Merck generally strives to minimize and control its legal risks. Merck has taken the necessary precautions to identify threats and defend our rights where necessary. A compliance program for our employees is in place around the world which requires them to comply with laws and guidelines, and which provides them with the relevant training and support. At the heart of this program is the Merck Code of Conduct, which sets out guidelines for ethical behavior. This program helps to reduce the risk of major legal violations, for example of the regulations defined by antitrust or anticorruption law.
Nevertheless, Merck is still exposed to litigation risks or legal proceedings. In particular, these include risks in the areas of product liability, competition and antitrust law, pharmaceutical law, patent law, tax law, and environmental protection. As a research-based company, Merck has a valuable portfolio of industrial property rights, patents and brands that can become the target of attacks and infringements. The outcome of future proceedings or those currently pending is difficult to foresee. Court or official rulings or settlements can lead to expenses with a significant impact on our business and earnings.
Tax risks are reviewed regularly and systematically by Group Tax. Corresponding standards and guidelines are used in order to identify tax risks at an early stage as well as to review, evaluate and correspondingly minimize them. Risk minimization measures are coordinated by Group Tax together with the subsidiaries abroad.
In our opinion, the lawsuits described below constitute the most significant legal risks. This should not be seen as an exhaustive list of all legal disputes currently ongoing. Generally, it is not possible to rule out that Merck will face third-party claims arising from the same issue despite the conclusion of legal proceedings.
Risks from product-related and patent law disputes
Rebif®: In Israel, Merck is party to three legal disputes with Israel Bio-Engineering Project Limited Partnership (“IBEP”). IBEP is asserting claims for intellectual property rights and the payment of license fees. The legal disputes are connected to the financing of the development of Rebif®, a drug for the treatment of multiple sclerosis, and other products in the early 1980s. Merck has taken appropriate accounting measures. In the liquidity assessment, Merck rates this risk high as potential critical negative effects cannot be ruled out.
Merck is also involved in a patent dispute in the United States with Biogen IDEC Inc. (Massachusetts, USA) (“Biogen”). Biogen claims that the sale of Rebif® in the United States infringes on a Biogen patent. The disputed patent was granted to Biogen in 2009 in the United States. Subsequently, Biogen sued Merck and other pharmaceutical companies for infringement of this patent. Merck defended itself against all allegations and brought a countersuit claiming that the patent was invalid and not infringed on by Merck’s actions. A “Markman hearing” was held in January 2012. The parties are now engaged in court-ordered mediation proceedings. Merck has taken appropriate accounting measures. Given the potential critical negative effects of the dispute in the liquidity assessment, Merck nevertheless classifies this as a high risk.
Risks from antitrust law proceedings
Raptiva®: In December 2011, the Brazilian federal state of São Paulo sued Merck for damages owing to alleged collusion between various pharmaceutical companies and an association of patients suffering from psoriasis and vitiligo. This collusion is alleged to have been intended to increase sales of the medicines from the companies involved to the detriment of patients and state coffers. Moreover, patients are also suing for damages in connection with the product Raptiva®. Merck has taken appropriate accounting measures for these issues. Risks in excess of this with a substantial negative effect on the net assets, financial position and results of operations cannot be ruled out, but are considered unlikely. This is rated as a medium risk.
Risks from drug pricing by the divested Generics Group
Merck continues to bear the risk of having to defend against certain litigation brought against the Generics Group, which was sold to Mylan, Inc. (USA) in 2007. In this context, Merck remains responsible for risks from cases in the United States concerning drug pricing. Merck has taken appropriate accounting measures on the basis of possible scenarios. Since, in the worst case scenario, this would result in a substantial impact on the net assets, financial position and results of operations, with the possibility of the net risk occurring, Merck rates this as a medium risk.
Paroxetine: In connection with the divested generics business, Merck is subject to antitrust investigations by the British Office of Fair Trading (“OFT”) in the United Kingdom. In March 2013, the OFT informed Merck of the assumption that a settlement agreement entered into in 2002 between Generics (UK) Ltd. and GlaxoSmithKline in connection with the antidepressant drug paroxetine violates British and European competition law. As the owner of Generics (UK) Ltd. at the time, Merck was allegedly involved in the settlement negotiations and is therefore liable. The investigations into Generics (UK) Ltd. started in 2011, without Merck being aware of this. It is considered likely that the OFT will impose a fine on Merck. Merck has taken appropriate accounting measures. Given the lawsuit’s potential substantial negative impact in the liquidity assessment, Merck nevertheless classifies this as a medium risk.
Citalopram: In June 2013, the European Commission imposed a fine on Merck for various agreements between its former subsidiary Generics (UK) Ltd. and the Danish company Lundbeck, which related to the antidepressant citalopram, patented by Lundbeck. Sufficient appropriate accounting measures have been taken for the risk. Merck has filed an appeal with the European Court.
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