making Joe “now more determined to move away from

Medicalgorithmics and have his own product without restrictions” and prompting

him to reconsider making a trip to China in the near future to discuss products with

Vasomedical. 111

            On April 3, AMI and Vasomedical entered into a mutual non-disclosure

agreement.112 On April 8, Velez e-mailed Nierle and Rodriguez to inquire about

the cost of having Vasomedical develop a product for AMI based on the

technology Vasomedical already had in place. 113        In mid-April, Joe visited

Vasomedical in China, where Ma gave him a tour of the facilities.114 Ma testified


110
      Id.
111
      JX-299.
112
      JX-300.
113
      JX-307 at 3.
114
      Tr. 644 (Joe); Ma Dep. 121-22.

                                          26
credibly with specific details regarding how Joe demonstrated to him the

functionality of the PocketECG software platform during that visit. 115

         On May 13, Nierle provided a summary of AMI’s position to a number of

other Vasomedical employees, including Ma:

         Joe Bogdan, President recently took a trip to China for the CMES
         meeting followed by a trip to Biox [Vasomedical’s manufacturing
         subsidiary], hosted by Jun and Qiuming, for discussions on multiple
         topics. The visit was successful and Joe was impressed with the
         infrastructure in China and his visit to Biox. Their first priority is
         establishment of a Service Provider office on the other side of the
         globe to ensure better 24/7 coverage for their customers. Second
         priority is a 3 in 1 Monitoring unit to provide an alternate source for
         their present product. EECP© as a service provider or Finder’s Fee
         arrangement is also a possibility but lower priority based on their high
         volume of work and their recent restructuring.116

At trial, Joe did not dispute that he told Ma that one of his priorities was to develop

a 3-in-1 product, but claimed that he told Ma this product would be for

international use in India or China.117 Joe also testified that part of his trip to

China was to investigate MobiCare, a telehealth platform developed by

Vasomedical. 118 Joe opined that MobiCare would not be a replacement for the




115
      Ma Dep. 184-85.
116
      JX-311 (emphasis added).
117
      Tr. 646-47 (Joe).
118
      Tr. 564 (Joe).

                                           27
PocketECG device because telemedicine platforms do not perform analytics but

simply capture information about a patient’s vital signs. 119

            On June 18, 2014, Rodriguez wrote an e-mail describing a meeting with Joe

that day in which she noted that Joe planned to meet Ma in New York and

expected Vasomedical to prepare a “draft agreement to review for the collaboration

of the development of a product to meet state of the art needs for a 3/1 cardiac

monitor (holter/telemetry/event) with bluetooth capability to capture every beat

and transmit with no loss compression” and to include, among other things, a “joint

venture agreement on the IP - Vasomedical and Spectracor [sic] to partner for

opportunities to take worldwide.”120 Soon after, Ma and Joe met in New York,

during which they “decided to move towards some type of agreement” regarding

development of a cardiac monitoring device. 121 On July 11, Ma reconfirmed this

agreement in an e-mail to Joe: “I am glad that we both decided to move ahead, and

quickly.” 122 Ma also asked Joe for a sample of their current PocketECG device so

that they could get familiarized with its operations. 123

119
  Tr. 564-65 (Joe). Joe’s opinion aligns with that of Moss, who noted that MobiCare
would not be a replacement for the PocketECG. Tr. 414-15, 435-36 (Moss).
120
      JX-332.
121
      Tr. 647 (Joe).
122
      JX-342.
123
      Id.

                                            28
            On July 28, Joe sent Ma an email in which he described AMI’s interest in

developing or acquiring products and a potential merger with Vasomedical:

            Our interests is [sic] to either build or acquire our own technologies
            (hardware and software) that further the progress of our presence in
            the US market with the ability to move into the international arena in
            the near future. As we have discussed, Spectocor and
            Vasomedical/Biox have unique and complementary strengths. While
            an agreement to acquire technologies is attractive, even more so
            would be a means to join forces as one company. This could lead to a
            potential offer to purchase Vasomedical/Biox. Can we open a
            dialogue about this now and potentially develop a Memorandum of
            Understanding (MOU) that may be inclusive of product development
            and acquisition? 124

In a responsive e-mail, Ma answered a question from Joe asking about what

projects Vasomedical had in development that would be helpful to AMI: “We

have started to develop a combination device for Holter, event monitor and MCT,

with options to wirelessly connect BP, temp, SpO2, etc.”125

            On August 18, Joe followed up this e-mail exchange by sending Ma a first

draft of a nonbinding letter of intent “to begin discussing terms for the formation of

two joint venture entities for the creation of a stand alone service center to support

international operations in East Asia, more specifically China, and the

development of a stand alone state-of-the-art three-in-one mobile telemetry device



124
      JX-350 at 2.
125
      Id.

                                             29
. . . .”126 Both of the entities referenced in the letter of intent would have their

principal places of business in the United States. 127 The letter of intent called for

the eventual transfer of the entity producing the 3-in-1 device to AMI:

          Spectocor would be awarded the entity owning the stand-alone state-
          of-the-art mobile telemetry device with the exclusive rights to the tolls
          and efforts of that entity. Spectocor would agree as a part of the
          agreement to not sell or use the device in the Chinese market in
          exchange for the transfer.128

This arrangement would give AMI ownership of a 3-in-1 device and exclusive

rights to sell it worldwide, excluding China, and would help Joe achieve his goal of

having AMI control its own product.

          In late August and early September, Joe and Ma continued developing their

ideas for a joint venture. Ma sent Joe an outline of the scope of the joint venture’s

business, to which Joe added comments that are reflected below in bold text. The

entire outline, including Joe’s comments, states as follows:

          1. JV scope of business:

          1a.
          Multi-function MCT Device and Service Platform
      - JV to subcontract product/software development work to VASO
        with specific delivery tables, budgets, and regular progress
        reporting.

126
      JX-360 at 1 (emphasis added); JX 362; Tr. 651-52 (Joe).
127
      JX-360 § 3.
128
      Id. § 6.

                                             30
      - JV to subcontract development of Service Center to Spectocor
        with specific delivery tables, budgets, and regular progress
        reporting.
      - JV will own all IP’s and rights (except for China where VASO owns
        all and for USA where Spectocor owns all)
      - JV will pay VASO for the work later (to minimize initial capital
        contribution)
          1b.
          MCT Monitoring Service
      - JV has exclusive rights worldwide (except for the US where
        Spectocor owns those rights and for China where VASO owns
        those rights)
      - JV will pay Spectocor later for its consultation in starting up new
        services (to minimize initial capital contribution)
          1c.
          Exclusions
      -   VASO owns device rights in China
      -   Spectocor owns device rights in the USA
      -   VASO owns MCT service rights in the China [sic]
      -   Spectocor owns MCT service rights in the US
      -   Spectocor may contract VASO or JV for expanded monitoring
          support to the US business
          2. Matters to consider for the JV
      -   Ownership and control
      -   Capitalization
      -   Jurisdiction (Delaware)
      -   Management (50/50 with impasse rules) 129
An MCT device is a “mobile cardiac telemetry” device.130 Joe initially suggested

at trial that the device referred to in the joint venture outline would only have


129
      JX-368.
130
      Tr. 317 (Moss).

                                              31
mobile telemetry device functionality and not be a 3-in-1 device, but he later

seemed to concede it would have all the functionality of a 3-in-1 device when

pressed by the Court’s questions. 131 Any suggestion that the joint venture outline

was not referring to a 3-in-1 device is not credible. The letter of intent Joe sent Ma

just a few weeks earlier specifically used the term “three-in-one,” 132 and the joint

venture outline specifically refers to a “multifunction MCT device.” Thus, the

plain intention of AMI’s proposed joint venture with Vasomedical was to make a

3-in-1 device that would include MCT as well as Holter and event monitoring. 133

         AMI and Vasomedical’s discussions regarding their joint venture went quiet

after these exchanges in August and September, and the companies never reached a

formal agreement to develop a product.134        But around the time that AMI’s

discussions with Vasomedical seemed to end, AMI began discussions with another

potential product developer.




131
      Tr. 550-52 (Joe).
132
      JX-360 at 1.
133
    This finding also is supported by Medicalgorithmics’ expert, who opined that a
“multi-function MCT device” means a 3-in-1 Holter, event, and mobile telemetry device.
Tr. 341 (Moss).
134
      Tr. 737 (Joe).

                                         32
         H.     AMI Works on Product Development with Professor Tamil
         In September 2014, Joe began discussions with Lakshman Tamil, a

professor of electrical engineering at the University of Texas, Dallas.135 Tamil

previously had developed a telemedicine system that could relay patient data from

various biosensors to a data center. 136

         In November 2014, Joe attended a “Financial Sponsors Conference” hosted

by Deloitte Corporate Finance where lenders and venture capitalists met with

companies to explore investment opportunities. 137 According to notes from a

Deloitte representative at that conference, AMI was “looking into buying a

software platform developed by a group of [University of Texas] professors. . . . It

could work with off the shelf hardware and would replace the company’s licensed

technology, eliminating a major cost.”138 Joe denied that this statement concerned

the PocketECG, and offered inconsistent explanations about what he believed the

notes meant: at first, he thought they referred to saving on licensing costs if AMI




135
      Tr. 994, 1029 (Tamil).
136
  Tr. 997, 1034-35 (Tamil); JX-333 (white paper entitled “Intelligent Telemedicine and
Chronic Disease Care”).
137
      Tr. 584-85, 677 (Joe).
138
      JX-432; Tr. 679 (Joe).

                                           33
expanded to international markets; later he claimed they concerned Tamil’s

telemedicine platform, which would not replace the PocketECG. 139

         In mid-December, Tamil created two companies: Htel, LLC and imedLogix,

LLC.        Tamil and a colleague formed imedLogix to perform technology

development work on a contract basis. 140          Htel was created to hold Tamil’s

telemedicine assets, which he carved out from other assets developed by his

laboratory, the Quality of Life Technology laboratory, because AMI was only

interested in the telemedicine technologies. 141 On January 15, 2015, AMI bought a

66.5% stake in Htel for $300,000, with Tamil and his colleagues retaining the

minority interest. 142

         Around the same time, AMI and imedLogix began to negotiate a product

development agreement. It is undisputed that an agreement was signed on April

15, 2015, 143 but the timing and nature of the negotiations leading up to that point is

not clear because the record is missing information one would expect to see when

parties negotiate a commercial agreement, such as drafts of the agreement and


139
      Tr. 586, 680, 741-42 (Joe).
140
      Tr. 1009 (Tamil).
141
      Tr. 998-99 (Tamil).
142
      JX-476; Tr. 999 (Tamil); Tr. 1034 (Tamil).
143
      JX-590.

