Medtronic 2009 Annual Report Download - page 97

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Medtronic, Inc.
and February 26, 2004, the District Court ruled on summary
judgment that the M10, M8 and Vertex screws do not infringe.
On October 1, 2004, a jury found that MAS screws, which MSD no
longer sells in the U.S., infringe under the doctrine of equivalents.
The jury awarded damages of $21 million and on February 9,
2005, the Court entered judgment against MSD, including
prejudgment interest, in the aggregate amount of $24 million. In
the third quarter of fiscal year 2005, the Company recorded an
expense equal to the $24 million judgment in the matter. DePuy
appealed the Court’s decisions that the M10, M8 and Vertex
screws do not infringe, and MSD appealed the jury’s verdict that
the MAS screws infringe valid claims of the patent. On November
20, 2006, the U.S. Court of Appeals for the Federal Circuit affirmed
the decision of the District Court that the M10 and M8 screws do
not infringe, affirmed the jury’s verdict and damage award on the
MAS screws, affirmed the decision that the Vertex screws do not
literally infringe, but remanded the case, ruling that there is
a triable issue of fact as to whether the Vertex screws infringe
under the doctrine of equivalents. On remand, DePuy further
supplemented its allegations to claim that an additional product,
the Vertex Max screws, also infringe. On March 20, 2007, the
District Court declined to stay execution of the judgment relating
to the MAS product. On March 30, 2007, the judgment plus
accrued interest was paid under protest. On September 27, 2007,
a jury found that the Vertex and Vertex Max screws infringe under
the doctrine of equivalents and awarded $226 million in damages
to DePuy, and the District Court entered judgment against
Medtronic on December 12, 2007. Thereafter, the District Court
ruled on all post-trial motions, increasing the award to DePuy to
an estimated amount of $272 million. The District Court also
granted a permanent injunction against Medtronic that prohibits
Medtronic from making, using and selling Vertex and Vertex Max
polyaxial screws in the U.S.; however, Medtronic’s Vertex Select
multi-axial screw is not affected by the injunction. Medtronic
appealed to the U.S. Court of Appeals for the Federal Circuit.
DePuy cross-appealed. On June 1, 2009, the Court of Appeals for
the Federal Circuit affirmed the determination of infringement
and award of lost profits, but reversed the remaining elements of
the damages awarded. The court remanded the case to the
District Court for the calculation of post-judgment interest on
damages of $149 million. The final judgment will also include
pre-judgment interest. In the fourth quarter of fiscal year 2009,
the Company recorded an expense in the amount of $178 million
relating to the matter.
Marquis/Maximo/InSync Matters
On February 10, 2005, Medtronic voluntarily began to advise
physicians about the possibility that a specific battery shorting
mechanism might manifest itself in a subset of ICDs and cardiac
resynchronization therapy-defibrillators (CRT-Ds). These included
certain Marquis VR/DR and Maximo VR/DR ICDs and certain InSync
I/II/III CRT-D devices. Subsequent to this voluntary field action,
a number of lawsuits were filed against the Company alleging
a variety of claims, including individuals asserting claims of
personal injury and third party payors alleging entitlement to
reimbursement. Many of these lawsuits were settled, and in the
third quarter of fiscal year 2008, the Company recorded an
expense of $123 million relating to the settlement in accordance
with SFAS No. 5 as the potential loss was both probable and
reasonably estimable. The Company paid substantially all of the
$123 million in the first quarter of fiscal year 2009. One third party
payor, Kinetic Knife, dismissed its original action without prejudice
and subsequently filed a putative class action relating to the same
subject matter. Medtronic removed the action to federal court in
the District of Minnesota and filed a motion to dismiss, which is
pending. In addition, class action product liability suits pending in
Canada are consolidated in the Ontario Superior Court of Justice.
That court certified a class proceeding on December 6, 2007 and
denied Medtronic’s leave to appeal certification on May 15, 2008.
The class was certified to include individual implant recipients
and their family members. In addition, the subrogated claims of
the provincial health insurers to recover costs incurred in providing
medical services to the implant class are claimed in the class
proceeding. Pretrial proceedings are underway. The Company has
not recorded an expense related to damages for the remaining
suits because any potential loss is not currently probable or
reasonably estimable under SFAS No. 5.
Sprint Fidelis Product Liability Matters
On October 15, 2007, the Company voluntarily suspended
worldwide distribution of its Sprint Fidelis (Fidelis) family of
defibrillation leads. The leads are used to deliver therapy in
patients with ICDs, but are generally not used in pacemaker
patients. The U.S. Food and Drug Administration (FDA)