Picker claims ISO court victory, plans appeal

Picker International was found guilty last month of unfair competitionand malicious interference in one or more CT service contractsbetween Electronics in Medicine (Etek) and hospital owners ofPicker scanners. The decision could be seen as a victory for eitherside, depending on the spin you accept.

Etek sold its service assets three years ago for about $2 millionto MMI Medical, parent of leading independent service organizationR Squared Scan Systems (SCAN 7/5/89). The company now exists onlyas a shell, largely for the purposes of its litigation againstPicker.

Etek sued Picker in U.S. District Court in Galveston for $50million in actual damages and $1.5 billion in punitive damages(SCAN 7/3/91). It ended up with an award against Picker of $183,500in actual damages, $62,500 in interest and $1.9 million in punitivedamages.

Picker was found innocent of antitrust violations, deceptivetrade practices and common law claims relating to the defamationof Etek's CT parts and service. Picker will appeal the verdict.

Despite the relatively small judgment, Etek considers the verdicta positive development in the fight over service revenues betweenISOs and medical imaging equipment vendors.

"It would be significant for us if they had hung $10 onit," said John Keller, Etek president. "Obtaining aguilty verdict was a major accomplishment. I don't know of anyother independent service organization that has had an opportunityto stand up and fight these guys (the equipment vendors). I hopeit (the verdict) gives other ISOs courage to not lie down in frontof these steamroller tactics, whether by Picker or any other manufacturer."

The most crucial result of the verdict for Picker is that itwas found innocent of antitrust allegations, said William J. Webb,Picker executive vice president, U.S. sales and service.

"The ISOs hoped that we would be found guilty of havinga monopoly. That would have been a significant award that couldhave changed the character of this industry as well as many others,"Webb said.

Picker would also have been in trouble in another ISO courtcase--against Imaging Equipment Services in Boston Federal Court--ifit had been found guilty of antitrust violations in the Etek case,according to GE's lawyer Stephen D. Susman, a partner with theHouston firm of Susman Godfrey.

"An adverse ruling against Picker in this case on antitrust(grounds) would have...theoretically bound Picker in the othercase. It would have been a double loss," Susman said.

The grounds of the Etek guilty verdict are secondary to theverdict itself, countered Anthony F. Montgomery of Hornbuckleand Montgomery of Houston, legal counsel for Etek and IES.

"Picker lost the lawsuit, plain and simple. For the firsttime, Picker has been nailed in a case involving malicious conductin business with a competitor," Montgomery said.

"Antitrust is simply a theory of recovery. Any plaintiff'slawyer worth his salt better go into court with more than onetheory of recovery," he said. "You only need to winon one theory of recovery. When a court enters a judgment, itlooks to see if there is any finding of liability. If there is,they award damages assessed."

The fact that the jurors were unanimous in finding Picker guiltyof malice is a significant victory for Etek, he said.

"It is very difficult to get an actual malice findingagainst a company. They (Picker) can't save face in the industrywith a finding of liability. Their position has always been theyare not liable," Montgomery said.

Shortly after the Etek verdict, Picker moved to ask for summarydismissal of the Etek case, according to Tom Quinn, IES president.

IES was encouraged by the result of the Etek case, which involvedmany of the same issues, he said. The company pulled itself outof Chapter 11 bankruptcy last month and is determined to fighton against Picker--with the same lawyer who represented Etek.Picker has been fighting to keep Montgomery off the case, Quinnsaid.

Picker had offered Etek a settlement that was more than itultimately received in court, Susman noted. While the punitivedamages are not nearly as burdensome as they might have been,the ratio of more than 10 times actual damages is out of sight,Susman said.

"We will appeal this as long and as hard as we can. Wethink the exemplary damages are disproportionate to the actualones," he said.

Picker did not want simply to settle the Etek case in federalcourt, Montgomery said. Offering $2.25 million, the company wantedanother case for Etek pending in Texas State Court dropped, andassurance that he would not represent IES in its litigation withPicker, he said.