                                             34
communications reflecting the negotiations. Other than the executed version of the

agreement, the only other version in the record is a draft dated January 15, 2015,144

which Joe contends is an incorrect date that was carried over from the Htel

agreement. According to the document’s metadata, this draft was created on

February 7 at the latest.145

            The stated purpose of the agreement was “to describe terms under which the

Parties will engage in a Product Development Agreement to support Buyer’s

expansion into international markets.”146 The product to be created was intended

to meet or exceed AMI’s “current device”:

            Developer [imedLogix] will develop, formulate, design, and deliver to
            Spectocor a new state-of-the-art telemetry cardiac monitoring
            software platform (the “Product”) that meets or exceeds Spectocor’s
            current device to support Spectocor’s expansion and growth in global
            markets in the future. Spectocor will own all developed software and
            intellectual property rights to the Product.147

Under the agreement, AMI would pay imedLogix $10 million if imedLogix

developed a commercially viable product within one year, stepping down over

increments to a payment of $8 million if imedLogix did so within 36 months, and



144
      JX-479 at 1.
145
      Tr. 1122-23.
146
      JX-590 at 2.
147
      Id.

                                             35
no payment if creating the product were to take more than 36 months.148 One

required component for commercial viability under the agreement was receiving

FDA approval.149           AMI provided Tamil and his team space to work at

Medicalgorithmics’ office.150

            On December 23, 2014, while AMI was pursuing a new venture with Tamil,

Dziubinski sent Joe a lengthy “personal” email describing the history and status of

the relationship between Medicalgorithmics and AMI, and stating that he wanted

to touch base with Joe after the holidays to “talk broadly about the future of our

collaboration.”151 Over a month later, on January 27, 2015, Joe sent Dziubinski an

email acknowledging he had received Dziubinski’s December 23 email, which

included an out-of-the-blue question about the PocketECG III:

            I received your email dated 12/23/2013 [sic] and am thrilled you have
            achieved your life goals. 
            Question:
            Is PECG III an improvement of PECG II or is it a new stand-alone
            Product? 152




148
      Id. § 5.
149
      Id.
150
      Tr. 666-67 (Joe).
151
      JX-510.
152
      JX-496.

                                             36
            Also on January 27, Velez, Joe, Rodriguez (who was no longer a

Vasomedical consultant and was now working for AMI), and others were

scheduled for a meeting that Joe described in the invitation’s subject line as:

“Urgent Meeting; RE: Strategy meeting vs Medicalgorithmics.”153 The record

provides no other information about this meeting. Later in the day, after the

scheduled time of the meeting, Velez e-mailed a Technical Support Coordinator at

Medicalgorithmics the following request:      “Please send me written specs on

[PocketECG II]. I do not have anything in PDF format.” 154 Velez provided no

explanation in his message. When Medicalgorithmics asked Velez for more details

about his request, Velez said that AMI had “the opportunity to get the largest

military contact [sic] in military heart medicine and they are looking for specs on

the devices.” 155 AMI did not produce any documents relating to this alleged

opportunity. Velez testified at trial that he could not recall who had contacted him

about the opportunity or who the contractor was, and admitted he had never seen a

request for a proposal. 156




153
      JX-820.
154
      JX-501.
155
      Id.
156
      Tr. 1156-58 (Velez).

                                        37
         A calendar invitation reflects that Joe, Velez, and Joe Khan, AMI’s Chief

Information Officer, 157 were scheduled to meet the next day, on January 28, to

discuss “R&D :: Software Development.” 158        Velez testified that he does not

remember whether he attended this meeting, which was scheduled for the morning

after the previous strategy meeting and after he had requested technical

specifications from Medicalgorithmics regarding the PocketECG II. 159            Joe

acknowledged that the three of them were attendees at the meeting but did not

remember the details of the meeting.160

         On February 10, 2015, Joe purportedly drafted another e-mail replying to

Dziubinski’s December 23 e-mail in which Joe said he would like to meet him in

Poland during a trip Joe planned to take to visit India “to initiate a new operations

center there which will allow [AMI] to grow internationally with a new Telehealth

technology we have just acquired.” 161 Dziubinski never received this e-mail, and




157
  Khan Dep. 23; see also Tr. 946 (Mularczyk) (describing Khan as the manager of IT at
AMI).
158
      JX-499.
159
      Tr. 1160-61 (Velez).
160
      Tr. 701-03 (Joe).
161
      JX-508.

                                          38
Medicalgorithmics was unable to find it after checking its records through its third-

party e-mail provider. 162 Joe admitted at trial that he never sent this e-mail. 163

         About three hours later on February 10, Joe drafted another reply to

Dziubinski’s December 23 e-mail, this time omitting any reference to a telehealth

technology, international growth, or a trip to India, and stating instead simply that:

“I agree that it would be a good time to meet and discuss our existing contract and

future. I would like to visit you in Poland if possible. I have another trip being

planned and can route my itinerary through Warsaw.” 164 The next day, Dziubinski

replied that he was available to meet Joe in Warsaw in March and asked to know

the exact dates of Joe’s trip. 165 Joe did not respond to this request.

         AMI and imedLogix continued working on technology development

together, but there is, once again, a dearth of evidence in the record that one would

expect to exist regarding the specific work they were doing. One of the few

documents during this period that does exist is a 95-page software requirements

specification that imedLogix developed, dated April 11, 2015. Tamil testified that

this document would have been a work in progress for perhaps a month before,


162
      Tr. 135-36 (Dziubinski).
163
      Tr. 588-89 (Joe).
164
      JX-510.
165
      JX-511; Tr. 124-25 (Dziubinski).

                                           39
with AMI providing input regarding the specifications to include.166              But no

previous drafts of the specification document were produced.

         Throughout the specification document are references to cardiac, event, and

telemetry functions.167 The introduction section of the document has a diagram of

a telehealth system with additional features, including a glucometer and a blood

pressure monitor. 168 But, according to John Moss, Medicalgorithmics’ expert in

product development, technical specifications, and mobile cardiac telemetry, 169 the

technical aspects of the specification document focused specifically on Holter,

event, and telemetry cardiac monitoring and did not cover any other functionality,

aside from certain references to other vital signs that Moss opined were listed in

the comments “as a future, not a must have now.” 170 Moss also testified that

166
      JX-588; Tr. 1052-53 (Tamil).
167
    JX-588 § 3.8.3.2 (“Monitoring Session Type (eg: Event, Telemetry)”), § 3.8.3.3.3.1
(same), § 3.8.3.3.4 (“Telemetry and Event report generated for the current whole week.”),
§ 3.8.3.4.2 (description of checkbox noting that “monitoring (i.e. Biosensor, Stress Test,
Holter (if Biosensor is ECG), Event monitor, Mobile Telemetry) has been unrevealing”),
§ 3.8.3.4.5 (“When Event or Telemetry is selected an option for ordering a first 24hr
monitoring is presented.”),§ 3.8.5.3; Tr. 353 (Moss) (opining that language in § 3.8.3.4.2
refers to a Holter or mobile cardiac telemetry monitor).
168
   JX-588 § 1.1. The diagram of the telehealth system was not newly created for the
specification document; instead, it appears to have been pulled from Tamil’s white paper
from June 2014 or earlier. Compare JX-588 § 1.1 with JX-333 at 2.
169
      Tr. 332-33 (Moss).
170
    Tr. 355-57 (Moss); see JX-588 § 3.2.1 (listing additional data channels for
accelerometer, respiration, temperature, weight, oximeter, etc. as a “Should” level of
desire, with comments specifying they are for a “Future version”).
                                           40
telemetry would not be relevant to other vital signs because it is designed for

dynamic waveforms such as ECG, rather than static numbers such as a patient’s

glucose level. 171 Moss’s opinion that the technical specifications laid out in the

document focus on 3-in-1 cardiac monitoring is persuasive and matches my own

review of the document. 172      The specification document also listed under the

heading “General Constraints” that the device should be HIPAA compliant, FDA

approvable, and compliant with Texas Health Authority regulations—all of which

support an intention to use the device in the United States. 173

         I.     AMI and Medicalgorithmics Enter Litigation

         By mid-March 2015, the relationship between AMI and Medicalgorithmics

had deteriorated significantly. On March 10, Medicalgorithmics’ auditor asked

Velez to confirm AMI’s outstanding balances with Medicalgorithmics. Joe replied

to the e-mail chain two days later, stating that Medicalgorithmics may have

overcharged AMI by $499,035 based on the price charged for PocketECG III

devices, and by $514,215 based on potentially missing prepayments for new device


171
    Tr. 355-56 (Moss). In addition, according to Moss, “event” must refer to a cardiac
event because, in contrast to a heart arrhythmia, other vital signs such as blood pressure
or gaining weight are not emergent events or symptoms. Tr. 355 (Moss).
172
   Another imedLogix document associated with the project provides a table of various
milestones relating to the project, which includes milestones focused on ECG-related
requirements. JX-586.
173
      JX-588 § 2.3.

