Computerized Radiological Services v. Syntex Corp.

• Decision Date: 22 October 1984
• Docket Number: No. 78 CV 2831.,78 CV 2831.
• Citation: 595 F. Supp. 1495
• Parties: COMPUTERIZED RADIOLOGICAL SERVICES, INC., Plaintiff, v. SYNTEX CORPORATION and Syntex Analytical Instruments, Inc., Defendants.
• Court: U.S. District Court — Eastern District of New York

595 F. Supp. 1495

COMPUTERIZED RADIOLOGICAL SERVICES, INC., Plaintiff, v. SYNTEX CORPORATION and Syntex Analytical Instruments, Inc., Defendants.

No. 78 CV 2831.

United States District Court, E.D. New York.

October 22, 1984.

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COPYRIGHT MATERIAL OMITTED

Speno, Goldberg, Moore, Margules & Corcoran, P.C., Mineola, N.Y., for plaintiff; Paul F. Corcoran and Timothy R. Aland, Mineola, N.Y., of counsel.

Holtzmann, Wise & Shepard, New York City, for defendants; Norman Solovay and Kathy Dutton Helmer, New York City, of counsel.

MEMORANDUM AND ORDER

McLAUGHLIN, District Judge.

This civil action is among the oldest on the dockets of this court. It arose from the ashes of the "computerized tomographic scanning" industry, which was the darling of the medical profession during the last decade, but which, with the advent of nuclear magnetic resonance, will probably be relegated to the dustbin of fluoroscopes and head mirrors. The case was tried before me, without a jury, for a period extending over a year. Plaintiff is a group of Long Island radiologists. Defendants manufactured computerized tomographic scanning equipment. The following constitute the Court's findings of fact and conclusions of law. Fed.R.Civ.P. 52.

Findings of Fact

Computerized Tomography ("CT") was introduced by EMI Ltd. of London in 1972 and was immediately hailed by doctors as the most revolutionary diagnostic tool since Roentgen discovered X-rays in 1895. The machine known as a CAT (Computerized Axial Tomography) Scanner takes thousands of individual X-rays that are unscrambled by computer into a single picture. Delicate differences in tissue density, which are the key to X-ray diagnosis, show up 100 times more clearly than on conventional X-ray film. The Scanner examines thin cross-sections of tissue at various depths within the body, enabling doctors for the first time to zero in on problem areas. Scanners not only help save lives, they also help physicians to monitor accurately the results of medication and surgery; they reduce patients' exposure to harmful radiation; and they curtail the need for the painful and hazardous diagnostic procedures used to make conventional X-rays more revealing.

The significance of CAT Scanners was not lost upon the business community. By July 1975, EMI had received 200 orders for its $450,000 head scanner. Technicare had also entered the market, and by November 1975 had booked 115 orders for its unit. From January to July 1975, EMI's stock more than doubled and Technicare's more than tripled. Other companies hurried to enter the market. Among them were the defendants, Syntex Corporation¹ and its subsidiary, Syntex Analytical Instruments, Inc. ("SAI"), a major worldwide corporation in the health care field.

Early in 1975, a group of radiologists on Long Island decided that computerized tomography would enhance their ability to offer diagnostic radiological services to attending physicians (e.g., neurologists) in Long Island. To this end they formed a corporation named Computerized Radiological Services, Inc. ("CRS"), the plaintiff in this action.

Syntex and the plaintiff, CRS, had their first dealings at the annual meeting of the Radiological Society of North America ("RSNA"), which took place between November 29 and December 5, 1975, in Chicago. (See Plaintiff's Exhibit ("PX") 36). The exhibits by CAT Scanner manufacturers were the focus of the meeting and eclipsed all others. (Transcript of Trial ("Tr.") 2697, 2699-2700, 3136). Interest in them was so extensive that observers referred to it as "CAT fever." (Tr. 837).

Three of the four CRS principals, Drs. Zwanger, Pesiri, and Kansler, attended the 1975 RSNA meeting. Kansler understood the electronics of X-ray equipment as well as its medical use. He had many contacts in the CT field to whom he spoke frequently and he read the CT literature thoroughly. (Tr. 1202, 1532; Kveton Deposition ("Dep.") 24-25). Kveton was the group's finance man. (Tr. 1308-09, 1481). Pesiri was its construction and architectural expert. (Tr. 1291-92, 1307, 1533). Zwanger, known by everyone as "Mr. Radiologist of Nassau County," (Tr. 1309), was apparently their public relations expert.

Kansler and Zwanger were the real "emissaries" of the group; and they attended the meeting specifically to determine which CAT scanner to buy for CRS. Kansler hoped to find an alternative to the EMI scanner, which would have been his first choice except that it required a large down payment and took a long time for delivery. The Syntex scanner appealed to CRS because of its earlier delivery schedule and its lower deposit requirement. (Tr. 840-43, 1048-50).

