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Legal Risks
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Legal Risks
As a global company with a diverse business portfolio, the Bayer Group is exposed to various legal
risks.
Legal proceedings currently considered to involve material risks are outlined below. The litigation referred to does not necessarily represent an exhaustive list.
Lipobay/Baycol: As of November 17, 2006, the number of Lipobay/Baycol cases pending against Bayer worldwide was approximately 2,340 (approximately 2,270 of them in the United States, including several class actions). At the same date, Bayer had settled 3,142 Lipobay/Baycol cases worldwide without acknowledging any liability and resulting in settlement payments of approximately US$ 1,157 million. In the United States five cases have been tried to date, all of which were found in Bayer’s favor.
After more than five years of litigation we are currently aware of fewer than 30 pending cases in the United States that in our opinion hold a potential for settlement, although we cannot rule out the possibility that additional cases involving serious side effects from Lipobay/Baycol may come to our attention. In addition, there could be further settlements of cases outside of the United States.
In addition to accounting measures taken in previous years, Bayer recorded charges of €4.7 million to the operating result in the first quarter of 2006 in respect of settlements expected to be concluded. In the third quarter of 2006 Bayer additionally recognized a provision in the amount of €13 million in respect of settlements expected to be concluded and anticipated defense costs. Bayer will defend itself vigorously in all Lipobay/Baycol cases in which in our view no potential for settlement exists or where an appropriate settlement cannot be achieved.
However, since the existing insurance coverage with respect to the Lipobay/Baycol cases is exhausted, it is possible – depending on the future progress of the litigation – that Bayer could face further payments that are not covered by the accounting measures already taken. We will regularly review the possibility of further accounting measures depending on the progress of the litigation.
PPA: Given the number and nature of the remaining outstanding cases, management believes the PPA product liability cases no longer involve a material risk to Bayer and, absent a signifcant adverse development, will not continue to report on the status of these cases.
Ciprofloxacin: 39 putative class action lawsuits and one individual lawsuit against Bayer involving the medication Cipro® have been pending since July 2000 in the United States. The plaintiffs are suing Bayer and other companies also named as defendants, alleging that a settlement reached in 1997 to end litigation between Bayer and Barr Laboratories, Inc. concerning the validity of a Cipro® patent violated antitrust regulations. The plaintiffs claim the alleged violation prevented the marketing of generic ciprofloxacin. Plaintiffs also are seeking triple damages under U.S. law. After the settlement with Barr, the Cipro® 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. The patent has since expired.
In March 2005, a federal district court in New York granted summary judgment in favor of Bayer in all actions pending in federal court. The plaintiffs are appealing this decision. Further cases are pending before various state courts. Bayer believes that it has meritorious defenses and intends to defend these cases vigorously.
Medrad: In November 1998, Medrad, Inc., a U.S. subsidiary of Schering AG, was sued by Liebel- Flarsheim Company, which alleged patent infringement, antitrust violations and tortuous interference with contractual relations. In October 2001 and February 2002, the U.S. District Court for the Southern District of Ohio, on summary judgment motions, decided in favor of Medrad regarding Liebel-Flarsheim’s patent infringement claims. Liebel-Flarsheim appealed the decision of the U.S. District Court, and the Federal Circuit Court of Appeals reversed the District Court’s decision and remanded it back to the U.S. District Court in February 2004. In October 2005, the U.S. District Court once again decided in favor of Medrad on a summary judgment motion, ruling that the patents of Liebel-Flarsheim are invalid. At the same time the court ruled that Medrad had infringed those patents. These rulings are being appealed by both Liebel-Flarsheim and Medrad. All claims other than the patent claims were withdrawn by Liebel-Flarsheim in connection with a settlement reached in October 2002.
In September 2004, Liebel-Flarsheim Company and its parent, Mallinckrodt, Inc., filed a new patent infringement action in the same court against Medrad in relation to an additional injector product. This action relates to the same family of patents as did the first lawsuit.
Bayer believes it has meritorious defenses and intends to defend these cases vigorously.
LLRICE601: Since August 2006 several lawsuits, including putative class actions, have been filed by American rice farmers against Bayer Crop- Science LP in the United States. The plaintiffs are suing the company, alleging that they have suffered economic losses after traces of the genetically modified rice event LLRICE601 were identified in samples of conventional long-grain rice grown in the U.S. This is alleged to have led to a decline in the commodity price for long-grain rice due to import restrictions imposed by the European Commission and certain other countries. After development, LLRICE601 was further tested in cooperation with third parties, including a breeding institute in the U.S. However, it was never selected for commercialization. The USDA and the FDA have stated that LLRICE601 does not constitute a health risk and is safe for use in food and feed and for the environment. Bayer CropScience filed an application with the USDA for deregulation of LLRICE601 in August 2006.
Bayer believes it has meritorious defenses and intends to defend these cases vigorously.
risks.
