WebMD in the United States

Introduction

WebMD Health Corp. is a Delaware corporation that was incorporated on May 3, 2005.

WebMD is a “leading provider of health information services to consumers, physicians and other healthcare professionals, employers and health plans through our public and private online portals, mobile platforms and health-focused publications.” (1) The Company engages “consumers, physicians and other healthcare professionals across a multi-screen experience, allowing us to empower and enable health decisions anytime and anywhere.”

The WebMD network of “public” (since WebMD runs also private portals) portals includes: www.WebMD.com (“our primary public portal for consumers and related mobile-optimized sites and mobile apps”); www.Medscape.com, (“our primary public portal for physicians and other healthcare professionals and related mobile-optimized sites and mobile apps”) and other sites.

WebMD completed the initial public offering (IPO) and began trading on the Nasdaq National Market on September, 2005.

Legal Proceedings

In the normal course of business, WebMD and its subsidiaries are involved in various claims and legal proceedings.

MyMedicalRecords, Inc. v. WebMD Health Corp. and WebMD Health Services Corp.

On February 13, 2013, MyMedicalRecords, Inc. filed an action against WebMD Health Corp. and WebMD Health Services Corp. in the United States District Court in the Central District of California. The complaint from MyMedicalRecords alleged that the personal health record tool sold by WebMD Health Services Group, Inc. infringes U.S. Patent No. 8,301,466 issued on October 30, 2012. The complaint sought injunctive relief, as well as damages in unspecified amounts. Pursuant to an agreement between the parties, MyMedicalRecords dismissed the complaint without prejudice in order to enable the parties to try to resolve the matter without the timing constraints of the litigation. The parties were unable to resolve the matter and, on October 2, 2013, MyMedicalRecords filed a new complaint against WebMD Health Corp. and WebMD Health Services Corp. alleging infringement of U.S. Patent No. 8,301,466 as well as U.S. Patent No. 8,498,883 issued on July 30, 2013. Plaintiff is seeking unspecified damages and an injunction with respect to certain products offered by WebMD Health Corp. and WebMD Health Services Corp. WebMD has filed an answer. The Court has consolidated Plaintiffs claim against the WebMD with its claims against several other companies. The Court has scheduled the claims construction hearing for August 18, 2014 and has suspended fact discovery prior to such hearing except for discovery related solely to the issue of claim construction. WebMD Health Corp. and WebMD Health Services Corp. believe that the MyMedicalRecords’s claims are without merit. (2)

National Jewish Health v. WebMD Health Services Group, Inc. and WebMD Health Corp.

On October 25, 2012, National Jewish Health, a Colorado non-profit corporation, filed a complaint against WebMD Health Services Group, Inc. and WebMD Health Corp. in United States District Court for the District of Colorado alleging copyright infringement, misappropriation of trade secrets, tortious interference with prospective business relations, and breach of contract. The allegations relate to a condition management program of the WebMD’s private portals. The complaint seeks injunctive relief, as well as damages of $8,000 to $10,000. The Court issued a Scheduling Order on February 11, 2013 and the parties completed fact discovery on August 9, 2013. National Jewish Health had filed a motion seeking to extend the discovery period that was opposed by WebMD. The Court appointed a Special Master to decide the motion and the Special Master denied Plaintiff’s motion in a Report and Recommendation filed on March 24, 2014 that was adopted by the Court on March 25, 2014. Each party has also filed a motion for partial summary judgment. National Jewish Health is seeking partial summary judgment on the issue of breach of contract, alleging that WebMD breached a non-disclosure agreement; and WebMD is seeking summary judgment on the issue of damages, alleging that National Jewish Health has introduced no evidence that it has suffered any damages as a result of any of the claims that it has alleged against WebMD. The briefing of each motion has been completed and the motions are pending. On March 25, 2014, the Court held a Final Pretrial Conference and entered the parties’ proposed Final Pretrial Order. A 10-day jury trial has been set for March 2-13, 2015. WebMD believes the National Jewish Health’s claims are without merit and intends to vigorously defend against them. (3)