CRS was intent on owning the first private scanner in Nassau County, believing that its prestige and professional reputation would be enhanced by such a coup. (Tr. 769, 808, 1269, 1342, 1350; Zwanger Dep. 37-38, quoted at Zwanger Tr. 1499-1501; Tr. 2384-85).

The coup was successful, at least initially. (Tr. 101). When CRS took delivery of a Syntex System 60 head-only scanner (the "System 60") in June, 1976, Long Island had only one CAT scanner, at the North Shore Medical Center, and no private CAT scanners. Following on CRS' heels, however, Dr. Ernest Mandel ("Mandel"), and his Nassau CT Group also installed a scanner. (Arthur D. Little Rep. (PX 364) 32). Thereafter, in 1976 and 1977, six more units were installed in Nassau and Suffolk Counties. (Kveton Dep. 37-43; Arthur D. Little Rep. (PX 364) 32). Given the close-knit nature of the Long Island radiological community (Tr. 554-57; Kansler Dep. 30), CRS was aware, well in advance, that this competition was on its way.

CRS' rush to acquire a scanner was at least partially motivated by a desire to get one before Mandel. (Tr. 769, 808; 1501-02; 2384-85; Zwanger Dep. 37-38, quoted at Tr. 1501). Mandel's Nassau CT group, which had also bought a Syntex System 60 head-only scanner, and was located at Mineola, less than ten miles from CRS' Plain-view facility (Kveton Dep. 89), was in close competition with CRS for referrals.

Mandel acknowledged this competition by attempting "to work out a deal with Syntex service representative, Ferdinand Russo ("Russo") ... to work evenings, to obtain — so that we may come out with a tie, open the office at the same time ...." (Tr. 2385). As Russo put it, "everybody wanted to be the first one on the block to have it." (Tr. 2384).

This drive to be the first is understandable. The patients of radiologists, such as the CRS doctors, come to them entirely by referrals from attending physicians. Given the difficulty of breaking up established referral patterns, "the potential share of the CT volume that could be expected in any market was dependent upon how early the hospital or private practice could offer CT scanning service." (Johnson Rep. 39).

Besides early delivery, another major goal of CRS in acquiring a scanner was to keep the price (including the initial deposit) down. Here, too, the Syntex scanner had an advantage over the competition: it required a deposit of only $10,000, as compared to EMI's down-payment of $100,000. (Kansler Dep. 39-40, quoted at Tr. 1050; Tr. 840-43). CRS hoped to make the smallest investment possible and to buy a unit that "could perform on a suitable level for a period of time, a couple of years, so that we could generate sufficient income to purchase another unit." (Zwanger Dep. 46, see Tr. 1439-40).

Of course, CRS wanted to buy a scanner that represented the state of the art in 1975. To CRS, this meant that the machine had to be able to do whole body scans and not be limited just to head scans. At the very least, CRS wanted a scanner that could eventually be upgraded from head-only to whole-body scanning.

There was ample reason for Syntex to represent at the 1975 RSNA meeting that it could sell CAT Scanners that would scan the entire body. After all, their competitors (EMI, Ohio Nuclear, and Acta, to name a few) had whole-body scanners on the market by December, 1975. (See PX 364, at 12 and passim). Syntex placed on the floor of the 1975 Radiological Society meeting a Syntex System 60 "configured for whole body scanning." (Tr. 719). This was Syntex's corporate jargon for a scanner that appeared to be a whole-body scanner. As Sheldon Leonard, the former Syntex Sales Manager, testified in his deposition, the CAT Scanner Syntex displayed to the medical meeting was "mechanically a body scanner." (Leonard Dep., Vol. VI, at 63, 101). The unit on display had a wide aperture gantry, which suggested a body scanning capability. It did not contain a "water bag," which characterized the original EMI head scanner. (Id.)

Moreover, the System 60 was introduced at the 1975 RSNA as "A New CT Scanner For The Head And Body." (See PX 36, at 123). The materials distributed by Syntex at the meeting compared the Syntex equipment favorably with that of EMI, Ohio Nuclear and ACTA. In a matrix entitled, "Comparison of Tomographic Scanners" (PX 1A), Syntex compared the "Standard Design Features" of the various companies, stating that Ohio Nuclear, ACTA (Pfizer) and Syntex had "Dual-Purpose (head and body scanning) Systems available." (Id.). Syntex's "standard unit — head and body" scanner was priced at $350,000 in comparison with the "head and body" units of Ohio Nuclear at $385,000 and ACTA at $340,000. Syntex also offered a "head only" unit for $295,000. (Id.).

In discussions at the meeting, representatives of Syntex stressed that the Syntex System 60 was truly a "system," and not simply a scanner. (Tr. 75). It was a whole body scanning system with a "modular systems design" which supposedly made the Syntex equipment superior to the body scanning units available from other manufacturers. (PX 1B, 1C). The "modular systems design" overcame the obsolescence problem facing the purchasers of other manufacturers' equipment because the Syntex system was uniquely "upgradable." (Tr. 61-62, 75-76). This would allow the purchaser to...