Fight over MRI service contracts snags Resonex rebuilding effort

September 14, 1994

Florida center charges firm with antitrust violationsMRI developerResonex is striving to rise from the ashes of a loan default earlierthis year that prompted its major creditor to seize its assets.While the reconstituted Resonex has kept its

Florida center charges firm with antitrust violations

MRI developerResonex is striving to rise from the ashes of a loan default earlierthis year that prompted its major creditor to seize its assets.While the reconstituted Resonex has kept its head above water,the vendor has run afoul of several scanner users who accuse thecompany of rewriting service contracts to prevent them from findinganother equipment maintenance provider.

Resonex Inc. of Fremont, CA, imploded earlier this year whenit defaulted on a $5.3 million loan held by Technology FundingSecured Investors II, a San Mateo, CA, venture capital group.The group bought the assets of Resonex Inc. at an auction in February(SCAN 3/16/94).

Since taking over Resonex Inc., Technology Funding has putthe firm's assets into a new entity, Resonex Holding Corp., withtwo divisions under its umbrella:

** Resonex ServicePlus, which handles service and maintenanceof the installed base of Resonex scanners; and

** Resonex Development Ltd., an MRI R&D house formed tosupport Resonex scanners in the U.S. and the Far East with enhancementsand upgrades. In addition to scanner support, RDL provides engineeringconsulting services and licenses rights to Resonex technologyto other scanner OEMs.

Resonex Holding Corp. inherited an installed base of centersjittery about the future of their investment. Resonex Inc. nolonger manufactures complete MRI scanners for the U.S. market,and many users were concerned that the new incarnation of ResonexInc. will not provide the necessary upgrades and enhancementsto prevent their scanners from lapsing into obsolescence. To assuageits nervous customers, the company held two user meetings thissummer in Boston and San Francisco.

While the meetings alleviated the fears of some users, otherscontinue to have their doubts. Several customers have accusedResonex ServicePlus of circulating a new scanner maintenance contractthat includes a hefty boost in overtime service rates, as wellas several clauses that infringe on their ability to choose aservice provider other than Resonex ServicePlus.

In particular, the contract states that Resonex ServicePlushas rights to all diagnostic software and manuals used to repairits scanners. The contract also limits the liability of ResonexServicePlus in the event of damages or lost revenue caused byResonex ServicePlus personnel.

The provisions on service software and manuals were the catalystfor a lawsuit filed last month against Resonex Holding Corp.,Resonex ServicePlus and Technology Funding by Biscayne DiagnosticImaging, a Resonex site in Aventura, FL. The suit was filed inU.S. District Court for the Southern District of Florida and chargesResonex Inc. with antitrust violations relating to its servicesoftware and manuals policy.

According to the complaint, Resonex ServicePlus personnel seizeddiagnostic software and service manuals from Biscayne DiagnosticImaging after the center balked at signing the new maintenancecontract. The center alleges that Resonex's actions create anillegal monopoly by making it impossible for third-party companiesto enter the market for service of Resonex scanners.

"The bottom line is that Resonex created an MRI machinewith proprietary diagnostic software, and they tied sales of themachine into service contracts," said Biscayne attorney TerrenceRussell of Ruden, Barnett, McClosky, Smith, Schuster & Russell."They control the software and other diagnostic systems forservice, repair and maintenance, and there is nowhere else youcan go for service. We believe that violates antitrust laws."

Biscayne is also suing to recover $100,000 that the center'sowner, Robert Miller, paid to Resonex Inc. in January as a depositon a joint venture deal to sell MRI systems in Latin America.

In response to the lawsuit, representatives for Resonex HoldingCorp. and its co-defendants state that OEM ownership of diagnosticsoftware and service manuals is standard practice in the medicalimaging industry. They also dispute Biscayne's assertion thatResonex ServicePlus holds a monopoly on service of Resonex scanners:At least one independent service organization, MR Plus of Sacramento,CA, services Resonex scanners, while others are developing programs.

As for the $100,000, that payment was made to Resonex Inc.,which is a completely separate corporate entity from Resonex HoldingCorp., according to Resonex attorney Joel Zeldin of Shartsis,Friese & Ginsburg of San Francisco. Resonex Inc. continuesto exist and is owned by the shareholders of the pre-foreclosureResonex, although the firm has no assets, Zeldin said.

"I understand he's angry, but he's suing the wrong parties,"Zeldin told SCAN. "By the time we foreclosed there was nocash (in Resonex Inc.). We didn't get his $100,000."

Disgruntled customers or user revolt? The depth of customerdissatisfaction with Resonex varies according to the source. Onesite is starting a Resonex users group to connect disgruntledcenters and investigate the possibility of signing a group servicecontract with an ISO. Another site believes that the company'sresponsiveness to customers has improved since Technology Fundingtook over.

In spite of the wrangling, the company has had success in convertingResonex Inc. customers to contracts with Resonex ServicePlus,according to Robert Mathews, Resonex ServicePlus president. Morethan 30 Resonex sites have signed the new contracts, a numberclose to the vendor's installed base. In addition, the terms ofthe new contracts differ little from those offered before TechnologyFunding took over Resonex, he told SCAN.

"The service contract being presented is the same onethat was being presented to people a year ago," Mathews said."We did not go out with a game plan that said we would increaseeveryone's service price across the board. That is not true."

Resonex will face increasing competition for contracts fromthird-party service companies in the near future, however, regardlessof the outcome of the Biscayne lawsuit. News of the company'sdistress has attracted several ISOs to compete for its installedbase.

One firm, MR Plus, is headed by Bob Domenick, a former Resonexengineer. Although the company has only one Resonex contract todate, it expects to sign on other users, Domenick said. MR Plushas developed its own diagnostic software package and does notneed Resonex software to service scanners.

Another ISO, Vision Medical Services, is also eying the Resonexmarket. The company has met with Resonex users and is developinga service program, according to Paul Fournier, vice presidentof the Ontario, CA, company. Like MR Plus, Vision engineers wouldnot need access to Resonex software to service the machines, andVision could offer enhancements such as new coils to Resonex users,Fournier said.

"The software issue does not prevent you from repairingthe machine," Fournier told SCAN. "There are a lot ofthings that a company like ours can do for the Resonex installedbase. The concerns are not whether we can service the equipment.The real issue is when should we do it."