GE clears way for InnoServ acquisition by settling Montana antitrust suit with feds

Company will also sell InnoServ’s Prevu software

The importance of independent service organization InnoServ Technologies to GE Medical Systems was underscored last week when GE announced an agreement with the U.S. Department of Justice that enables the company to complete its purchase of the ISO. The deal includes the settlement of a lawsuit, filed in Montana in 1996 by the Justice Department, charging that the GE licensing policies that limited access to advanced service software were a violation of federal antitrust law.

GE in May announced that it planned to pay $16 million in cash to acquire InnoServ, an Arlington, TX-based provider of medical equipment service and asset management (SCAN 5/27/98). GE intends to add InnoServ to its growing multivendor service operation, the Milwaukee company said.

The proposed deal ran afoul of the Justice Department, however, which believed that the purchase could reduce competition in the multivendor service market. InnoServ’s Prevu software is one of the few options available to service some models of medical imaging equipment, according to the government. The department filed suit in a federal court in Washington, DC, to block the acquisition.

The InnoServ acquisition was not the first time GE and the Justice Department had crossed swords over medical equipment service. The two sides have been at loggerheads for the past two years over GE service policies regarding hospitals with in-house equipment service programs. GE allows such hospitals to use its advanced service software under the condition that they not offer service to other hospitals, which could create a competitive situation with GE’s own service efforts. GE customers already have access to its basic service software package.

The Justice Department suit, filed against GE in a federal court in Montana, charged restraint of trade and conspiracy to monopolize trade. The conspiracy charge was thrown out last year (SCAN 4/30/97), leaving the restraint charge remaining.

GE has maintained that its service policies are legal, but the company apparently decided to reconsider in light of the department’s opposition to the InnoServ acquisition. In an agreement announced July 14, the department agreed to drop its opposition to the InnoServ deal and settle the Montana case. In exchange, GE will modify its policy on advanced software and will sell InnoServ’s Prevu software to a third party.

GE did not admit to any misconduct, and there were no financial penalties or monetary payments involved in the deal. Under the revised policy, GE will continue to require that its customers not use GE’s proprietary information when they provide service to third parties.

“The settlement agreement recognizes GE’s fundamental right to protect its intellectual property from misuse,” said Jeffrey Immelt, president and CEO of GEMS. “GE’s goal has always been the same: to allow customers to compete in the service field as they see fit, but to ensure that they do not use GE’s proprietary software to do so.”

Healthcare providers are now eligible to license GE’s advanced service software to service their GE medical equipment, regardless of whether they provide third-party service to other hospitals. The Justice Department believes that the deal will remove restrictions GE has imposed on software licenses with more than 500 hospitals in the U.S. The department also believes that the deal will result in a reduction of cost of equipment service for hospitals.

“Elimination of these restraints imposed by GE will allow hospitals to compete by offering low-cost, high-quality service,” said Joel Klein, assistant attorney general in charge of the department’s antitrust division.

At least one service industry observer, however, questions whether the agreement will result in more competition in the market for medical equipment service. The deal will apply primarily to small rural hospitals with a small number of third-party contracts, according to Ronald Katz, an attorney with Coudert Brothers in San Francisco. A more relevant issue is the number of ISOs that are able to challenge the OEMs with service programs that would force companies like GE to lower their prices. GE’s acquisition of InnoServ will remove one more ISO from the playing field, he said.

“They are helping out rural hospitals, but I don’t think it will have a big impact on the market. It’s not as if a hospital in Butte, MN, is going to start servicing (a hospital) in Los Angeles,” Katz said. “We’ve now gotten into a situation where there is not much competition in the aftermarket for GE service.”