                                           41
activations and for devices sent back for repair. Joe noted that AMI had not

previously disclosed these invoice disputes to Medicalgorithmics. 174

         The alleged overpayment for PocketECG III devices was based on the

difference between the $505 listed in the amendment adding Attachment 4 to the

2011 SAA for that device (plus interest), and the price of $303 originally included

in the 2011 SAA for the PocketECG II device. 175 Contrary to the position Joe

asserted to Medicalgorithmics’ auditors, Joe admitted at trial that, when he signed

the 2014 SAA, he expected the price of the PocketECG III would remain $505

($513.83 including interest) under the 2014 SAA even though Attachment 4 had

not formally been added to the new agreement. 176

         On March 13, Medicalgorithmics issued a late payment notice to AMI

requesting payment of about $1.8 million.177             On March 17, Joe e-mailed

Dziubinski expressing dissatisfaction with the companies’ relationship.178

Reiterating the assertions he had made to Medicalgorithmics’ auditors a few days

174
      JX-534.
175
    Attachment 4 to the amendment listed a price of $505 rather than $513.83. As
discussed earlier, the difference of $8.83 reflects the accrued interest if AMI paid for the
device 90 days after delivery, rather than prepaid for the device.
176
  Tr. 728 (Joe); see supra Part I.F (discussing omission of Attachment 4 from 2014
SAA).
177
      JX-538; JX-552.
178
      JX-547.

                                            42
earlier, Joe told Dzuibinski in the e-mail that Medicalgorithmics had been

overcharging AMI for new devices and asked to have a conference call with

Dziubinski the next day, noting that if they could not speak to resolve these issues,

AMI would need to “consider alternate measures to ensure our market future.”179

That call never occurred, although it appears Dziubinski attempted to contact Joe at

the scheduled time on March 18 but was unable to reach him. 180

            On March 19, Dziubinski replied to Joe’s e-mail, discussing the companies’

degrading business relationship, requesting that they work together to improve it,

and stating that he was open to meeting with Joe but that he rarely received a

meaningful response from him despite the importance of their relationship.181

Dziubinski also explained that AMI knew when it ordered the PocketECG III that

the delivery timeframes for the new product were estimates, which was the reason

Medicalgorithmics did not require prepayments.182 Dziubinski further noted that

Medicalgorithmics was open to working with AMI to resolve any billing errors,




179
      Id.
180
      JX-550; Tr. 130-31 (Dziubinski).
181
      JX-554.
182
      Id.

                                            43
but that in light of the adverse relationship developments, Medicalgorithmics

would begin sending late notices for overdue payments. 183

            On March 23, Dziubinski wrote to cancel a scheduled call with Joe until

they could get their payment dispute sorted out, and requested that Joe provide an

explanation of their invoice disputes in an e-mail instead.184 Joe responded with an

e-mail detailing a series of issues concerning their relationship. The final item

stated that AMI was “seeking international growth opportunities, as we have

discussed in the past with you, and I would like to determine if there are any

opportunities to expand with Medicalgorithmics.” 185

            This comment aroused immediate suspicion at Medicalgorithmics.

Dziubinski credibly testified that he found it “extremely odd” that Joe would

randomly ask about partnering for international expansion in the midst of a heated

dispute over their commercial relationship. 186        After seeing Joe’s message,

Zolkiewicz and Dziubinski discussed the possibility that Joe was trying to fabricate

a defense to a claim for breach of contract by claiming that he was only seeking a




183
      Id.
184
      JX-562.
185
      Id.
186
      Tr. 134 (Dziubinski).

                                           44
new product for “international” purposes on the theory that the SAA only governed

products for use in the United States. 187

            On March 23, AMI asked for 200 units of their CDMA order to be switched

to GSM units. Medicalgorithmics confirmed the change and shipped these units on

March 30.188 On April 3, AMI asked to switch another 500 units from CDMA to

GSM and inquired about the production timeline. 189 Medicalgorithmics initially

agreed and estimated that they would ship in three weeks. 190

            Also on April 3, Joe e-mailed Dziubinski identifying “outstanding invoices

for PECG III devices that need to be corrected,” requesting invoices correcting for

the difference between the billed amount of $513.83 per unit and the “contract

amount” of $303 per unit.191 Medicalgorithmics replied ten days later, disagreeing

with Joe’s assertions concerning the per-unit price, and demanding adequate

assurance of AMI’s performance before they would send any of the 500 GSM




187
      JX-563.
188
      JX-561; JX-572 at 2.
189
      Id.
190
      Id.
191
      JX-589.

                                             45
devices AMI had recently requested to be shipped, given that AMI owed almost

$2.3 million on outstanding invoices.192

            On April 17, AMI sent a wire transfer paying its outstanding invoices along

with a letter stating that the payment was made under protest and that AMI

demanded an accounting.193 AMI’s letter also stated that Medicalgorithmics was

in material breach of the 2014 SAA and demanded an immediate refund for the

difference between the $303 per-unit price in the contract and the invoiced price of

$513.83. 194 AMI noted that Attachment 1 of the 2014 SAA indicated that “[n]ew

devices may also have other or additional functionalities” and that the definition of

“Product” included “all IP associated with the Product, along with any variations,

advancements, improvements, or modifications made to the Product during the

term of this Agreement.” 195 AMI cited a reply from Dziubinski to Joe’s earlier

question, in which Dziubinski stated that the PocketECG III was an improvement

to the Product rather than a new Product. On that basis, AMI demanded that the

original SAA terms, including the $303 price, be applied to the PocketECG III.196


192
      Id.
193
      JX-600 at 2.
194
      Id.
195
      Id. at 2-3.
196
      Id. at 3-4.

                                             46
            On April 23, Joe e-mailed Dziubinski to make a few points.197 First, he

noted the struggle with making device payments up front due to AMI’s rapid

growth and the fact that it takes time for AMI to be reimbursed for its services.

Second, Joe asserted that AMI was in full compliance with the SAA and would

continue to make payments on time “so there is no question Spectocor is in any

way breaching the Agreement.” Third, he noted that AMI was preparing legal

action based on its discovery of inappropriate charges. Fourth, Joe stated that he

was “hereby withdrawing all pending and unfulfilled device orders until further

notice” and until Medicalgorithmics complied with the SAA and agreed to

renegotiate certain terms. Fifth, he noted that Medicalgorithmics had breached the

SAA multiple times and that its devices were not performing as required, pointing

out a failure rate of over 30% for the PocketECG III. Finally, Joe noted that

“Spectocor desires to shut down growth in the US market and begin concentrating

on global expansion with other technologies.        If you desire otherwise, please

provide some good reasons for me to consider.”198

            On April 27, Medicalgorithmics sent AMI a notice of termination of the

2014 SAA under Section 7 of the agreement. 199           The notice stated that the

197
      JX-615.
198
      Id.
199
      JX-625.

                                           47
termination was “effective immediately based on numerous material breaches” by

AMI, including (1) AMI’s efforts to seek or develop a replacement product in

violation of Section 3.3, which Medicalgorithmics asserted “upon information and

belief,” and (2) AMI’s withdrawal of its unfulfilled orders and stated desire to shut

down the United States market, as reflected in Joe’s April 23 e-mail. The notice

also stated that Medicalgorithmics was terminating the agreement under Section

2-309 of the Uniform Commercial Code. 200 It filed this litigation on the same day.

            On May 18, 2015, AMI sent its own notice of termination. The only specific

breach the notice cited was AMI’s “improper and invalid attempt to terminate the

SAA on April 27, 2015.” 201            AMI invoked the 24-month notice provision in

Section 7(1) of the 2014 SAA, thus calling for the termination to be effective on

May 18, 2017. 202

II.         PROCEDURAL POSTURE

            Medicalgorithmics filed this action on April 17, 2015. On May 1, 2015, the

Court entered a stipulated Status Quo Order, which has governed the parties’

relationship throughout this litigation.203          Under the Status Quo Order,


200
      Id. at 2.
201
      JX-631.
202
      Id.
203
      Status Quo Order, May 1, 2015.

                                             48
Medicalgorithmics has continued to provide services to AMI in accordance with

the 2014 SAA, but Medicalgorithmics has not been obligated to fill any new

equipment orders. 204         On May 18, 2015, AMI filed its answer and brought

counterclaims against Medicalgorithmics.

         On September 18, 2015, Medicalgorithmics filed its First Verified Amended

Complaint, asserting seven claims for relief:

        I.      Declaratory Judgment       that     Medicalgorithmics   Validly
                Terminated the SAAs;

       II.      Declaratory Judgment that Medicalgorithmics             Validly
                Terminated the SAAs Pursuant to 6 Del. C. § 2-309;

      III.      Damages for Breaches of the SAAs, Breaches of the Implied
                Covenant of Good Faith and Fair Dealing Under Delaware
                Common Law and 6 Del. C. § 1-304 and Breaches of the Duty
                to Commercialize;

      IV.       Declaratory Judgment that AMI Is Not Entitled to a Refund of
                Any Alleged Overcharges Relating to Its Purchase of
                PocketECG III Devices;

       V.       Breach of Contract for Nonpayment of Late Charges on
                Delinquent Invoices;

      VI.       Injunctive Relief Regarding Defendants’ Use of Substitute
                Batteries and Battery Chargers; and

      VII.      Injunctive     Relief   Regarding     Plaintiff’s   Confidential
                             205
                Information.


204
      Status Quo Order ¶ 2.
205
      Am. Compl. ¶¶ 49-114.

                                           49
Counts VI and VII have been withdrawn.206 On October 8, 2015, AMI filed its

Answer to First Amended Verified Complaint and Amended Verified

Counterclaims, asserting four counterclaims:

        I.    Damages for Breach of the 2014 SAA;

       II.    Specific Performance for Breach of the 2014 SAA;

      III.    Damages and Specific Performance for Violations of the UCC; and

      IV.     Declaratory Judgment that Medicalgorithmics did not validly
              terminate the 2014 SAA and that it is still in force.207

Trial was held from March 7 to March 11, 2016. Post-trial argument occurred on

May 10, 2016.

III.     LEGAL ANALYSIS

         A.       Legal Standard

         Medicalgorithmics bears the burden of proving each element of each of its

claims by a preponderance of the evidence. 208 AMI bears the same burden for each

of its counterclaims. This burden requires proving “that something is more likely

than not. It means that certain evidence, when compared to the evidence opposed

to it, has the more convincing force and makes you believe that something is more

206
      PTO ¶ 27.
207
   Defs.’ Ans. First Am. Verified Compl. and AMI Monitoring, Inc.’s Am. Verified
Counterclaims ¶¶ 52-85.
208
   See Revolution Retail Sys., LLC v. Sentinel Techs., Inc., 2015 WL 6611601, at *9
(Del. Ch. Oct. 30, 2015), appeal dismissed, 130 A.3d 931 (Del. 2015).

