The Group is involved in various legal and administrative proceedings considered normal to its business, principally intellectual property cases, product liability, and governmental investigations, the most significant of which are described below. GlaxoSmithKline is committed to ensuring the safety of its products throughout the world. Notwithstanding high standards of quality control, product liability is a significant commercial risk for GlaxoSmithKline in common with others in the pharmaceutical industry. The Group is exposed to the ongoing development of ‘strict liability’ and to the continuing readiness of consumers, particularly in the USA, to enter into individual and class action litigation.

Intellectual property
In July 1998 the Group filed an action against TorPharm, Apotex Inc. and Apotex Corp in the US District Court for the Northern District of Illinois charging infringement of the Group’s patent for paroxetine hydrochloride hemihydrate (Paxil/Seroxat). TorPharm, through its US agent, Apotex Corp, filed an Abbreviated New Drug Application (ANDA) with the US Food and Drug Administration (FDA) seeking approval to introduce a generic form of Paxil into the US market prior to expiration in 2006 of the Group’s patent. TorPharm asserted in the ANDA that its compound does not infringe the Group’s patent, and in February 2000 challenged the validity of that patent. The parties are still engaged in the discovery process; no trial date has been set.

In 1999 the Group filed an action against Geneva Pharmaceuticals and in 2000 against Zenith Goldline in the US District Court for the Eastern District of Pennsylvania charging infringement of the Group’s patents for paroxetine hydrochloride hemihydrate (Paxil/Seroxat). Geneva and Zenith Goldline filed ANDAs for paroxetine hydrochloride asserting that their compounds do not infringe the Group’s patents or that the patents are invalid. In addition the Group has filed new actions against TorPharm in the Eastern District of Pennsylvania based upon new patents issued in 1999 and 2000 covering paroxetine. The new patents were also included in the actions against Geneva and Zenith Goldline. Proceedings in those actions have been deferred pending a decision on GlaxoSmithKline’s motion to consolidate all Pennsylvania litigation.

In March 2000 GlaxoSmithKline filed an action against Pentech in the US District Court for the Northern District of Illinois for infringement of the Group’s patents for paroxetine hydrochloride. Pentech filed an ANDA for a capsule version of Paxil, asserting that its compound and presentation do not infringe the Group’s patents or that the patents are invalid. This matter is still in discovery.

In October 2000 GlaxoSmithKline filed an action against Synthon in the US District Court for the Middle District of North Carolina for infringement of the Group’s patents for paroxetine hydrochloride and paroxetine mesylate. Synthon filed a 505(b)(2) application (a ‘paper NDA’) with the US FDA using a different salt form of paroxetine than that used in the marketed form of Paxil. This matter is still in its early stages.

In January 2001 GlaxoSmithKline filed an action against Alphapharm in the US District Court for the Eastern District of Pennsylvania for infringement of the Group’s patents for paroxetine hydrochloride. Alphapharm filed an ANDA for paroxetine hydrochloride asserting that its product would not infringe the Group’s patents or that the patents are invalid. This matter is still in its early stages.

With respect to all the pending litigation in the USA relating to Paxil, the Group believes that its patents are valid and that the third party compounds do infringe the Group’s patents, and it intends to vigorously litigate its position.

Following the expiration of the data exclusivity period in Europe, GlaxoSmithKline understands that an authorisation has been issued to Synthon by regulatory authorities in Denmark for paroxetine mesylate, a different salt form of paroxetine hydrochloride, the active ingredient in Seroxat/Paxil. Authorisations are under assessment in other European countries under the mutual recognition process. The Group has initiated litigation challenging the approval by the Danish Medicines Agency on grounds that an authorisation should not have been granted under the abridged procedure as paroxetine mesylate is not essentially similar to Seroxat. In addition, GlaxoSmithKline understands that a marketing authorisation has been issued in Denmark for paroxetine hydrochloride anhydrate, another variant of the Group’s product, which has recently been launched. GlaxoSmithKline believes that marketing of either a paroxetine hydrochloride anhydrate product or a paroxetine mesylate product by third parties in European countries infringes its patents and is vigorously litigating its position.

In July 1996 Emory University obtained grant of a US patent with claims purporting to cover the compound lamivudine (3TC), the active ingredient in Epivir. The active ingredient is also a component of both Combivir and Trizivir. Emory sued GlaxoSmithKline and its licensor BioChem for patent infringement in the US District Court for the Northern District of Georgia. The litigation was stayed in July 1998 pending the outcome of interference proceedings in the US Patent and Trademark Office (USPTO) intended to establish whether the subject matter of Emory’s patent rightly belongs to Emory or to BioChem. The USPTO ruled in favour of BioChem on the invalidity of Emory’s patent but left other issues unresolved. GlaxoSmithKline is seeking resolution of those issues by an appeal to the US District Court for the District of Columbia.

