Generally, we strive to minimize and control our legal risks. To this end, we have taken the necessary precautions to identify threats and defend our rights where necessary.
Nevertheless, we are still exposed to risks from litigation or legal proceedings. In particular, these include risks in the areas of product liability, competition and antitrust law, pharmaceutical law, patent law, trademark law, data protection law, tax law, and environmental protection. As a research-based company, we have a valuable portfolio of industrial property rights, patents, and brands that could become the target of attacks and infringements. The outcome of future proceedings or those currently pending is difficult to foresee.
For instance, we are currently involved in litigation with Merck & Co. Inc., Kenilworth, NJ, United States (outside the United States and Canada: MSD), against whom we have filed lawsuits in various countries. This company has also sued us in the United States for trademark infringement, among other things.
Due to long statutes of limitations or in some cases the absence thereof, it is not possible to rule out that we will face third-party claims arising from the same issue despite the conclusion of legal proceedings. Court or official rulings or settlements can lead to expenses with a significant impact on our business and earnings.
Despite extensive precautionary measures, non-compliance with laws and regulations leading to related consequences can never be completely excluded.
Tax risks are reviewed regularly and systematically by Group Tax. Corresponding standards and guidelines are used in order to identify tax risks at an early stage as well as to review, evaluate, and correspondingly minimize them. Risk reduction measures are coordinated by Group Tax together with the subsidiaries abroad.
In our opinion, the lawsuits described below constitute the most significant legal risks. This should not be seen as an exhaustive list of all legal disputes currently ongoing.
Risks from product-related and patent law disputes
We are involved in a patent dispute with Biogen Inc., Massachusetts, United States (“Biogen”), in the United States. Biogen claims that the sale of Rebif® in the United States infringes on a Biogen patent. The disputed patent was granted to Biogen in the United States in 2009. Subsequently, Biogen sued us and other pharmaceutical companies for infringement of this patent. Our company defended itself against all allegations and brought a countersuit claiming that the patent is invalid and not infringed by our actions. In the first instance, a jury recognized the invalidity of the patent. This jury verdict was overturned by a judge in the same instance in September 2018. For the time being, the patent is thus deemed to be legally valid and to have been infringed. We already filed a complaint with the United States Court of Appeals for the Federal Circuit (second instance) against the first-instance ruling in October 2018. On September 28, 2020, this court overturned the verdict of the judge in the first instance, declared Biogen’s patent to be invalid, and instructed the District Court to reinstate the original jury verdict. A cash outflow is considered to be unlikely based on this decision. Accordingly, the provision of € 365 million that was recognized at that point in time for potential compensation payments for damages was reversed.
In the Performance Materials business sector, we are involved in a legal dispute with JNC Corporation, Japan (JNC). JNC claims that by manufacturing and marketing certain liquid crystal mixtures, our company has infringed JNC patents in China, Taiwan and Korea. We maintain that the above mentioned patents are invalid owing to relevant prior art. At the end of the second quarter of fiscal 2020, the actions in China and Taiwan were concluded with legally binding effect in favor of our company. In view of these developments, the provision was reduced accordingly. In Korea however, a patent infringement action, a patent nullity action and a “correction trial” are still pending ex parte JNC. In addition, new statutory rules were implemented in Korea that could have an adverse effect on any potential amount of damage. We have taken appropriate accounting measures according to the remaining litigation risk in Korea. A potentially considerable impact of the legal dispute on the financial position cannot be ruled out. A cash outflow within the next 12 months is considered possible at present.
Risks due to antitrust and other government proceedings
Raptiva®: In December 2011, the federal state of São Paulo, Brazil, sued us for damages because of alleged collusion between various pharmaceutical companies and an association of patients suffering from psoriasis and vitiligo. This collusion is alleged to have been intended to increase sales of the medicines from the companies involved to the detriment of patients and state coffers. Moreover, patients are also suing for damages in connection with the product Raptiva®. We have taken appropriate accounting measures for these issues, which relate to various legal cases. Risks in excess of this with a substantial negative effect on the net assets, financial position, and results of operations cannot be ruled out, but are considered unlikely. This is rated as a medium risk.
