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<b><font style="font-family: 'Times New Roman', Times">18.  </font></b>
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<b><font style="font-family: 'Times New Roman', Times">Litigation</font></b>
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Along with several other major pharmaceutical and biotechnology
companies, Biogen, Inc. (now BIMA) or, in some cases, Biogen
Idec Inc. was named as a defendant in lawsuits filed by the City
of New York and numerous Counties of the State of New York. All
of the cases — except for cases filed by the County of
Erie, County of Oswego and County of Schenectady (Three County
Actions) — are the subject of a Consolidated
Complaint, first filed on September 15, 2005 in the
U.S. District Court for the District of Massachusetts in
Multi-District Litigation No. 1456 (MDL proceedings). The
complaints allege that the defendants (i) fraudulently
reported (or caused others to report incorrectly) the Average
Wholesale Price for certain drugs for which Medicaid provides
reimbursement (Covered Drugs); (ii) marketed and promoted
the sale of Covered Drugs to providers based on the
providers’ ability to collect inflated payments from the
government and Medicaid beneficiaries that exceeded payments
possible for competing drugs; (iii) provided financing
incentives to
providers to over-prescribe Covered Drugs or to prescribe
Covered Drugs in place of competing drugs; and
(iv) overcharged Medicaid for illegally inflated Covered
Drugs reimbursements. Among other things, the complaints allege
violations of New York state law and advance common law claims
for unfair trade practices, fraud, and unjust enrichment. In
addition, the amended Consolidated Complaint alleges that the
defendants failed to accurately report the “best
price” on the Covered Drugs to the Secretary of Health and
Human Services pursuant to rebate agreements, and excluded from
their reporting certain discounts and other rebates that would
have reduced the “best price.” With respect to the MDL
proceedings, some of the plaintiffs’ claims were dismissed,
and the parties, including Biogen Idec, began a mediation of the
outstanding claims on July 1, 2008. On October 21,
2010, we reached a non-material out-of-court resolution of all
outstanding claims against us, and the plaintiffs have agreed to
dismiss the complaints as to us.
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In 2006, the Massachusetts Department of Revenue (DOR) issued a
Notice of Assessment against BIMA for $38.9 million of
corporate excise tax for 2002, which includes associated
interest and penalties. The assessment asserts that the portion
of sales attributable to Massachusetts, the computation of
BIMA’s research and development credits and the
availability of certain claimed deductions were not appropriate,
resulting in unpaid taxes for 2002. On December 6, 2006, we
filed an abatement application with the DOR seeking abatements
for 2001, 2002 and 2003. The abatement application was denied on
July 24, 2007. On July 25, 2007, we filed a petition
with the Massachusetts Appellate Tax Board seeking, among other
items, abatements of corporate excise tax for 2001, 2002 and
2003 and adjustments in certain credits and credit carry
forwards for 2001, 2002 and 2003. Issues before the Board
include the computation of BIMA’s sales factor for 2001,
2002 and 2003, computation of BIMA’s research credits for
those same years, and the availability of deductions for certain
expenses and partnership flow-through items. We anticipate that
the hearing on our petition will take place in the second
quarter of 2011.
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On June 8, 2010, we received Notices of Assessment from the
DOR against BIMA for $103.5 million of corporate excise
tax, including associated interest and penalties, related to our
2004, 2005 and 2006 tax filings. The asserted basis for these
assessments is consistent with that for 2002. For all periods
under dispute, we believe that positions taken in our tax
filings are valid and believe that we have meritorious defenses
in these disputes. We intend to contest these matters vigorously.
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On October 27, 2008, Sanofi-Aventis Deutschland GmbH
(Sanofi) filed suit against Genentech and Biogen Idec in federal
court in Texas (E.D. Tex.) (Texas Action) claiming that RITUXAN
and certain other Genentech products infringe U.S. Patents
5,849,522 (’522 patent) and 6,218,140 (’140 patent).
Sanofi seeks preliminary and permanent injunctions, compensatory
and exemplary damages, and other relief. The same day Genentech
and Biogen Idec filed a complaint against Sanofi, Sanofi-Aventis
U.S. LLC, and Sanofi-Aventis U.S., Inc. in federal court in
California (N.D. Cal.) (California Action) seeking a declaratory
judgment that RITUXAN and other Genentech products do not
infringe the ’522 patent or the ’140 patent and a
declaratory judgment that those patents are invalid.
