Appeals court sides with Fonar in MRI patent litigation against GE

Panel restores $35 million in damages to jury verdict

GE Medical Systems was dealt a stunning legal and financial blow last week in its MRI patent infringement case against Fonar. A U.S. Court of Appeals panel not only sided against GE, but also found that the Milwaukee medical imaging giant is liable for an additional $35 million in damages for penalties that the panel said had been improperly thrown out by a lower court judge.

GE now owes Fonar at least $103 million, not counting interest accrued on the $35 million over the past 19 months since the original verdict was rendered. GE must now decide whether to appeal the verdict to the U.S. Supreme Court, which according to legal experts rarely hears appeals of patent cases from the U.S. Court of Appeals for the Federal Circuit, the court that issued last week's ruling.

The battle between GE and Fonar began in 1992, when the Melville, NY, firm filed suit against GE and Hitachi in U.S. District Court for Eastern New York in Hauppauge, NY. Fonar charged the defendants with violating five patents, including the world's first MRI patent, granted to Fonar founder Dr. Raymond Damadian, and a patent covering multiangle oblique (MAO) imaging.

Hitachi later settled the case in a move that now appears prescient: A jury on May 25, 1995, found that GE had infringed on both the Damadian and MAO patents, and should pay Fonar $110 million in damages (SCAN 6/7/95).

U.S. District Court judge Leonard Wexler later threw out the jury's findings on the Damadian patent, reducing GE's liability in the case by $35 million. He also dismissed $13 million in damages assessed by the jury for GE's alleged inducement to infringe the patents, bringing the size of the verdict to $62 million, an amount that grew to $68 million with interest. Both Fonar and GE appealed aspects of the ruling.

In delivering its verdict Feb. 25, the Court of Appeals panel affirmed the $62 million award, and threw out Wexler's decision on the Damadian patent. The appeals court found that, according to the legal standard known as the doctrine of equivalents, GE had infringed on the Damadian patent and should pay Fonar $35 million, according to Fonar counsel Martin Lueck, who argued the case with co-counsel Ronald Schutz. Both attorneys are with the Minneapolis law firm of Robins, Kaplan, Miller and Ciresi.

"The court found that the 832 (Damadian) patent was infringed by the doctrine of equivalents, and that there was substantial evidence for the jury's verdict," Lueck said. "I think that it is a very fine victory for Fonar and for Dr. Damadian."

In a statement, GE said it was "extremely surprised and disappointed" by the appellate court decision.

"We are now evaluating the terms of the court's decision and the basis upon which we might challenge it," the statement said.

Assuming the verdict does stand, it will be a huge milestone for Fonar. With a war chest of over $100 million, Fonar will be able to assuage the concerns of potential customers as to whether the small company can survive in a market dominated by large multinational conglomerates. Indeed, Fonar last month posted a healthy profit for its second quarter, most likely due to proceeds from the company's patent settlement with Siemens (see story, page 2).

Still on the legal agenda is Fonar's lawsuit against Toshiba, the only other vendor with whom Fonar is actively involved in litigation. The company will probably pursue claims against the MRI industry's remaining vendors, which will most likely think long and hard about settling in the wake of last week's verdict.