Financial Statements
32. Legal risks
Bayer HealthCare
Bayer CropScience
Bayer MaterialScience
As a global company with a diverse business portfolio, the Bayer Group is exposed to numerous legal risks, particularly in the areas of product liability, competition and antitrust law, patent disputes, tax assessments and environmental matters. The outcome of any current or future proceedings cannot be predicted. It is therefore possible that legal or regulatory judgments or future settlements could give rise to expenses that are not covered, or not fully covered, by insurers’ compensation payments and could significantly affect our revenues and earnings.
Legal proceedings currently considered to involve material risks are outlined below. The legal proceedings referred to do not represent an exhaustive list.
HealthCare
Product-related litigation
Magnevist™: As of February 1, 2011, there were approximately 230 lawsuits pending and served upon Bayer in the United States involving the gadolinium-based contrast agent Magnevist™. Three other manufacturers of gadolinium-based contrast agents in the United States also have been named party to the same or similar lawsuits.
In the lawsuits, plaintiffs allege that patients developed nephrogenic systemic fibrosis (NSF) as a result of the use of Magnevist™ during medical imaging procedures. NSF is a rare, severe condition that can be debilitating and in some cases fatal. Plaintiffs seek compensatory and punitive damages under various theories, including strict liability and negligence and/or breach of warranty, claiming, among other things, that the product is defective and unreasonably dangerous and that Bayer knew, or should have known, of the risks associated with Magnevist™ and failed to disclose them or adequately warn its users.
All cases pending in federal courts have been consolidated in a multidistrict litigation (MDL) proceeding for common pre-trial management. As of February 1, 2011, Bayer had reached agreements, without admission of liability, with approximately 220 plaintiffs in the United States to settle their claims. Bayer will continue to consider the option of settling individual lawsuits on a case-by-case basis. However, Bayer believes it has meritorious defenses and will continue to defend itself vigorously against all claims that are not considered for settlement. Bayer has taken appropriate accounting measures.
Trasylol™ (aprotinin) is a drug approved for use in managing bleeding in patients undergoing coronary artery bypass graft surgery. As of February 1, 2011, there were approximately 1,100 lawsuits pending in the United States and served upon Bayer on behalf of persons alleging, in particular, personal injuries, including renal failure and death, and economic loss from the use of Trasylol™. Bayer also has been served with three class actions in Canada. Plaintiffs in both the United States and the Canadian cases seek compensatory and punitive damages, claiming, among other things, that Bayer knew, or should have known, of these risks and should be held liable for having failed to disclose them or adequately warn users of Trasylol™. All cases pending in U.S. federal courts have been consolidated in a multidistrict litigation (MDL) proceeding for common pre-trial management.
As of February 1, 2011, Bayer had reached agreements, without admission of liability, with approximately 440 plaintiffs. Bayer will continue to consider the option of settling individual lawsuits on a case-by-case basis. However, Bayer believes it has meritorious defenses and will continue to defend itself vigorously against all claims that are not considered for settlement. Bayer has taken appropriate accounting measures.
Yasmin™/YAZ™: As of February 1, 2011, there were about 6,850 lawsuits pending in the United States served upon Bayer on behalf of persons alleged to have suffered personal injuries, some of them fatal, from the use of Bayer’s oral contraceptive products
Yasmin™ and/or YAZ™ or from the use of Ocella™ and/or Gianvi™, generic versions of Yasmin™ and YAZ™, respectively, marketed by Barr Laboratories, Inc. in the United States. (For details on the generic versions of Yasmin™ and YAZ™, please refer to the section on
“Patent disputes” below.) Pursuant to agreements in 2008 and 2010, Bayer manages product liability litigation for Ocella™ and Gianvi™, Bayer retains product liability for Ocella™ product supplied by Bayer with certain exceptions, and the parties have allocated potential future product liability relating to Gianvi™ product supplied by Bayer. Plaintiffs seek compensatory and punitive damages, claiming, in particular, that Bayer knew, or should have known, of the alleged risks and should be held liable for having failed to disclose them or adequately warn users of Yasmin™ and/or YAZ™. Bayer has also been served with three putative class actions claiming economic loss, one of them also claiming personal injuries. One of these class actions, brought in federal court on behalf of all private health insurers in the United States, was dismissed with prejudice. Plaintiffs did not appeal. All cases pending in U.S. federal courts have been consolidated in a multidistrict litigation (MDL) proceeding for common pre-trial management. In addition, 13 Canadian class actions have been served upon Bayer as of February 1, 2011. Additional lawsuits are anticipated. Bayer believes that it has meritorious defenses and intends to defend itself vigorously. Based on the information currently available, Bayer has taken accounting measures for anticipated defense costs.
