Federal jury awards Fonar $110 millionin watershed MRI patent case against GE

June 7, 1995

GE officials optimistic about reversing verdict on appealA federal jury has awarded Fonar $110 million after finding GEMedical Systems guilty of infringing on the rights of two patentsfor MRI inventions developed by industry pioneer and Fonar

GE officials optimistic about reversing verdict on appeal

A federal jury has awarded Fonar $110 million after finding GEMedical Systems guilty of infringing on the rights of two patentsfor MRI inventions developed by industry pioneer and Fonar chiefexecutive Dr. Raymond Damadian.

The judgment, rendered May 26 in U.S. District Court in Hauppauge,NY, surprised some industry observers who question the veracityof Damadian's patent claims. Others were left to wonder at thecase's implications for the MRI industry. GE plans to appeal.

Although the judgment could be reversed, it is a huge victoryfor Damadian, who has long argued that GE and other multinationalcompanies stole inventions responsible for medical imaging basedon nuclear magnetic resonance.

"Damadian clearly views this as a vindication, not onlyfor his contributions (to MRI research), but also those made byhis company and his scientists," said attorney Ronald Schutzof Robins, Kaplan, Miller and Ciresi, the Minneapolis law firmthat argued the case for Fonar.

The verdict is one of the 10 largest monetary awards in patentlitigation history, Schutz said. GE was assessed damages of $75million for violating a patent covering multi-angle-oblique imaging.Another $35 million was awarded to Fonar for violating the so-calledbasic or Damadian patent covering cancer detection using nuclearmagnetic resonance. The award exceeds by sevenfold the $15.4 millionin revenue reported by Fonar in fiscal 1994.

The company will also realize payments from terms of an out-of-courtsettlement with Hitachi Medical Systems, which was initially namedas co-defendant in the suit. The deal was struck in April whenthe case went to trial (SCAN 4/26/95). Settlement terms were notdisclosed.

Although Schutz expressed satisfaction with the monetary award,it fell short of the $300 million Fonar had sought in the case.Stockholders reacted negatively. In Nasdaq trading the day afterthe judgment was announced, Fonar stock lost 20% of its valueto $3. However, the losses came after speculators drove the priceup from about $2.25 before the Hitachi settlement, a Fonar spokespersonsaid. Several industry observers said the stock's decline afterthe GE verdict was due to industry speculation that the jury'sdecision would be overturned on appeal.

The verdict will not have an immediate impact on consumers,according to a GE official. Sales and service will continue whilethe case is appealed.

"If necessary, GE can redesign the machines without unduecost or disruption," the spokesperson said.

The award relates only to past damages, according to Schutz.Nothing from the case deals with GE's right to continue manufacturingpractices relevant to the multi-angle-oblique patent. Fonar lawyerswill request an injunction against GE to prevent activities thatwould violate that patent, Schutz said. The Damadian patent relatingto cancer detection expired in 1991.

Other MRI scanner manufacturers can expect to be contactedsoon by Fonar concerning patent licensing arrangements. Fonaralerted each vendor to possible patent infringements after GEand Hitachi were sued in 1992, according to Schutz. No companyresponded.

"I will now contact them again," he said.

The effect on MRI providers will probably be negligible. Severalsources noted that licensing fees for all patents applying tocurrent MR technology constitute only about 2% of the purchaseprice of the average piece of equipment.

Industry observers speculate, however, that the potential rewardsfor Fonar could be huge if the company can defeat the GE appealas well as a legal challenge filed last month by Siemens MedicalSystems.

Siemens filed suit in U.S. District Court in Wilmington, DE,to invalidate Fonar's patents and declare that Siemens is notin violation of the patents (SCAN 5/10/95). Similar suits maybe filed by other vulnerable scanner manufacturers.

The ultimate outcome of the GE case is anything but certain.As evidence, observers point to Fonar's initially successful suitin 1985 against former MRI manufacturer Johnson & Johnson.Damadian won a multi-million-dollar jury verdict, only to seeit overruled by the presiding judge (SCAN 7/8/87).

It's a familiar story for Lawrence Minkoff, who left Fonarin 1989 to organize MRI niche scanner vendor Magna-Lab.

"We're all wondering if this verdict is going to stand,or is it deja vu all over again?" Minkoff said.

In the GE case, defense attorneys petitioned unsuccessfullyseveral times to dismiss charges based on the Johnson & Johnsonfinding. Judge Leonard Wexler delayed ruling on the last of thesemotions pending review of all post-trial motions and appeals,Schutz said.

GE immediately sought to overturn last month's verdict, claimingthat its engineers developed MRI technology involved in the suitand its machines do not infringe on Fonar's patents.

Some experts are skeptical about the validity of claims madein the Damadian basic patent.

"It's nonsense from a scientific point of view,"said Leon Kaufman, director of the Radiological Imaging Laboratoryat the University of California at San Francisco.

Kaufman agrees with the J&J decision, which found thatthe patent was unenforceable because it is not possible to literallydetect cancer with MRI. A biopsy is necessary for definitive diagnosis.

But the jury did not accept the nuances of MRI's ability todepict cancer with images rather than detect it definitively,according to Schutz.

"GE's marketing material said the products are used todetect cancer, yet GE brought in experts who said the opposite,"Schutz said. "I think the jury was offended by that."

There is considerable disagreement as well concerning the valueof the multi-angle-oblique scanning technique. Schutz noted thatGE failed to persuade the jury that multi-angle-oblique is a minorfeature invented by its engineers before Fonar developed it. Nopatent was filed on the GE multi-angle-oblique feature, a GE spokespersonsaid.

"Multi-angle-oblique is extremely important. It is usedin about 50% of all MRI imaging procedures," Schutz said.

Several industry sources sided with GE, however. They saidthat multi-angle-oblique is a marginal part of clinical practiceand alternative scanning techniques exist.