Four distributors of generic pharmaceutical products have filed ANDAs for sustained release bupropion hydrochloride tablets (Wellbutrin and Zyban) in the USA, accompanied in each case with a certification of invalidity of the Group’s patents. The Group has brought suit against each of the filing parties on grounds of patent infringement. GlaxoSmithKline filed suit against Andrx Pharmaceuticals, the first to file an ANDA, in the US District Court for the Southern District of Florida. Actions have also been filed against Watson Pharmaceuticals in the US District Court for the Southern District of Ohio, Eon Labs Manufacturing in the US District Court for the Eastern District of New York and Impax Laboratories in the US District Court for the Northern District of California. All those cases are in their early stages.

3M (Minnesota Mining and Manufacturing Company) alleges that certain GlaxoSmithKline respiratory products will, when launched in the US, infringe 3M’s patents covering inhaled products containing HFA (non-CFC) propellants. GlaxoSmithKline initiated an action for a declaratory judgement of invalidity and non-infringement against 3M in the US District Court for the Middle District of North Carolina. In a separate action 3M initiated an action for a declaratory judgement of invalidity and non-infringement of GlaxoSmithKline’s patents in the US District Court for Minnesota. Both actions remain in the discovery phase.

GlaxoSmithKline filed an action for infringement of its patents for cefuroxime axetil, the active ingredient in the Group’s Ceftin anti-infective product, against Ranbaxy Pharmaceuticals in the US District Court for New Jersey. A preliminary injunction was granted in favour of GlaxoSmithKline. Ranbaxy has appealed that decision but in the interim is barred from marketing its cefuroxime axetil product. GlaxoSmithKline has filed a similar action against Apotex, a second distributor of generic pharmaceutical products, in the US District Court for the Northern District of Illinois. That case is still in its early stages.

Three distributors of generic pharmaceutical products have filed ANDAs for nabumetone, the active ingredient in Relafen, accompanied in each case with a certification of patent invalidity. The Group has brought suit against each of the filing parties on grounds of patent infringement. All three cases were consolidated for trial in the US District Court for the District of Massachusetts. The trial concluded in January 2001 but the trial judge has not yet issued a decision. Although the court-ordered stay against the first generic to file an ANDA expired in March, 2000, no generic product has yet been launched.

Product liability
In 1997 the US Food and Drug Administration became aware of reports of cardiac valvular problems in individuals for whom fenfluramine or dexfenfluramine alone or in combination with phentermine was prescribed as part of a regimen of weight reduction and requested the voluntary withdrawal of fenfluramine and dexfenfluramine from the market. The reports of cardiac valvular problems and the subsequent withdrawal of those products from the market spawned numerous product liability lawsuits filed against the manufacturers and distributors of fenfluramine, dexfenfluramine and phentermine. As one of a number of manufacturers of phentermine, the Group is a defendant in numerous lawsuits in various state and federal district courts in the USA, many of which have been filed as class actions. Most of the lawsuits seek relief including some combination of compensatory and punitive damages, medical monitoring and refunds for purchase of drugs. In 1997 the Judicial Panel on Multidistrict Litigation issued an order consolidating and transferring all federal actions to the District Court for the Eastern District of Pennsylvania. That court approved a global settlement proposed by defendant American Home Products (‘AHP’), which sold fenfluramine and dexfenfluramine. The settlement does not include any of the phentermine defendants, including the Group. An appeal from the settlement is scheduled for hearing before the Third Circuit Court of Appeals in May 2001. AHP continues to settle individual state-court cases before trial.

Withdrawal of products in the US pharmaceutical and consumer healthcare businesses has sparked product liability claims and litigation. Following the voluntary withdrawal of Lotronex in the US in November 2000 a number of lawsuits have been filed against GlaxoSmithKline. Several of the suits are individual personal injury actions, while others have been filed as class actions seeking medical monitoring, compensation for personal injury, or damages under state consumer protection statutes. Those actions are still at their early stage. Similarly, following the voluntary withdrawal of consumer healthcare products in which phenylpropanolamine (PPA) was an active ingredient the Group has received notice of two purported national class actions seeking relief such as medical monitoring, refunds and compensation for personal injury or increased risk of injury for all members of a nationwide class who took PPA products. The Group has also received several lawsuits in California alleging personal injury, increased risk of injury, and unfair and deceptive business practices. Again all those claims and actions are at an early stage.

