Patent Litigation Status

In 2006, Masimo reached a settlement with Nellcor to conclude a long-running patent case in which Nellcor was found to have infringed several Masimo patents and Masimo was found not to have infringed patents asserted by Nellcor. This original settlement agreement was amended in March 2011.

Long after the industry had decided that it was not possible to make pulse oximetry technology reliable during patient motion, Masimo invented and, in 1996, brought measure-through-motion pulse oximetry to the market. In late 1999, Masimo sued Nellcor for patent infringement when Nellcor released its N-395 pulse oximeter, which Nellcor claimed could measure through patient motion. Nellcor also sued Masimo for infringement of many Nellcor patents. In March of 2004, a jury found that Nellcor infringed several Masimo patents. During the case, Masimo was found not to have infringed Nellcor’s patents. In September 2005, the appellate court affirmed the infringement findings against Nellcor, and instructed the District Court to enter an injunction prohibiting the sale of Nellcor’s pulse oximeters that were found to infringe.

On January 17, 2006, Masimo and Nellcor entered into a settlement agreement, where Nellcor, among other things, agreed to discontinue shipment of all pulse oximeters that were found to infringe Masimo’s patents and pay Masimo $265 million for sales of the infringing products. These products included all of Nellcor’s 04/N395 (Oxismart XL) and 05/N595 (Oximax) stand-alone and handheld pulse oximeters as well as the corresponding boards used in select multi-parameter patient monitors.

With the discontinuance of the products found to infringe, Nellcor announced a new product, known as the 06/N600, which was not the subject of the litigation. Nellcor did not include adaptive filters or parallel algorithms to measure saturation in this product, which remain significant contributors to the unparalleled performance of Masimo SET® oximeters. Although Masimo believed the 06/N600 design still infringed some of Masimo’s patents, Masimo agreed to provide a covenant not to sue Nellcor on the 06/N600 platform in exchange for an ongoing royalty. However, the agreement provided that if Nellcor improved the performance of the 06/N600, the improved product may be subject to an infringement suit by Masimo. Additionally, Although the Nellcor 05/N595 FDA 510(k) clearance included “motion conditions” in its indication for use, the FDA 510(k) clearance for the 06/N600 does not include the motion indication.

In March 2011, Masimo and Nellcor (now a division of Covidien) announced that they amended the original settlement from 2006. Under the terms of the amendment, Covidien will pay Masimo a royalty for its current pulse oximetry products sold in the United States for about three years. Based on multiple clinical evaluations of the 06/N600 in hospitals around the world, we are confident that an objective, side-by-side comparison between the Nellcor N600 and Masimo SET oximeters will reveal the clinical superiority of Masimo SET. Masimo therefore continues to offer a $1,000,000 performance guarantee (for terms see www.masimo.com/1millionrules.htm).

In closing, Nellcor has agreed to respect Masimo’s patents, and the performance gap between Masimo and Nellcor pulse oximeters remains. Moreover, when you consider this performance gap in combination with the advent of Masimo rainbow SET® — a breakthrough technology platform that allows noninvasive and continuous monitoring of blood constituents and physiological parameters that previously required invasive procedures, including total hemoglobin (SpHb®), carboxyhemoglobin (SpCO®), methemoglobin (SpMet®), Pleth Variability Index (PVI®), and acoustic respiration rate (RRa) — why settle for anything less?