Coverage Dispute with Stop Loss Carrier for Health Benefit Plan

WebMD sponsors and maintains a self-insured group health and prescription benefit plan (the “Health Plan”) for its eligible employees and their dependents. WebMD purchases stop loss insurance coverage on an annual basis to reimburse WebMD for claims that exceed certain individual and/or aggregate claim amounts under the Health Plan. On May 7, 2013, WebMD was advised that the former stop loss carrier for the Health Plan, Everest Reinsurance Company (“Everest”), was attempting to deny payment for certain medical claims under the Health Plan that were pending under the 2012 stop loss policy, and to recover certain payments that had already been made under the 2011 and 2012 stop loss policies. These claims were incurred in 2011 and 2012 and had previously been approved by Horizon Blue Cross and Blue Shield of New Jersey, the third party claims administrator for the Health Plan appointed by WebMD. The maximum amount of claims in dispute by Everest is approximately $4,900, of which approximately $1,965 remains unpaid by Everest. On June 27, 2013, WebMD filed an action in the Supreme Court, State of New York (“New York Action”), seeking payment from Everest of the $1,965 in outstanding claims. On August 14, 2013, Everest filed an action in the Superior Court, State of New Jersey (“New Jersey Action”), against WebMD, the claims administrator and the Company’s insurance broker seeking recovery of approximately $2,935 paid by Everest under the stop loss policies and seeking a declaration that the remaining $1,965 is not payable by Everest. On August 15, 2013, Everest filed a motion in the New York Action seeking to dismiss the complaint filed by WebMD on forum non conveniens grounds. On October 3, 2013, the New York Action court granted WebMD’s motion for a temporary restraining order and stayed the New Jersey Action pending adjudication of Everest’s motion to dismiss the New York Action and WebMD’s cross motion to dismiss the New Jersey Action. A preliminary injunction hearing was held on November 7, 2013 in the New York Action, following which, the New York Action court issued orders: (i) denying Everest’s motion to dismiss (or, in the alternative, for a stay of) the New York Action; and (ii) granting WebMD’s motion enjoining Everest from prosecuting the New Jersey Action pending a stipulation of the parties or further order of the court. Everest answered the New York Action complaint on or about December 9, 2013, including the assertion of counterclaims similar in content and substance to its allegations in the New Jersey Action. Everest then voluntarily dismissed the New Jersey Action on or about December 10, 2013. The parties to the New York Action are currently proceeding with discovery. WebMD believes the $1,965 outstanding from Everest will be recoverable. Additionally, WebMD believes that the $2,935 previously paid by Everest will not be repayable by WebMD. (4)

HLTH Corporation

On October 23, 2009, WebMD and HLTH announced the completion of their merger. The merger eliminated the controlling class of WebMD stock held by HLTH Corporation and WebMD Health Corp.’s existing dual-class stock structure.
HLTH, “as a result of its ownership of approximately 95.9% of the total voting power of (WebMD Health Corp.) outstanding common stock, has the ability to cause the election or removal of (WebMD Health Corp.) entire Board of Directors, to determine matters submitted to a vote of (WebMD Health Corp.) stockholders without the consent of (WebMD Health Corp.) other stockholders, and to exercise a controlling influence over (WebMD Health Corp.)business and affairs.” (5) Form 10-K, 2010

Department of Justice and SEC Investigations of HLTH Corporation

The United States Attorney for the District of South Carolina is conducting an investigation of HLTH Corporation, which HLTH Corporation first learned about on September 3, 2003. Based on the information available to HLTH Corporation, it believes that the investigation relates principally to issues of financial accounting improprieties for Medical Manager Corporation, a predecessor of HLTH Corporation (by its merger into HLTH in September 2000), and, more specifically, its Medical Manager Health Systems, Inc. subsidiary. Medical Manager Health Systems was a predecessor to Emdeon Practice Services, Inc., a subsidiary that HLTH Corporation sold to Sage Software, Inc. in September 2006.

While HLTH Corporation is not sure of the investigation’s exact scope, it does not believe that the investigation relates to the business of (WebMD Health Corp.) or any of (WebMD Health Corp.) subsidiaries. HLTH Corporation believes that the investigation relates principally to issues of financial accounting improprieties relating to Medical Manager Health Systems, including activities that artificially inflated revenues and earnings of Medical Manager Health Systems. HLTH Corporation has been cooperating and intends to continue to cooperate fully with the U.S. Attorney’s Office. HLTH Corporation Board of Directors has formed a Special Committee consisting solely of independent directors to oversee this matter, with the sole authority to direct HLTH Corporation response to the allegations that have been raised.