In connection with the above matters concerning Magnevist™, Trasylol™ and Yasmin™/YAZ™, Bayer is insured against product liability risks to the extent customary in the industry.
Competition law proceedings
Cipro™: Approximately 40 putative class action lawsuits and one individual lawsuit against Bayer involving Cipro™, a medication used in the treatment of infectious diseases, have been pending in the United States since 2000. The plaintiffs are suing Bayer and other companies also named as defendants, alleging that a settlement to end patent litigation reached in 1997 between Bayer and Barr Laboratories, Inc. violated antitrust regulations. The plaintiffs claim the alleged violation prevented the marketing of generic ciprofloxacin as of 1997. In particular, they are seeking triple damages under U.S. law. After the settlement with Barr, the patent was the subject of a successful re-examination by the U.S. Patent and Trademark Office and of successful defenses in U.S. federal courts. It has since expired.
All the actions pending in federal courts were consolidated in federal district court in New York in a multidistrict litigation (MDL) proceeding. The Court of Appeals for the Federal Circuit in Washington D.C. affirmed a 2005 ruling of the federal district court in New York dismissing all lawsuits filed in federal court. No further avenues of appeal now remain in these federal indirect purchasers’ cases. In 2010, the United States Court of Appeals for the Second Circuit (New York) also affirmed the dismissal of lawsuits brought by direct purchasers of Cipro™. The Second Circuit also has denied plaintiffs’ request for rehearing en banc. Plaintiffs seek certiorari before the United States Supreme Court. Further cases are pending before various state courts. Bayer believes that it has meritorious defenses and intends to defend itself vigorously.
Patent disputes
Yasmin™: In 2005, Bayer filed suit against Barr Pharmaceuticals, Inc. and Barr Laboratories, Inc. in U.S. federal court alleging patent infringement by Barr for the intended generic version of Bayer’s Yasmin™ oral contraceptive product in the United States. In 2008, the U.S. federal court invalidated Bayer’s ’531 patent for Yasmin™. In 2009, the U.S. Court of Appeals for the Federal Circuit affirmed this decision. In May 2010, the U.S. Supreme Court rejected Bayer’s petition for review.
In 2008, Bayer and Barr Laboratories, Inc. signed a supply and licensing agreement for the supply of a generic version of Yasmin™ which Barr markets solely in the United States under the Ocella™ brand. Barr pays Bayer a fixed percentage of the revenues from the product sold by Barr. The agreement is under investigation by the U.S. Federal Trade Commission (FTC).
In 2008 Bayer received two and in 2010 another three notices of an Abbreviated New Drug Application with a Paragraph IV certification (an “ANDA IV”) pursuant to which Watson Laboratories Inc., Sandoz Inc., Lupin Ltd., Famy Care Ltd. and Sun Pharma Global FZE each seek approval to market a generic version of Bayer’s oral contraceptive Yasmin™ in the United States. Bayer has filed suit against Watson, Sandoz and Lupin in U.S. federal court alleging patent infringement for the intended generic version of Yasmin™. In reply, Watson and Sandoz have filed counterclaims alleging, among other things, the invalidity of various Bayer patents. Sandoz has further alleged that Bayer and Barr have made arrangements that are anticompetitive and violate antitrust and unfair competition laws. In September 2010, the U.S. federal court granted a motion to dismiss Bayer’s infringement claims against Watson and Sandoz. Bayer will appeal.
YAZ™: In 2007 and 2008, Bayer received notices from Barr Laboratories, Inc., Watson Laboratories Inc. and Sandoz Inc., and in 2010 Bayer received notices from Lupin Ltd. and Sun Pharma Global FZE, that each company has filed an ANDA IV seeking approval of a generic version of Bayer’s YAZ™ oral contraceptive in the United States. Bayer has filed patent infringement suits against Watson, Sandoz, Lupin and Sun Pharma Global in U.S. federal court claiming that certain of Bayer’s patents have been infringed. In its defense statement, Sandoz has alleged, among other things, that Bayer and Barr have made arrangements that are anticompetitive and violate antitrust and unfair competition laws.
