Clearwire 2010 Annual Report Download - page 103

losses on a quarterly basis to reflect the impact of any developments in the matters in which we are involved. Legal
proceedings are inherently unpredictable, and the matters in which we are involved often present complex legal and
factual issues. We vigorously pursue defenses in legal proceedings and engage in discussions where possible to
resolve these matters on terms favorable to us. It is possible, however, that our business, financial condition and
results of operations in future periods could be materially and adversely affected by increased litigation expense,
significant settlement costs and/or unfavorable damage awards.
On April 22, 2009, a purported class action lawsuit was filed against Clearwire U.S. LLC in Superior Court in
King County, Washington by a group of five plaintiffs from Hawaii, Minnesota, North Carolina and Washington
(Chad Minnick, et al.). The lawsuit generally alleges that we disseminated false advertising about the quality and
reliability of our services; imposed an unlawful early termination fee, which we refer to as ETF; and invoked
unconscionable provisions of our Terms of Service to the detriment of subscribers. Among other things, the lawsuit
seeks a determination that the alleged claims may be asserted on a class-wide basis; an order declaring certain
provisions of our Terms of Service, including the ETF provision, void and unenforceable; an injunction prohibiting
us from collecting ETFs and further false advertising; restitution of any early termination fees paid by our
subscribers; equitable relief; and an award of unspecified damages and attorneys’ fees. On May 27, 2009, an
amended complaint was filed and served, adding seven additional plaintiffs, including individuals from New
Mexico, Virginia and Wisconsin. On June 2, 2009, plaintiffs served the amended complaint. We removed the action
to the United States District Court for the Western District of Washington. On July 23, 2009, we filed a motion to
dismiss the amended complaint. The Court stayed discovery pending its ruling on the motion. The Court granted our
motion to dismiss in its entirety on February 2, 2010. Plaintiffs filed a notice of appeal to the Ninth Circuit Court of
Appeals. Oral argument before the Ninth Circuit Court of Appeals took place on November 3, 2010. The Court has
not yet ruled on the appeal. This case is in the early stages of litigation, its outcome is unknown and an estimate of
any potential loss cannot be made at this time.
On September 1, 2009, we were served with a purported class action lawsuit filed in King County Superior Court,
brought by representative plaintiff Rosa Kwan. The complaint alleges we placed unlawful telephone calls using
automatic dialing and announcing devices and engaged in unlawful collection practices. It seeks declaratory, injunctive,
and/or equitable relief and actual and statutory damages under federal and state law. On October 1, 2009, we removed the
case to the United States District Court for the Western District of Washington. On October 22, 2009, the Court issued a
stipulated order granting plaintiff until October 29, 2009 to file an Amended Complaint. The parties further stipulated to
allow a Second Amended Complaint, which plaintiffs filed on December 23, 2009. We then filed a motion to dismiss that
was fully briefed on January 15, 2010. On February 22, 2010 the Court granted our motion to dismiss in part, dismissing
certain claims with prejudice and granting plaintiff leave to further amend the complaint. Plaintiff filed a Third Amended
Complaint adding additional state law claims and joining Bureau of Recovery, which we refer to as BOR, a purported
collection agency, as a co-defendant. The parties have stipulated that plaintiff may file a Fourth Amended Complaint
adding two new class representatives. Clearwire’s response to the Fourth Amended Complaint is due March 3, 2011.
Plaintiffs’ motion for class certification is due April 7, 2011. This case is in the early stages of litigation, its outcome is
unknown and an estimate of any potential loss cannot be made at this time.
We have been engaged in ongoing negotiations with Sprint to resolve issues related to wholesale pricing for
Sprint 4G smartphone usage under our commercial agreements with Sprint. On October 29, 2010, we received a
notice from Sprint initiating an arbitration process to resolve these issues. On November 22, 2010, in response to the
notice, we commenced an arbitration action against Sprint with the American Arbitration Association, which we
refer to as AAA. The primary dispute between the parties relates to the pricing to be paid to us for smartphone usage
by Sprint and Sprint’s subscribers over our 4G network. In particular, the parties are disputing the proper
interpretation and enforceability of the 4G MVNO Agreement with respect to the options for such smartphone
pricing. We filed our Statement of Claim against Sprint on December 14, 2010. On January 21, 2011, Sprint
answered the Statement of Claim and asserted counterclaims seeking related relief under the 4G MVNO
Agreement. On February 7, 2011, Clearwire filed its reply to Sprint’s counterclaims, denying all material
allegations in Sprint’s response and counterclaims and asserting various affirmative defenses. The action will
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CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)