Medtronic was dealt a legal setback Wednesday when a federal appeals court reinstated litigation from investment funds claiming that the medical device company misled investors and doctors by concealing known risks from the controversial Infuse bone graft product.

Infuse has been used in more than 1 million surgeries worldwide to stimulate bone growth, usually in a procedure in which a spine surgeon fuses two or more vertebrae in a patient's back to alleviate pain from degenerative disc disease. Infuse is supposed to make the fusion happen more reliably and with less pain, but company-sponsored studies did not disclose risks that independent studies later reported.

Three investment funds, including lead plaintiff West Virginia Pipe Trades Health & Welfare fund, are accusing Medtronic of securities fraud for allegedly taking part in a scheme to conceal Infuse's safety risks and mislead investors about future Infuse sales. Last year Minnesota's chief federal judge, John Tunheim, threw out the case on procedural grounds.

On Wednesday, a three-judge panel of the 8th U.S. Circuit Court of Appeals in St. Louis unanimously overturned the Minnesota ruling and sent the case back to federal trial court in Minnesota. Medtronic moved its legal address to Ireland last year, but has retained corporate offices in the state.

Medtronic said in a statement that it believes the shareholder litigation is without merit, but lawyers for the groups suing Medtronic cheered Wednesday's decision.

"What it means is that the case will get back onto the track that it was before it was dismissed. We were taking discovery, we had filed a motion for class certification. The litigation will continue toward an eventual trial unless there is some other event that resolves it," said Shawn Williams, an attorney with the California-based law firm heading up the plaintiffs' case.

Williams' firm, Robbins Geller Rudman & Dowd, represented the California pension fund that served as lead plaintiff in class action shareholder litigation against Minnetonka-based UnitedHealth Group that ultimately led to settlements of more than $925 million in 2008.

When asked about a possible settlement in the Medtronic matter, neither Williams nor a Medtronic spokesman said one was likely.

"We haven't discussed settlement with them at all," Williams said.

A statement from Medtronic reaffirmed the device maker's commitment to winning the case in court.

"We're disappointed with the decision, but continue to believe the claims in this case are without merit," a company spokesman said via e-mail. "The plaintiffs are still a long way from proving liability in this case, and we are prepared to defend ourselves in court."

The three plaintiffs in the case are the West Virginia pipe fitters' union health and welfare fund, a Germany-based asset manager called Union Asset Management Holding AG, and the State of Hawaii Employees' Retirement System.

In a similar-but-unrelated case, Medtronic learned earlier this month that it will likely have to go to trial in the first of thousands of patients' personal injury lawsuits stemming from use of Infuse.

A state appeals court judge in St. Louis ruled Dec. 8 ruled that plaintiff Trisha Keim's allegations that Medtronic fraudulently marketed Infuse should go to trial. Medtronic denies any liability in the patients' cases, and has moved to settle thousands of the 6,000 injury claims pending against it over Infuse.

Joe Carlson • 612-673-4779