In 2008, Bayer and Barr agreed that Bayer will grant Barr a license to market a generic version of YAZ™ in the United States starting July 2011 and will supply Barr with the product for this purpose. Barr agreed to pay Bayer a fixed percentage of the revenues from the product sold by Barr. In December 2008, Barr was acquired by Teva Pharmaceutical Industries Ltd. In June 2010, Teva announced that it had commercially launched Gianvi™, a generic version of YAZ™, in the United States. Litigation between Bayer and Teva/Barr in several U.S. federal courts on infringement of certain of Bayer’s patents by the distribution of Gianvi™ was settled in December 2010. Bayer and Barr amended the aforementioned licensing and supply agreement of 2008, which is also under investigation by the FTC, and Bayer has supplied Barr with the product for Gianvi™ since December 2010.
Blood glucose monitoring devices: In 2005, Abbott Laboratories commenced a lawsuit in the United States against Bayer and another party alleging infringement of two of Abbott’s patents relating to blood glucose monitoring devices. The devices concerned are sold by Bayer as part of its Ascensia™ Contour™ system and its DEX™ and Autodisc™ system. The Ascensia™ Contour™ system is supplied to Bayer by a Japanese manufacturer, who originally designed the product and is contractually obligated to indemnify Bayer. In 2006, Abbott added a separate claim of infringement against the devices sold by Bayer as part of its DEX™ and Autodisc™ system. Bayer is not entitled to indemnification on this separate claim. The court and, thereafter, the U.S. Court of Appeals for the Federal Circuit held in favor of Bayer but, on one aspect of the decision with respect to one of the patents, the Court of Appeals granted a rehearing which took place in November 2010. Bayer is waiting for the court decision.
In 2007, Roche Diagnostics Operations and Corange International commenced a lawsuit in the United States against Bayer and several other parties alleging infringement of two of Roche’s patents relating to blood glucose monitoring devices. Two of the accused devices are sold by Bayer as part of its Breeze™ 2 and Contour™ systems. Bayer believes that these patents are covered by an existing license agreement between the parties, and the litigation has been dismissed in favor of an arbitration under this earlier license agreement. Roche has added to the arbitration four additional patents which Roche alleges the Bayer Contour™ systems infringe. Bayer is awaiting the arbitrators’ decision.
Betaferon™/Betaseron™: In May 2010, Bayer filed a complaint against Biogen Idec MA Inc. in U.S. federal court seeking a declaration by the court that a patent issued to Biogen in 2009 is invalid and not infringed by Bayer’s production and distribution of Betaseron™, Bayer’s drug product for the treatment of multiple sclerosis. Biogen is alleging patent infringement by Bayer through Bayer’s production and distribution of Betaseron™ and Extavia™ and has sued Bayer accordingly. Betaseron™ is manufactured and distributed in the United States by Bayer. Extavia™ is also a drug product for the treatment of multiple sclerosis; it is manufactured by Bayer, but distributed in the United States by Novartis Pharmaceuticals Corporation, another defendant in the lawsuit.
Levitra™: In 2009, Bayer filed a patent infringement suit in U.S. federal court against Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd. Earlier that year, Bayer had received notice of an ANDA IV pursuant to which Teva seeks approval to market a generic version of Levitra™, Bayer’s therapy for the treatment of erectile dysfunction, prior to patent expiration in the United States. Bayer intends to pursue its rights vigorously.
Bayer believes it has meritorious defenses in the above patent disputes and intends to defend itself vigorously.
Further legal proceedings
Wholesale prices in the U.S.: Bayer and a number of pharmaceutical companies in the United States are defendants in pending lawsuits in which plaintiffs, including states, are alleging manipulation in the reporting of wholesale prices and/or best prices for their prescription pharmaceutical products. The plaintiffs seek damages, including disgorgement of profits and punitive damages. Bayer believes it has meritorious defenses and intends to defend itself vigorously. In appropriate cases Bayer has agreed to settlements and will continue to consider this option in the future.
