Masimo Corp. in October 2018 will conclude a long-running agreement concerning pulse oximetry patents—a framework based on licensing deals and litigation that have brought the Irvine-based device maker about $685 million over the last 10 years.
About another $85 million should come to Masimo in 2016 to 2018, the last three years of the licensing agreement with a unit of medical device maker Medtronic Plc.
Masimo makes patient monitoring products.
Medtronic is a diversified medical device maker with U.S. operations based in Minnesota and its corporate headquarters in Ireland.
The agreement to end the licensing with the 2018 expiration of the main patent that underpins the deal was announced Sept. 2.
The wrangling reaches back in time to several patents Masimo filed through 1998, and litigation it initiated against Mallinckrodt Inc. and its Nellcor Puritan Bennett Inc. subsidiary.
Nellcor, through a series of corporate acquisitions, has come to be owned by Medtronic.
“We are pleased that the parties were able to reach an agreement for the continuation of royalties through October 6, 2018,” Eli Kammerman, Masimo vice president of investor relations, said by email.
Masimo declined further comment.
Medtronic declined comment.
Cases
The litigation involves at least two patent cases and one antitrust lawsuit.
Masimo’s patent litigation alleged infringement of “certain of our pulse oximetry signal processing patents,” a 2007 regulatory filing said.
The litigation was settled in 2005, leading the companies to negotiate the licensing deal.
Separate litigation involved antitrust allegations by Masimo, which contested the legality of “sole-source contracts, product bundling, market share-based compliance pricing contracts and co-marketing agreements with patient monitoring companies.”
A jury agreed that such conditions constituted “unlawful restraints of trade [that] violated federal antitrust laws,” the filing said.
The companies could have sued one another at different points in the last 10 years to alter the licensing deal, but instead reached agreements on several amendments to the original 2006 framework in that period.
Medtronic last year asked an appeals board of the U.S. Patent and Trademark Office to review some of the patents. This year the board delivered a split decision on the “inter partes review” petitions.
The new, final agreement came in recent weeks.
Payout
Masimo initially received $263 million in damages and fees based on Nellcor’s sales of the affected products through early 2006 and the parties signed the licensing deal to cover future revenue.
News reports and regulatory filings show Masimo received about $69 million in 2006 royalties—the first year of the deal—$56 million in 2007, $178 million from 2008 through 2011, and $119 million from 2012 through 2015.
The percentage Nellcor paid fell from about 20% in 2006 to 7.75%, which will remain steady through October 2018.
The licensing revenue Masimo has gained from the settlement has gone to shareholders, employees and attorneys.
Masimo’s attorneys are Stephen Jensen and Joseph Re, partners at Knobbe, Martens, Olson & Bear LLP in Irvine.
A Masimo regulatory filing said damages it received were “subject to a 50% legal fee contingency agreement.”
It was unclear how much of the revenue it received was damages.
Dividends
Masimo in 2006 and 2007 paid $209 million in cash dividends to shareholders and $12 million in bonuses to employees and directors who held vested stock options.
“Funds used to pay these cash dividends and special bonus payments were made from the after-tax proceeds that we received from our patent infringement lawsuit against Nellcor and the interest on those proceeds,” a filing said.
Foundation
Masimo in 2010 gave $10.3 million to start the Masimo Foundation for Ethics, Innovation, and Competition in Healthcare in Irvine. That money came from the antitrust case, not the patent litigation.
The foundation’s mission is “to encourage and promote activities, programs, and research opportunities that improve patient safety and deliver advanced healthcare to people worldwide,” the foundation website said.