In January 2005, certain former employees of Emdeon Practice Services agreed to plead guilty to mail fraud and tax evasion as a result of the investigation by the U.S. Attorney. According to the Informations, Plea Agreements and Factual Summaries filed by the U.S. Attorney in, and available from, the District Court of the United States for the District of South Carolina — Beaufort Division, on January 7, 2005, the three former employees and other then unnamed co-schemers were engaged in schemes between 1997 and 2002 that included causing companies acquired by Medical Manager Health Systems to pay the former vice president in charge of acquisitions for Medical Manager Health Systems and co-schemers kickbacks which were funded through increases in the purchase price paid by Medical Manager Health Systems to the acquired company and that included fraudulent accounting practices to inflate artificially the quarterly revenues and earnings of Medical Manager Health Systems when it was an independent public company called Medical Manager Corporation from 1997 through 1999, when and after it became acquired by Synetic, Inc. in July 1999 and when and after it became a subsidiary of HLTH in September 2000. A fourth former officer of Medical Manager Health Systems pleaded guilty to similar activities later in 2005.

On December 15, 2005, the U.S. Attorney announced indictments of (several) former officers and employees of Medical Manager Health Systems. The Indictment charges (these former offices and employees) with conspiracy to commit mail, wire and securities fraud, a violation of Title 18, United States Code, Section 371 and conspiracy to commit money laundering, a violation of Title 18, United States Code, Section 1956(h). The indictment charges Messrs. Sessions and Ward with substantive counts of money laundering, violations of Title 18, United States Code, Section 1957. The allegations set forth in the Indictment describe activities that are substantially similar to those described above with respect to the January 2005 plea agreements.

On February 27, 2007, the United States Attorney filed a Second Superseding Indictment with respect to the former officers and employees of Medical Manager Health Systems charged under the prior Indictment, other than (one of them). The allegations set forth in the Second Superseding Indictment are substantially similar to those described above. The trial of the indicted former officers and directors of Medical Manager Health Systems (was) scheduled for May 4, 2009.

Based on the information it has obtained to date, including that contained in the court documents filed by the United States Attorney in South Carolina, HLTH Corporation does not believe that any member of its senior management whose duties were not primarily related to the operations of Medical Manager Health Systems during the relevant time periods engaged in any of the violations or improprieties described in those court documents. HLTH Corporation understands, however, that in light of the nature of the allegations involved, the U.S. Attorney’s office has been investigating all levels of HLTH Corporation’s management. Some members of the Company’s senior management are also serving or have served as members of senior management of HLTH Corporation. In the event members of the Company’s senior management were to be implicated in any wrongdoing, it could have an adverse impact on (WebMD Health Corp.).

HLTH Corporation understands that the SEC is also conducting a formal investigation into this matter.

The terms of an indemnity agreement between HLTH Corporation and (WebMD Health Corp.) provide that HLTH Corporation will indemnify (WebMD Health Corp.) against any and all liabilities arising from or based on this investigation. (6)

Department of Justice and SEC Investigations of Emdeon

The United States Attorney for the District of South Carolina is conducting an investigation of Emdeon, which Emdeon first learned about on September 3, 2003. Based on the information available to Emdeon, it believes that the investigation relates principally to issues of financial accounting improprieties for Medical Manager Corporation, a predecessor of Emdeon (by its merger into Emdeon in September 2000), and, more specifically, its Medical Manager Health Systems, Inc. subsidiary. Medical Manager Health Systems was a predecessor to Emdeon Practice Services, Inc., a subsidiary that Emdeon sold to Sage Software in September 2006.

While Emdeon is not sure of the investigation’s exact scope, it does not believe that the investigation relates to the business of our company or any of our subsidiaries. Emdeon believes that the investigation relates principally to issues of financial accounting improprieties relating to Medical Manager Health Systems, including activities that artificially inflated revenues and earnings of Medical Manager Health Systems. Emdeon has been cooperating and intends to continue to cooperate fully with the U.S. Attorney’s Office. Emdeon’s Board of Directors has formed a Special Committee consisting solely of independent directors to oversee this matter, with the sole authority to direct Emdeon’s response to the allegations that have been raised.

