Johnson and Johnson 2010 Annual Report Download - page 70

68 JOHNSON & JOHNSON 2010 ANNUAL REPORT
the patents (and their foreign counterparts) to COBI for commercial
marketing outside the U.S. If KUCR succeeds in its co-inventorship
claim and establishes co-ownership in the U.S. VELCADE® formula-
tion patents, there is a potential for the same issue to arise with
respect to the foreign counterparts of the patents. If KUCR is suc-
cessful, this may adversely affect COBI’s license rights in those coun-
tries. In May 2010, the parties reached an agreement to resolve the
disputes in this case and will submit the inventorship issue to arbitra-
tion, and the case has been stayed pending the arbitration. If KUCR
wins the arbitration, the parties will request that the Court issue an
order to correct inventorship on the relevant patents; if the U.S.
Government, COBI, and MPI prevail, the case will be dismissed
with prejudice.
In February 2009, Basilea Pharmaceutica AG (Basilea) brought
an arbitration against Johnson & Johnson, Johnson & Johnson
Pharmaceutical Research & Development, L.L.C. and Cilag GmbH
International alleging that the Company breached the 2005 License
Agreement for Ceftobiprole by, among other things, failing to secure
FDA approval of the cSSSI (skin) indication and allegedly failing to
properly develop the pneumonia indication. In November 2010, the
arbitration panel issued its decision and the Company has satisfied
the damages award.
In May 2009, COBI commenced an arbitration proceeding
before the American Arbitration Association against Schering-Plough
Corporation and its subsidiary Schering-Plough (Ireland) Company
(collectively, Schering-Plough). COBI and Schering-Plough are
parties to a series of agreements (Distribution Agreements) that
grant Schering-Plough the exclusive right to distribute the drugs
REMICADE®and SIMPONI® worldwide, except within the United
States, Japan, Taiwan, Indonesia, and the People’s Republic of
China (including Hong Kong) (the Territory). COBI distributes
REMICADE®and SIMPONI®, the next generation treatment, within
the United States. In the arbitration, COBI seeks a declaration that
the agreement and merger between Merck & Co., Inc. (Merck) and
Schering-Plough constitutes a change of control under the terms of
the Distribution Agreements that permits COBI to terminate the
Agreements. The termination of the Distribution Agreements would
return to COBI the right to distribute REMICADE®and SIMPONI®
within the Territory. Schering-Plough has filed a response to COBI’s
arbitration demand that denies that it has undergone a change of
control. The arbitrators were selected and the evidentiary portion of
the hearing was concluded in October 2010. Oral argument was
held in late 2010. A decision is expected during the first half of 2011.
In December 2009, the State of Israel (Sheba Medical Center)
filed suit in the District Court in Tel Aviv Jaffa against various Omrix
affiliates. In the lawsuit, the State claims that an employee of a
government-owned hospital was the inventor on several patents
related to fibrin glue technology, that he developed while he was a
government employee. The State claims that he had no right to
transfer any intellectual property to Omrix because it belongs to the
State. The State is seeking damages plus royalty on QUIXIL™and
EVICEL™or, alternatively, transfer of the patents to the State.
AVERAGE WHOLESALE PRICE (AWP)LITIGATION
The Company and several of its pharmaceutical subsidiaries, along
with numerous other pharmaceutical companies, are defendants in
aseries of lawsuits in state and federal courts involving allegations
that the pricing and marketing of certain pharmaceutical products
amounted to fraudulent and otherwise actionable conduct because,
among other things, the companies allegedly reported an inflated
Average Wholesale Price (AWP) for the drugs at issue. Many of
these cases, both federal actions and state actions removed to
federal court, have been consolidated for pre-trial purposes in a
Multi-District Litigation (MDL) in Federal District Court in Boston,
Massachusetts. The plaintiffs in these cases include classes of pri-
vate persons or entities that paid for any portion of the purchase of
the drugs at issue based on AWP, and state government entities that
made Medicaid payments for the drugs at issue based on AWP.
The MDL Court identified classes of Massachusetts-only pri-
vate insurers providing “Medi-gap” insurance coverage and private
payers for physician-administered drugs where payments were
based on AWP (Class 2 and Class 3), and a national class of
individuals who made co-payments for physician-administered
drugs covered by Medicare (Class 1). A trial of the two Massachu-
setts-only class actions concluded before the MDL Court in Decem-
ber 2006. In June 2007, the MDL Court issued post-trial rulings,
dismissing the Johnson & Johnson defendants from the case regard-
ing all claims of Classes 2 and 3, and subsequently of Class 1 as well.
Plaintiffs appealed the Class 1 judgment and, in September 2009,
the Court of Appeals vacated the judgment and remanded for
further proceedings in the District Court. The Johnson & Johnson
defendants then filed a motion for summary judgment with regard
to Class 1, which the District Court granted in part and denied in
part. Subsequently, the Johnson & Johnson defendants filed a
motion challenging the adequacy of Plaintiffs’ proposed class
representative, which is pending.
AWP cases brought by various Attorneys General have pro-
ceeded to trial against other manufacturers. Three state cases
against certain of the Company’s subsidiaries have been set for
trial: Idaho in October 2011, Kentucky in January 2012 and
Kansas in March 2013. Other state cases are likely to be set for
trial in the coming year. In addition, an AWP case against the
Johnson & Johnson defendants brought by the state of Pennsylvania
was tried in Commonwealth Court in October and November 2010.
The Court found in the State’s favor with regard to certain of its
claims under the Pennsylvania Unfair Trade Practices and Consumer
Protection Law, entered an injunction, and awarded $45 million in
restitution and $6.5 million in civil penalties. The Court found in the
Johnson & Johnson defendants favor on the State’s claims of Unjust
Enrichment, Misrepresentation/Fraud, Civil Conspiracy, and on
certain of the State’s claims under the Pennsylvania Unfair Trade
Practices and Consumer Protection Law. The parties are currently
engaged in post trial briefing, which will be followed by an appeal
to the Pennsylvania Supreme Court if necessary. The Company
believes that it has strong arguments supporting an appeal. The
Company believes that the potential for an unfavorable outcome
is not probable, therefore, it has not established a reserve with
respect to the verdict.
In April 2010, a lawsuit was filed in the United States District
Court for the Northern District of California against the Company,
Omnicare, Inc., and other unidentified companies or individuals. The
Company filed a motion to dismiss. Plaintiffs then filed an amended
complaint. The amended complaint asserts that defendants
engaged in an unlawful trying arrangement in violation of the Sher-
man Act and the California Business and Professions Code. The
amended complaint also asserted claims of unjust enrichment and
civil conspiracy. The Company moved to dismiss the amended com-
plaint. On January 13, 2011, the court granted the Company’s motion
to dismiss as to all causes of action in the amended complaint, and
granted plaintiffs’ leave to file an amended complaint.
Johnson & Johnson has been named the nominal defendant in
six shareholder derivative lawsuits in the U.S. District Court for the
District of New Jersey on behalf of Company shareholders against
certain current and former directors and officers of the Company