Metro PCS 2007 Annual Report Download - page 124

MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
F-25
Patent Litigation
On June 14, 2006, Leap Wireless International, Inc. and Cricket Communications, Inc., or collectively Leap,
filed suit against the Company in the United States District Court for the Eastern District of Texas, Marshall
Division, Civil Action No. 2-06CV-240-TJW and amended on June 16, 2006, for infringement of U.S. Patent
No. 6,813,497 “Method for Providing Wireless Communication Services and Network and System for Delivering of
Same,” or the ‘497 Patent, held by Leap. The complaint seeks both injunctive relief and monetary damages,
including treble damages, for the Company’ s alleged infringement by the Company’ s wireless communication
systems and associated services of the ‘497 patent. The Company answered the complaint, raised a number of
affirmative defenses, and together with two related entities, counterclaimed against Leap and several related entities
and certain current and former employees of Leap, including Leap’ s CEO.
In its counterclaims, the Company claims that it does not infringe any valid or enforceable claim of the ‘497
Patent and the Company asserts claims for breach of contractual obligations, constructive trust, misappropriation,
conversion and disclosure of trade secrets, misappropriation of confidential information, and breach of a confidential
relationship. The Company’ s counterclaims seek monetary and exemplary damages, and injunctive relief. Certain of
the Leap defendants, including its CEO, have answered the Company’ s counterclaims, denying the Company’ s
allegations and asserting affirmative defenses to its counterclaims. On October 31, 2007, pursuant to a joint motion
by the parties, the Court entered an order administratively closing the suit. On February 14, 2008, the Court entered
an Order reopening the action. The Company plans to vigorously defend against Leap’ s claims relating to the ‘497
Patent.
On September 22, 2006, Royal Street Communications filed a separate action in the United States District Court
for the Middle District of Florida, Tampa Division, Civil Action No. 8:06-CV-01754-T-23TBM, seeking a
declaratory judgment that Leap’ s ‘497 Patent is invalid and not being infringed upon by Royal Street
Communications. Leap responded to Royal Street Communications’ complaint by filing a motion to dismiss Royal
Street Communications’ complaint for lack of jurisdiction or, in the alternative, that the action be transferred to the
United States District Court for the Eastern District of Texas, Marshall Division, where Leap has brought suit
against the Company under the same patent. Royal Street Communications responded to this motion, but the Court
entered an Order transferring the action to the United States District Court for the Eastern District of Texas,
Marshall Division, where it remains pending. In February 2008, Leap answered the complaint and counterclaimed
against Royal Street Communications, claiming that Royal Street Communications’ infringes the ‘497 Patent and
seeking both injunctive relief and monetary damages, including treble damages, for Royal Street Communications’
alleged infringement by its wireless communication systems and associated services of the ‘497 patent.
If Leap were successful in its claim for injunctive relief in either action, the Company could be enjoined from
operating its business in the manner in which it currently operates, which could require the Company to expend
additional capital to change certain technologies and operating practices, or could prevent it from offering some or
all of our services using some or all of its existing systems. In addition, if Leap were successful in its claim for
monetary damages, the Company could be forced to pay Leap substantial damages, including treble damages, for
past infringement and/or ongoing royalties on a portion of its revenues, which could materially adversely impact its
financial performance.
The Company has also tendered Leap’ s claims to the manufacturer of its network infrastructure equipment,
Alcatel Lucent, for indemnity and defense. Alcatel Lucent has declined to indemnify and defend the Company. The
Company has filed a petition in state district court in Harrison County, Texas for a declaratory ruling that Alcatel
Lucent is obligated to cooperate, indemnify, defend and hold the Company harmless from the Leap patent
infringement action and for specific performance, for injunctive relief and for breach of contract. Alcatel Lucent has
responded to the Company’ s petition and requested that the Court dismiss, abate, stay and deny every claim in the
Company’ s petition asserted against Alcatel Lucent and order the Company to amend its petition. The Company has
responded to Alcatel Lucent’ s request. The parties have agreed to postpone the hearing on Alcatel Lucent’ s request
until after February 7, 2008. No hearing is currently scheduled for Alcatel Lucent’ s request. The Company plans to
vigorously prosecute its petition.