                                          50
likely true than not.”209 This standard applies to the parties’ claims for breach of

contract as well as their requests for declaratory relief.210

         I begin by assessing Spectocor’s status as a defendant in this action. I then

turn to the questions of breach of contract, materiality of breach, damages, and

declaratory relief.

         B.     Spectocor Is Bound by the 2014 SAA

         In footnotes in their post-trial briefing, defendants argue that Spectocor

cannot be held liable under the 2014 SAA because it, unlike AMI, did not sign the

agreement.211 Spectocor originally raised this argument in June 2015 in a speaking

motion for judgment on the pleadings. 212 Medicalgorithmics filed a brief opposing

that motion,213 after which Spectocor failed to file a reply brief or to pursue the




209
     Agilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *13 (Del. Ch. Feb. 18, 2010)
(Strine, V.C.).
210
   See Estate of Osborn ex rel. Osborn v. Kemp, 2009 WL 2586783, at *4 (Del. Ch. Aug.
20, 2009) (“Typically, in a post-trial opinion, the court evaluates the parties’ claims using
a preponderance of the evidence standard.”), aff’d, 991 A.2d 1153 (Del. 2010).
211
      Defs.’ Op./Ans. Post-Trial Br. 40 n.33; Defs.’ Reply Post-Trial Br. 3 n.3.
212
      Spectocor LLC’s Mot. J. Pleadings, June 4, 2015.
213
      Pl.’s Br. in Opp’n to Spectocor LLC’s Mot. J. Pleadings, June 17, 2015.

                                               51
motion further. As such, I conclude that Spectocor has abandoned that motion and

waived the argument. 214

            Even if Spectocor’s unwarranted delay did not constitute a waiver, the

argument is unavailing. The 2014 SAA was entered into “with the intent to create

a separate Strategic Alliance Agreement for AMI Monitoring, Inc. and its

Affiliates and Medi-Lynx Cardiac Monitoring, LLC, and its Affiliates.”215 The

agreement includes “Affiliates” within its definition of “Parties” and defines the

term “Affiliate” to include a “corporation or other entity controlled by, controlling,

or under common control with Supplier or Buyer.” 216 Joe, who signed the 2014

SAA on behalf of AMI, 217 controls both AMI and Spectocor.218 Thus, Spectocor is



214
    See 60 C.J.S. Motions and Orders § 44 (“It is the responsibility of the movant to
obtain, or request, a ruling from the court on a motion, and failure to do so constitutes a
waiver of the motion. Generally, a motion which is not called to the attention of the court
is presumed to have been waived or abandoned by the moving party.”); cf. Joyce ex rel.
CTC Minerals, Inc. v. Cuccia, 1997 WL 257448, at *2-3 (Del. Ch. May 14, 1997)
(concluding that defendant had waived certain defenses that should have been argued
earlier to avoid expense and prejudice to plaintiffs resulting from “piecemeal motions
practice”) (“[Defendant] was fully aware of his procedural defenses, yet chose not to
present them, and instead subjected the plaintiffs to the delay and expense of litigating his
motion to stay.”).
215
      2014 SAA at 1.
216
      Id.
217
      Id. at 17.
218
   Tr. 58 (Dziubinski) (noting that before the Bogdans’ split, Joe and Andy were 50/50
owners of AMI and Spectocor); Tr. 684 (Joe) (noting that Joe gave Andy 50% ownership
of Spectocor in about 2008). After the split in 2013, Andy gained ownership of Medi-
                                             52
an “Affiliate” and was intended to be a party to the 2014 SAA. This reason alone

suffices to bind Spectocor.

          As this Court pointed out in MicroStrategy Inc., an affiliate’s lack of

signatory status is “not a basis for [the affiliate] to escape liability . . . .” 219 In that

case, the Court found that a wholly owned subsidiary of a signatory was bound by

a contractual provision because the provision applied to “affiliates,” which was

defined to include any entity that a party “directly or indirectly, owns or

controls.”220 Similarly here, although Spectocor did not sign the 2014 SAA, it is

bound by its terms because the contract binds “Affiliates,” which includes entities

such as Spectocor that are “under common control” with AMI.

          In addition, the record shows that AMI and Spectocor often were used

interchangeably and that Spectocor held itself out as a party to the SAAs. For

instance, it was Spectocor that sent Medicalgorithmics the November 2014 notice

of breach of “our Strategic Alliance Agreement.”221              Joe sent the notice on



Lynx in exchange for redeeming his interest in AMI and Spectocor, leaving Joe as the
owner of those entities. See JX-246 ¶¶ 1.1-1.7; see also PTO ¶¶ 11-12 (naming Joe as
President of AMI and sole Managing Partner of Spectocor).
219
   MicroStrategy Inc. v. Acacia Research Corp., 2010 WL 5550455, at *12 (Del. Ch.
Dec. 30, 2010) (applying contract to an affiliate entity formed after the contract was
made).
220
      See id.
221
      JX-416 at 2 (emphasis added).

                                             53
Spectocor letterhead using his title as Managing Partner of Spectocor.222

Spectocor also acted as a party to the SAAs on numerous other occasions.223 As a

result, Spectocor accepted the benefits of the SAAs and the commercial

relationship with Medicalgorithmics, and therefore must accept the obligations of

the agreements as well.224 For all of these reasons, I find that Spectocor was a

party to the SAA and treat its actions and those of AMI as one and the same.

          C.       Breach of the 2014 SAA

          The 2014 SAA is governed by Delaware law.225 Section 3.3 of the 2014

SAA, which is identical to the same section of the 2011 SAA, provides as follows:

          Without first providing notice of termination of this Agreement to
          Supplier [Medicalgorithmics], Buyer [AMI] agrees that it shall not
          seek, develop, engage, promote or market any technology to replace
          Supplier’s products or services.226



222
      Id. at 5.
223
     See JX-600 (letter from Joe, as Managing Partner of Spectocor, on Spectocor
letterhead, notifying of breach under the SAA and demanding an accounting); JX-554 at
2-3 (e-mail from Joe, signing as Managing Member of Spectocor, discussing business
issues pertaining to the SAA).
224
    See Westendorf v. Gateway 2000, Inc., 2000 WL 307369, at *4 (Del. Ch. Mar. 16,
2000) (“[O]ne who knowingly accepts the benefits intended as the consideration, coming
to him or her under a contract voluntarily made by another in his or her behalf, becomes
bound by reason of such acceptance to perform his or her part of the contract.”), aff’d,
763 A.2d 92 (Del. 2000).
225
      2014 SAA § 17.
226
      Id. § 3.3.

                                            54
As explained below, I conclude that AMI breached Section 3.3 by no later than

April 2014 by secretly seeking to develop a device for use in the United States to

replace the PocketECG without first providing the required notice to

Medicalgorithmics.     Before discussing the factual basis for this conclusion, I

address two contentions the parties raise concerning the meaning of Section 3.3.

      First, AMI takes issue with what it means “to replace” Medicalgorithmics’

products under Section 3.3. Specifically, AMI contends that, before providing a

notice of termination, AMI only may not “market or take steps to market” a 3-in-1

device “in place of” the PocketECG, as if to suggest that a competitive product

must exist before AMI can be found in breach of Section 3.3. Medicalgorithmics

argues in response that AMI’s interpretation would read the words “seek” and

“develop” out of the contract. I agree with Medicalgorithmics.

      In my view, the plain meaning of “seeking” or “developing” a replacement

product does not require that a replacement product must be ready for use for a

breach of Section 3.3 to occur. Rather, AMI will have breached the agreement if it

was simply seeking to develop a replacement technology for the PocketECG

without giving notice of termination to Medicalgorithmics. 227 In other words, the

227
    Indeed, Joe admitted at trial when discussing AMI’s product development agreement
with imedLogix that development of a product (albeit one intended for use in the United
States) would violate the agreement. Tr. 575 (Joe) (“And if we were to do something of
this nature and intend to use it in the United States, I believe that would have been a
breach of our contract.”).

                                          55
expansive language of Section 3.3 does not require a landmark to occur, such as

the successful creation of a replacement product or the sale of such a replacement,

but is designed instead to ensure that “there can be no running start” for AMI to

begin work on a replacement for the PocketECG. 228

         Second, Medicalgorithmics contends that the plain language of Section 3.3

covers the replacement of its products or services anywhere in the world, and not

just in the United States. It points to Section 3.4 of the 2014 SAA, a reciprocal

provision to Section 3.3, in which Medicalgorithmics agrees not to replace AMI’s

services. That provision explicitly limits itself to the United States:

         Without first providing notice of termination of this Agreement to
         Buyer, Supplier agrees that it shall not seek, develop, engage, promote
         or market the Product in the United States to any other entity to
         replace Buyer’s services for current or future versions of Product and
         related IP. 229

Medicalgorithmics argues that the use of “in the United States” in Section 3.4

shows that the parties knew how to write a provision to cover only the United




228
   See Revolution Retail, 2015 WL 6611601, at *10-11 (noting the expansive meaning of
a provision preventing defendant from “engag[ing] in the business of developing,
marketing, or manufacturing [competitive] systems” and rejecting defendant’s argument
that it only prevents the actual sale of a system).
229
      2014 SAA § 3.4.

                                           56
States if the parties had wished to do so, and that the exclusion of this limitation in

Section 3.3 means that Section 3.3 is not geographically limited. 230

         AMI counters that Section 3.3 only covers products in the United States

because the companies’ commercial arrangement was centered entirely in the

United States.231 The 2014 SAA does focus on the companies’ relationship in the

United States. For example, the 2014 SAA states that the United States is “the

exclusive territory in which Buyer intends to provide services using Supplier’s

products”232 and that “[Medicalgorithmics] hereby grants to Buyer [AMI] and

Medi-Lynx Cardiac Monitoring, LLC the exclusive right to use, sell, market,

distribute, and license . . . the Products for diagnostic services within the United

States.”233        These   provisions   logically   coincide    with    the   fact   that

Medicalgorithmics sold its devices in other countries through different companies.

