| Commitments and Contingencies | 16. Commitments and Contingencies
On a quarterly and annual basis, we review relevant information
with respect to loss contingencies and update our accruals,
disclosures and estimates of reasonably possible losses or ranges
of loss based on such reviews. We establish liabilities for loss
contingencies when it is probable that a loss has been incurred and
the amount of the loss can be reasonably estimated. For matters
where a loss is believed to be reasonably possible, but not
probable, no accrual has been made.
Litigation
Durom ® Durom Durom Durom In Re: Zimmer Durom Hip Cup Products Liability
Litigation Santas, et al. v. Zimmer, Inc., et
al. McAllister, et al.
v. Zimmer, Inc., et al. Santas McAllister
Since 2008, we have recognized expense of $479.4 million
for Durom Durom
We maintain insurance for product liability claims, subject to
self-insurance retention requirements. As of June 30, 2015, we
have exhausted our self-insured retention under our insurance
program and have a claim for insurance proceeds for ultimate losses
which exceed the self-insured retention amount, subject to a 20
percent co-payment Durom
Our estimate as of June 30, 2015 of the remaining liability
for all Durom Durom
Our understanding of clinical outcomes with the Durom Durom Durom
Margo and Daniel Polett v. Zimmer, Inc. et al.
NexGen ® NexGen In Re: Zimmer NexGen Knee Implant Products
Liability Litigation
Biomet metal-on-metal hip implant claims: Biomet is a defendant in
a number of product liability lawsuits relating to metal-on-metal
hip implants. The majority of these cases involve the M2a-Magnum
hip system. The majority of the cases are currently consolidated in
one federal MDL proceeding in the U.S. District Court for the
Northern District of Indiana (In Re: Biomet M2a Magnum
Hip Implant Product Liability Litigation)
On February 3, 2014, Biomet announced that the settlement of
the MDL. Lawsuits filed in the MDL by April 15, 2014 may
participate in the settlement. Biomet continues to evaluate the
inventory of lawsuits in the MDL pursuant to the categories and
procedures set forth in the settlement agreement. The final amount
of payments under the settlement is uncertain. The settlement does
not affect certain other claims relating to Biomet’s
metal-on-metal hip products that are pending in various state and
foreign courts, or other claims that may be filed in the future.
Our estimate as of June 30, 2015 of the remaining liability
for all Biomet metal-on -metal
Biomet has exhausted the self-insured retention in its insurance
program and is pursuing insurance claims for reimbursement for the
amount in excess of the self-insured retention. Biomet’s
insurance carriers have been placed on notice of the claims
associated with metal-on-metal hip products that are subject to the
settlement and the terms of the settlement. As is customary in
these situations, certain of Biomet’s insurance carriers have
reserved all rights under their respective policies. Biomet
continues to believe its contracts with the insurance carriers are
enforceable for these claims and the settlement agreement and
continues to cooperate with its insurers’ requests in order
to secure coverage for these claims. We will be responsible for any
amounts that Biomet’s insurance carriers do not cover or for
the amount by which ultimate losses exceed the amount of
Biomet’s third-party insurance coverage. As of June 30,
2015, Biomet had received a portion of the insurance proceeds it
estimates it will recover.
Heraeus trade secret misappropriation lawsuits: In December 2008,
Heraeus Kulzer GmbH (together with its affiliates,
“Heraeus”) initiated legal proceedings in Germany
against Biomet, Biomet Europe BV and certain other subsidiaries of
Biomet, Inc., alleging that Biomet, Inc. and Biomet Europe BV
misappropriated Heraeus trade secrets when developing Biomet
Europe’s Refobacin and Biomet Bone Cement line of cements,
which are referred to as European Cements. The lawsuit sought to
preclude the defendants from producing, marketing and offering for
sale their current line of European Cements and to compensate
Heraeus for any damages incurred (alleged to be in excess
of €30.0 million). On December 20, 2012, the trial
court dismissed Biomet, Inc., Biomet Europe BV, Biomet Deutschland
GmbH and other defendants from the lawsuit. Biomet Orthopaedics
Switzerland GmbH was the only Biomet entity remaining as a
defendant.
