| 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 ® 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 Cup-related claims. Our estimate of our total
liability for these claims as of March 31, 2016 remains
consistent with our estimate as of December 31, 2015, and,
accordingly, we did not record any additional expense during the
three month period ended March 31, 2016. With respect to the
same prior year period, we also did not record any additional
expense for Durom Cup-related claims.
We maintain insurance for product liability claims, subject to
self-insurance retention requirements. As of March 31, 2016,
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 requirement and a cap. We believe our contracts
with the insurance carriers are enforceable for these claims and,
therefore, it is probable that we will recover some amount from our
insurance carriers. We have received a portion of the insurance
proceeds we estimate we will recover. We have a $95.3 million
receivable in “Other assets” remaining on our
consolidated balance sheet as of March 31, 2016 for estimated
insurance recoveries for Durom Cup-related claims. As is
customary in this process, our insurance carriers have reserved all
rights under their respective policies and could still ultimately
deny coverage for some or all of our insurance claims.
Our estimate as of March 31, 2016 of the remaining liability
for all Durom Cup-related claims is $309.2 million, of
which $50.0 million is classified as short-term in “Other
current liabilities” and $259.2 million is classified as
long-term in “Other long-term liabilities” on our
consolidated balance sheet. We expect to pay the majority of
the Durom Cup-related claims within the next few
years.
Our understanding of clinical outcomes with the Durom Cup
and other large diameter hip cups continues to evolve. We rely on
significant estimates in determining the provisions
for Durom Cup-related claims, including our estimate of
the number of claims that we will receive and the average amount we
will pay per claim. The actual number of claims and the actual
amount we pay per claim may differ from our estimates. Among other
factors, since our understanding of the clinical outcomes is still
evolving, we cannot reasonably estimate the possible loss or range
of loss that may result from Durom Cup-related claims in
excess of the losses we have accrued.
Margo and Daniel Polett v. Zimmer, Inc. et al.
NexGen ® In Re: Zimmer NexGen Knee
Implant Products Liability Litigation
Biomet metal-on-metal hip implant claims ™ (In Re: Biomet M2a Magnum Hip Implant Product
Liability Litigation)
On February 3, 2014, Biomet announced 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 March 31, 2016 of the remaining liability
for all Biomet metal-on-metal hip implant claims is $25.8
million.
Biomet has exhausted the self-insured retention in its insurance
program and has been reimbursed for claims related to its
metal-on-metal products up to its policy limits in the program.
Zimmer Biomet will be responsible for any amounts by which the
ultimate losses exceed the amount of Biomet’s third-party
insurance coverage. As of March 31, 2016, Biomet had received
all of the insurance proceeds it expects to recover under the
excess policies.
Heraeus trade secret misappropriation lawsuits
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.
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 a limited number of other European jurisdictions,
Biomet, Inc., Biomet Europe BV and Biomet Deutschland GmbH are
vigorously contesting any enforcement 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 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.
On October 15, 2015, Heraeus initiated expedited proceedings
against Biomet France, Biomet SAS, Biomet Europe BV, Biomet, Inc.,
Biomet Orthopedics Switzerland GmbH and Biomet Global Supply Chain
Center BV before the Commercial Court in Paris seeking to enjoin
these entities from importing certain raw materials subject to the
rulings in Germany and from manufacturing, selling or exporting the
bone cements made from those raw materials, including under the
names of the European Cements. On November 16, 2015, the
presiding judge ruled that it had no jurisdiction over Biomet, Inc.
and on December 4, 2015, the judge denied the preliminary
measures requested by Heraeus. Heraeus has not appealed this
ruling or filed an action on the merits before the Commercial Court
in Paris. On December 8, 2015, Heraeus filed separate
proceedings against Biomet France, Biomet SAS and Biomet France
Holding before the Commercial Court of Roman-Sur-Isere seeking to
gain access to certain documents which had been seized during
searches of Biomet France’s premises in June
2015. Biomet is defending itself vigorously in this
proceeding, which is still ongoing.
Heraeus continues to initiate other related legal proceedings in
Europe seeking various forms of relief, including injunctive relief
and damages, against Biomet-related entities relating to the
European Cements.
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 ®
Regulatory Matters, Government Investigations and Other
Matters
FDA warning letters
Biomet DPA and Consent
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 had 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.
The DPA as originally extended was set to expire on March 26,
2016. However, the DOJ and the SEC continue to evaluate the alleged
misconduct in Brazil and Mexico, as well as any issues relating to
Biomet’s compliance program. The DOJ, the SEC and Biomet have
agreed to continue to evaluate and discuss these matters and,
therefore, the matter is ongoing as of the date of the filing of
this Form 10-Q. 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 disclosed in 2014 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 the DOJ, and expects that discussions with the SEC and the
DOJ will continue. There is no assurance that Biomet will enter
into a consensual resolution of this matter with the SEC or the
DOJ, and the terms and conditions of any such potential resolution
are uncertain.
Other Government Investigations and Document Requests
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 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. Biomet is fully cooperating
in the investigation. We may need to devote significant time and
resources to this inquiry and can give no assurances as to its
final outcome. |
