Medtronic 2010 Annual Report Download - page 37

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Medtronic, Inc.
defined field of use. In addition and subject to certain conditions,
Gore will pay us quarterly payments that began in January 2010
through the fiscal quarter ending October 2018.
During fiscal year 2009, we incurred four certain litigation
charges, net totaling $714 million. The first charge in the amount
of $178 million related to litigation with DePuy Spine (formerly
DePuy/AcroMed), a subsidiary of Johnson & Johnson (J&J), and
Biedermann Motech GmbH (collectively, DePuy) regarding patent
infringement claims stemming from the Vertex line of multiaxial
screws. On June 1, 2009, the U.S. Court of Appeals for the Federal
Circuit affirmed the December 2007 ruling of infringement and
awarded damages based on lost profits, but reversed certain
elements of the original 2007 award. Prior to the U.S. Court of
Appeals’ decision, we had not recorded expense related to the
damages awarded in 2007 as we did not believe that an unfavorable
outcome in this matter was probable under U.S. GAAP. As a result
of the U.S. Court of Appeals’ decision, we recorded a reserve of
$178 million which covered the revised damages award and pre-
and post-judgment interest. The settlement amount was paid in
June 2009.
The second charge in fiscal year 2009 in the amount of $270
million related to a settlement of royalty disputes with J&J which
concern Medtronic’s licensed use of certain patents. The
agreement reached in the fourth quarter of fiscal year 2009 ended
all current and potential disputes between the two parties under
their 1997 settlement and license agreement relating to coronary
angioplasty stent design and balloon material patents. The
settlement amount was paid in May 2009.
The third charge in fiscal year 2009 in the amount of $229
million related to litigation with Cordis Corporation (Cordis), a
subsidiary of J&J. The Cordis litigation originated in October 1997
and pertains to patent infringement claims on previous
generations of bare metal stents that are no longer on the market.
On September 30, 2008, the U.S. District Court entered final
judgment including accrued interest, totaling approximately
$521 million, to Cordis. We had previously recorded a charge of
$243 million related to this litigation in the third quarter of fiscal
year 2008. At the time the $243 million charge was recorded, the
range of potential loss related to this matter was subject to a high
degree of estimation. The amount recorded represented an
estimate at the low end of the range of probable outcomes
related to the matter. Given that the Company and J&J were
involved in a number of litigation matters which span across
businesses, we entered into negotiations with J&J in an attempt
to settle some of the additional litigation simultaneous with the
payment of this judgment. Ultimately, the agreement reached
with Cordis required a total cash payment of $472 million, which
included the settlement of several outstanding legal matters
between the parties. The charge of $229 million in the second
quarter of fiscal year 2009 is the net result of $472 million in cash
payments, offset by the existing reserves on the balance sheet
including interest accrued on the $243 million since the date
established. The settlement amount of $472 million was paid in
fiscal year 2009.
The fourth charge in fiscal year 2009 related to litigation that
originated in May 2006 with Fastenetix LLC (Fastenetix), a patent
holding company. The agreement reached with Fastenetix
required a total cash payment of $125 million for the settlement
of ongoing litigation and the purchase of patents. Of the $125
million, $37 million was assigned to past damages in the case and
the remaining $88 million was recorded as purchased intellectual
property that has an estimated useful life of 7 years. The
settlement amount of $125 million was paid in fiscal year 2009.
During fiscal year 2008, we incurred certain litigation charges,
net of $366 million. Of that amount, $123 million related to the
settlement of certain lawsuits relating to the Marquis line of ICDs
and CRT-Ds that were subject to a field action announced on
February 10, 2005. As discussed in detail above, the remainder of
the charge, $243 million, related to an estimated reserve
established for litigation with Cordis. In May 2008, we paid
substantially all of the settlement for certain lawsuits relating to
the Marquis line of ICDs and CRT-Ds. See Note 17 to the
consolidated financial statements for additional information.
IPR&D and Certain Acquisition-Related Costs During fiscal year 2010,
we recorded $23 million of IPR&D and certain acquisition-related
costs of which $11 million related to the Arbor Surgical Technologies,
Inc. IPR&D asset purchase and $12 million related to certain
acquisition-related costs associated with the acquisition of Invatec.
In the above IPR&D charge, the payment was expensed as
IPR&D since technological feasibility of the underlying project had
not yet been reached and such technology had no future
alternative use.
During fiscal year 2009, we recorded $621 million of IPR&D
charges of which $307 million related to the acquisition of Ventor,
$123 million related to the acquisition of CoreValve, $97 million
related to the acquisition of Ablation Frontiers, $72 million related
to the acquisition of CryoCath and $22 million was for the
purchase of certain intellectual property for use in our Spinal and
Diabetes operating segments. These payments were expensed as
IPR&D since technological feasibility of the underlying projects