Medtronic 2008 Annual Report Download - page 90

The Company has not recorded an expense related to damages in this
matter because any potential loss is not currently probable or reasonably
estimable under SFAS No. 5.
Litigation with DePuy Spine
On January 26, 2001, DePuy Spine (formerly DePuy/AcroMed), a
subsidiary of J&J, and Biedermann Motech GMBH (collectively, “DePuy”)
filed suit in U.S. District Court for the District of Massachusetts alleging
that Medtronic’s subsidiary, Medtronic Sofamor Danek USA, Inc. (MSD),
was infringing a patent relating to a design for a thoracolumbar multi-
axial screw (MAS). DePuy subsequently supplemented its allegations to
claim that MSD’s M10, M8 and Vertex screws infringe the patent. On
April 17, 2003 and February 26, 2004, the District Court ruled on summary
judgment that the M10, M8 and Vertex screws do not infringe. On
October 1, 2004, a jury found that MAS screws, which MSD no longer
sells in the U.S., infringe under the doctrine of equivalents. The jury
awarded damages of $21 and on February 9, 2005, the Court entered
judgment against MSD, including prejudgment interest, in the aggregate
amount of $24. In the third quarter of fiscal year 2005, the Company
recorded an expense equal to the $24 judgment in the matter. DePuy
appealed the Court’s decisions that the M10, M8 and Vertex screws do
not infringe, and MSD appealed the jury’s verdict that the MAS screws
infringe valid claims of the patent. On November 20, 2006, the U.S. Court
of Appeals for the Federal Circuit affirmed the decision of the District
Court that the M10 and M8 screws do not infringe, affirmed the jury’s
verdict and damage award on the MAS screws, affirmed the decision
that the Vertex screws do not literally infringe, but remanded the case,
ruling that there is a triable issue of fact as to whether the Vertex screws
infringe under the doctrine of equivalents. On remand, DePuy further
supplemented its allegations to claim that an additional product, the
Vertex Max screws, also infringe. On March 20, 2007, the District Court
declined to stay execution of the judgment relating to the MAS product.
On March 30, 2007, the judgment plus accrued interest was paid under
protest. On May 30, 2007, the USPTO ordered reexamination of the
patent and on March 5, 2008, confirmed the patentability of the claims
in the patent. On September 27, 2007, a jury found that the Vertex and
Vertex Max screws infringe under the doctrine of equivalents and
awarded $226 in damages to DePuy, and the District Court entered
judgment against Medtronic on December 12, 2007. Thereafter, the
District Court ruled on all post-trial motions, increasing the award to
DePuy to an estimated amount of $272. The District Court also granted
a permanent injunction against Medtronic that prohibits Medtronic
from making, using and selling Vertex and Vertex Max polyaxial screws
in the U.S.; however, Medtronic’s recently-introduced Vertex Select
multi-axial screw is not affected by the injunction. Medtronic has filed
a notice of appeal in the U.S. Court of Appeals for the Federal Circuit,
although a hearing date has not been set. The Company believes that
an unfavorable outcome in this matter is not probable. Accordingly, the
Company has not recorded any additional expense related to damages
in this matter because any potential loss is not currently probable under
SFAS No. 5.
Litigation with Cross Medical Products, Inc.
On May 2, 2003, Cross Medical Products, Inc. (Cross) sued MSD in the
U.S. District Court for the Central District of California. The suit alleges
that MSD’s CD Horizon, Vertex and Crosslink products infringe certain
patents owned by Cross. MSD has countered that Cross’ cervical plate
products infringe certain patents of MSD, and Cross has filed a reply
alleging that certain MSD cervical plate products infringe certain
patents of Cross. On May 19, 2004, the Court found that the MAS, Vertex,
M8, M10, CD Horizon Sextant and CD Horizon Legacy screw products
infringe one Cross patent. A hearing on the validity of that patent was
held on July 12, 2004, after which the District Court ruled that the
patents were valid. Cross made a motion for permanent injunction on
the multi-axial screw products, which the District Court granted on
September 20, 2004, but stayed the effect of the injunction until January
3, 2005. MSD requested an expedited appeal of the ruling and the U.S.
Court of Appeals for the Federal Circuit granted the request. On
September 30, 2005, the Federal Circuit vacated the injunction, modified
the trial court’s claim construction rulings and remanded the matter for
trial in the District Court. The Federal Circuit awarded costs to Medtronic
on the appeal. In April 2005, the District Court ruled invalid certain
claims in the patents Cross asserted against MSD’s Crosslink and cervical
plate products. The Court also ruled that Cross’ cervical plate products
infringe MSD’s valid patents and that MSD’s redesigned pedicle screw
products infringe one claim of one of the patents owned by Cross. Cross
thereafter moved for an injunction against the redesigned screw
products, which the District Court granted on May 24, 2005. The District
Court then stayed the effectiveness of the injunction until August 22,
2005. On July 27, 2005, the U.S. Court of Appeals for the Federal Circuit
granted MSD’s motion to stay the District Court’s injunction pending a
full hearing on the appeal. On March 20, 2007, the Federal Circuit ruled
that MSD’s current multi-axial screw products do not infringe any claim
of Cross’ patent and vacated the District Court’s injunction, which had
already been stayed. On February 28, 2008, the U.S. District Court for
the Central District of California found that the remaining patent claims
asserted against MSD’s polyaxial screws are invalid. The trial scheduled
for April 29, 2008, has been vacated, and a new trial date on remaining
issues has not been set. The Company has not recorded an expense
related to damages in this matter because any potential loss is not
currently probable or reasonably estimable under SFAS No. 5. Separately,
on February 1, 2006, MSD filed a lawsuit against Biomet Inc., the
Notes to Consolidated Financial Statements
(continued)
(dollars in millions, except per share data)
86 Medtronic, Inc.