Antitrust
Twenty individual and chain drug stores filed suit in October 1993 against the US pharmaceutical companies of both SmithKline Beecham and Glaxo Wellcome, other drug manufacturers and a mail order pharmacy in the US District Court for the Middle District of Pennsylvania. That complaint alleged that SmithKline Beecham, Glaxo Wellcome and other manufacturer defendants had violated federal antitrust laws by selling and conspiring to sell prescription drugs to mail order pharmacies and other favoured purchasers at prices below the prices plaintiffs were charged. According to the complaint, ‘price discrimination’ on the part of the manufacturer defendants enabled favoured purchasers to sell drugs at prices that were lower than the prices that plaintiffs were able to charge for the same drugs, thereby causing plaintiffs to lose sales or cut profit margins. Plaintiffs seek declaratory and injunctive relief, treble damages, costs and attorneys fees.

Subsequent to the filing of the initial complaint, over 178 similar antitrust suits have been filed in at least 47 different federal judicial districts and 13 states against the US pharmaceutical businesses of both SmithKline Beecham and Glaxo Wellcome and, in some cases, as many as 34 other drug manufacturers and wholesalers. The federal cases have been brought together in the District Court for the Northern District of Illinois for pre-trial purposes.

While many of the state complaints include allegations regarding purported consumer class actions, only California and the District of Columbia have certified such classes. The federal class action component, which includes pharmacies representing approximately two-thirds of total US retail sales volume, has been settled by both Glaxo Wellcome and SmithKline Beecham. The defendants electing to try that case had a verdict directed in their favour, which was largely affirmed on appeal. Glaxo Wellcome and SmithKline Beecham have settled a large number of the remaining cases. Major exceptions include a group of 90 separate lawsuits brought by a common group of lawyers (the Boies group) on behalf of approximately 3,800 independent retail pharmacies which have not been settled by SmithKline Beecham. Glaxo Wellcome has not settled the so-called ‘Rite Aid’ cases, the original cases filed in the Middle District of Pensylvania. Litigation with other plaintiffs continues.

Governmental investigations
GlaxoSmithKline received subpoenas from the US Attorney’s office in Boston, Massachusetts, requesting that the Group produce documents for the period from 1991 to the present relating to any repackaging, relabelling or private label arrangements that GlaxoSmithKline has had or discussed with third-party customers during such period. At issue is whether the prices charged to such third parties for GlaxoSmithKline products must be counted for Medicaid ‘best price’ purposes. The Group is providing documents in response to the subpoenas.

GlaxoSmithKline is responding to subpoenas from the Office of the Inspector General of the US Department of Health and Human Services, the US Department of Justice and the states of Texas, California and Nevada in connection with allegations that pharmaceutical companies, including GlaxoSmithKline, have violated federal fraud and abuse laws such as the Federal False Claims Act (and, with respect to Texas, California and Nevada, comparable state laws) as a result of the way certain drugs are priced and the way the Medicare and Medicaid programmes reimburse for those drugs.

In November 2000 the US Federal Trade Commission staff advised GlaxoSmithKline that the staff was conducting a non-public investigation to determine whether the Group was violating Section 5 of the Federal Trade Commission Act by ‘monopolizing or attempting to monopolize the market for paroxetine hydrochloride by preventing generic competition to Paxil’ and requested the Group to submit certain information in connection with that investigation. The Group is co-operating with the staff’s investigation, which is in the early stages.

SBCL indemnities
In connection with the sale of SmithKline Beecham Clinical Laboratories (SBCL) to Quest Diagnostics Incorporated, the Group has agreed to indemnify Quest Diagnostics, on an after-tax basis, with respect to certain liabilities arising from the conduct of the SBCL business prior to closing. The most significant legal proceedings subject to that indemnity are governmental and private claims arising from the US government’s investigation into SBCL’s billing and marketing practices and liabilities arising from the misconduct of a phlebotomist at a patient service centre in Palo Alto, California.

