ADT 2006 Annual Report Download - page 195

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Commitments and Contingencies (Continued)
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.
On January 17, 2006, Tyco International Ltd., and its subsidiaries Tyco International (US) Inc.,
Tyco Healthcare Group LP, Mallinckrodt, Inc., and Nellcor Puritan Bennett, Inc. (collectively
‘‘Nellcor’’) entered into a Settlement Agreement and Release of Claims with Masimo Corporation and
Masimo Laboratories, Inc. (the ‘‘Settlement’’) related to the consolidated patent infringement action.
Under the terms of the Settlement, Tyco on behalf of Nellcor, paid Masimo a total of $330 million
on January 19, 2006, which represents $265 million in damages in the patent case for sales through
January 31, 2006 (after which the infringing products will no longer be sold) and $65 million as an
advance royalty for oximetry sales including Nellcor’s new 06 technology products from February 1,
2006 through December 31, 2006. In 2005, Tyco recorded a liability of $277 million related to this
matter. The Settlement does not resolve the Masimo antitrust lawsuit or the related consumer antitrust
class lawsuits described below. Under the terms of the Settlement, Nellcor received from Masimo a
covenant not to sue on the Nellcor 06 products as well as a termination of all pending patent litigation
with Masimo. In March 2011, Nellcor has the option to terminate Masimo’s covenant not to sue and
the obligation to pay future royalties on Nellcor’s current products as well as any next-generation
products. In addition, Nellcor will discontinue making, offering to sell, selling or shipping any products
that the court found infringed on the patents held by Masimo, but will continue to provide service and
sensors for the previously sold products.
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. If ultimately successful, Masimo’s attorneys are entitled to an award of reasonable fees
and costs in addition to the verdict amount. The district court held a hearing on June 28, 2005
regarding post-trial motions.
On March 22, 2006, the district court issued its Memorandum of Decision regarding the post-trial
motions. In the Memorandum, the district court (i) vacated the jury’s liability findings on two business
practices; (ii) affirmed the jury’s liability finding on two other business practices; (iii) vacated the jury’s
damage award in its entirety; and (iv) ordered a new trial on damages. The district court held the new
trial on the damages on October 18 and 19, 2006. After post-trial briefing, the district court will issue
its decision regarding the amount of damages to be awarded.
Tyco has assessed the status of this matter and has concluded that it is more likely than not that
the remainder of the jury’s decision will be overturned, and, further, Tyco intends to vigorously pursue
all available means to achieve such reversal. Accordingly, no provision has been made in the
Consolidated Financial Statements with respect to this damage award.
Beginning on August 29, 2005 with Natchitoches Parish Hospital Service District v. Tyco
International, Ltd., twelve consumer class actions have been filed against Nellcor in the United States
2006 Financials 133