Bayer Schering Pharma AG former shareholder litigation: In 2008, the squeeze-out of the former minority shareholders of Bayer Schering Pharma AG became effective. As usual in such cases, several shareholders have initiated special court proceedings to review the adequacy of the compensation payments made by Bayer for the transfer of the shares in the squeeze-out. The adequacy of the compensation and the guaranteed dividend paid by Bayer in connection with the Bayer Schering Pharma AG profit and loss transfer agreement made in 2006 is also being reviewed by the courts. (Please note that Bayer Schering Pharma AG and the former Schering-Plough Corporation, New Jersey, are unaffiliated companies that have been independent of each other for many years. The names “Bayer Schering Pharma” or “Schering” as used in this Annual Report always refer to Bayer Schering Pharma AG, Berlin, Germany, or its predecessor, Schering AG, Berlin, Germany, respectively).
Regorafenib: In 2009, Onyx Pharmaceuticals, Inc. filed a complaint in the U.S. District Court for Northern California alleging that the compound regorafenib, which is under development by Bayer in cancer indications, is a compound to which Onyx has rights under a collaboration agreement that was originally concluded in 1994. Under this agreement, the parties jointly developed Nexavar™, a drug product to treat kidney and liver cancer. In addition, Onyx also claims damages to Nexavar™. Bayer believes it has meritorious defenses and intends to defend itself vigorously. Trial is presently scheduled for June 2011.
Compliance investigation: Bayer is conducting an internal investigation into compliance by a former operating unit of one of its U.S. subsidiaries with the United States Foreign Corrupt Practices Act. That statute prohibits, among other things, corrupt payments by U.S. persons to governmental officials outside the United States. The unit, which conducted Bayer’s plasma-derived products business, was sold in 2005. The initial focus of the internal investigation has been on sales by that unit to certain eastern European and Middle Eastern countries. In order to evaluate Bayer’s compliance efforts, Bayer is also reviewing sales practices in other units and countries. Bayer has voluntarily advised the United States government of the internal investigation. The United States government has not indicated what action it may take, if any, against Bayer or any individual, or whether it may conduct its own investigation. Because the internal investigation is ongoing, no statements on its outcome, or on any disadvantages for Bayer that may result therefrom, can be made at this point in time.
CropScience
Proceedings involving genetically modified rice: As of February 1, 2011, Bayer was aware of a total of approximately 570 lawsuits, involving about 11,300 plaintiffs, pending in U.S. federal and state courts against several Bayer Group companies in connection with genetically modified rice in the United States. The number of plaintiffs is calculated by totaling the number of plaintiffs identified in the complaints. However, the number of plaintiffs does not allow any conclusions on the number of farming operations involved. U.S. rice farmers often have a number of entities associated with their operations. In some cases just an individual sued, in others all the entities sued. In addition, a partnership and its individual partners are counted separately if they are listed as plaintiffs in the complaints.
Plaintiffs allege that they have suffered economic losses after traces of genetically modified rice were identified in samples of conventional long-grain rice grown in the U.S. All the actions pending in federal court were consolidated in 2006 in federal district court in St. Louis, Missouri, in a multidistrict litigation (MDL) proceeding. In 2008, this court denied plaintiffs’ request to certify a class action. Plaintiffs’ subsequent request for interim appeal was denied by the appellate court.
In development of the genetically modified rice, field testing was conducted in the United States in cooperation with third parties from 1998 to 2001. The genetically modified rice was never commercialized. The USDA and the FDA have stated that the genetically modified rice does not present a health risk and is safe for use in food and feed and for the environment. Additionally, in 2007, the USDA released its report concerning its investigation into how the genetically modified rice entered the commercial rice supply. The USDA was unable to determine a cause and indicated it would not pursue any enforcement actions against Bayer or any other party.
Bayer tried six cases in front of U.S. juries between December 2009 and July 2010, three in the federal MDL court and three in different state courts in Arkansas. These six cases involved a total of 23 farming operations comprising 91 plaintiffs from Missouri, Louisiana, Mississippi and Arkansas and were tried based on the respective applicable laws of these four states. Plaintiffs claimed various commercial damages, including a decline in the commodity price for long-grain rice, costs associated with restrictions on imports and exports, and costs to secure alternative supplies. The juries found Bayer should pay compensatory damages totaling approx. US$11.5 million. In two of the Arkansas state court trials, the juries also awarded punitive damages (approximately US{ec8fd027-477e-4f8e-8060-f7eb4713430f}.5 million in one trial and approximately US$42 million in the other). In a federal MDL trial in July 2010 involving plaintiffs from Louisiana, punitive damages were not available under the applicable laws. The other three juries rejected the farmers’ claims for punitive damages.