The Group continues to respond to claims and lawsuits from non-governmental parties, including private insurers, self-funded employer plans and patients, concerning billing and marketing practices of SB Clinical Laboratories as those practices may relate to amounts paid by those parties. The lawsuits include purported class actions filed in various jurisdictions in the USA and two non-class action complaints by a number of insurance companies that seek damages allegedly arising from payments they made for clinical laboratory testing services. All but one of the purported class actions were consolidated for pretrial proceedings with the first of the two non-class action suits filed by the insurers in the US District Court for the District of Connecticut. In August 2000, one of the insurers’ lawsuits was enjoined, and shortly thereafter the other one was stayed following the parties’ representations to the District Court of Connecticut that an agreement in principle to settle both insurer cases had been reached. With respect to the class action litigation filed on behalf of individual patients and entities in the District of Connecticut, settlements were preliminarily approved by the court in February 2001, and in February 2001 a settlement of the sole non-consolidated class action suit was also preliminarily approved by an Illinois state court judge.

In March 1999 the Group learned that an employee at an SBCL patient service centre in Palo Alto, California had at times reused needles when drawing blood from patients. The phlebotomist was immediately suspended and thereafter dismissed. The Group co-operated with local, state and federal health agencies to address public health issues arising from the employee’s breach of standard medical practices and offered free testing for approximately 15,300 patients whose blood may have been drawn by this phlebotomist to determine whether those patients have been exposed to hepatitis B, hepatitis C or HIV. A number of civil actions, including some purporting to be class actions, were filed against the Group in state court in California on behalf of individuals who may have been affected by the phlebotomist’s reuse of needles or other alleged improper practices. Cases alleging fear of disease have been dismissed; cases alleging actual infection are entering discovery.

Environmental matters
The Group has a worldwide programme of corporate environmental standards. These standards ensure that environmental protection is a key business objective and they detail the purpose, scope, procedures and responsibilities of every environmental concern throughout the Group’s worldwide operations. The Group is committed to being an environmentally responsible member in the local, national and worldwide community in which it operates. The Group believes that its operations comply in all material respects with applicable environmental laws and regulations.

GlaxoSmithKline has been notified of its potential responsibility relating to past operations and its past waste disposal practices at certain sites, primarily in the USA. Some of these matters are the subject of litigation, including proceedings initiated by the US federal or state governments for waste disposal site remediation costs and tort actions brought by private parties. These include notification to the Group and Rohm and Haas Company, a company incorporated in the USA, of their responsibility relating to the joint clean-up of the Whitmoyer Laboratories site in Pennsylvania. The companies are remediating the site pursuant to a consent decree with the US Environmental Protection Agency (EPA). However, SmithKline Beecham Corp filed a legal action against Rohm and Haas in 1992 seeking indemnification in respect of the Whitmoyer Laboratories clean-up costs by the terms of the 1978 Agreement under which SB Corp purchased the site from Rohm and Haas. A panel of the Court of Appeals for the Third Circuit reversed in part the order of the District Court which had found in favour of the Group and remanded the matter for further proceedings to allocate proportionate responsibility. That new trial has been postponed on the basis of possible administrative or legislative relief that would reduce the remediation cost responsibilities of the parties.

GlaxoSmithKline has been advised that it may be a responsible party at approximately 25 sites, of which fewer than 20 sites, including the Whitmoyer site, appear on the National Priority List created by the Comprehensive Environmental Response Compensation and Liability Act (‘Superfund’).

These proceedings seek to require the operators of hazardous waste facilities, transporters of waste to the sites and generators of hazardous waste disposed of at the sites to clean up the sites or to reimburse the government for clean-up costs. In most instances, GlaxoSmithKline is involved as an alleged generator of hazardous waste although there are a few sites where GlaxoSmithKline is involved as a current or former operator of the facility. Although Superfund provides that the defendants are jointly and severally liable for clean-up costs, these proceedings are frequently resolved on the basis of the nature and quantity of waste disposed of at the site by the generator. The Group’s proportionate liability for clean-up costs has been substantially determined for about 20 of the sites referred to above.

GlaxoSmithKline’s potential liability varies greatly from site to site. While the cost of investigation, study and remediation at such sites could, over time, be substantial, GlaxoSmithKline routinely accrues amounts related to its share of liability for such matters. GlaxoSmithKline does not expect that its share of liability for such matters over and above any amounts accrued in the accounts will have a material impact on its financial condition, results of its operations or its cash flows. Although the Group makes ongoing capital expenditures for environmental protection equipment, as well as cash expenditures for site remediation and operation and maintenance of environmental facilities, it does not anticipate any such expenditures to have a material impact upon the Group’s capital expenditures or cash flows.

Tax matters
Pending tax matters are described in Note 13 to the Financial statements ‘Taxation’.