Following an appeal by Heraeus, on June 5, 2014, the German
appeals court (i) enjoined Biomet, Inc., Biomet Europe BV and
Biomet Deutschland GmbH from manufacturing, selling or offering the
European Cements to the extent they contain certain raw materials
in particular specifications; (ii) held the defendants jointly
and severally liable to Heraeus for any damages from the sale of
European Cements since 2005; and (iii) ruled that no further
review may be sought. Damages have not been determined. The
judgment is not final and the defendants are seeking review
(including review of the appeals court ruling that no further
review may be sought) from Germany’s Supreme Court. No
prediction can be made as to the likelihood of review being granted
by Germany’s Supreme Court.
During the pendency of a stay based on a bank guaranty the
defendants issued in favor of Heraeus, the defendants were entitled
to continue the manufacture, marketing, sale and offering of
European Cements in their current composition. Heraeus subsequently
offered counter security and executed the judgment effective as of
August 22, 2014. As a result, Biomet Europe BV and Biomet
Deutschland GmbH are enjoined from the manufacture, marketing, sale
and offering of European Cements in Germany. While Heraeus has
indicated that it intends to take the position that the judgment
would prohibit the manufacture, marketing, sale and offering of
European Cements outside of Germany as well and is attempting to
enforce the judgment in the Netherlands, Biomet, Inc., Biomet
Europe BV and Biomet Deutschland GmbH are vigorously contesting the
attempt to enforce the judgment in the Netherlands and will
vigorously contest any other attempts to extend the effect of the
judgment beyond Germany. Biomet, Inc., Biomet Europe BV and Biomet
Deutschland GmbH thus filed a declaratory action in Germany on
August 3, 2014 to have the court determine the reach of the
appeals court decision. On September 11, 2014, Heraeus filed a
motion with the competent court in Germany to have a penalty
imposed on Biomet Deutschland GmbH and Biomet Europe BV based on
alleged inadequacies in providing sales documentation and continued
sales of the European Cements outside of Germany. In addition,
Heraeus initiated preliminary injunction proceedings against Biomet
Europe BV in the Netherlands and asked the Dutch court to enforce
the German judgment in the Netherlands by imposing additional fines
on Biomet Europe BV for the continued sales in the Netherlands. On
February 11, 2015, the trial court in Rotterdam rejected
Heraeus’ demand to enforce the German judgment in the
Netherlands for lack of jurisdiction. Heraeus has appealed this
decision.
In February 2015, Heraeus also served Biomet, Inc. and Biomet
Deutschland GmbH with a new lawsuit, filed in Germany and alleging
that Biomet used Heraeus trade secrets that the German appeals
court found in June 2014 had been misappropriated by Biomet in the
development and production of Biomet’s line of Cobalt
cements. On September 8, 2014, Heraeus filed a complaint
against a Biomet supplier, Esschem, Inc. (“Esschem”),
in the United States District Court for the Eastern District of
Pennsylvania. The lawsuit contains allegations that focus on two
copolymer compounds that Esschem sells to Biomet, which Biomet
incorporates into certain bone cement products that compete with
Heraeus’ bone cement products. The complaint alleges that
Biomet helped Esschem to develop these copolymers, using Heraeus
trade secrets that Biomet allegedly misappropriated. The complaint
asserts a claim under the Pennsylvania Trade Secrets Act, as well
as other various common law tort claims, all based upon the same
trade secret misappropriation theory. Heraeus is seeking to enjoin
Esschem from supplying the copolymers to any third party and actual
damages in an unspecified amount. The complaint also seeks
punitive damages, costs and attorneys’ fees. If Esschem is
enjoined, Biomet may not be able to obtain the copolymers from
another supplier and as a result may not be able to continue to
manufacture the subject bone cement products. Although Heraeus has
not named Biomet as a party to this lawsuit, Biomet has agreed, at
Esschem’s request and subject to certain limitations, to
indemnify Esschem for any liability, damages and legal costs
related to this matter. On November 3, 2014, the court entered
an order denying Heraeus’ motion for a temporary restraining
order.
