Medtronic 2009 Annual Report Download - page 95

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Medtronic, Inc.
no amount within the range is a better estimate than any other,
the minimum amount of the range is accrued. If a loss is possible
but not known or probable, and can be reasonably estimated, the
estimated loss or range of loss is disclosed. In most cases,
significant judgment is required to estimate the amount and
timing of a loss to be recorded. While it is not possible to predict
the outcome for most of the matters discussed, the Company
believes it is possible that costs associated with them could have
a material adverse impact on the Company’s consolidated
earnings, financial position or cash flows.
Litigation with Wyeth and Cordis Corporation
On February 22, 2008, Wyeth and Cordis filed a lawsuit against
the Company and its subsidiary, Medtronic AVE, Inc., in U.S.
District Court for the District of New Jersey, alleging that
Medtronic’s Endeavor drug-eluting stent infringes three U.S.
“Morris” patents alleged to be owned by Wyeth and exclusively
licensed to Cordis. The Company believes it is indemnified for the
claims made by Wyeth and Cordis. The Company has not recorded
an expense related to damages in connection with these matters
because any potential loss is not currently probable or reasonably
estimable under SFAS No. 5.
Litigation with Johnson & Johnson and Cordis Corporation
On February 20, 2006, an arbitration panel issued a final, non-
appealable award concluding that Medtronic Vascular’s S670,
S660, S540, S7 and Driver stents, which were formerly the subject
of a patent infringement dispute between J&J and Cordis and
Medtronic Vascular, are licensed under a 1997 agreement between
the two companies and subject to a covenant not to sue contained
within a 1998 amendment to the 1997 agreement. Cordis since
initiated six arbitration proceedings against Medtronic Vascular
alleging that certain of the products infringe certain patents of
J&J and Cordis, and is seeking royalties for such infringement,
if any. On May 8, 2009, the parties settled the six arbitrations,
including all current and potential disputes between the two
parties under their 1997 agreement relating to coronary
angioplasty stent design and balloon material patents. As
consideration for the settlement, Medtronic paid J&J and Cordis
a lump sum of $270 million on May 8, 2009, and recorded an
expense of $270 million in the matter.
Litigation with Abbott Cardiovascular Systems Inc.
On December 24, 1997, Abbott Cardiovascular Systems Inc. (ACS),
a subsidiary of Abbott Laboratories (Abbott), sued Medtronic
Vascular in U.S. District Court for the Northern District of California
alleging that certain models of Medtronic Vascular’s bare metal
stents infringe the Lau stent patents held by ACS, and seeking
injunctive relief and monetary damages. In February 2005,
following trial in Delaware federal district court, a jury determined
that the ACS Lau stent patents were valid and that Medtronic’s
Driver, GFX, MicroStent, S540, S660, S670, Bestent2 and S7 stents
(the bare metal stents) infringe those patents. Medtronic Vascular
made numerous post-trial motions challenging the jury’s verdict
of infringement and validity. In August 2005, the Court issued an
order continuing a stay of any further proceedings on the
questions of damages or willful infringement.
On March 30, 2007, the District Court denied Medtronic’s post-
trial motions, and on April 24, 2007, the District Court ruled that
the patents were enforceable. In May 2007, the District Court
entered judgment in favor of ACS and against Medtronic Vascular
on the issues of validity, infringement and enforceability of the
Lau patents. On May 18, 2007, the District Court confirmed that
a trial on issues of damages or willful infringement would be
deferred pending the U.S. Court of Appeals for the Federal Circuit
review of the liability issues concerning alleged infringement,
invalidity and inequitable conduct.
ACS filed a motion for injunction in the District Court on June
29, 2007 on both the bare metal stents and the Endeavor drug-
eluting stent, which had never previously been named as an
accused product in the lawsuit. On July 6, 2007, Medtronic filed its
motion to stay ACS’s June 29, 2007 motion for a permanent
injunction pending arbitration under a 2002 agreement with
Abbott providing Medtronic with a license that Medtronic asserted
precluded the ACS injunction motion.
On August 6, 2007, the Delaware District Court granted
Medtronic’s July 6, 2007 motion to stay, in part, permitting
arbitration to proceed on Medtronic’s assertion that it has a
license to practice the U.S. Lau patents in its Endeavor stent. On
February 26, 2008, an arbitrator concluded that the Company was
not licensed to practice the U.S. Lau patents in its Endeavor stent
and ACS filed a sealed motion with the District Court seeking to