In January 2005, certain former employees of Emdeon Practice Services agreed to plead guilty to mail fraud and tax evasion as a result of the investigation by the U.S. Attorney. According to the Informations, Plea Agreements and Factual Summaries filed by the U.S. Attorney in, and available from, the District Court of the United States for the District of South Carolina — Beaufort Division, on January 7, 2005, the three former employees and other then unnamed co-schemers were engaged in schemes between 1997 and 2002 that included causing companies acquired by Medical Manager Health Systems to pay the former vice president in charge of acquisitions for Medical Manager Health Systems and co-schemers kickbacks which were funded through increases in the purchase price paid by Medical Manager Health Systems to the acquired company and that included fraudulent accounting practices to inflate artificially the quarterly revenues and earnings of Medical Manager Health Systems when it was an independent public company called Medical Manager Corporation from 1997 through 1999, when and after it became acquired by Synetic, Inc. in July 1999 and when and after it became a subsidiary of Emdeon in September 2000. A fourth former officer of Medical Manager Health Systems pleaded guilty to similar activities later in 2005.

On December 15, 2005, the U.S. Attorney announced indictments of (several) former officers and employees of Medical Manager Health Systems. The Indictment charges (these) persons … with conspiracy to commit mail, wire and securities fraud, a violation of Title 18, United States Code, Section 371 and conspiracy to commit money laundering, a violation of Title 18, United States Code, Section 1956(h). The indictment charges Messrs. Sessions and Ward with substantive counts of money laundering, violations of Title 18, United States Code, Section 1957. The allegations set forth in the Indictment describe activities that are substantially similar to those described above with respect to the January 2005 plea agreements.

Based on the information it has obtained to date, including that contained in the court documents filed by the United States Attorney in South Carolina, Emdeon does not believe that any member of its senior management whose duties were not primarily related to the operations of Medical Manager Health Systems during the relevant time periods engaged in any of the violations or improprieties described in those court documents. Emdeon understands, however, that in light of the nature of the allegations involved, the U.S. Attorney’s office has been investigating all levels of Emdeon’s management. Some members of the (WebMD Health Corp.) senior management are also serving or have served as members of senior management of Emdeon.

In the event members of the (WebMD Health Corp.) senior management were to be implicated in any wrongdoing, it could have an adverse impact on the Company.

Emdeon understands that the SEC is also conducting a formal investigation into this matter.

The terms of an indemnity agreement between Emdeon and the (WebMD Health Corp.) provide that Emdeon will indemnify (WebMD Health Corp.) against any and all liabilities arising from or based on this investigation. (7)

Other Litigations

Ari Weitzner, M.D., P.C. et al. v. National Physicians Datasource LLC

On May 24, 2005, Dr. Ari Weitzner individually, and as a class action, filed a lawsuit under the Telephone Consumer Protection Act (the “TCPA”), in the U.S. District Court, Eastern District of New York, against National Physicians Datasource LLC (“NPD”), which is currently a subsidiary of (WebMD Health Corp.). The lawsuit claimed that faxes allegedly sent by NPD, which publishes The Little Blue Book, were sent in violation of the TCPA. The plaintiff voluntarily dismissed the suit, with prejudice, on November 8, 2006. (8)

Anthony Vlastaris, et al. v. WebMD Publishing Services

On September 25, 2006, Anthony Vlastaris, Brian Kressin, and Richard Cohen filed a lawsuit individually, and as a class action, under the TCPA, in the Ohio Court of Common Pleas, Cuyahoga County. The lawsuit claimed that the defendant sent faxes to the plaintiffs allegedly in violation of the TCPA. The defendant in the suit was named as “WebMD Publishing Services,” an entity that does not exist. Because the suit was served on NPD at its location in Connecticut and because NPD is the publisher of The Little Blue Book, NPD responded — by removing the lawsuit to the United States District Court, Northern District Court of Ohio, on October 24, 2006. After removal to federal court, the plaintiffs voluntarily dismissed the class-action complaint and refiled a new suit in state court that was not a class action. NPD then settled the suit with the plaintiffs on December 28, 2006. The suit was dismissed.
(9)

Notes

WebMD SEC Filings
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WebMD Form 10-K, 2009
WebMD 8-K filed Jul 2, 2009
WebMD 10-K filed May 10, 2007.
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