On July 6, 2017, we received notice from the European Commission (EU Commission) in connection with the antitrust review proceedings for the acquisition of Sigma-Aldrich, in which the EU Commission informed us of its preliminary conclusion that our company and Sigma-Aldrich allegedly transmitted incorrect and/or misleading information within the scope of the acquisition of Sigma-Aldrich. The EU Commission received registration of the merger on April 21, 2015, and granted clearance on June 15, 2015, subject to the condition that our company and Sigma-Aldrich divest parts of the European solvents and inorganic chemicals businesses of Sigma-Aldrich in order to resolve antitrust concerns. According to the preliminary viewpoint of the EU Commission communicated in a letter dated July 6, 2017, our company and Sigma-Aldrich withheld related important information about an innovation project. According to the EU Commission, the innovation project should have been included in the remedies package. This resulted in an administrative procedure with the EU Commission. On July 1, 2020, the EU Commission informed us that the parts of the procedure relating to our company were no longer under investigation and that the procedure now related solely to the allegations against Sigma-Aldrich. Our company again countered these remaining accusations at a hearing on November 13, 2020. The administrative procedure could result in the issuance of a fine that would be open to appeal. In the second quarter of 2020, the existing provision in a mid double-digit euro amount was reduced to a low double-digit euro amount. A potential outflow of resources is considered possible for 2021.
This is currently classified as a medium risk with a probable substantial negative impact on the financial position.
Risks in connection with a settlement agreement concluded by the divested Generics group
Paroxetine: In connection with the divested generics business, Merck KGaA, Darmstadt, Germany, is subject to antitrust investigations by the British Competition and Market Authority (CMA) in the United Kingdom. In March 2013, the authorities informed us of the assumption that a settlement agreement entered into in 2002 between Generics (UK) Ltd. and several subsidiaries of GlaxoSmithKline plc, United Kingdom, in connection with the antidepressant drug paroxetine, violated British and European competition law. Our company, the then-owner of Generics (UK) Ltd., was allegedly involved in the negotiations for the settlement agreement and is therefore liable. The investigations into Generics (UK) Ltd. started in 2011, without this being known to our company. On February 11, 2016, the CMA imposed a fine in this matter. We have taken legal action against this fine. The Appeals Tribunal has since submitted the relevant legal questions to the European Court of Justice (CJEU) for a preliminary ruling. The CJEU confirmed in January 2020 that such settlement agreements in general may breach European competition law. The proceeding will now be continued at the UK Competition Appeal Tribunal (CAT). A decision is pending. Appropriate accounting measures have been taken. A decision and an outflow of resources within the next 12 months are considered possible. A provision in a low double-digit million euro amount was recognized for these proceedings. This is currently classified as a medium risk with a moderate negative impact on the financial position.
Citalopram: In connection with the divested generics business in 2007, Merck KGaA, Darmstadt, Germany, is accused of breaching EU antitrust law through agreements concluded by its former subsidiary Generics (UK) Ltd., Denmark, relating to the antidepressant Citalopram patented by Lundbeck A/S. In 2013, the EU Commission imposed a corresponding fine in a double-digit euro amount. Our company filed a lawsuit against the Commission’s decision with the European Court in August 2013. The lawsuit was rejected in 2016. Our company subsequently filed an appeal with the European Court of Justice (CJEU). In the course of these proceedings, the Advocate General of the CJEU recommended that the European Court’s verdict be confirmed. The Court announced that it will issue a ruling in March 25, 2021. In light of the disadvantageous development in this matter, additional accounting measures were taken for potential additional claims and the corresponding provision has increased by a double-digit million euro amount as a result. This is currently classified as a medium risk with a probable substantial negative impact on the financial position.