ADT 2006 Annual Report Download - page 194

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Commitments and Contingencies (Continued)
On April 17, 2006, the Company reached a settlement that closes the SEC Enforcement Division’s
investigation of the Company regarding certain accounting practices and other actions by former Tyco
officers. On April 25, 2006, the United States District Court for the Southern District of New York
entered a final judgment in which the Company was ordered to pay $1 in disgorgement and a fine of
$50 million. During the third quarter of 2006, the Company satisfied the judgment which was accrued
in 2005.
Intellectual Property and Antitrust Litigation
As previously discussed in our periodic filings, the Company is a party to a number of patent
infringement and antitrust actions that may require the Company to pay damage awards. 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
132 2006 Financials