(Sanofi-Aventis U.S. LLC and Sanofi-Aventis U.S., Inc. were
later dismissed voluntarily.) The Texas Action was ordered
transferred to the federal court in the Northern District of
California and consolidated with the California Action and we
refer to the two actions together as the Consolidated Actions.
We have not formed an opinion that an unfavorable outcome in the
Consolidated Actions is either “probable” or
“remote,” and do not express an opinion at this time
as to the likely outcome of the matters or as to the magnitude
or range of any potential loss. We believe that we have good and
valid defenses and are vigorously defending against the
allegations.
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On October 24, 2008, Hoechst GmbH filed with the ICC
International Court of Arbitration (Paris) a request for
arbitration against Genentech, relating to a terminated license
agreement between Hoechst’s predecessor and Genentech that
pertained to the above-referenced patents and related patents
outside the U.S. The license was entered as of
January 1, 1991 and was terminated by Genentech on
October 27, 2008. We understand that Hoechst seeks payment
of royalties on sales of Genentech products, including RITUXAN,
damages for breach of contract, and other relief. We estimate,
based solely on our understanding of Hoechst’s claims and
not on any evaluation of the merits of the claims, that
royalties and interest, if awarded in connection with RITUXAN,
could total $100 million based on the 0.5% royalty rate set
forth in the agreement and historical RITUXAN net sales.
Although we are not a party to the arbitration, any damages
awarded to Hoechst based on sales of RITUXAN may be a cost
charged to our collaboration with Genentech.
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On September 15, 2009, we were issued U.S. patent
No. 7,588,755 (’755 Patent), which claims the use of
beta interferon for immunomodulation or treating a viral
condition, viral disease, cancers or tumors. This patent, which
expires in September 2026, covers, among other things, the
treatment of MS with our product AVONEX. On May 27, 2010,
Bayer Healthcare Pharmaceuticals Inc. (Bayer) filed a lawsuit
against us in federal court in the District of New Jersey
seeking a declaratory judgment of patent invalidity and
noninfringement and seeking monetary relief in the form of
attorneys’ fees, costs and expenses. On May 28, 2010,
BIMA filed a lawsuit in federal court in the District of New
Jersey alleging infringement of the ’755 Patent by EMD
Serono, Inc. (manufacturer, marketer and seller of REBIF),
Pfizer, Inc. (co-marketer of REBIF), Bayer (manufacturer,
marketer and seller of BETASERON and manufacturer of EXTAVIA),
and Novartis Pharmaceuticals Corp. (marketer and seller of
EXTAVIA) and seeking monetary damages, including lost profits
and royalties. The court has consolidated the two lawsuits. On
August 16, 2010, BIMA amended its complaint to add Ares
Trading S.A. (Ares), an affiliate of EMD Serono, as a defendant,
and to seek a declaratory judgment that a purported
“nonsuit and option agreement” between Ares and BIMA
dated October 12, 2000, that purports to provide that Ares
will have an option to obtain a license to the ’755 Patent,
is not a valid and enforceable agreement or, alternatively, has
been revoked
<font style="white-space: nowrap">and/or</font>
terminated by the actions of Ares or its affiliates. Ares has
answered the amended complaint and has moved to compel
arbitration of the claims against it and its motion is pending.
Bayer, Pfizer, Novartis and EMD Serono have all filed
counterclaims seeking declaratory judgments of patent invalidity
and noninfringement, and seeking monetary relief in the form of
costs and attorneys’ fees.
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On March 23, 2010, we and Genentech were issued
U.S. Patent No. 7,682,612 (’612 patent) relating
to a method of treating CLL using an anti-CD20 antibody. The
patent which expires in November 2019 covers, among other
things, the treatment of CLL with RITUXAN. On March 23,
2010, we filed a lawsuit in federal court in the Southern
District of California against Glaxo Group Limited and
GlaxoSmithKline LLC (collectively, GSK) alleging infringement of
that patent based upon GSK’s manufacture, marketing and
sale of ARZERRA. We seek damages, including a royalty and lost
profits, and injunctive relief. GSK has filed a counterclaim
seeking a declaratory judgment of patent invalidity,
noninfringement, and inequitable conduct, and seeking monetary
relief in the form of costs and attorneys’ fees.
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We are also involved in product liability claims and other legal
proceedings generally incidental to our normal business
activities. While the outcome of any of these proceedings cannot
be accurately predicted, we do not believe the ultimate
resolution of any of these existing matters would have a
material adverse effect on our business or financial conditions.
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