Medtronic 2010 Annual Report Download - page 102

98
Notes to Consolidated Financial Statements
(continued)
consolidated class action complaint. On July 28, 2008, the state
court stayed these actions pending final resolution of the related
consolidated class action complaint.
In addition, on August 11, 2008, Mark Brown filed a putative
class action complaint against the Company and certain directors,
officers and other company personnel in the U.S. District Court
for the District of Minnesota, alleging violations of the Employee
Retirement Income Security Act of 1974 (ERISA) arising from the
same subject matter as the Kurzweil consolidated putative class
complaint. On December 29, 2008, the plaintiff amended the
complaint to add similar allegations relating to alleged off-label
promotion of INFUSE Bone Graft and to amend the class. The
defendants’ motion to dismiss was granted without prejudice on
May 26, 2009 on the grounds plaintiff lacked standing to assert
his claims. Plaintiffs’ appeal to the Eighth Circuit Court of Appeals
was argued on May 12, 2010.
On December 10, 2008, the Minneapolis Firefighters’ Relief
Association filed a putative class action complaint against the
Company and two of its officers in the U.S. District Court for the
District of Minnesota, alleging violations of Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder. The complaint alleges
that the defendants made false and misleading public statements
concerning the INFUSE Bone Graft product which artificially
inflated Medtronic’s stock price during the period. On August 21,
2009, plaintiffs filed a consolidated putative class action complaint
expanding the class. Medtronic’s motion to dismiss the
consolidated complaint was denied on February 3, 2010, and
pretrial proceedings are underway.
On February 24, 2009, Christin Wright filed a putative class
action complaint against the Company and certain directors,
officers and other company personnel in the U.S. District Court
for the District of Minnesota, alleging violations of ERISA. The
plaintiff claimed the defendants breached fiduciary duties by
allegedly failing to properly disclose the September 2008
settlement of the litigation with Fastenetix and the October 2008
settlement of the Cordis litigation. On March 17, 2010, defendants’
motion to dismiss the allegations in the original complaint was
granted without prejudice. On May 14, 2010, plaintiffs filed an
amended complaint to add allegations similar to those made in
the Brown case. Defendants’ motion to dismiss that amended
complaint is scheduled for hearing on September 16, 2010.
The Company has not recorded an expense related to damages
in connection with these shareholder related matters because any
potential loss is not currently probable or reasonably estimable
under U.S. GAAP.
Mirowski
Medtronic is a licensee to the RE 38,119 patent (‘119 Patent) and
RE 38,897 patent (‘897 Patent) owned by Mirowski Family Ventures,
LLC (Mirowski) relating to the treatment of hemodynamic
dysfunction. Medtronic and Mirowski dispute the application
of the ‘119 and ‘897 Patents to certain Medtronic cardiac
resynchronization products. On December 17, 2007, Medtronic
filed an action in U.S. District Court for the District of Delaware
seeking a declaration that none of its products infringe any valid
claims of either the ‘119 or ‘897 Patents. If certain conditions are
fulfilled, the ‘119 and/or ‘897 Patents are determined to be valid
and the Medtronic products are found to infringe the ‘119 and/or
‘897 Patents, Medtronic will be obligated to pay royalties to
Mirowski based upon sales of certain CRT-D products. A bench
trial concluded on March 13, 2010. As of April 30, 2010, the amount
of disputed royalties and interest related to CRT-D products was
$109 million. This amount has not been accrued because the
outcome is not currently probable under U.S. GAAP.
In addition, Medtronic is a licensee to the 4,407,288 Patent (‘288
Patent) owned by Mirowski relating to ICDs. Until November 2001,
Medtronic accrued and paid royalties under the license based on
a percentage of ICD sales. Medtronic and Mirowski dispute the
application of the ‘288 Patent to certain Medtronic ICD products.
In November 2001, Medtronic ceased paying royalties and entered
into an agreement with Mirowski to pay putative royalties into an
interest-bearing escrow account through the expiration of the
‘288 Patent in December of 2003. As of April 30, 2010, the current
balance in the interest-bearing escrow account was $89 million.
The parties also entered into a tolling agreement deferring and
conditioning any litigation of the obligation to pay royalties upon
certain conditions precedent. If these conditions are fulfilled and
the ‘288 Patent is determined to be invalid or Medtronic’s
products are found not to infringe, the escrowed funds will be
released to Medtronic.
Other Matters
On March 12, 2010, the Company received a civil investigative
demand from the U.S. Department of Justice pursuant to
the federal False Claims Act seeking information regarding
the Company’s knowledge about claims to Medicare for the
implantation of ICDs, including reimbursement advice given by
the Company, payments to persons or entities involved in
decisions about implantation of ICDs, and the national coverage
determination relating to ICDs. The Company is fully cooperating
with this investigation.
Medtronic, Inc.