The state court case will pit Etek against individual Pickeremployees. Whether Etek will receive damages over and above thoseawarded in federal court is disputed.

"The state court judge is not going to give them anythingbetter than they've already got. They can't recover twice. Thelaw prohibits multiple recoveries for the same injury," Susmansaid.

It was Picker that asked to sever the state court action fromthe federal case, and that might have been a major mistake, Montgomerysaid.

"Now I get two bites at the apple," he said.

ONE CLAIM IN BOTH THE ETEK AND IES cases is that Picker actedto lock the ISOs out of servicing Picker CTs at hospitals runby the Department of Veterans Affairs. It is not clear what impactthe Etek verdict against Picker might have on Picker's futurebusiness with the VA.

If Picker were convicted of illegally interfering with a VAservice contract, it is possible the company would be debarredfrom work with the federal government over a certain time period.

The VA has not yet seen the Etek verdict, said Chris Figg,executive assistant to Robert Saldivar, deputy assistant secretaryfor acquisitions and material management at the VA.

"At this point, it is certainly premature to know whataction, if any, the VA would take," Figg said. "Thepossibility exists, but it depends on the circumstances in thecourt case."

The VA would also look at what implications there might befor its own operations when a vendor is debarred. It is a seriousaction that would be taken only after considerable deliberation,he said.

The VA's inspector general determined last year that bid specificationsfor CT service favored the scanner vendor, although no blame wasasserted (SCAN 7/31/91). A draft statement of work for servicingCT scanners has been completed by the VA and submitted for commentsfrom industry. Copies may be obtained from Arnold Bierenbaum atthe VA at 202/233-2764.

Although the possibility of debarment exists, the likelihoodis about as great as it was that Etek would win $1.5 billion inthe suit against Picker, Webb said.

"We do a lot of federal government business, and we arenot going to do anything to jeopardize that," he said.

While VA sites were among those involved in Etek's claim againstPicker, there is no way to know whether the guilty verdict involvedVA work, Susman said.

"They were (also) suing us over contracts other than withthe VA. We know from the amount of damages that we are probablytalking about one contract. They don't have a clear finding thatwe interfered with a VA contract," he said.

Evidence was brought out in the case that could have ramificationsfor Picker's work both in and outside the government, Montgomerysaid. The jury believed enough of the evidence to award significantpunitive damages, he noted.

"They (the jury) are not going to find actual malice and(assess) punitive damages if Picker is doing everything right.They (Picker) did everything wrong, and that is why they got hitwith punitive damages," he said.

There was testimony at the trial that Picker used its salesorganization to influence government personnel by buying themdinner and flying them to Picker headquarters in Cleveland, Montgomerysaid.

"Picker's pitch was that this was okayed by the VA. Therewas never any evidence that anybody okayed anything," hesaid.

Other testimony in the case indicated that Picker sent an individualto tamper with the protocols on a CT scanner being serviced byEtek at the VA hospital in Houston.

"Evidence came out that they went in with the expressedpurpose of trying to create substandard images," he said.

In Picker's defense, Webb said that Etek's attorney instructedthe jury that interference could mean Picker vociferously claimedthey were better than Etek.

"We found that, when other people were servicing our equipment,it was hurting our equipment performance and image quality reputation,"Webb said. "What we did was attempt to educate our customersabout what they were getting. We provided them with specificationsabout Picker service. That is the interference aspect of the case:our attempt to educate customers about what they were buying."

Just as the original damage claims in the Etek case were substantiallygreater than the amount the company was granted, a large portionof the ISO claims against the equipment vendors have been exaggerated,Webb said.

"The whole thing about third-party (ISO) competition isoverblown. Over the years, our service prices have gone down,just as CT prices have gone down. The major factor (behind theservice price decline) is the tremendous competition we have hadbetween the (equipment vendor) majors," he said. "Typically,customers trust the equipment manufacturers to service their equipmentwell. If we don't, we don't get the next equipment sale."