In February 2015, Heraeus initiated additional proceedings against
Biomet Deutschland GmbH in Germany asking for a court order
primarily intended to stop Biomet Deutschland GmbH from marketing
the Hi-Fatigue line of bone cements for a period of two years.
Heraeus argues that Biomet Deutschland GmbH must refrain from using
customer relationships which they allege were built on the
distribution of the European Cements and thus on the alleged
misappropriation of Heraeus’ trade secrets.
No assurance can be made as to the time or resources that will be
needed to devote to this litigation or its final outcome.
Stryker patent infringement lawsuit: On December 10, 2010,
Stryker Corporation and related entities (“Stryker”)
filed suit against us in the U.S. District Court for the Western
District of Michigan, alleging that certain of our Pulsavac
Bonutti patent infringement lawsuits: On May 3, 2013, Bonutti
Skeletal Innovations LLC (“Bonutti Skeletal”), a
company formed to hold certain patents acquired from
Dr. Peter M. Bonutti and an affiliate of patent licensing
firm Acacia Research Group LLC (“Acacia”), filed suit
against Biomet in the U.S. District Court for the Eastern District
of Texas, alleging a failure to pay royalties due under a license
agreement with Dr. Bonutti, misuse of confidential information
and infringement of 15 U.S. patents. Prior to the filing of this
lawsuit, on March 8, 2013, Biomet had filed a complaint for
declaratory judgment with the U.S. District Court for the Northern
District of Indiana seeking a judgment of non-infringement and
invalidity of the patents at issue, and Acacia entered
counterclaims of infringement seeking damages in an amount yet to
be determined and injunctive relief. On September 17, 2013,
the May 3, 2013 case filed in the Eastern District of Texas
was dismissed. On March 31, 2014, Biomet entered into a
settlement and license agreement with Bonutti Skeletal settling all
claims related to five of the patents at issue for a one-time
payment, and on June 25, 2014, the U.S. District Court for the
Northern District of Indiana issued an order dismissing the claims
related to those patents with prejudice. The litigation will
proceed with respect to the remaining patents at issue.
On September 10, 2012, Bonutti Skeletal filed suit against
Zimmer in the U.S. District Court for the District of Delaware,
alleging infringement of three U.S. patents. An amended complaint
was filed on January 15, 2013, alleging infringement of three
additional patents. Zimmer requested an Inter Partes Review
(“IPR”) of three of the patents at issue. IPRs were
granted for two of the patents. Zimmer moved for a stay of the case
during the pendency of the IPRs, and on April 7, 2014, the
court granted the stay. In May 2015, the U.S. Patent and Trademark
Office issued its decision in the IPRs, invalidating all of the
challenged patent claims in both patents. Bonutti Skeletal decided
not to appeal that decision. On June 30, 2015, the court
lifted the stay and the litigation will proceed with respect to the
remaining patents at issue.
As of June 30, 2015, we had accrued an estimated loss of $4.0
million related to the Bonutti patent infringement lawsuits.
Although we are defending these lawsuits vigorously, we can make no
assurances as to their final outcome.
Regulatory Matters, Government Investigations and Other
Matters
In September 2012, Zimmer received a warning letter from the U.S.
Food and Drug Administration (“FDA”) citing concerns
relating to certain manufacturing and validation processes
pertaining to Trilogy ®
On March 26, 2012, Biomet entered into a Deferred Prosecution
Agreement (“DPA”) with the U.S. Department of Justice,
Criminal Division, Fraud Section (“DOJ”) and a Consent
to Final Judgment (“Consent”) with the U.S. Securities
and Exchange Commission (“SEC”) related to an
investigation by the DOJ and the SEC into possible violations of
the Foreign Corrupt Practices Act (“FCPA”) in the
marketing and sale of medical devices in certain foreign countries.
