ADT 2006 Annual Report Download - page 93

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.
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. 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
receives 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 shall 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
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