Medtronic 2008 Annual Report Download - page 91

corporate parent of Cross (Biomet) and its subsidiary EBI Spine, L.P., for
patent infringement. The suit, which involves seven Medtronic patents
and seeks injunctive relief and monetary damages, was filed in the U.S.
District Court for the District of New Jersey. Three of the patents were
purchased by Medtronic from Michelson and involve single-lock
anterior cervical plating systems used in cervical spinal fusions.
Medtronic claims that a cervical plate marketed by Biomet under the
trade name VueLock Anterior Cervical Plate System, and openly
promoted as a plate that has a “Secure One Step Locking” mechanism
feature, infringes these patents. The other patents involve instruments
and surgical implantation methods commonly used in spinal surgeries
to implant pedicle screws.
Other Matters
On February 10, 2005, Medtronic voluntarily began to advise physicians
about the possibility that a specific battery shorting mechanism might
manifest itself in a subset of ICDs and cardiac resynchronization therapy-
defibrillators (CRT-Ds). These included certain Marquis VR/DR and
Maximo VR/DR ICDs and certain InSync I/II/III CRT-D devices. Subsequent
to this voluntary field action, a number of lawsuits have been filed
against the Company in both federal and state courts, alleging a variety
of claims, including individuals asserting claims of personal injury and
third party payors (TPP) alleging entitlement to reimbursement. On
December 21, 2007, Medtronic accepted a settlement agreement to
resolve these matters. The cases in the settlement arise from the
February 2005 field action and include both cases that have been filed
and some cases that could properly have been filed. As a term of the
settlement, each settling plaintiff must satisfy any insurance claims and
subrogation interests of either Medicare or Medicaid from the proceeds
of their individual settlement payments. No additional sums will be paid
by Medtronic for third-party claims or attorney’s fees. Neither side has
admitted any liability or the validity of any defenses in the litigation. The
Judicial Panel on Multidistrict Litigation has entered an order terminating
the Multidistrict Litigation proceedings. In addition, class action personal
injury suits are pending in Canada. In the third quarter of fiscal year
2008, the Company recorded an expense of $123 relating to the
settlement in accordance with SFAS No. 5 as the potential loss is both
probable and reasonably estimable. The Company paid substantially all
of the settlement on May 9, 2008, and expects to pay the remaining
amounts in the first or second quarter of fiscal year 2009. There remain
a limited number of immaterial, individual lawsuits relating to the same
subject matter that remain unresolved.
On October 24, 2005, Medtronic received a subpoena from the Office
of the United States Attorney for the District of Massachusetts issued
under the Health Insurance Portability & Accountability Act of 1996
requesting documents the Company may have, if any, relating to
pacemakers and defibrillators and related components; monitoring
equipment and services; a provision of benefits, if any, to persons in a
position to recommend purchases of such devices; and the Company’s
training and compliance materials relating to the fraud and abuse and
federal Anti-Kickback statutes. The Company is cooperating fully with
the investigation, and has begun to produce documents on a schedule
requested by the United States Attorney.
During 2005, the Office of the United States Attorney for the District
of New York received a complaint, which Medtronic has since learned
is a qui tam complaint. The alleged impropriety involves Kyphon’s sales
and marketing practices. On May 19, 2008, the U.S. Department of
Justice and Kyphon executed a settlement agreement to settle the
complaint for $75, without any admission of liability and subject to
appropriate releases. The settlement amount was paid on June 10, 2008.
The settlement agreement required entry into a mutually agreed upon
Corporate Integrity Agreement with the Office of Inspector General of
the Department of Health and Human Services. The Corporate Integrity
Agreement was executed between the Office of Inspector General and
Kyphon on May 16, 2008. Kyphon recorded a liability in September 2007
as a result of the previously proposed settlement to pay $75, which the
Company assumed in the acquisition of Kyphon.
On October 15, 2007, the Company voluntarily suspended worldwide
distribution of its Sprint Fidelis (Fidelis) family of defibrillation leads. This
decision was based on a variety of factors that, when viewed together,
indicated that suspending distribution was the appropriate action. At
the time, Fidelis lead viability was trending lower than other Company
defibrillation leads, but had not then become statistically significant.
The leads are used to deliver therapy in patients with ICDs, but are
generally not used in pacemaker patients. The U.S. Food and Drug
Administration (FDA) subsequently classified the Company’s action as
a Class I recall. As of June 19, 2008, approximately 225 lawsuits regarding
the Fidelis leads have been filed against the Company, including
approximately 33 putative class action suits reflecting a total of
approximately 600 individual personal injury cases. In general, the suits
allege claims of product liability, warranty, negligence, unjust
enrichment, emotional distress and consumer protection violations.
One lawsuit includes a claim by an individual purporting to act as a
surrogate for the Center for Medicare and Medicaid Services, and one
lawsuit has been brought by a third payor as a putative class action suit.
In addition, one purported class action has been filed in Canada.
Approximately 73 of the lawsuits have been filed in state court, generally
alleging similar causes of action. Of those state court actions,
approximately 65 are consolidated before a single judge in Minnesota
state court. The federal court cases have been consolidated for pretrial
proceedings before a single federal judge in the U.S. District Court for
87Medtronic, Inc.