Legal proceedings currently considered to involve material risks are outlined below. The litigation referred to does not necessarily represent an exhaustive list.
Lipobay/Baycol: As of November 17, 2006, the number of Lipobay/Baycol cases pending against Bayer worldwide was approximately 2,340 (approximately 2,270 of them in the United States, including several class actions). At the same date, Bayer had settled 3,142 Lipobay/Baycol cases worldwide without acknowledging any liability and resulting in settlement payments of approximately US$ 1,157 million. In the United States five cases have been tried to date, all of which were found in Bayer’s favor.
After more than five years of litigation we are currently aware of fewer than 30 pending cases in the United States that in our opinion hold a potential for settlement, although we cannot rule out the possibility that additional cases involving serious side effects from Lipobay/Baycol may come to our attention. In addition, there could be further settlements of cases outside of the United States.
In addition to accounting measures taken in previous years, Bayer recorded charges of €4.7 million to the operating result in the first quarter of 2006 in respect of settlements expected to be concluded. In the third quarter of 2006 Bayer additionally recognized a provision in the amount of €13 million in respect of settlements expected to be concluded and anticipated defense costs. Bayer will defend itself vigorously in all Lipobay/Baycol cases in which in our view no potential for settlement exists or where an appropriate settlement cannot be achieved.
However, since the existing insurance coverage with respect to the Lipobay/Baycol cases is exhausted, it is possible – depending on the future progress of the litigation – that Bayer could face further payments that are not covered by the accounting measures already taken. We will regularly review the possibility of further accounting measures depending on the progress of the litigation.
PPA: Given the number and nature of the remaining outstanding cases, management believes the PPA product liability cases no longer involve a material risk to Bayer and, absent a signifcant adverse development, will not continue to report on the status of these cases.
Ciprofloxacin: 39 putative class action lawsuits and one individual lawsuit against Bayer involving the medication Cipro® have been pending since July 2000 in the United States. The plaintiffs are suing Bayer and other companies also named as defendants, alleging that a settlement reached in 1997 to end litigation between Bayer and Barr Laboratories, Inc. concerning the validity of a Cipro® patent violated antitrust regulations. The plaintiffs claim the alleged violation prevented the marketing of generic ciprofloxacin. Plaintiffs also are seeking triple damages under U.S. law. After the settlement with Barr, the Cipro® 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. The patent has since expired.
In March 2005, a federal district court in New York granted summary judgment in favor of Bayer in all actions pending in federal court. The plaintiffs are appealing this decision. Further cases are pending before various state courts. Bayer believes that it has meritorious defenses and intends to defend these cases vigorously.
Medrad: In November 1998, Medrad, Inc., a U.S. subsidiary of Schering AG, was sued by Liebel- Flarsheim Company, which alleged patent infringement, antitrust violations and tortuous interference with contractual relations. In October 2001 and February 2002, the U.S. District Court for the Southern District of Ohio, on summary judgment motions, decided in favor of Medrad regarding Liebel-Flarsheim’s patent infringement claims. Liebel-Flarsheim appealed the decision of the U.S. District Court, and the Federal Circuit Court of Appeals reversed the District Court’s decision and remanded it back to the U.S. District Court in February 2004. In October 2005, the U.S. District Court once again decided in favor of Medrad on a summary judgment motion, ruling that the patents of Liebel-Flarsheim are invalid. At the same time the court ruled that Medrad had infringed those patents. These rulings are being appealed by both Liebel-Flarsheim and Medrad. All claims other than the patent claims were withdrawn by Liebel-Flarsheim in connection with a settlement reached in October 2002.
In September 2004, Liebel-Flarsheim Company and its parent, Mallinckrodt, Inc., filed a new patent infringement action in the same court against Medrad in relation to an additional injector product. This action relates to the same family of patents as did the first lawsuit.
Bayer believes it has meritorious defenses and intends to defend these cases vigorously.
LLRICE601: Since August 2006 several lawsuits, including putative class actions, have been filed by American rice farmers against Bayer Crop- Science LP in the United States. The plaintiffs are suing the company, alleging that they have suffered economic losses after traces of the genetically modified rice event LLRICE601 were identified in samples of conventional long-grain rice grown in the U.S. This is alleged to have led to a decline in the commodity price for long-grain rice due to import restrictions imposed by the European Commission and certain other countries. After development, LLRICE601 was further tested in cooperation with third parties, including a breeding institute in the U.S. However, it was never selected for commercialization. The USDA and the FDA have stated that LLRICE601 does not constitute a health risk and is safe for use in food and feed and for the environment. Bayer CropScience filed an application with the USDA for deregulation of LLRICE601 in August 2006.
Bayer believes it has meritorious defenses and intends to defend these cases vigorously.