Ultimately, I need not decide whether Section 3.3 applies to products used outside


230
   See MicroStrategy Inc., 2010 WL 5550455, at *7 (“The use of different language in
the two sections shows the parties knew how to cover patents beyond the Licensed
Patents when that was their intent.”).
231
   There is evidence that this was Medicalgorithmics’ understanding of Section 3.3. In
March 2015, just one month before it sent AMI a notice of termination, Dziubinski and
Zolkiewicz expressed concern that Joe was attempting to disguise development of a
product in the United States as an international endeavor to avoid breaching Section 3.3.
See JX-563.
232
      2014 SAA ¶ 4.
233
      Id. § 8.1.

                                           57
of the United States because I find as a factual matter that AMI breached the

provision even if it were construed to apply only to the United States. I turn next

to that factual question.

         The trial evidence amply demonstrates that AMI sought to develop a 3-in-1

device to replace the PocketECG in the United States through its interactions with

Vasomedical, and later with imedLogix. Numerous contemporaneous documents

described in greater detail in the narrative above detail AMI’s efforts to do so with

Vasomedical:

      • On January 2, 2014, Nierle, Rodriguez and Velez met and discussed AMI’s
        desire to “develop future products . . . with a focus on the USA and their
        new market India,” and that AMI was interested in having Vasomedical
        “design/build a combo Event, Holter, MCOT device.”234

      • In February 2014, Joe and Ma joined Nierle, Rodriguez and Velez in another
        discussion, during which they discussed that AMI would explore its contract
        with Medicalgorithmics to “determine what OEM opportunities may exist
        within US and outside of US,” and both companies would look for “other
        opportunities for partnership” inside and outside of the United States.235
        Velez indicated that AMI “would be more interested in a custom build in
        which we have sole rights to distribute using our model,” 236 indicating the
        company’s desire to control its own product.

      • On March 10, 2014, Joe demonstrated the functionalities of the PocketECG
        for Vasomedical.       During the same meeting, AMI expressed its
        dissatisfaction with the PocketECG’s issues and delivery schedule, and
        Vasomedical discussed with AMI “ways [Vasomedical] could develop

234
      JX-253.
235
      JX-273.
236
      JX-279 at 2.

                                          58
          products that would [be] viable options to move from [AMI’s] existing
          relationship.”237 Notes from later in March indicate that AMI expressed a
          desire to “work towards a way out of [its Medicalgorithmics] relationship
          permanently.” 238

      • In April 2014, Joe visited Vasomedical’s production facilities in China,239
        during which he demonstrated the functionality of the PocketECG software
        platform to Ma. After the visit, Nierle summarized AMI’s interests, which
        included as its second-highest priority “a 3 in 1 Monitoring unit to provide
        an alternate source for their present product.” 240

      • In July 2014, Joe sent Ma an e-mail stating, “Our interests is [sic] to either
        build or acquire our own technologies (hardware and software) that further
        the progress of our presence in the US market with the ability to move into
        the international arena in the near future.”241

      • In August 2014, AMI sent Vasomedical a draft of a letter of intent “to begin
        discussing terms for the formation of two joint venture entities for the
        creation of a stand alone service center to support international operations in
        East Asia, more specifically China, and the development of a stand alone
        state-of-the-art three-in-one mobile telemetry device . . . .” 242 The MOU
        noted that the entity producing the 3-in-1 device—a term unique to the
        United States market—would be awarded to AMI at the end of the venture,
        provided that AMI did not sell or use the device in China.243

      • Annotations that Joe added to a subsequent outline of a proposed joint
        venture between AMI and Vasomedical’s concerning a “Multi-function

237
      JX-288.
238
      JX-296.
239
      Tr. 644 (Joe).
240
      JX-311.
241
      JX-350.
242
      JX-360 § 3.
243
      Id. § 6.

                                           59
         MCT device” stated that AMI would own all rights in the United States,
         while Vasomedical would own all the rights in China. 244

         In terms of a timeframe for the breach, it would be reasonable to conclude

from the record that AMI had begun to seek a new 3-in-1 device for use in the

United States in place of the PocketECG as early as January 2014, when Velez first

met with representatives of Vasomedical to discuss AMI’s desire to develop a

3-in-1 device for use in the United States. But the conclusion that AMI was

pursuing a replacement device for use in the United States is inescapable in my

opinion when the respective heads of AMI (Joe) and Vasomedical (Ma) met in

China in April 2014 to discuss developing “a 3 in 1 Monitoring unit to provide an

alternate source for [AMI’s] present product.” 245 Thus, based on the totality of the

evidence of record, I find that AMI breached Section 3.3 by no later than April

2014.

         In the face of numerous contemporaneous documents evidencing the nature

of AMI’s interactions with Vasomedical, the only rebuttal AMI offers is Joe’s

testimony that AMI was seeking a product for use in India or China, rather than the

United States, 246 and that the reason he sought exclusive rights for AMI to use the

product in the United States was to have “blocking rights” to prevent Vasomedical

244
      JX-368.
245
      JX-311.
246
      Tr. 646-47 (Joe).

                                         60
or the joint venture from competing with AMI’s current license with

Medicalgorithmics. 247 This testimony, which is uncorroborated by any documents

or other evidence, is not credible.

         To start, Joe’s own revisions to the outline of joint venture terms indicate

that AMI would control the replacement device in the United States and that

Vasomedical would retain the rights in China.248 It would be illogical for AMI to

seek a product for its use in India and China while giving away rights to that

product in China.          More importantly, Joe’s self-serving explanation about

“blocking rights” defies reason. It makes no business sense that AMI would

partner with Vasomedical to develop a 3-in-1 device for use in India (or elsewhere

outside the United States) and not seek a return on its investment in the most

lucrative healthcare market in the world—the United States—where all of AMI’s

experience had been gained to date and where, unlike other countries, all the

functions provided by the 3-in-1 device are reimbursable.249 Apart from being


247
      Tr. 553-54, 739 (Joe).
248
      JX-368; supra note 129 and accompanying text.
249
    Tr. 21-22 (Dziubinski) (“[T]he three-in-one, these three methods are reimbursable in
the United States. There’s no other country in the world where these three methods
would be reimbursable. And therefore a physician from India or from Poland would not
know what the three-in-one is. I don’t know any other -- any company that would sell
three-in-one devices outside of the United States. So this is a very U.S.-specific name.”);
id. (“Three-in-one device is very U.S.-specific name, because anywhere else in the world,
mobile cardiac telemetry is unknown, or nearly completely unknown, method.”); Tr.
376-77 (Moss) (opining that it would make no business sense to develop a 3-in-1 without
                                            61
unsubstantiated by documents or other evidence, Joe’s “blocking rights” assertion

cannot be squared with substantial evidence of Joe’s dissatisfaction with AMI’s

relationship with Medicalgorithmics and professed desire to find a replacement

product that would allow him to control AMI’s destiny and to sever its ties with

Medicalgorithmics. 250

       AMI’s efforts to develop a replacement product for the PocketECG in the

United States are also evident from its dealings with imedLogix, which began at

the tail end of AMI’s discussions with Vasomedical. As described in greater detail

above, Tamil was working on a product development agreement with AMI by

February 2015.       The agreement eventually reached called for a $10 million

payment if imedLogix developed a commercially viable product within one year,

which was contingent on obtaining FDA approval—a United States standard. The

specifications for the product to be made called for a 3-in-1 device and are replete




the intent to commercialize it in the United States since it is a specification unique to the
United States).
250
   See JX-288 (noting that Medicalgorithmics was having trouble delivering product on
time, was unwilling to extend their relationship with AMI internationally, and
PocketECG issues); JX-279 (noting that AMI “would be more interested in a custom
build in which we have sole rights to distribute using our model”). Defendants suggest
that Joe’s interest in Vasomedical concerned its MobiCare product for bedside patient
monitoring. Even if AMI also was interested in the MobiCare product, it is irrelevant
because, as I have found, AMI was in discussions with Vasomedical to develop a 3-in-1
cardiac monitoring device to replace the PocketECG in the United States.

                                             62
with other indications that the product was intended for use in the United States,

such as compliance with HIPAA and Texas Health Authority regulations. 251

         In the midst of its interactions with imedLogix, moreover, Velez asked

Medicalgorithmics for technical specifications on the PocketECG II, a highly

unusual request that triggered suspicions at Medicalgorithmics. The request took

place on the same afternoon that Joe, Velez, and others held a “Strategy meeting vs

Medicalgorithmics.” Velez’s testimony that he needed the specifications for a

large potential military contract, about which he could provide no names, details,

or documents, is not credible. Rather, the logical inference, which I find, is that

AMI’s meetings with imedLogix, the product development agreement they entered

into requiring FDA approval, the specifications for a 3-in-1 device ostensibly to be

used in the United States, and AMI’s request that Medicalgorithmics provide it

with the technical specifications for the PocketECG, all reflect a continuation of

the plan that began with Vasomedical to develop a new 3-in-1 device to replace the

PocketECG in the United States.

          Finally, a further reason I do not credit Joe’s naked denial that his

discussions with Vasomedical (and later with imedLogix) were in furtherance of a

plan to replace the PocketECG in the United States is that Joe’s credibility at trial

was lacking in numerous other important respects. For example:

251
      See supra Part I.H.

                                         63
      • Joe told Medicalgorithmics’ auditors (without warning Medicalgorithmics)
        that AMI had been systematically overcharged for PocketECG III devices.252
        But, as Joe admitted, he expected the price of the PocketECG III to be the
        higher amount of $505 rather than $303—as previously had been
        documented in Attachment 4 of the amendment to the 2011 SAA. 253 In
        other words, Joe had no good faith basis to claim that AMI had been
        overcharged for the PocketECG III devices. He manufactured a pricing
        dispute that not only created problems for Medicalgorithmics with its
        auditor, but also formed the basis of a meritless claim in this litigation.

