Fonar's patent infringement victorieshelp finance planned comeback in MRI

Judge reduces damage award in GE case to $62 million

Buoyed by courtroom triumphs, Fonar CEO Dr. Raymond Damadian willuse next month's Radiological Society of North America technicalexhibit as a springboard for reentry into the mainstream MRI market.It will be the first time since 1988 that Fonar has exhibitedproducts at the RSNA meeting.

"We were spurred on by the victory of the lawsuit. Also,we have a new line of exciting products that are appropriate forthis debut," Damadian told SCAN.

The decision to participate in the RSNA show came after theMelville, NY, MRI manufacturer scored several potentially lucrativevictories in patent infringement lawsuits this year. In April,Fonar gained an immediate source of new revenue after settlinga multimillion-dollar patent infringement claim against HitachiLtd. Licensing rights were granted to Hitachi for an undisclosedcash settlement and future royalty payments (SCAN 4/26/95).

A far larger award awaits Damadian's firm if a judgment renderedin May against GE for violating Fonar patents survives appellatecourt review. A U.S. District Court jury in May found GE guiltyof violating two Fonar patents (SCAN 6/7/95).

The final outcome of the GE litigation is still up in the air,though both sides suffered setbacks in post-trial motions announcedthis month. U.S. District Court Judge Leonard Wexler set asidethe jury's verdict against GE regarding violations of the so-calledDamadian patent covering an MR device for cancer detection. Buthe upheld a jury finding that GE infringed on Fonar's patent coveringa multi-angle oblique MR sequence. Wexler reduced the jury's initial$110 million award to $62 million. GE has said it will pursuean appeal of the remaining verdict in the U.S. Court of Appealsin Washington, DC.

An injunction prohibiting GE from selling machines equippedwith the multi-angle oblique feature was stayed pending appeal,according to Fonar attorney Ronald Schutz of Robins, Kaplan, Millerand Ciresi of Minneapolis.

GE officials remain confident that they will win their appeal.They claimed in a written release that multi-angle oblique isa relatively minor feature and was invented by GE long beforeFonar developed it. Fonar responded by denying GE's claim andpointing out that 80% of infringement verdicts are upheld.

"GE is trying to characterize this judgment as a defeatfor Fonar. If that's true, then I'll take the $62 million andcall it a defeat any day," Damadian said.

It is too early to tell whether Wexler's rulings on the Damadianpatent will affect Fonar's suits against MRI vendors Siemens andPhilips, Schutz said. Siemens and Philips have also sued Fonarto invalidate the Damadian patent (SCAN 7/19/95).

"We think those companies are infringing the patent coveringmulti-angle oblique and are subject to treble damages," Schutzsaid.

In the meantime, Damadian has already found ways to spend themoney from the Hitachi settlement and the GE case. He plans touse it to finance commercialization of a new low-cost MR mammographyscanner capable of producing breast imaging studies for about$80.

"Short of the $80 MRI mammogram, MR mammography will notbe commercially viable. To do that, we have to substantially reducethe sale price of these machines," Damadian said.

Fonar will display its progress toward that objective at thisyear's RSNA exhibition. The company will show its 0.35-tesla Quad7000 and 0.6-tesla Quad 12000 scanners. Both feature20 inchesof clearance for MR-guided surgery and breast imaging applications,Damadian said. Fonar began selling the Quad 7000 in April afterit received Food and Drug Administration 510(k) clearance (SCAN4/26/95).

Many RSNA attendees will also get their first look at the Quadcarousel, a four-bed system that prepositions patients to produce12 MR mammograms an hour at about $80 per scan, Damadian said.

Although its fiscal 1995 results have yet to be reported, publiclytraded Fonar has been modestly profitable since dramatically reducingits corporate profile seven years ago. It has an ongoing sourceof revenue from service and upgrades for an installed base ofabout 90 scanners. Fonar has also ventured with private investorsin imaging centers equipped with refurbished Fonar equipment,Damadian said.

In another sign that Fonar may be ending its long period ofisolation, the company last week said it has retained the servicesof high-powered PR firm Rubenstein Associates.