WAYNE, Pa., Jan. 19 /PRNewswire-FirstCall/ -- Escalon Medical Corp.
(Nasdaq: ESMC) today announced that a federal judge in California declined
jurisdiction over the second lawsuit filed by IntraLase Corp. involving the
terms of a License Agreement existing between the parties for laser
technology.  The suit, initiated by IntraLase Corp. in the United States
District Court for the Central District of California, Southern Division, was
dismissed without prejudice on the grounds that much of IntraLase's lawsuit
sought a ruling on issues already raised by Escalon in a case Escalon filed
against IntraLase in the Court of Chancery of the State of Delaware.
Accepting Escalon's arguments for dismissal, the court held that retaining
jurisdiction would likely result in duplicative litigation and an unnecessary
entanglement between the federal and state court actions.

    Background on Litigation
    As previously announced, on May 16, 2005, Escalon, in the Delaware action,
filed a complaint against IntraLase for breach of contract and breach of
fiduciary duty arising out of IntraLase's bad faith conduct under, and
multiple breaches of, the License Agreement.  Under the License Agreement that
Escalon entered into with IntraLase in 1997, Escalon granted IntraLase the
exclusive right to use Escalon's patented and non-patented technology in
exchange for, among other things, an equity interest in IntraLase and royalty
payments based on a percentage of net sales.  Escalon seeks declaratory
relief, specified damages, and specific performance of its rights under the
License Agreement, including its express right to have independent certified
accountants audit the books and records of IntraLase to verify and compute
payments due Escalon.
    In May 2005, the United States District Court for the Central District of
California, Southern District entered judgment in the first lawsuit initiated
by IntraLase against Escalon wherein IntraLase asked the court to validate its
interpretation of certain terms of the License Agreement relating to the
amount of royalties owed to Escalon.  The California Court did not agree with
IntraLase's interpretation of certain terms and declared that, under the terms
of the License Agreement, IntraLase must pay Escalon royalties on revenue from
maintenance contracts and one-year warranties.  Further, the Court rejected
IntraLase's argument that it is entitled to deduct the value of non-patented
components of its ophthalmic products, which it sells as an integrated unit,
from the royalties due Escalon.  Non-patented components of the products
include computer monitors, joysticks, keyboards, universal power supplies,
microscope assemblies, installation kits and syringes.  In addition, the Court
rejected IntraLase's assertion that account receivables are not "consideration
received" under the License Agreement and expressly ruled that IntraLase must
pay Escalon royalties on IntraLase's account receivables.  The Court agreed,
however, with IntraLase's position that IntraLase is not required to pay
royalties on research grants.  The Court also held that IntraLase must give
Escalon an accounting of third-party royalties.
    Further, the California Court agreed with Escalon in finding that
royalties are "monies" and default in the payment of royalties must be
remedied within 15 days of written notice of the default.  The Court rejected
IntraLase's position concerning the effective date of the License Agreement,
as amended and restated, holding that the effective date of such Agreement was
October 17, 2000.  IntraLase has appealed the California Court's May, 2005
ruling.
    Also, on April 22, 2005, Escalon, as a holder of common stock of
IntraLase, made a formal written demand to inspect certain of IntraLase's
books and records pursuant to Section 220 of the Delaware General Corporation
Law.  Upon IntraLase's rejection of Escalon's demand, Escalon filed a Section
220 action in the Delaware Court of Chancery seeking inspection of IntraLase's
books and records.

    Founded in 1987, Escalon develops, markets and distributes ophthalmic
diagnostic, surgical and pharmaceutical products as well as vascular access
devices.  Drew, which operates as a separate division, provides
instrumentation and consumables for the diagnosis and monitoring of medical
disorders in the areas of diabetes, cardiovascular diseases and hematology, as
well as veterinary hematology and blood chemistry.  The Company seeks to
utilize strategic partnerships to help finance its development programs and is
also seeking acquisitions to further diversify its product line to achieve
critical mass in sales and take better advantage of the Company's distribution
capabilities.  Escalon has headquarters in Wayne, Pennsylvania and
manufacturing operations in Long Island, New York, New Berlin, Wisconsin,
Dallas, Texas, Oxford, Connecticut and Barrow-in-Furness, U.K.

    Note:  This press release contains statements that are considered
forward-looking under the Private Securities Litigation Reform Act of 1995,
including statements about the Company's future prospects.  They are based on
the Company's current expectations and are subject to a number of
uncertainties and risks, and actual results may differ materially.  The
uncertainties and risks include whether the Company is able to improve upon
the operations of the Company's business units, including Drew, generate cash
and identify, finance, integrate operations of Drew and enter into business
relationships and acquisitions, uncertainties and risks related to new product
development, commercialization, manufacturing and market acceptance of new
products, marketing acceptance of existing products in new markets, the
continuity of royalty revenue, successful litigation outcomes, research and
development activities, including failure to demonstrate clinical efficacy,
delays by regulatory authorities, scientific and technical advances by the
Company or third parties, introduction of competitive products, third party
reimbursement and physician training as well as general economic conditions.
Further information about these and other relevant risks and uncertainties may
be found in the Company's report on Form 10-K, and its other filings with the
Securities and Exchange Commission, all of which are available from the
Commission as well as other sources.

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