Note 11. Commitments and Contingencies

Commitments

Leases

The Company’s corporate headquarters is located in Danvers, Massachusetts. This facility encompasses most of the Company’s U.S. operations, including research and development, manufacturing, sales and marketing and general and administrative departments. In October 2017, the acquired its corporate headquarters for approximately $16.5 million and terminated its existing lease arrangement (See Note 6).

Future minimum lease payments under non-cancelable leases as of March 31, 2018 are approximately as follows:

Fiscal Years Ending March 31,	Operating Leases
	(in $000s)
2019	$	2,078
2020		1,888
2021		1,901
2022		1,408
2023		891
Thereafter		1,923
Total minimum lease payments	$	10,089

In February 2017, the Company entered into a lease agreement for an additional 21,603 square feet of office space in Danvers, Massachusetts which expires on July 31, 2022. In December 2017, the Company entered into an amendment to this lease to extend the term through August 31, 2025 and to add an additional 6,607 square feet of space in which rent would begin around June 1, 2018. The amendment also allows the Company a right of first offer to purchase the property from January 1, 2018 through August 31, 2035, if the lessor decides to sell the building or receives an offer to purchase the building from a third-party buyer. In March 2018, the Company entered into an amendment to the lease to add an additional 11,269 square feet of space for which rent will begin on or around June 1, 2018 through August 31, 2025. The annual rent expense for this lease agreement is estimated to be $0.4 million.

In September 2016, the Company entered into a lease agreement in Berlin, Germany which commenced in May 2017 and expires in May 2024. The annual rent expense for the lease is estimated to be $0.3 million.

In October 2016, the Company entered into a lease agreement for an office in Tokyo, Japan and expires in September 2021. The office houses administrative, regulatory, and training personnel in connection with the Company’s commercial launch in Japan. The annual rent expense for the lease is estimated to be $0.9 million.

License Agreements

In April 2014, the Company entered into an exclusive license agreement for the rights to certain optical sensor technologies in the field of cardio-circulatory assist devices. Pursuant to the terms of the license agreement, the Company agreed to make potential payments of $6.0 million. Through March 31, 2018, the Company has made $3.5 million in milestones payments which included a $1.5 million upfront payment upon the execution of the agreement. Any potential future milestone payment amounts have not been included in the contractual obligations table above due to the uncertainty related to the successful achievement of these milestones.

Contingencies

From time to time, the Company is involved in legal and administrative proceedings and claims of various types. In some actions, the claimants seek damages, as well as other relief, which, if granted, would require significant expenditures. The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in liability and the amount of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its consolidated financial statements.

Settlement Agreement

On April 25, 2014, the Company received an administrative subpoena from the Boston regional office of the United States Department of Health and Human Services Office of Inspector General, or HHS-OIG, requesting materials relating to the Company’s reimbursement of employee expenses and remuneration to healthcare providers from July 2012 through December 2012, in connection with a civil investigation under the False Claims Act. Subsequently, the Company received Civil Investigative Demands from the U.S. Attorney’s Office for the District of Massachusetts, or the DOJ, that collectively sought additional information relating to this matter for the time period of January 1, 2011 through September 14, 2016. DOJ’s investigation derived from a civil qui tam action, United States ex rel. Max Bennett v. Abiomed, 13-cv-12277, filed on behalf of the United States and certain individual states in the District of Massachusetts by a former employee. The complaint alleged violations of the Federal False Claims Act and analogous state false claims acts, as well as claims that the Company retaliated against Bennett in violation of federal and state law.

On March 6, 2018, the Company entered a Settlement Agreement (the “Settlement Agreement”) with the DOJ, on behalf of HHS-OIG, and Bennett to resolve the claims relating to the Company’s reimbursement of employee expenses for meals with healthcare providers. Under the terms of the Settlement Agreement, the Company agreed to pay $3.1 million, plus approximately $30,000 of accrued interest, to the U.S. government. The Company also agreed to pay $150,000 to the former Company employee in settlement of his claims for reasonable expenses, costs and attorneys’ fees. The Settlement Agreement contained no admission of liability on the part of the Company and did not require the Company to enter into a corporate integrity agreement. Pursuant to the Settlement Agreement, the U.S. government and the former Company employee agreed to release the Company from civil monetary liability arising from allegations that it caused third parties to submit false claims for payment to Medicare. In connection with the resolution, the various state claims were dismissed without prejudice.

The Settlement Agreement did not resolve the former Company employee’s individual claims of employment retaliation, against which the Company intends to defend vigorously. The Company is not able to predict whether or how the former Company employee’s remaining claims might be resolved, or their potential impact on the Company’s financial position.

Thoratec Matters

Thoratec Corporation, or Thoratec, a subsidiary of Abbott Laboratories, has challenged a number of Company owned patents in Europe in connection with the launch of their HeartMate PHP medical device, or PHP, in Europe. These actions relate to Thoratec’s ability to manufacture and sell their PHP product in Europe. These actions do not relate to the Company’s ability to manufacture or sell its Impella line of devices.

In December 2014, Thoratec filed a nullity suit in the German Federal Patent Court against a German “pigtail” patent owned by the Company with a flexible extension feature, and auxiliary pigtail, basket and funnel features. The validity hearing was held in November 2016 and the Federal Patent Court found the patent invalid. The Company is appealing this decision.

