Operating Assets, Liabilities, and Contingent Liabilities

(27) Other provisions

Other provisions developed as follows:

The most important legal matters in the reporting period are detailed below.

Product-related and patent disputes

PS-VA liquid crystals mixtures: In the Electronics business sector, the Group was involved in a legal dispute with JNC Corporation, Japan (JNC). JNC claimed that, by manufacturing and marketing certain liquid crystal mixtures, the Group had infringed JNC patents in China, Taiwan, and Korea. The Group maintained that these patents are invalid owing to relevant prior art. Patent infringement proceedings brought by JNC and the Group’s patent nullity proceedings in Korea – that were, until recently, still pending – were resolved as a result of the two parties reaching an agreement in March 2021. On the basis of the agreement, the Group was not required to make any further payments to JNC. The provision, a low double-digit million euro amount, was reversed in the first quarter of fiscal 2021.

Rebif^®: The Group was involved in a patent dispute with Biogen Inc., United States (Biogen), in the United States. Biogen claimed that the sale of Rebif^® in the United States infringed 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. The patent was thus deemed to be legally valid for the time being. 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 complaint filed by Biogen against the ruling was definitively rejected in fiscal 2021, meaning that the proceedings have been concluded and can no longer be contested. The provision of € 365 million that had been recognized for the case was reversed in fiscal 2020 and the resulting income was reported in other operating income.

Bone cement: On July 19, 2021, the Group was served an extended suit for damages by Heraeus Medical GmbH, Wehrheim, Germany (Heraeus). Heraeus has been involved proceedings against Biomet Deutschland GmbH, Freiburg im Breisgau, Germany (Biomet), Zimmer Nederland B.V., Netherlands (Zimmer), and Biomet, Inc., United States, since 2017 with the aim of being awarded damages for the unauthorized exploitation of business secrets. It extended its suit to include the Group in July 2021. Based on the accusation, the Group believes it is exposed to the possibility of having to pay damages for having enabled the unlawful imitation of bone cement products by the original defendants, Biomet and Zimmer, owing to a breach of contractual obligations of good faith. The suit has been extended based on the declaratory judgment obtained by Heraeus against the Group in 2013. This judgment found that, in 2004, in dissolving the joint venture that existed with Biomet from 1997 to 2004, the Group breached its duties to Heraeus under a distribution arrangement with Heraeus that existed until 2001. In the second quarter of fiscal 2021 a provision in a mid-double-digit million euro amount had been recognized for this matter. Further developments gave new insights that led to the estimation that a payment of damages by the Group is unlikely. The previously recognized provision was released.

Antitrust and other proceedings

Citalopram: In connection with the generics business that was divested in 2007, the Group was accused of breaching EU antitrust law through agreements entered into by its former subsidiary Generics (UK) Ltd., United Kingdom, relating to the antidepressant Citalopram patented by Lundbeck A/S, Denmark. The European Commission imposed a fine in June 2013. 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, which confirmed the first instance ruling in March 2021. Although the fine of € 18 million was paid in 2013, additional potential claims were considered to be probable. A provision in a mid‑double‑digit million euro amount was recognized for these proceedings as of December 31, 2021. A cash outflow within the next 12 months is considered possible.

Paroxetine: In the United Kingdom, the Group was subject to antitrust investigations by the British Competition and Market Authority 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., United Kingdom, 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. After the European Court of Justice confirmed in January 2020 that such settlement agreements can violate European competition law, the Competition Appeal Tribunal set a low single-digit million euro fine in May 2021 that the Group paid in the September of fiscal 2021. A provision in a low double-digit million euro amount was recognized for the risk of additional potential claims as of December 31, 2021. A cash outflow within the next 12 months is considered possible.

Antitrust review of the acquisition of Sigma-Aldrich Corporation, United States (Sigma-Aldrich): In May 2021, the European Commission fined Sigma-Aldrich € 8 million as it held that key information on an innovation project had been withheld in conjunction with its approval of the Group’s acquisition of Sigma-Aldrich. The European Commission had approved the registration of the merger in 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. In July 2017, it reported that its antitrust review of the acquisition had come to the preliminary conclusion that the Group and Sigma-Aldrich had provided incorrect or misleading information. This allegation against the Group was dropped in 2020. The proceedings were concluded with the imposition of the fine, its payment in June 2021 and the decision to take no further legal action. As no further outflows of resources are expected, the remainder of the provision was reversed in the second quarter of fiscal 2021. This resulted in income of a low double-digit million euro amount that was reported in other operating income.

Restructuring

The restructuring provisions recognized as of December 31, 2021, primarily relate to obligations for workforce reduction measures in connection with communicated restructuring projects in all segments. In particular, this resulted from a program for the reorganization of the global sales organization and research and development activities in the Healthcare business sector.

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 related to costs in connection with discontinued development projects in the Healthcare business sector as well as obligation surpluses from onerous contracts. The additions were mainly due to the discontinuation of development projects under the strategic alliance with GlaxoSmithKline, United Kingdom (see Note (7) “Collaboration and licensing agreements”), and relate to the winding up of clinical trials.

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 included provisions for asset retirement obligations, for other tax risks not constituting income tax in accordance with IAS 12, for warranty obligations, and for remaining risks in connection with the disposal of the Consumer Health business.