      • In an effort to deny that AMI was trying to develop a 3-in-1 device with
        Vasomedical, Joe offered a convoluted, nonsensical explanation of the
        meaning of a multi-function MCT device. Joe initially claimed that a
        “multi-function” MCT device did not need to have any functionality other
        than telemetry, before essentially admitting that it likely would have the
        other functions of a 3-in-1 device. 254

      • Joe drafted but did not send an e-mail explaining to Dziubinski that “a new
        Telehealth technology we have just acquired” was for the purpose of
        international expansion.255 Shortly after, Joe drafted and sent a similar e-
        mail omitting any reference to international expansion.256 Joe ultimately
        admitted he never sent the original e-mail, but offered a confusing
        explanation for why it was not sent.257 AMI produced the unsent email in
        discovery and used it during Dziubinski’s deposition.258 During that
        deposition, Dziubinski explained that Medicalgorithmics had checked its
        servers and confirmed that the e-mail had never been received. 259 The e-

252
      JX-534.
253
      Tr. 728-32 (Joe); JX-223 at Attachment 4.
254
      Tr. 548-52 (Joe).
255
      JX-508.
256
      JX-510.
257
      See Tr. 588-90 (Joe).
258
      Dziubinski Dep. 568-71.
259
      Dziubinski Dep. 569.
                                             64
         mail appears to have been created in order to manufacture evidence that
         AMI’s discussions with other manufacturers were above board and directed
         only to international markets when, in reality, they were not.

      • Joe testified that the imedLogix agreement was created in April 2015.260
        This assertion was belied by evidence from Tamil’s privilege log that the
        document existed as of February 7, 2015.261

                                       *****

         In sum, for the reasons explained above, it is clear from the record that, at

least as of April 2014, when Joe went to China to meet with Ma, if not months

earlier, AMI was working with Vasomedical to seek a replacement for the

PocketECG for use in the United States. I thus find that AMI breached Section 3.3

of the 2014 SAA by no later than April 2014.

         D.      Materiality of AMI’s Breach

         Section 7.2 of the 2014 SAA provides that, “upon the occurrence of a

material breach of this Agreement, . . . the non-breaching Party shall be entitled to

immediately terminate this Agreement at their discretion[.]”         Thus, if AMI’s

breach of the 2014 SAA as of April 2014 was material, Medicalgorithmics was

entitled to terminate the agreement under its own terms at that time. In that

circumstance, AMI also would be entitled to terminate the 2014 SAA under

Delaware law, which provides that:


260
      Tr. 740 (Joe).
261
      Tr. 1122-23.

                                           65
            “A party is excused from performance under a contract if the other
            party is in material breach thereof.” . . . A “material breach” is a
            failure to do something that is so fundamental to a contract that the
            failure to perform that obligation defeats the essential purpose of the
            contract or makes it impossible for the other party to perform under
            the contract. In other words, for a breach of contract to be material, it
            must “go to the root” or “essence” of the agreement between the
            parties, or be “one which touches the fundamental purpose of the
            contract and defeats the object of the parties in entering into the
            contract.”262

            “The question whether the breach is of sufficient importance to justify non-

performance by the non-breaching party is one of degree . . . .” 263 Courts in

Delaware look to Section 241 of the Restatement (Second) of Contracts for

guidance regarding materiality of a breach. 264 That section lists the following

circumstances as significant in determining materiality of a breach:

            (a) the extent to which the injured party will be deprived of the
            benefit which he reasonably expected;

            (b) the extent to which the injured party can be adequately
            compensated for the part of that benefit of which he will be deprived;

            (c) the extent to which the party failing to perform or to offer to
            perform will suffer forfeiture;



262
   eCommerce Indus., Inc. v. MWA Intelligence, Inc., 2013 WL 5621678, at *13 (Del.
Ch. Sept. 30, 2013).
263
      Id.
264
  See, e.g., 2009 Caiola Family Trust v. PWA, LLC, 2015 WL 6007596, at *18 (Del. Ch.
Oct. 14, 2015); BioLife Solutions., Inc. v. Endocare, Inc., 838 A.2d 268, 278 (Del. Ch.
2003).

                                               66
         (d) the likelihood that the party failing to perform or to offer to
         perform will cure his failure, taking account of all the circumstances
         including any reasonable assurances;

         (e) the extent to which the behavior of the party failing to perform
         or to offer to perform comports with standards of good faith and fair
         dealing. 265

         Section 3.3 was designed to protect Medicalgorithmics by deterring AMI, its

exclusive licensee in the United States, from seeking or developing a product that

would compete with the PocketECG. 266               Dziubinski credibly testified that

Medicalgorithmics was willing to accept the 24-month termination notice

requirement, as opposed to an absolute ban on seeking competing technology,

because it would not allow enough time to develop a competing technology. 267

         By breaching the 2014 SAA, AMI deprived Medicalgorithmics of the

benefit it reasonably expected from this provision, namely that AMI would not be

able to begin seeking or developing a replacement product without officially

notifying Medicalgorithmics and putting a 24-month termination period in motion,

which would allow Medicalgorithmics to begin making its own arrangements for

its post-termination business. The mere fact that AMI did not succeed in bringing

a finalized replacement product to fruition does not negate this injury, because the
265
      Restatement (Second) of Contracts § 241 (1981).
266
      See Tr. 33 (Dziubinski).
267
   Tr. 37 (Dziubinski) (explaining the time periods involved in creating algorithms,
obtaining FDA approval, and testing a product).

                                            67
broadly drafted provision was intended to protect Medicalgorithmics by preventing

AMI from even seeking or developing a replacement. AMI’s breach exposed

Medicalgorithmics to these very risks and deprived it of a meaningful benefit of

the contract.

      Medicalgorithmics cannot be compensated adequately for the breach with

damages, and thus termination is an appropriate remedy under the circumstances in

my view. The breach was not a mere performance failure, but was a violation of

an agreement not to seek or develop replacement technology as part of an

exclusive licensing agreement.268 By seeking to replace the PocketECG, AMI

deprived Medicalgorithmics of a primary benefit of an exclusive licensing

arrangement.    Awarding damages to Medicalgorithmics while allowing the

licensing arrangement—or even the Status Quo Order—to continue would not be

adequate compensation, because the trust and exclusivity inherent in the 2014 SAA

have been irretrievably tainted. Similarly, it is not possible for AMI to cure its

breach, because it cannot undo the effects of its secret efforts to replace the

PocketECG or restore the protection from the risk of development that

Medicalgorithmics lost.


268
    AMI became a co-exclusive licensee instead of the sole licensee after the split
between Joe and Andy. Although somewhat less significant than a solely exclusive
arrangement, AMI remained only one of two providers of the PocketECG in the entire
United States.

                                        68
         AMI will not suffer a forfeiture if the agreement is terminated. AMI’s plan

to develop a replacement product presumably would have resulted in the eventual

termination of the agreement once it had completed development of a replacement.

Had AMI submitted a notice of termination in January 2014, when it began

meetings with Vasomedical, or even in April 2014, when Joe visited their facilities

in China, the two-year termination period already would have expired, and AMI

would no longer be able to rely on the agreement.

         AMI argues that the costs of retraining staff for a new product and for the

PocketECG devices it already has purchased, which will no longer be functional,

amount to a forfeiture. 269 But AMI eventually would have faced similar costs if it

had completed development of a replacement for the PocketECG or if it had

submitted a termination notice after beginning discussions with Vasomedical.

Even under the notice of termination that AMI sent with an effective date of May

2017, 270 AMI eventually would have incurred such costs. I therefore do not find

that AMI would suffer a forfeiture upon termination of the 2014 SAA.

         Finally, as discussed above, AMI was intentionally seeking and developing a

replacement for the PocketECG for use in the United States. It did so in secret and

without providing the required 24-month termination notice to Medicalgorithmics.

269
      Defs.’ Op./Ans. Post-Trial Br. 64.
270
      JX-631.

                                           69
This conduct does not meet the standards of good faith and fair dealing. To the

contrary, AMI’s covert plan to develop a replacement for the PocketECG that

would sabotage Medicalgorithmics’ distribution channels in the lucrative United

States healthcare market was undertaken in bad faith to deprive Medicalgorithmics

of a critical element of its bargain.

          AMI’s lack of good faith is further evidenced by the false allegations of

overcharging it made to Medicalgorithmics’ auditors without warning. 271         Joe

admitted at trial that he expected the price of the PocketECG III to be $513.83 (the

$505 base price plus interest), rather than the $303 he used in developing his

allegations of overcharging, and that he disputed the pricing simply to get

Dziubinski come to the table to renegotiate their contract. 272          Ambushing

Medicalgorithmics by stirring up its auditor in order to gain leverage to renegotiate

its pricing structure was another act of bad faith.

          Based on my consideration of the Restatement factors and my conclusion

that Medicalgorithmics was deprived of a meaningful benefit of the contract as a

result of AMI’s conduct in seeking a replacement product, I find that AMI’s breach

of the 2014 SAA in April 2014 was material, entitling Medicalgorithmics to



271
      See supra Part I.I.
272
      Tr. 728-32 (Joe).

                                          70
terminate the agreement under its own terms and under Delaware contract law.273

Consequently, Medicalgorithmics validly terminated the agreement in April 2015.

         Because I conclude that Medicalgorithmics validly terminated the 2014 SAA

based on AMI’s material breach of Section 3.3, I need not address

Medicalgorithmics’ separate claims for termination, namely AMI’s alleged

repudiation, its alleged breach of the duty to commercialize the PocketECG, its

alleged breach of the implied covenant of good faith and fair dealing, or

Medicalgorithmics’ right to terminate under Section 2-309 of the Uniform

Commercial Code. 274

         E.     Medicalgorithmics Did Not Breach the Agreement Before AMI

         AMI contends that Medicalgorithmics breached the 2014 SAA by failing to

timely deliver PocketECG III devices, with a material breach “for purposes of this

case” first occurring in August 2014, at which time Medicalgorithmics had

delivered only 747 of the 1,000 PocketECG III devices AMI had ordered in April,

120 days earlier. 275 This claim is based on Section 10.1 of the 2014 SAA, which

states that a failure to fulfill an order for any number of units within 120 days

constitutes “a material breach of this Agreement subjecting the Agreement to
273
      See supra note 262.
274
   Tr. Post-Trial Arg. 28 (noting that these other claims are alternative grounds to reach
the same end, namely a declaration that the termination was valid and damages).
275
      Tr. Post-Trial Arg. 45; Defs.’ Op./Ans. Post-Trial Br. 18.