In August 2015, Thoratec filed a nullity action in the German Federal Patent Court against two Company owned patents covering a “magnetic clutch” feature. These magnetic clutch patents were acquired by the Company in July 2014, in connection with its acquisition of ECP and AIS. The validity hearing for the magnetic clutch patents was held in June 2017. The Company’s patents were upheld in an amended form to focus on the structure and interaction of the magnets in the clutch. The Federal Patent Court found certain unamended claims to be invalid. The Company is appealing the decision with respect to the unamended claims.

In September 2015, the Company filed counterclaims in the magnetic clutch action in Germany asserting that the PHP product infringes the two magnetic clutch patents, a European pigtail patent, and the German pigtail patent. The infringement trial has been stayed, pending resolution of the German nullity actions.

In February 2017, Thoratec filed an opposition in the European Patent Office against a Company owned patent acquired in connection with the acquisition of ECP and AIS relating to a housing structure for an expandable pump. The Company filed an initial response to the opposition in July 2017. Oral proceedings are scheduled for October 26, 2018. In December 2017, Thoratec filed an opposition in the European Patent Office against a Company owned patent acquired in connection with the acquisition of ECP and AIS relating to a pump having a shaft cap with an atraumatic ball. The Company’s due date for responding to the opposition is May 27, 2018.

Maquet Matters

In December 2015, the Company received a letter from Maquet Cardiovascular LLC, or Maquet, a subsidiary of the Getinge Group, asserting that the Company’s Impella devices infringe certain claims having guidewire, lumen and sensor features, which were in two Maquet patents and one pending patent application in the U.S. and elsewhere, and attached a draft litigation complaint and encouraged the Company to take a license from Maquet. In January 2016, the Company responded to Maquet stating that it believed that the cited claims were invalid and that its Impella devices did not infringe the cited patents. In May 2016, Maquet notified the Company that its pending U.S. patent application had been issued as a U.S. patent, repeated their earlier assertion and encouraged the Company to discuss taking a license from Maquet. The three patents expire September 2020, December 2020 and October 2021. In May 2016, the Company filed suit in U.S. District Court for the District of Massachusetts, or D. Mass., against Maquet seeking a declaratory judgment that the Company’s Impella devices do not infringe Maquet’s cited patent rights.

In August 2016, Maquet sent a letter to the Company identifying four new U.S. continuation patent filings with claims that Maquet alleges are infringed by the Company’s Impella devices. Of the four U.S. continuation applications, one issued as a patent on January 17, 2017, one issued as a patent on February 7, 2017, one issued as a patent on March 21, 2017, and one issued as a patent on October 17, 2017. These four issued patents will expire in September 2020.

In September 2016, Maquet filed a response to the Company’s suit in D. Mass., including various counterclaims alleging that the Company’s Impella 2.5, Impella CP, Impella 5.0, and Impella RP heart pumps infringe certain claims of the three original issued U.S. patents (“2016 action”). On June 15, 2017, Maquet filed a motion for leave to amend its infringement counterclaims to add the first three additional U.S. continuation patents mentioned above and to file various false advertising, unfair competition claims under state law and under the Lanham Act, and a trademark cancellation in the pending case. Maquet’s amended complaint and counterclaim, like those it originally filed, seek injunctive relief and monetary damages in the form of a reasonable royalty, with three times the amount for alleged willful infringement. The amended complaint admits that Maquet’s currently commercially available products do not embody the claims of the asserted patents. On July 21, 2017, the Court granted the motion in part, allowing the three additional continuation patents to be added to the case, but denying addition of the false advertising claims, Lanham Act claims, and the trademark cancellation claims. On October 26, 2017, Maquet filed an amended answer, adding a new counterclaim alleging infringement of an additional seventh patent. Maquet did not seek leave to amend the pleadings and did not first consult with the Company concerning this addition. On November 11, 2017, after Maquet refused to withdraw the patent, the Company filed a motion to strike Maquet’s counterclaims regarding the seventh patent on the grounds that Maquet did not seek leave to add the patent and had amended its pleadings after the deadline set by the Court. On November 15, 2017, Maquet informed the Court that it would agree to voluntarily withdraw the seventh patent. On November 22, 2017, Maquet filed a second lawsuit in D. Mass alleging that the Company’s Impella 2.5, Impella CP, and Impella 5.0 heart pumps infringe certain claims of the seventh patent (“2017 action”). In the complaint, Maquet seeks injunctive relief and monetary damages in the form of a reasonable royalty, with three times the amount for alleged willful infringement.

With regard to the first six Maquet patents mentioned above, in March and April 2017, the Company filed requests for inter partes review, or IPR, at the U.S. Patent & Trademark Office’s Patent Trial and Appeals Board, or PTAB, asserting that the claims are invalid in view of prior art blood pump technology. In September and October 2017, the PTAB denied institution on these IPR requests filed by the Company. In September 2017, the Company filed additional IPRs and in March and April 2018, the PTAB denied institution of these IPR petitions.

The Company cannot estimate what the potential outcome of these claims will be at this time. In the 2016 action, discovery is ongoing and, after the Court conducted a Markman hearing on claim interpretation in April 2018, the decision on claim interpretation is still pending. No schedule has been set in the 2017 action.

The Company is unable to estimate the potential liability with respect to the legal matters noted above. There are numerous factors that make it difficult to meaningfully estimate possible loss or range of loss at this stage of the legal proceedings, including that patent disputes with Thoratec and Maquet remain either in relatively early stages, or there are significant factual and legal issues to be resolved and information obtained or rulings made during any lawsuits or investigations that could affect the methodology for calculation.