(27) Other provisions

(27) Other provisions

Other provisions developed as follows:

The legal matters described below represented the most significant legal risks.

Product-related and patent disputes

Rebif^®: The Group is involved in a patent dispute with Biogen Inc., 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 the Group and other pharmaceutical companies for damages due to the infringement of this patent. The Group defended itself against all allegations and brought a countersuit against Biogen claiming that the patent was invalid and not infringed by the Group’s actions. In the first instance (district court), a jury found the patent to be invalid. This jury verdict was overturned by the judge in the same instance in September 2018. For the time being, the patent was thus deemed to be legally valid and to have been infringed. The Group 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, and the provision of € 365 million recognized at this date for potential compensation payments for damages was reversed. The resulting income was reported in other operating income. Only a remaining low single-digit million euro amount is still recognized for outstanding legal costs.

PS-VA liquid crystals mixtures: In the Performance Materials business sector, the Group is involved in a legal dispute with JNC Corporation, Japan, (JNC). JNC claims that, by manufacturing and marketing certain liquid crystal mixtures, the Group has infringed JNC patents in China, Taiwan, and Korea. The Group maintains that these 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 the Group. The provision was reduced to reflect this development. In Korea, however, the patent infringement action on the part of JNC, the patent nullity action on the part of the Group and an additional “correction trial” are all still pending. In addition, a new statutory provision has come into force in Korea that could have a potentially negative impact on the amount of any damages. The provision was reduced in fiscal 2020 to reflect the remaining litigation risk in Korea. After the adjustment, the remaining provision amounts to a low double-digit million euro sum. A cash outflow within the next 12 months is considered possible at present.

Antitrust and other proceedings

Antitrust review proceedings for the acquisition of Sigma-Aldrich Corporation, United States, (Sigma-Aldrich): On July 6, 2017, the Group 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 the Group of its preliminary conclusion that the Group 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 the Group 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, the Group 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 the Group that the parts of the procedure relating to the Group were no longer under investigation and that the procedure now related solely to the allegations against Sigma-Aldrich. The 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.

Citalopram: In connection with the generics business that was divested in 2007, the Group is accused of breaching EU antitrust law through agreements concluded by its former subsidiary Generics (UK) Ltd., United Kingdom, relating to the antidepressant Citalopram patented by Lundbeck A/S, Denmark. In 2013, the EU Commission imposed a corresponding fine in a double-digit euro amount. The Group filed a lawsuit against the Commission’s decision with the European Court in August 2013. The lawsuit was rejected in 2016. The Group subsequently filed an appeal against this decision 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. In light of the disadvantageous development in this matter, additional accounting measures have been taken for potential additional claims and the existing provision has increased by a double-digit million euro amount as a result. A decision on the fine in the first half of 2021 is considered possible.

Paroxetine: In the United Kingdom, the Group was subject to antitrust investigations by the British Competition and Market Authority (CMA) in connection with the generics business that was divested in 2007. In March 2013, the authorities informed the Group 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. They stated that the Group was liable as the then owner of Generics (UK) Ltd. and because it was involved in the negotiations for the settlement agreement. The investigations into Generics (UK) Ltd. started in 2011, without this being known to the Group. On February 11, 2016, the CMA imposed a fine in this matter. The Group has taken legal action against this fine. The United Kingdom Competition Appeal Tribunal (CAT) 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 may breach European competition law as a matter of principle. The action is now ongoing with the CAT. A decision is still outstanding. The Group has recognized a provision in a low double-digit million euro amount. A cash outflow within the next 12 months is considered possible.

Versum merger agreement: In 2019, some Versum shareholders accused Versum Inc., United States, (Versum) and the Board of Directors of having breached their fiduciary duties in connection with the acquisition negotiations with Entegris, Inc., United States, and of having initiated a shareholder rights agreement. After Versum announced the termination of the shareholder rights agreement on April 2, 2019, the plaintiffs withdrew their claims and requested that the court impose a “mootness fee” on Versum, which would require Versum to pay the legal costs incurred. On July 16, 2020, the court set this fee at US$ 12 million (€ 10 million). Versum appealed this ruling and is awaiting a court decision. A provision in a low double-digit million euro amount was recognized for this matter in fiscal 2020. The provision included the “mootness fee” plus interest and additional legal costs for the appeal and was still recognized as of December 31, 2020. The costs are covered in full by the D&O insurance that has been concluded. A corresponding receivable is recognized in other receivables. A cash outflow within the next 12 months is considered possible.

Restructuring

The restructuring provisions recognized as of December 31, 2020 primarily relate to obligations for workforce reduction measures in connection with communicated restructuring projects.

The additions to the restructuring provisions in the amount of € 128 million resulted in particular from the reorganization of the global distribution structures, research and development activities and individual production areas in the Healthcare business sector that began in fiscal 2020. The addition is also due to the ongoing reorganization measures in the Performance Materials business sector.

The restructuring provisions also included obligations from the Life Science business sector, which will carry out relocations and gradually close operations at various German sites by 2022; further additions were made to provisions in fiscal 2020 for this purpose. Furthermore, they contained obligations for the ongoing expansion of shared service activities and the related relocation of activities. These provisions were already recognized in previous years.

Outflows of resources under the restructuring provisions are expected within the next five years.

Environmental protection

Provisions for environmental protection resulted in particular from obligations for soil remediation and groundwater protection in connection with the crop protection business in Germany and Latin America that was discontinued in 1987.

Acceptance and follow-on obligations

Provisions for acceptance and follow-on obligations primarily considered costs in connection with discontinued development projects as well as obligation surpluses from onerous contracts. Utilizations and releases were mainly attributable to development projects discontinued in previous years.

Additions mainly resulted from the termination of a clinical trial in the Healthcare business sector.

Interest and penalties related to income taxes

Provisions for interest and penalties related to income taxes mainly comprised interest payables associated with or resulting from tax payables.

Miscellaneous other provisions

Miscellaneous other provisions mainly comprised provisions related to remaining risks from the divestment of the Consumer Health business, for warranty obligations, and for uncertain commitments from contributions, fees, and other duties.