Philips wins Dutch court battle with shareholders over sleep apnea recall

A Dutch court on Saturday dismissed shareholders' demands for an investigation into Koninklijke Philips NV's (AS:PHG) handling of its 2021 sleep apnea device recall, siding with the health technology company over allegations that management failed to act promptly on safety concerns and misled investors.

The Enterprise Chamber of the Amsterdam Court of Appeal said it found no sufficient grounds to question Philips' policies or management practices that would justify an inquiry.

The ruling followed a review of extensive case files and internal documents, which showed that the company's internal systems were based on international standards, regularly audited and strengthened over time.

The shareholders, including Dutch investors' association VEB and a large group of retail and institutional investors, had argued that Philips' internal controls failed to identify and address problems with the recalled devices promptly.

They also alleged that the company's board knew, or should have known, about the risks before they became public, that its supervisory board failed to exercise adequate oversight, and that its disclosures breached legal obligations and misled investors.

The court said there was no evidence that Philips' executive and supervisory boards received reliable information about the health risks from the foam used in the devices too late.

It found that sufficient reliable research data pointing to potential health risks from the PE-PUR sound-abatement foam became available only in the first months of 2021.

It also found no basis to conclude that Philips should have intervened earlier at its U.S. subsidiary Respironics or that its supervisory board had failed in its oversight duties.

The ruling does not determine whether errors were made at Respironics or decide whether investors are entitled to compensation for their losses. It addresses only whether there were grounds to order an investigation into Philips' policies and conduct.

Philips recalled around 15 million sleep apnea and respiratory devices globally in 2021 after discovering that the foam could degrade and potentially release harmful substances, posing health risks to users.

The recall caused Philips shares to lose about two-thirds of their value. The company denied the shareholders' allegations and welcomed the court's decision.

The recall has continued to generate legal and regulatory scrutiny. Philips agreed in 2024 to pay $1.1 billion to settle all personal injury claims related to the devices filed in the United States.

Investigations are continuing in multiple countries, including France, where prosecutors are examining allegations of aggravated fraud and failure to report safety risks.