ADT 2005 Annual Report Download - page 104

Intellectual Property and Antitrust Litigation
As previously disclosed in our periodic filings, we are a party to a number of patent infringement
and antitrust actions. Tyco has assessed the status of these matters and has recorded liabilities related
to certain of these matters where appropriate.
Mallinckrodt, Inc. (‘‘Mallinckrodt’’) and Nellcor Puritan Bennett, Inc. (‘‘Nellcor’’), plaintiffs/counter-
defendants v. Masimo Corporation (‘‘Masimo’’) et al., defendants/counter-claimants, is a consolidated
patent infringement action filed on June 19, 2000 in the United States District Court for the Central
District of California. Nellcor is a subsidiary of Tyco. Nellcor alleges that Masimo infringed one Nellcor
patent related to pulse oximeters, which are medical devices used to measure blood oxygen levels in
patients, and Masimo alleges that Nellcor infringed four Masimo patents related to pulse oximeters.
Trial in the action commenced on February 18, 2004. On March 16, 2004, the jury returned a liability
finding that Nellcor willfully infringed the four Masimo patents and that Masimo did not infringe the
one Nellcor patent. On March 26, 2004, the jury awarded Masimo $135 million in damages for
Nellcor’s alleged infringement through December 31, 2003. After hearing post-trial motions, the district
court issued an order on July 14, 2004 which (i) denied Masimo’s request to impose an injunction on
the sale of pulse oximeters; (ii) reversed the jury finding of patent infringement for one of the four
patents at issue; (iii) ruled that a second patent was unenforceable due to Masimo’s inequitable
conduct in seeking the patent; and (iv) overturned the jury finding that the infringement was ‘‘willful.’’
On August 6, 2004, the district court entered final judgment that included additional damages of
$30 million for Nellcor’s alleged infringement from January 1, 2004 through May 31, 2004. Nellcor
asserts that Masimo infringes a second Nellcor patent (U.S. Patent No. 4,934,372—the ‘‘‘372 patent’’).
On April 8, 2005, the United States Court of Appeals for the Federal Circuit issued a decision in
Nellcor’s favor that reversed the district court’s summary judgment finding of no infringement
regarding the ‘372 patent claim against Masimo. The Court of Appeals remanded Nellcor’s ‘372 patent
claim to the district court for further proceedings. The district court has not yet scheduled trial in the
‘372 case.
Nellcor appealed the jury’s infringement finding on the remaining two Masimo patents to the
United States Court of Appeals for the Federal Circuit. On September 7, 2005, the Court of Appeals
issued a decision on the appeal that was adverse to Nellcor. In particular, the Court of Appeals:
(1) affirmed the infringement finding against Nellcor on two patents; (2) reversed the district court’s
ruling of non-infringement of a third patent; and (3) reversed the district court’s ruling not to enter an
injunction and directed the district court to issue an injunction. The Court of Appeals also:
(1) affirmed the district court’s ruling that Nellcor’s infringement was not willful, which precluded
Masimo from seeking up to treble damages; and (2) affirmed the district court’s ruling that one of
Masimo’s patents was unenforceable due to Masimo’s inequitable conduct in seeking the patent. The
Company has assessed the amount of potential additional damages and interest accruing from the date
of entry of final judgment to the present. Accordingly, during the fiscal quarter ending September 30,
2005, Tyco recorded a pre-tax charge of $277 million related to this matter and does not expect to
incur material losses beyond the amount accrued.
Masimo Corporation v. Tyco Healthcare Group LP (‘‘Tyco Healthcare’’) and Mallinckrodt, Inc. is a
separate lawsuit filed on May 22, 2002 also pending in the United States District Court for the Central
District of California. Tyco Healthcare and Mallinckrodt are subsidiaries of Tyco. In this lawsuit,
Masimo alleges violations of antitrust laws against Tyco Healthcare and Mallinckrodt in the markets for
pulse oximeter products. Masimo alleges that Tyco Healthcare and Mallinckrodt used their market
position to prevent hospitals from purchasing Masimo’s pulse oximetry products. Masimo seeks
injunctive relief and monetary damages, including treble damages. Trial in this case began on
February 22, 2005. The jury returned its verdict on March 21, 2005, and awarded Masimo $140 million
in damages. The damages are automatically trebled under the antitrust statute to an award of
$420 million. Masimo’s attorneys are entitled to an award of reasonable fees and costs in addition to
28 2005 Financials