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Mixed verdict in Philips trade secret lawsuit puts 'right to repair' in spotlight

by Gus Iversen, Editor in Chief | May 03, 2023
Parts And Service
A federal jury in the Western District of North Carolina has issued a verdict in a case between Philips Medical Systems and independent service organization, TEC (Transtate Equipment Company) Holdings, (or Transtate). The outcome appears to offer a mixed bag for an industry seeking clarity on right to repair.

The jury determined that Transtate, which is now part of Avante Health Solutions, did not misappropriate any Philips trade secrets, but would still be on the hook for up to $4.2 million concerning violations of the Digital Millennium Copyright Act.

Philips, the plaintiff in the case, claimed Transtate, the defendant, stole intellectual property and hacked Philips technology without the proper credentials. Transtate countered that Philips refused to share required intellectual property and tried to shut others out of the parts and service repair market. Judge Max O. Cogburn Jr., overseeing the case, previously ruled that Transtate violated the Digital Millennium Copyright Act (DMCA) through the files it used to circumvent Philips security, leaving the jury to rule on damages and Transtate’s antitrust claims.

After the better part of a four week trial, the jury issued a mixed ruling. If affirmed on appeal, Transtate may have to pay Philips either $1,176,250 in DMCA statutory damages, or $512,096 in actual damages added to nearly $3,656,035 in profits, (totaling $4.2 million) for its 941 DMCA violations. Transtate was awarded over $800,000 pertaining to claims that Philips injured Transtate’s business.

"While much of the trial record is sealed, the jury’s verdict seems to suggest that it was challenging to get adequate information and training to conduct medical equipment maintenance," a legal advisor told HCB News, adding that an appeal in this case seems likely, and further "clarity" concerning damages is also expected.

In a summary judgement ruling back in February, Cogburn described the case as exemplifying "problems with the DMCA and the right to repair," using the law not as a tool to prevent copyright infringement, but as a weapon to block competition for others in the repair industry, legal news site Law360 noted.

In 2021, the Librarian of Congress issued a ruling to accept for the next three years the recommendation of the Register of Copyrights concerning an exemption to the DMCA pertaining to medical equipment manuals. The exemption, which was initially sought by Transtate, allows access to computer programs and data files that are contained in and control the functioning of medical devices for the purpose of diagnosis, maintenance, or repair of devices.

Opponents of the 2021 ruling argued, among other things, that patient safety would be undermined and cybersecurity risks could be created. In a relatively rare action, the FDA advised that it did not share the view that an exemption to the DMCA for circumvention conducted solely for the purpose of diagnosis, maintenance or repair would necessarily jeopardize cybersecurity safety.

Of note, the jury ruling in Philips vs. Transtate also found that Philips did not hold monopoly power for the repair and service of its machines, nor did it attempt to achieve a monopoly.

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