Medtronic 2011 Annual Report Download - page 62

58 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
connection with an amendment to the parties’ existing agreement
in order to expand the scope of the definition of the license field
from evYsio. The Company paid the settlement in the second
quarter of fiscal year 2010. The Gore settlement related to the
resolution of outstanding patent litigation related to selected
patents in Medtronic’s Jervis and Wiktor patent families. The
terms of the agreement stipulate that neither party will sue the
other in the defined field of use, subject to certain conditions.
The Company granted Gore a worldwide, irrevocable, non-
exclusive license in the defined field of use. In addition and
subject to certain conditions, Gore began paying the Company
quarterly payments in January 2010 that will continue through
the fiscal quarter ending October 2018.
In fiscal year 2009, the Company incurred four certain litigation
charges, net totaling $714 million. The first charge in fiscal year
2009 of $178 million related to litigation with DePuy Spine
(formerly DePuy/AcroMed), a subsidiary of Johnson & Johnson
(J&J), and Biedermann Motech GmbH (collectively, DePuy)
regarding patent infringement claims stemming from the Vertex
line of multiaxial screws. On June 1, 2009, the U.S. Court of
Appeals for the Federal Circuit affirmed the December 2007 ruling
of infringement and awarded damages based on lost profits, but
reversed certain elements of the original 2007 award. Prior to the
U.S. Court of Appeals’ decision, the Company had not recorded
expense related to the damages awarded in 2007 as the Company
did not believe that an unfavorable outcome in this matter was
probable under U.S. GAAP. As a result of the U.S. Court of Appeals’
decision, the Company recorded a reserve of $178 million which
covered the revised damages award and pre- and post-judgment
interest. The Company paid the settlement in June 2009.
The second charge in fiscal year 2009 of $270 million related
to a settlement of royalty disputes with J&J which concern
Medtronic’s licensed use of certain patents. The agreement
reached in the fourth quarter of fiscal year 2009 ended all current
and potential disputes between the two parties under their 1997
settlement and license agreement relating to coronary angioplasty
stent design and balloon material patents. The Company paid the
settlement in May 2009.
The third charge in fiscal year 2009 of $229 million related to
litigation with Cordis Corporation (Cordis), a subsidiary of J&J. The
Cordis litigation originated in October 1997 and pertains to patent
infringement claims on previous generations of bare metal
stents that are no longer on the market. On September 30, 2008,
the U.S. District Court entered final judgment including accrued
interest, totaling approximately $521 million, to Cordis. The
Company had previously recorded a charge of $243 million related
to this litigation in the third quarter of fiscal year 2008. At the
time the $243 million charge was recorded, the range of potential
loss related to this matter was subject to a high degree of
estimation. The amount recorded represented an estimate at the
low end of the range of probable outcomes related to the matter.
Given that the Company and J&J were involved in a number of
litigation matters which span across businesses, the Company
entered into negotiations with J&J in an attempt to settle some of
the additional litigation simultaneous with the payment of this
judgment. Ultimately, the agreement reached with Cordis required
a total cash payment of $472 million, which included the
settlement of several outstanding legal matters between the
parties. The charge of $229 million in fiscal year 2009 is the net
result of $472 million in cash payments, offset by the existing
reserves on the balance sheet including interest accrued on the
$243 million since the date established. The settlement amount of
$472 million was paid in fiscal year 2009.
The fourth charge recognized in fiscal year 2009 related to
litigation that originated in May 2006 with Fastenetix LLC
(Fastenetix), a patent holding company. The litigation related to
an alleged breach of a royalty agreement in the Spinal business.
The agreement reached with Fastenetix required a total cash
payment of $125 million for the settlement of ongoing litigation
and the purchase of patents. Of the $125 million, $37 million was
assigned to past damages in the case and the remaining $88
million was recorded as purchased intellectual property that has
an estimated useful life of seven years. The settlement amount of
$125 million was paid in fiscal year 2009.
3. Restructuring Charges
Fiscal Year 2011 Initiative
In the fourth quarter of fiscal year 2011, the Company recorded a
$272 million restructuring charge, which consisted of employee
termination costs of $177 million, asset write-downs of $24 million,
contract termination fees of $45 million, and other related costs
of $26 million. The fiscal year 2011 initiative was designed
to restructure the business to align its cost structure to current
market conditions and to continue to position the Company
for long-term sustainable growth. To reshape for growth, the
Company scaled back its infrastructure in slower growing areas