Cardinal Health 2009 Annual Report Download - page 115

ICU Litigation
Prior to the completion of the Company’s acquisition of ALARIS Medical Systems, Inc. (now known as
Cardinal Health 303, Inc. or “Cardinal Health 303”), on June 16, 2004, ICU Medical, Inc. (“ICU”) filed a patent
infringement lawsuit against Cardinal Health 303 in the U.S. District Court for the Southern District of California
captioned ICU Medical, Inc. v. ALARIS Medical Systems, Inc. In the lawsuit, ICU alleged that the Alaris
SmartSite®family of needle-free valves and systems infringes upon ICU patents. ICU sought monetary damages
plus permanent injunctive relief to prevent Cardinal Health 303 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 Cardinal Health 303 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 Cardinal Health 303. On January 22, 2007, the District Court granted summary
judgment in favor of Cardinal Health 303 on all of ICU’s remaining claims and declared certain of their patent
claims invalid. The District Court also ordered ICU to pay Cardinal Health 303 approximately $5.0 million of
attorneys’ fees and costs. On October 24, 2007, ICU appealed these decisions to the U.S. Court of Appeals for
the Federal Circuit. On March 13, 2009, the Court of Appeals affirmed the rulings of the District Court in this
matter on all grounds. The Court of Appeals denied ICU’s request for a panel rehearing on the issue of attorneys’
fees, and ICU subsequently paid the Company attorneys’ fees in accordance with the court order.
FDA Consent Decree
In February 2009, the Company and the U.S. Food and Drug Administration (the “FDA”) amended a
Consent Decree for Condemnation and Permanent Injunction between Cardinal Health 303, the Company’s
subsidiary that manufactures and sells infusion pumps in the United States, and the FDA to include all infusion
pumps manufactured by or for Cardinal Health 303. The original Consent Decree and the Consent Decree as
amended are referred to hereinafter as the “Consent Decree” and the “Amended Consent Decree,” respectively.
The Amended Consent Decree was entered by the U.S. District Court for the Southern District of California on
February 23, 2009. The FDA alleged in the Amended Consent Decree that based on a January 2008 inspection,
certain of the Company’s infusion pumps did not satisfy the standards of the Federal Food, Drug and Cosmetic
Act (the “FDC Act”). Without admitting the allegations contained in the Amended Consent Decree, and in
addition to the requirements of the original Consent Decree, the Company agreed, among other things, that it
would: (i) by no later than April 24, 2009, submit a corrective action plan to the FDA to bring Alaris system and
all other infusion pumps in use in the U.S. market into compliance with the FDC Act (which was timely
submitted); (ii) by no later than June 3, 2009, have an independent expert perform a comprehensive inspection of
the Company’s infusion pump facilities and certify whether the Company’s infusion pump operations are in
conformity with the Quality System Regulation and certain other provisions of the FDC Act (which certification
was timely submitted to the FDA); and (iii) by no later than June 3, 2009, have an independent recall expert
inspect the Company’s recall procedures and all ongoing recalls involving the Company’s infusion pumps and
certify whether the recall procedures are in compliance with the FDC Act and whether the Company should take
any further remedial actions with respect to any recalls involving the Company’s infusion pumps (which
certification was timely submitted to the FDA). The Amended Consent Decree does not apply to intravenous
administration sets and accessories. Furthermore, it does not prohibit the Company from continuing to
manufacture, market and sell infusion pumps (other than the Alaris SE pumps, which were covered under the
Consent Decree). The Amended Consent Decree also authorizes the FDA, in the event of any violations in the
future, to order the Company to cease manufacturing and distributing, recall products and take other actions. The
Company may be required to pay damages of $15,000 per day per violation if it fails to comply with any
provision of the Amended Consent Decree, up to $15 million per year.
The original Consent Decree was entered by the District Court on February 8, 2007. Prior to entering into
the Consent Decree, the Company had initiated a voluntary field corrective action on August 15, 2006 of its
Alaris SE pumps as a result of information indicating that the product had a risk of “key bounce” associated with
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