                                               71
immediate termination at the discretion of Buyer.” 276 AMI argues that this breach

excused any subsequent breach by AMI.

         Medicalgorithmics disputes AMI’s characterization of these delivery delays

as material breaches, pointing out that the 120-day requirement assumed that

device orders would be prepaid in accordance with Attachment 2 to the SAA. It

also argues that, by continuing to perform under the contract by ordering and

accepting PocketECG devices, AMI waived any potential breach of this provision

by Medicalgorithmics. Both of these arguments have some persuasive force, but I

need not decide them because AMI’s breach occurred in April 2014 (if not earlier),

thereby preceding the purported breach by Medicalgorithmics that AMI alleges

occurred in August 2014. Consequently, Medicalgorithmics committed no prior

material breach that could have excused AMI’s obligations under the 2014 SAA,

including under Section 3.3.277

         Because I conclude that AMI materially breached the 2014 SAA in April

2014 and that Medicalgorithmics did not breach the 2014 SAA before AMI did, I

deny AMI’s counterclaims for damages and specific performance for

Medicalgorithmics’ alleged breach of the 2014 SAA.              In addition, because I


276
      2014 SAA § 10.1; see also supra note 37 and accompanying text.
277
   See BioLife Solutions, 838 A.2d 268, 278 (Del. Ch. 2003) (“A party is excused from
performance under a contract if the other party is in material breach thereof.”).

                                            72
conclude that Medicalgorithmics validly terminated the 2014 SAA, I deny AMI’s

counterclaim for a declaratory judgment that the 2014 SAA is still in force.

Finally, I deny AMI’s request for a declaration that Medicalgorithmics violated the

Uniform Commercial Code, which AMI did not press at trial or address in its

briefing,   thus   waiving   the   claim. 278    Judgment     will   be   granted   in

Medicalgorithmics’ favor on all of AMI’s counterclaims.

      F.     Medicalgorithmics’ Damages

      Medicalgorithmics seeks damages in addition to termination of the 2014

SAA and of the Status Quo Order. “Plaintiffs must prove their damages by a

preponderance of the evidence”279 and “must prove their damages with a

reasonable degree of precision and cannot recover damages that are merely

speculative or conjectural.”280 On the other hand, “Delaware does not require

certainty in the award of damages where a wrong has been proven and injury

established. . . . Responsible estimates of damages that lack mathematical certainty




278
   Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are
deemed waived.”).
279
   Beard Research, Inc. v. Kates, 8 A.3d 573, 613 (Del. Ch. 2010), aff’d sub nom. ASDI,
Inc. v. Beard Research, Inc., 11 A.3d 749 (Del. 2010).
280
  Kronenberg v. Katz, 872 A.2d 568, 609 (Del. Ch. 2004) (internal quotation marks
omitted).
                                          73
are permissible so long as the court has a basis to make such a responsible

estimate.” 281

         Medicalgorithmics did not offer any independent expert testimony to attest

to its damages. It instead offered a simplistic calculation of expectation damages

through its CEO (Dzuibinski) that was presented in a matter of minutes and

comprises about four pages out of 1,306-page trial transcript.282

         Dzuibinski estimated that AMI’s breach caused Medicalgorithmics to lose

annual sales of 6,657 PocketECG III devices and associated monthly service

charges for a two-year period beginning in April 2015, when Medicalgorithmics

provided its notice of termination. This sales estimate is based on a year-to-year

growth rate of 100% for the first year, which was the average rate of sales growth

over the past few years.283 It also assumes that AMI would continue buying

approximately 555 devices each month for the 24-month period leading up to a

proper      ending     of   the      agreement.284    Based     on   these    assumptions,

Medicalgorithmics contends it suffered $3,150,698 in damages in the first year,

consisting of $1,531,110 in lost net revenues for device sales plus $1,619,588 in


281
      Beard Research, 8 A.3d at 613 (internal citations and quotation marks omitted).
282
      See Tr. 147-50 (Dziubinski).
283
      Tr. 147-48 (Dziubinski).
284
      JX-822.

                                               74
lost net revenues for services.285 Because the contract would not have expired for

24 months after a valid notice of termination, Medicalgorithmics argues it is

appropriate to double this one-year figure, for a total of $6,301,696 in damages.286

            AMI disputes both the evidentiary foundation for these figures and the logic

behind them. It argues that the assumption of a continued 100% growth rate is

unrealistic, and that it would not be reasonable to expect AMI to continue

purchasing large volumes of devices close to the end of the two-year termination

period because the devices would no longer be supported by Medicalgorithmics

upon expiration of the contract and thus would become unusable.287 AMI further

argues it would not have continued purchasing such a high volume of PocketECG

III devices because what it really wanted were CDMA devices, which were not

available.




285
      Id.
286
      Pl.’s Op. Post-Trial Br. 63.
287
    Defs.’ Op./Ans. Post-Trial Br. 64 (“[The PocketECG] devices will not work without
access to [Medicalgorithmics’] services, so AMI will have purchased products that it
cannot use . . . .”); 71-72 (arguing that AMI would have slowed purchases to “avoid
being stuck with millions of dollars of unusable devices once the SAA terminated”); see
also Tr. 1300 (AMI requesting completion of a 24-month termination period so that AMI
would not have to “shut our doors”); 2014 SAA § 14.1 (noting that all rights to the
licensed software belong to Medicalgorithmics except as provided in the agreement); JX-
393 at 59-61 (manual explaining that PocketECG relies on client software).

                                             75
      I agree with AMI that Medicalgorithmics’ damages estimate is based on

unrealistic and speculative assumptions.           Given the tension between the

companies,     including    ongoing     concerns     AMI      had    expressed     about

Medicalgorithmics’ production timelines and product quality, it is unlikely that

AMI would have purchased 6,657 PocketECG III devices had the contract not been

terminated.288 Much to AMI’s dismay, Medicalgorithmics had failed to promptly

develop a marketable CDMA version of the PocketECG III. It also is unrealistic to

assume that AMI would have continued to purchase large numbers of devices right

up until the contract expired after the hypothetical two-year period used for

estimating damages because the devices would cease to function at the end of the

period. Moreover, although AMI’s material breach of Section 3.3 undoubtedly

caused certain unquantifiable injuries, Medicalgorithmics’ decision to terminate

the agreement could be said to have caused most of the alleged losses for which it

seeks a recovery because it could have chosen not to terminate the agreement and

to sue instead for injunctive relief to address AMI’s violation of Section 3.3. For

all these reasons, I reject Medicalgorithmics’ estimate of damages as unrealistic

and speculative.

288
    Putting aside the relationship and product issues that would have made large orders
less likely, Medicalgorithmics’ estimate of about 555 devices per month is aggressive
compared to deliveries made shortly before the litigation. Compare JX-700 (showing
deliveries of 800 devices in the first quarter of 2015, or 200 per month on average) with
JX-822 (damages calculation estimating deliveries of 555 devices per month).

                                           76
         The Court may exercise its “own independent judgment in determining the

calculation of damages.” 289        In my view, a realistic estimate of damages

Medicalgorithmics suffered can be derived from the 1,000 devices that AMI

ordered in November 2013 and later cancelled on April 23, 2015. 290 These 1,000

devices are the balance that had not been filled from the order for 4,000

PocketECG III devices AMI placed in November 2013, consisting of 2,000 GSM

and 2,000 CDMA devices.291           Although the unfilled balance was for CDMA

devices that Medicalgorithmics was unable to provide, it is reasonably likely in my

judgment that AMI would have accepted GSM devices for this remaining balance

given that AMI previously switched the other half of its order for CDMA units

(i.e., 1,000 units) to GSM units during 2015 to meet its sales demand.292

         In its damages analysis, Medicalgorithmics calculated its loss of net revenue

for PocketECG III devices at $230 per unit, representing the difference between a




289
      In re Mobilactive Media, LLC, 2013 WL 297950, at *24 (Del. Ch. Jan. 25, 2013).
290
      JX-615.
291
      JX-207.
292
   See JX-700; JX-561; JX-481; JX-495; JX-526; JX-530; Tr. 274 (Dziubinski). It
appears that if things had proceeded in the ordinary course, a greater proportion of this
order would have been switched to GSM. See JX-572 (requesting switch for 500 units,
which would have brought the total switched to 1,300 out of 2,000, although order never
appears to have been executed).

                                            77
price of $505 and variable manufacturing costs of $275 per unit. 293 AMI argues

that this calculation improperly fails to account for Medicalgorithmics’ fixed costs,

including R&D. It is not necessary, however, to add fixed costs to the per-device

cost because Medicalgorithmics would have incurred those costs regardless of

AMI’s breach. 294             For similar reasons, I reject AMI’s argument that

Medicalgorithmics should use its net profit margin of 36.7% 295 rather than its

calculation based on sale price and manufacturing costs.                         Accepting

Medicalgorithmics’ estimate of $230 per unit in lost net revenue, I calculate its

damages from the lost sale of 1,000 devices to be $230,000.

         It stands to reason that Medicalgorithmics also suffered damages for lost

service fees for losing the opportunity to sell the estimated 1,000 devices. It would

be speculative to award additional damages for those service fees, however,

because the record is devoid of reliable evidence from which to extrapolate a

reasonable estimate of the service fees one would expect to derive from devices

sold under the circumstances discussed above, particularly given the uncertainty as

to how long the devices would remain active. Although a plaintiff need not

293
      Tr. 252 (Dziubinski).
294
    See All Pro Maids, Inc. v. Layton, 2004 WL 1878784, at *11 (Del. Ch. Aug. 9, 2004)
(“[T]he Court will not charge fixed costs against Plaintiff’s damages. The Court finds
that [plaintiff’s] expert properly did not deduct fixed costs in calculating lost profits.”),
aff’d, 880 A.2d 1047 (Del. 2005).
295
      Tr. 254 (Dziubinski).

                                             78
calculate damages with certainty, “this Court will nonetheless refuse to award

damages based on mere speculation or conjecture where a plaintiff fails to

adequately prove damages.”296        In this case, Medicalgorithmics’ estimated

damages for lost service fees are speculative, and it has failed to adequately prove

them.