Rubber, polyester polyols, urethane:
Proceedings involving the former rubber-related lines of business
Proceedings involving the former rubber-related lines of business
Investigations and proceedings by the respective authorities in the E.U. and Canada for alleged anticompetitive conduct involving certain products in the rubber field are pending. As previously reported, in the United States the investigations of the U.S. Department of Justice into Bayer’s conduct have been concluded.
Numerous civil claims for damages including class actions are pending in the United States and Canada against Bayer AG and certain of its subsidiaries as well as other companies. The lawsuits involve rubber chemicals, EPDM, NBR and polychloroprene rubber (CR). As previously reported, Bayer has settled the actions which management believes to be material.
Numerous civil claims for damages including class actions are pending in the United States and Canada against Bayer AG and certain of its subsidiaries as well as other companies. The lawsuits involve rubber chemicals, EPDM, NBR and polychloroprene rubber (CR). As previously reported, Bayer has settled the actions which management believes to be material.
Proceedings involving polyester polyols, urethanes and urethane chemicals
As previously reported, Bayer has resolved the U.S. Department of Justice investigation previously pending in the United States. In Canada an investigation is pending against Bayer for alleged anticompetitive conduct relating to adipic-based polyester polyols.
A number of civil claims for damages, including class actions, have been filed against Bayer in the United States involving allegations of unlawful collusion on prices for certain polyester polyols, urethanes and urethane chemicals product lines. Similar actions are pending in Canada with respect to polyester polyols. Bayer has settled several actions pending in the United States. These settlements do not resolve all of the pending civil litigation nor do they preclude the bringing of additional claims.
A number of civil claims for damages, including class actions, have been filed against Bayer in the United States involving allegations of unlawful collusion on prices for certain polyester polyols, urethanes and urethane chemicals product lines. Similar actions are pending in Canada with respect to polyester polyols. Bayer has settled several actions pending in the United States. These settlements do not resolve all of the pending civil litigation nor do they preclude the bringing of additional claims.
Proceedings involving polyether polyols and other precursors for urethane end-use products
Bayer has been named as a defendant in multiple putative class action lawsuits in the United States and Canada involving allegations of price fixing for, inter alia, polyether polyols and certain other precursors for urethane end-use products. In the United States, Bayer has settled with a class of direct purchasers of polyether polyols, MDI and TDI (and related systems) representing approximately 75 percent of the purchases, which settlement has been approved by the court. The remaining direct purchasers opted out of the settlement and have the right to bring their own actions. To date no such actions have been brought. In Canada, the class action lawsuit on behalf of direct and indirect purchasers of polyether polyols, MDI and TDI (and related systems) continues. In February 2006 Bayer was served with a subpoena from the U.S. Department of Justice seeking information relating to the manufacture and sale of these products.
Impact of antitrust proceedings on Bayer
Excluding the portion allocated to Lanxess, expenses in the amount of €336 million were accrued in the course of 2005 which led to the establishment of a provision for the previously described civil proceedings in the amount of €285 million as of December 31, 2005. In the meantime this provision has been adjusted and stood at €236 million as of September 30, 2006. The provisions established for the remaining rubber proceedings pending with the E.U. Commission amounts to €10 million, although a reliable estimate as to the actual amount of any future fines can currently not be made.
These provisions may not be sufficient to cover the ultimate outcome of the above-described matters. The amount of provisions established for civil proceedings is based on the expected payments under the settlement agreements described above. To the extent provisions have been established, they do not take into account actions that are still pending and have not been settled.
Bayer will continue to pursue settlements that in its view are warranted. In cases where settlement is not achievable, Bayer will continue to defend itself vigorously.
The financial risk associated with the proceedings described above beyond the amounts already paid and the financial provisions already established is currently not quantifiable due to the considerable uncertainty associated with these proceedings. Consequently, no provisions other than those described above have been established. The Company expects that, in the course of the regulatory proceedings and civil damages suits, additional charges will become necessary.
These provisions may not be sufficient to cover the ultimate outcome of the above-described matters. The amount of provisions established for civil proceedings is based on the expected payments under the settlement agreements described above. To the extent provisions have been established, they do not take into account actions that are still pending and have not been settled.
Bayer will continue to pursue settlements that in its view are warranted. In cases where settlement is not achievable, Bayer will continue to defend itself vigorously.
The financial risk associated with the proceedings described above beyond the amounts already paid and the financial provisions already established is currently not quantifiable due to the considerable uncertainty associated with these proceedings. Consequently, no provisions other than those described above have been established. The Company expects that, in the course of the regulatory proceedings and civil damages suits, additional charges will become necessary.
Arbitration proceeding concerning propylene oxide
As previously reported, an arbitration panel in May 2006 issued a final award in favor of Lyondell Chemical Co. in respect of a dispute with Bayer over interpretation of their joint venture agreements for the manufacture of propylene oxide. Bayer is seeking to vacate the final award, while Lyondell is seeking to confirm the award as well as obtain pre-award interest. Bayer has established appropriate provisions in this regard.
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