Cardinal Health 2008 Annual Report Download - page 125

ICU Litigation
Prior to the completion of the Company’s acquisition of Alaris, on June 16, 2004, ICU Medical, Inc.
(“ICU”) filed a patent infringement lawsuit against Alaris in the United States District Court for the Southern
District of California. In the lawsuit, ICU claims that the Alaris SmartSite®family of needle-free valves and
systems infringes upon ICU patents. ICU seeks monetary damages plus permanent injunctive relief to prevent
Alaris from selling SmartSite products. On July 30, 2004, the District Court denied ICU’s application for a
preliminary injunction finding, among other things, that ICU had failed to show a substantial likelihood of
success on the merits. During July and August 2006, the District Court granted summary judgment to Alaris on
three of the four patents asserted by ICU and issued an order interpreting certain claims in certain patents in a
manner that could impair ICU’s ability to enforce those patents against Alaris. On January 22, 2007, the District
Court granted summary judgment in favor of Alaris on all of ICU’s remaining claims and declared certain of
their patent claims invalid. The District Court has ordered ICU to pay Alaris approximately $5.0 million of
attorneys’ fees and costs. On October 24, 2007, ICU appealed these decisions to the United States Court of
Appeals for the Federal Circuit. The Company intends to continue to vigorously defend this action. It is currently
not possible to estimate the amount of loss or range of possible loss that might result from an adverse judgment
or settlement of this proceeding. The Company currently does not believe, however, that this proceeding will
have a material adverse effect on the Company’s results of operations or financial condition.
State Attorneys General Investigation related to Repackaged Pharmaceuticals
In October 2005, the Company received a subpoena from the Attorney General’s Office of the State of
Illinois. The subpoena stated that the Illinois Attorney General’s Office is examining whether the Company
presented or caused to be presented false claims for payment to the Illinois Medicaid program relating to
repackaged pharmaceuticals. The Company received a letter in May 2007 that was sent jointly from the Illinois
and New York Attorney General’s Offices on behalf of a National Association of Medicaid Fraud Control Units
team. The letter alleged that the Company has caused Medicaid reimbursements to be paid for repackaged
pharmaceuticals without paying the required Medicaid rebate and alleges that certain of the Company’s
repackaging business practices violate the Medicaid rebate statute. The letter requested the Company to change
these business practices, asked for additional information and asserted potential theories for damages. The
Company is cooperating with the state attorney general offices regarding this matter. The Company cannot
currently predict the outcome of this investigation or its ultimate impact on the Company’s business, including
whether changes to business practices will be required, and cannot estimate the amount of loss or range of
possible loss.
DEA Matter
In a series of actions, the Drug Enforcement Administration (the “DEA”) of the U.S. Department of Justice
suspended the licenses to distribute controlled substances held by certain of the Company’s distribution centers.
Specifically, the DEA issued an Order to Show Cause and Immediate Suspension (an “Order”), dated
November 28, 2007, with respect to the Company’s Auburn, Washington distribution center; an Order, dated
December 5, 2007, with respect to the Company’s Lakeland, Florida distribution center; and an Order, dated
December 7, 2007, with respect to the Company’s Swedesboro, New Jersey distribution center. In each Order,
the DEA asserts that the Company did not maintain effective controls against diversion of particular controlled
substances into other than legitimate medical, scientific and industrial channels and specifically cites the
Company’s sale of hydrocodone to pharmacies that have allegedly dispensed excessive amounts of the drug for
illegitimate purposes. On December 26, 2007, an Administrative Law Judge handling the Orders granted the
Company’s request to consolidate revocation hearings and stay the consolidated matter. The Company has taken
steps to deliver controlled substances to customers of the distribution centers affected by the Orders using other
Company distribution centers, in some cases on delayed delivery schedules. In addition, the DEA issued an Order
to Show Cause, dated January 30, 2008, pertaining to the license to distribute controlled substances held by the
Company’s Stafford, Texas distribution center (the “Stafford Order”). The Stafford Order did not suspend the
101