        AMI argues that Medicalgorithmics failed to mitigate its damages because it

could have shipped more devices to AMI but it refused to do so without receiving

adequate assurances of payment from AMI. This argument is unpersuasive for

several reasons. First, Medicalgorithmics’ request for adequate assurances was

made in response to AMI’s contention that the price for each device should have

been $303 and not $505. As explained above, this request was a reasonable

response to AMI’s bad faith argument that it was being overcharged $202 per

device. Second, although Medicalgorithmics did request adequate assurances, it

was AMI that definitively withdrew its device orders before Medicalgorithmics

terminated the 2014 SAA as a result of AMI’s material breach. Third, even though

it was not required to ship more devices under the Status Quo Order,

Medicalgorithmics nevertheless shipped another 200 units in June 2015 upon




296
   Encite LLC v. Soni, 2011 WL 5920896, at *25 (Del. Ch. Nov. 28, 2011) (quoting
Beard Research, 8 A.3d at 613) (internal quotation marks omitted).

                                         79
AMI’s request, 297 thus reducing its damages from a base of 1,200 withdrawn

devices to 1,000.298 In sum, AMI has not demonstrated that Medicalgorithmics

failed to mitigate its damages from the 1,000 devices that were never sold.

         Finally, Medicalgorithmics contends that it is entitled to late payment

charges based on Section 5.3 of the 2014 SAA, which states:

         Supplier may assess late payment charges on amounts not paid within
         thirty (30) days of the invoice date and written notice of non-payment
         delivered to Buyer at the maximum rate allowed by law or 1½% per
         month, whichever is less.299

When Medicalgorithmics sent late payment notices to AMI on March 18, 2015, it

provided written notice of non-payment and that it was assessing late charges.300

Dziubinski testified that these charges amounted to $23,482.08. 301 AMI has not

disputed Medicalgorithmics’ calculation of this amount, which apparently is based




297
      Tr. 1093 (Velez); Tr. 274 (Dziubinski).
298
    See JX-700 (noting 4,000 ordered devices and 3,000 delivered, including June 2015
delivery of 200 devices). Medicalgorithmics also sent another 250 devices at some point
in 2015 that AMI returned because it had not requested them. Tr. 274 (Dziubinski).
299
      2014 SAA § 5.3.
300
    JX-552 (noting assessment on each invoice) (“Medicalgorithmics S.A. reserves its
right to assess and hereby does assess late payment charges on the invoiced amount not
paid within thirty (30) days of invoice date at the maximum rate allowed by law or 1.5%
per month, whichever is less.”).
301
      Tr. 151 (Dziubinski); JX-800.

                                                80
on the legal interest rate of 6%. 302 Thus, Medicalgorithmics is entitled to this

amount in addition to its other damages.

         G.      Medicalgorithmics’ Attorneys’ Fees and Expenses

         Medicalgorithmics argues AMI must indemnify it for its costs and attorneys’

fees under Section 15 of the 2014 SAA. That provision states, in relevant part:

         [AMI] shall indemnify, defend, and hold [Medicalgorithmics]
         harmless from all claims, damages, settlements, expenses, and
         attorneys’ fees incurred as a result of: . . . [AMI’s] material breach of
         this Agreement, including any of its representations or warranties in
         this Agreement.303

I have concluded that AMI materially breached the 2014 SAA. This action sought

various forms of relief in response to that breach. Consequently, the expenses and

attorneys’ fees in this litigation were incurred as a result of AMI’s material breach.

         AMI argues it should not be held responsible for Medicalgorithmics’ fees

and expenses because they were incurred as a result of Medicalgorithmics’

voluntary decision to terminate the SAA and to file suit.            This argument is

unpersuasive. If a party files litigation to vindicate its rights in response to a

material breach, it may be true that the suit and its associated expenses resulted

from that party’s voluntary decision to litigate, but they are also the result of the

material breach itself. Refusing to indemnify expenses for a suit that was filed in

302
      Pl.’s Op. Post-Trial Br. 63; 6 Del. C. § 2301(a).
303
      2014 SAA § 15.

                                               81
response to a material breach by AMI would render the indemnification provision

ineffective and is not a reasonable interpretation of “incurred as a result of.”304

The same holds true for Medicalgorithmics’ decision to terminate the agreement

after the material breach. These expenses are one and the same, because the

litigation was filed in order to receive a declaration that the agreement validly was

terminated.       For these reasons, I award Medicalgorithmics the expenses and

attorneys’ fees it incurred in this action under Section 15 of the 2014 SAA. 305

         H.      Declaratory Judgment Regarding PocketECG III Charges

         Medicalgorithmics seeks a judgment declaring that it does not owe any

alleged overcharges to AMI based on the purchase price of the PocketECG III.306

This request stems from AMI’s contentions that Medicalgorithmics charged it

$505 per PocketECG III device under Attachment 4 of the amendment to the 2011

SAA, rather than the $303 that was listed for the PocketECG II in Attachment 2 of

the original 2011 SAA and the 2014 SAA. 307

304
   Notably, in arguing that Medicalgorithmics materially breached the SAAs, AMI itself
contends that it is entitled to “everything incurred as a result of this litigation”
notwithstanding the fact that some of its expenses undoubtedly stemmed from its
counterclaims for breach. Defs.’ Op./Ans. Br. 73.
305
   For the avoidance of doubt, this award of attorneys’ fees does not include expenses for
unrelated litigation, including litigation surrounding the potential purchase of Medi-Lynx
by Medicalgorithmics.
306
      Pl.’s Post-Trial Op. Br. 64.
307
      2014 SAA at Attachment 2.

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         As discussed at several points above, AMI’s dispute over the pricing of the

PocketECG III was not in good faith. AMI admitted at trial it expected the price of

the PocketECG III to be $505 rather than $303, and it recognized the exclusion of

Attachment 4 from the 2014 SAA was either inadvertent, or was intended to be

followed up by an amendment identical to the amendment to the 2011 SAA.308

Without Attachment 4, the 2014 SAA has no price for the PocketECG III and does

not call for the sale of that device at all; instead, the 2014 SAA (in Attachment 2)

lists only the PocketECG II device and its price of $303.

         The record suggests that AMI was hoping to trap Medicalgorithmics in a

difficult position regarding device pricing in order to renegotiate its agreements in

AMI’s favor. On January 27, 2015, Joe responded to a lengthy e-mail Dziubinski

sent a month earlier discussing their relationship. Joe’s response was cryptic,

simply noting, “I received your email dated 12/23/2013 [sic] and am thrilled you

have achieved your life goals. ” and posing a seemingly unrelated question: “Is

PECG III an improvement of PECG II or is it a new stand-alone Product?”309

         The purpose of the e-mail becomes obvious in its full context. On the same

day, Joe and AMI’s staff were meeting to discuss AMI’s strategy against


308
   Tr. 728-32 (Joe); see also supra Part I.F (discussing omission of Attachment 4 from
2014 SAA).
309
      JX-496.

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Medicalgorithmics.     That strategy was to have Dziubinski admit that the

PocketECG III was an “improvement” so that AMI could claim that it fell under

the definition of “Product” under the 2014 SAA and therefore qualified for the

price of $303 rather than $505, and to surprise Medicalgorithmics’ auditors with

allegations of overcharges in order to enhance AMI’s negotiating leverage,

sabotage the company, or both. As I have explained, AMI did all of those things

over the ensuing months, demanding that the price for all of their previously

ordered PocketECG III devices be reduced.

      AMI’s strategy relies on the omission of Attachment 4 from the 2014 SAA,

which the parties did not intend. The merits of AMI’s strategy are unpersuasive, in

particular because all of the purchase orders between the parties listed the higher

price of $505 plus interest.310 These orders already fell outside the terms of the

2014 SAA and its attachments because they did not require AMI to prepay for the

devices. Instead, they allowed AMI to order devices without prepaying, provided

that AMI would pay the agreed price of $505 plus interest.311




310
   JX-207. As mentioned previously, the price for these orders was $513.83 rather than
$505, reflecting the interest accruing in lieu of prepayment.
311
   In addition, the PocketECG III, although more expensive than the PocketECG II,
would obviate the need for AMI to procure a separate smartphone device. See supra note
14 and accompanying text.

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         For these reasons, I conclude that AMI’s pricing dispute was without merit

and that the price of the PocketECG III was properly set at a prepayment of $505.

The agreed price for devices paid for within 90 days of delivery was $513.83,

which included interest. AMI argues that this figure overstates the interest charge

and should only be $510.85. 312 This figure comes from an internal e-mail from

Zolkiewicz to Dziubinski in which Zolkiewicz calculates $510.85 as the charge

including interest.313 At trial, Dziubinski admitted the possibility that he made a

mistake in calculating the final price, including interest.314 Regardless of any

internal calculations, however, the price clearly conveyed to and accepted by AMI

was $513.83.315 That same figure was used in AMI’s own purchase orders.316

Consequently, AMI’s claim that it was overcharged by $2.98 per device based on a

calculation within an internal Medicalgorithmics e-mail is without merit—as well

as miniscule.




312
      Defs.’ Op./Ans. Post-Trial Br. 26 n.18.
313
      JX-192.
314
      Tr. 197 (Dziubinski).
315
      JX-190.
316
      JX-208.

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         AMI has failed to present any other evidence of overcharging.        Thus,

Medicalgorithmics is entitled to a declaration that it does not owe AMI for any

alleged overcharges relating to the price of the PocketECG III.

IV.      CONCLUSION

         For the foregoing reasons, Medicalgorithmics is entitled to a declaratory

judgment that it validly terminated the 2014 SAA. AMI and Spectocor are jointly

and severally liable to Medicalgorithmics for damages in the amount of

$253,482.08 plus prejudgment interest,317 and for Medicalgorithmics’ costs and

attorneys’ fees incurred in this litigation. Medicalgorithmics also is entitled to a

declaration that it is not liable to AMI for any alleged overcharges concerning the

price of the PocketECG III device, and to entry of judgment in its favor dismissing

all of AMI’s counterclaims with prejudice. The parties are directed to confer and

to submit a final judgment and order in accordance with this opinion within ten

business days.




317
      See Citadel Hldg. Corp. v. Roven, 603 A.2d 818, 826 (Del. 1992).

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