Cisco 2013 Annual Report Download - page 40

Item 3. Legal Proceedings
Brazilian authorities have investigated our Brazilian subsidiary and certain of its current and former employees, as well as a
Brazilian importer of our products, and its affiliates and employees, relating to alleged evasion of import taxes and alleged
improper transactions involving the subsidiary and the importer. Brazilian tax authorities have assessed claims against our
Brazilian subsidiary based on a theory of joint liability with the Brazilian importer for import taxes, interest, and penalties. In
addition to claims asserted by the Brazilian federal tax authorities in prior fiscal years, tax authorities from the Brazilian state
of Sao Paulo have asserted similar claims on the same legal basis in prior fiscal years. In the first quarter of fiscal 2013, the
Brazilian federal tax authorities asserted an additional claim against our Brazilian subsidiary based on a theory of joint liability
with respect to an alleged underpayment of income taxes, social taxes, interest, and penalties by a Brazilian distributor.
The asserted claims by Brazilian federal tax authorities are for calendar years 2003 through 2008, and the asserted claims by the tax
authorities from the state of Sao Paulo are for calendar years 2005 through 2007. The total asserted claims by Brazilian state and
federal tax authorities aggregate to approximately $385 million for the alleged evasion of import and other taxes, approximately
$1.1 billion for interest, and approximately $1.7 billion for various penalties, all determined using an exchange rate as of July 27,
2013. We have completed a thorough review of the matters and believe the asserted claims against our Brazilian subsidiary are
without merit, and we are defending the claims vigorously. While we believe there is no legal basis for the alleged liability, due to the
complexities and uncertainty surrounding the judicial process in Brazil and the nature of the claims asserting joint liability with the
importer, we are unable to determine the likelihood of an unfavorable outcome against our Brazilian subsidiary and are unable to
reasonably estimate a range of loss, if any. We do not expect a final judicial determination for several years.
On March 31, 2011 and April 12, 2011, purported shareholder class action lawsuits were filed in the United States District
Court for the Northern District of California against Cisco and certain of its officers and directors. The lawsuits were
consolidated, and an amended consolidated complaint was filed on December 2, 2011. The consolidated action was
purportedly brought on behalf of purchasers of Cisco’s publicly traded securities between February 3, 2010 and May 11, 2011.
Plaintiffs alleged that defendants made false and misleading statements, purported to assert claims for violations of the federal
securities laws, and sought unspecified compensatory damages and other relief. On February 12, 2012, we filed a motion
seeking to dismiss all claims in the amended complaint. On March 29, 2013, the Court granted our motion and dismissed the
amended complaint, finding no facts or inferences to support the plaintiffs’ allegations. Plaintiffs chose not to file an amended
complaint and not to pursue an appeal. The Court dismissed the entire lawsuit with prejudice on April 29, 2013.
Beginning on April 8, 2011, a number of purported shareholder derivative lawsuits were filed in both the United States District
Court for the Northern District of California and the California Superior Court for the County of Santa Clara against our Board
of Directors and several of our officers. The federal lawsuits have been consolidated in the Northern District of California.
Plaintiffs in both the federal and state derivative actions allege that the Board allowed certain officers to make allegedly false
and misleading statements. The complaint includes claims for violation of the federal securities laws, breach of fiduciary
duties, waste of corporate assets, unjust enrichment, and violations of the California Corporations Code. The complaint seeks
compensatory damages, disgorgement, and other relief. In light of the United States District Court’s dismissal of the purported
shareholder class action noted above, the consolidated federal derivative action was dismissed on May 9, 2013, and the state
derivative lawsuits were dismissed on May 16, 2013.
We were subject to patent claims asserted by VirnetX, Inc. on August 11, 2010 in the United States District Court for the Eastern
District of Texas. VirnetX alleged that various of our products that implement a method for secure communication using virtual
private networks infringe certain patents. VirnetX sought monetary damages. The trial on these claims began on March 4, 2013.
On March 14, 2013, the jury entered a verdict finding that our accused products do not infringe any of VirnetX’s patents asserted
in the lawsuit. On April 3, 2013, VirnetX filed a motion seeking a new trial on the issue of infringement, which we have opposed.
The Court held a hearing on VirnetX’s motion for a new trial in June 2013 but has not issued a ruling.
We were subject to numerous patent, tort, and contract claims asserted by XpertUniverse on March 10, 2009 in the
United States District Court for the District of Delaware. Shortly before trial, the Court dismissed on summary judgment all
claims initially asserted by XpertUniverse except a claim for infringement of two XpertUniverse patents and a claim for fraud
by concealment. XpertUniverse’s remaining patent claims alleged that three Cisco products in the field of expertise location
software infringed two XpertUniverse patents. XpertUniverse’s fraud by concealment claim alleged that we did not disclose
our decision not to admit XpertUniverse into a partner program. The trial on these remaining claims began on March 11, 2013.
On March 22, 2013, the jury entered a verdict finding that two of our products infringed two of XpertUniverse’s patents and
awarded XpertUniverse damages of less than $35 thousand. The jury also found for XpertUniverse on its fraud by
concealment claim and awarded damages of $70 million. We believe we have strong arguments to overturn the fraud damage
award or to obtain a new trial. In May and June, 2013, we filed post-trial motions. The Court has not yet set a date for a
hearing. If the Court does not grant our post-trial motions, we will pursue an appeal. While the ultimate outcome of the case
may still result in a loss, we do not expect it to be material.
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