Bayer disagrees with the present findings of liability and the awards of compensatory and punitive damages. To the extent it has not already done so, Bayer will appeal the adverse findings.
One trial originally scheduled for September 2010 in a state court in Arkansas has been continued indefinitely for procedural reasons. Additionally, one federal MDL trial scheduled for 2010, involving three farming operations comprising eight plaintiffs from Texas, was settled in October 2010. The settlement calls for the plaintiffs to receive US$290,000 collectively. The first federal MDL trial scheduled for 2011 was also settled, with four farming operations comprising 18 plaintiffs from Mississippi to receive US$873,000 collectively. In February 2011, Bayer also reached an agreement with several farming operations and/or landlord holdings comprising 33 plaintiffs from Arkansas. The settlement calls for the plaintiffs to receive a total of approximately US$4 million. This trial, however, will go forward with regard to a claim by Riceland Foods, Inc., a rice mill from Arkansas. Additional trials have been scheduled for the year 2011, in both the federal MDL and the state court actions.
The facts and the types and amounts of damages claimed differ significantly from case to case. Management believes that the outcomes of these first trials do not allow any direct conclusions on the outcomes of the other cases. The company is willing to discuss with rice growers and other plaintiffs reasonable compensation for economic losses associated with its genetically modified rice without acknowledging liability, but intends to continue to defend itself vigorously in all cases in which resolutions on that basis are not possible.
Without acknowledging liability, Bayer also settled the claims brought forward by five European rice importers, one U.S. rice exporter and one U.S. rice mill at a total settlement value of US$51.6 million.
Bayer has established appropriate provisions, mainly for legal and defense costs and an intended settlement program.
Asbestos: A further risk may arise from asbestos litigation in the United States. In many cases, the plaintiffs allege that Bayer and co-defendants employed third parties on their sites in past decades without providing them with sufficient warnings or protection against the known dangers of asbestos. Additionally, a Bayer affiliate in the United States is the legal successor to companies that sold asbestos products until 1976. Union Carbide has agreed to indemnify Bayer for this liability. Bayer believes it has meritorious defenses and intends to defend itself vigorously.
MaterialScience
Antitrust proceedings in connection with rubber products
Companies of the Bayer Group are subject to civil damage claims in Europe and Australia based on alleged violations of applicable competition laws concerning rubber products that were subject to investigations by regulatory authorities. All of these investigations have been closed.
Since 2008, a group of plaintiffs who are primarily producers of tires have brought actions for damages before the High Court of Justice in London, U.K., against Bayer and other producers of butadiene rubber and emulsion styrene butadiene rubber. The plaintiffs claim damages resulting from alleged violations of E.U. competition law in the markets for butadiene rubber and emulsion styrene butadiene rubber. Proceedings brought to establish non-liability before a court in Milan to which Bayer joined as intervener were dismissed; Bayer is appealing. The High Court has taken jurisdiction over the actions and the main proceedings are at an early stage of the disclosure process.
Previously, Bayer reported a claim by The Goodyear Tire & Rubber Company alleging that Bayer violated antitrust law in the area of butadiene rubber and styrene butadiene rubber. In March 2010, the case was settled by agreement of the parties and without Bayer admitting liability.
In Australia, a class action alleging antitrust violations in connection with rubber chemicals products was filed in 2007. The case is at an early stage of the disclosure process.
Bayer is defending itself in the European and Australian litigations. The financial risk from these proceedings cannot currently be quantified. Therefore, Bayer is unable to take any accounting measures in this regard.
It remains possible that further civil damage claims may be filed in connection with public antitrust investigations reported on previously and now closed.
Personal injury litigation
MDI: In the United States, Bayer, together with other manufacturers, resellers and applicators, is a defendant in multiple cases that seek damages for personal injuries allegedly resulting from exposure to MDI based products used in coal mines. In one case the plaintiffs allege that they were also exposed to TDI and HDI based products. In August 2010, the parties to all but one lawsuit reached an agreement in principle to settle all claims – without Bayer admitting liability – on mutually acceptable terms. Final release agreements have not yet been fully executed. Bayer has taken appropriate accounting measures. The remaining case is no longer considered to be material.