Pursuant to the DPA, the DOJ agreed to defer prosecution of Biomet
in connection with those matters, provided that Biomet satisfies
its obligations under the DPA over the term of the DPA. The DPA had
a three-year term and provided that it could be extended in the
sole discretion of the DOJ for an additional year. Pursuant to the
Consent, Biomet consented to the entry of a Final Judgment which,
among other things, permanently enjoined Biomet from violating the
provisions of the FCPA. In addition, pursuant to the terms of the
DPA, an independent external compliance monitor was appointed to
review Biomet’s compliance with the DPA, particularly in
relation to Biomet’s international sales practices. The
Consent that Biomet entered into with the SEC mirrors the
DPA’s provisions with respect to the compliance monitor.
In October 2013, Biomet became aware of certain alleged
improprieties regarding its operations in Brazil and Mexico,
including alleged improprieties that predated the entry of the DPA.
Biomet retained counsel and other experts to investigate both
matters. Based on the results of the ongoing investigations, Biomet
has terminated, suspended or otherwise disciplined certain of the
employees and executives involved in these matters, and has taken
certain other remedial measures. Additionally, pursuant to the
terms of the DPA, in April 2014 and thereafter, Biomet disclosed
these matters to and discussed these matters with the independent
compliance monitor and the DOJ and SEC. On July 2, 2014 and
July 13, 2015, the SEC issued subpoenas to Biomet requiring
that Biomet produce certain documents relating to such matters.
These matters remain under investigation by the DOJ.
On March 13, 2015, the DOJ informed Biomet that the DPA and
the independent compliance monitor’s appointment have been
extended for an additional year. On April 2, 2015, at the
request of the staff of the SEC, Biomet consented to an amendment
to the Final Judgment to extend the term of the compliance
monitor’s appointment for one year from the date of entry of
the Amended Final Judgment.
Pursuant to the DPA, the DOJ has sole discretion to determine
whether conduct by Biomet constitutes a violation or breach of the
DPA. The DOJ has informed Biomet that it retains its rights under
the DPA to bring further action against Biomet relating to the
conduct in Brazil and Mexico referenced above or the violations set
forth in the DPA. The DOJ could, among other things, revoke the DPA
or prosecute Biomet and/or the involved employees and executives.
Biomet continues to cooperate with the SEC and DOJ and expects that
discussions with the SEC and the DOJ will continue. While we are
devoting significant time and resources to these matters, we can
give no assurances as to their final outcome.
In June 2013, Biomet received a subpoena from the U.S.
Attorney’s Office for the District of New Jersey requesting
various documents relating to the fitting of custom-fabricated or
custom-fitted orthoses, or bracing, to patients in New Jersey,
Texas and Washington. Biomet has produced responsive documents and
is fully cooperating with the request of the U.S. Attorney’s
Office. We may need to devote significant time and resources to
this inquiry and can give no assurances as to its final
outcome.
In July 2011, Biomet received an administrative subpoena from the
Office of Foreign Assets Control of the U.S. Department of the
Treasury (“OFAC”) requesting documents concerning the
export of products to Iran. OFAC informed Biomet that the subpoena
related to allegations that Biomet may have been involved in
unauthorized sales of dental products to Iran. Biomet is fully
cooperating in the investigation and submitted its response to the
subpoena in October 2011. We may need to devote significant time
and resources to this inquiry and can give no assurances as to its
final outcome.
In February 2010, Biomet received a subpoena from the Office of the
Inspector General of the U.S. Department of Health and Human
Services (“OIG-HHS”) requesting various documents
relating to agreements or arrangements between physicians and
Biomet’s Interpore Cross subsidiary for the period from 1999
through the date of the subpoena and the marketing and sales
activities associated with Interpore Cross’ spinal products.
We may need to devote significant time and resources to this
inquiry and can give no assurances as to its final outcome.
In April 2009, Biomet became aware of a qui tam (United States ex rel.
Bierman v. Orthofix International N.V., et al.) |
