Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

Commitments and Contingencies
12 Months Ended
Dec. 31, 2012
Commitments and Contingencies [Abstract]  
Commitments and Contingencies
Commitments and Contingencies

Collaborative Agreements, Royalties and Milestone Payments

The Company is obligated to pay royalties, ranging generally from 1.5% to 14% of the selling price of the licensed component and up to 40% of any sublicense fees to various universities and other research institutions based on future sales or licensing of products that incorporate certain products and technologies developed by those institutions.

In addition, the Company has committed to make potential future "milestone" payments to third parties as part of licensing and development programs. Payments under these agreements become due and payable only upon the achievement of certain developmental, regulatory and/or commercial milestones. Because it is uncertain if and when these milestones will be achieved, such contingencies, aggregating up to $96 million (assuming one product per contract meets all milestones events) have not been recorded on the consolidated balance sheet. The Company is unable to determine precisely when and if payment obligations under the agreements will become due as these obligations are based on milestone events, the achievement of which is subject to a significant number of risks and uncertainties.


As of December 31, 2012, the Company leased administrative, research facilities, and office equipment under operating leases expiring on various dates through May 2014. These leases generally require the Company to pay taxes, insurance, maintenance and minimum lease payments.

The Company estimates future minimum lease payments as of December 31, 2012 to be (in thousands):

Leases (a)
Minimum lease payments

Operating leases are net of future sublease income of $0.9 million.
Total rental expense, including other costs required under the Company's leases, was approximately $4.5 million, $5.1 million and $5.1 million for the years ended December 31, 2012, 2011 and 2010, respectively. Rental expense based on leases allowing for escalated rent payments are recognized on a straight-line basis. The Company is required to restore certain of its leased property to certain conditions in place at the time of lease. The Company believes these costs will not be material to its operations.

In 2012, the Company vacated and subleased two of its leased facilities, which housed its large scale manufacturing operations and associated quality functions. The Company does not expect to incur any significant restructuring charges during 2013 in connection with lease payments for these buildings as these payments will be offset by future sublease income.

As a result of the restructuring in the second quarter of 2009, the Company vacated one of its leased buildings. Effective December 2010, the Company entered into a sublease agreement for this building through May of 2014. For the year ended December 31, 2012, the Company recognized $0.1 million in sublease income under this agreement. The Company will receive future sublease income of $0.2 million under this agreement.

Subsequent to December 31, 2012, the Company renewed its operating lease agreements in three buildings for a ten year period.

Legal Proceedings

On April 8, 2011, four complaints were filed in the United States District Court for the Eastern District of Michigan.  The cases are captioned:  Muniz v. Genentech, et al., 5:11-cv-11489-JCO-RSW; Tifenthal v. Genentech, et al., 2:11-cv-11488-DPH-LJM; Blair v. Genentech, et al., 2:11-cv-11463-SFC-MJH; and Marsh v. Genentech, et al., 2:11-cv-11462-RHC-MKM.  The complaints alleged claims against Genentech and the Company ("Defendants") for alleged strict liability failure to warn, negligence, breach of warranty, and fraud by concealment based on injuries alleged to have occurred as a result of the plaintiffs' treatment with RAPTIVA®.  The complaints sought unspecified compensatory and punitive damages.  All four cases were transferred to the United States District Court for the Western District of Michigan.  On October 26, 2011, the Court granted the Motions to Dismiss filed by Defendants in all four actions.  On September 6, 2012, the 6th Circuit Court of Appeals affirmed the judgment in favor of Defendants and, on October 12, 2012, denied a petition for en banc rehearing.  The deadline for seeking appellate review by the United States Supreme Court has expired.

On June 13, 2011, a complaint was filed in the Supreme Court for the State of New York, Onondaga County.  The case is captioned: McConnell v. Genentech, et al., 5:11-cv-1309-GLS-DEP.  Defendants removed the case to the United States District Court for the Northern District of New York on November 3, 2011.  The complaint asserted claims against Genentech and the Company ("Defendants") for alleged strict liability defective design and manufacture, strict liability failure to warn, negligence, breach of warranty, and loss of consortium based on injuries alleged to have occurred as a result of the plaintiff's treatment with RAPTIVA®.  The complaint sought unspecified compensatory and punitive damages.  On December 21, 2012, the case was dismissed with prejudice pursuant to a settlement agreement.