Etek seeks $1.5 billion from Picker in ISO case

July 3, 1991

The trial between Picker International and Etek scheduled forthis month has been postponed until Feb. 10. The change of dateis necessary to allow for a full six weeks of court proceedings,said Anthony F. Montgomery, legal counsel for Etek. Montgomeryif a

The trial between Picker International and Etek scheduled forthis month has been postponed until Feb. 10. The change of dateis necessary to allow for a full six weeks of court proceedings,said Anthony F. Montgomery, legal counsel for Etek. Montgomeryif a partner with Hornbuckle and Montgomery of Houston.

Etek, which is now only a shell company, alleges that Pickerforced the independent service organization out of business inorder to maintain service revenues on its installed base of scanners.Etek also charges that Picker rigged bids for VA hospitals' servicecontracts to keep ISOs out of that business. The case will betried in the U.S. district court for the southern district ofTexas at Galveston (SCAN 1/30/91).

According to Etek's amended complaint to the court, Pickerhad a 92.8% share of the service business on its own computedtomography scanners in 1987, which translated to $74.2 millionin annual revenues. Etek became a threat to Picker when the firm'smarket share for service of Picker CTs grew to 1.2% in 1988 andwas expected to grow to 5% by 1990, the complaint alleges.

Etek sold its assets, including service contracts and accountsreceivables, to MMI Medical in 1989. MMI is the parent of R SquaredScan Systems, the largest ISO in medical imaging (SCAN 7/5/89).

A central charge of the Etek case is that Picker maligned Etek'suse of a replacement CT tube manufactured by Eimac. Accordingto Etek's amended complaint, Picker participated in the developmentof the Eimac tube and, at first, considered the product superiorto Picker's own tube produced by its Dunlee subsidiary.

The information about Picker's participation in developingthe tube was revealed in the testimony of Eimac officials duringpretrial discovery proceedings, Montgomery said.

ETEK IS ASKING FOR $50 million in actual damages, which couldbe tripled under Texas trade-practices law and U.S. antitruststatutes. This would be insignificant, however, compared to Etek'sclaim of $1.5 billion in punitive damages. That figure is roughlytwice Picker's annual revenue (see story, page 7).

Picker changed legal counsel in the Etek case last month, hiringa well-known antitrust expert, Stephen D. Susman, a founding partnerof Susman Godfrey, also of Houston. Susman believes the punitivedamage claim is out of line and anticipates little problem provingthat in court.

"It (the punitive damage claim) is characteristic of theirentire case: exaggerated," Susman told SCAN. "Responsiblelawyers and litigants don't make claims like that. It is outrageous,"he said.

Etek's own expert witnesses testified that actual damages amountedto only about $10 million, he said.

"We don't think they (Etek) suffered any damages,"he said. "But, even taking them on their word, for (a company)to contend that this entitles them to $1.5 billion in punitivedamages is nuts. The U.S. Supreme Court said in March that theremust be a reasonable relationship between punitives and actualsand that a four-to-one relationship is on the outer limits ofdue process. Someone is not reading what the U.S. Supreme Courtsays."

Montgomery contends, however, that the U.S. Supreme Courtruled in favor of a claimant with a substantially higher ratioof punitive to actual damages.