NetSpend 2011 Annual Report Download - page 107

Table of Contents
NetSpend Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
NOTE 17: COMMITMENTS AND CONTINGENCIES (Continued)
$6.9 million, respectively. As of December 31, 2011 and December 31, 2010, the Company's reserves for the losses it estimates will arise from
processing customer transactions, debit card overdrafts, chargebacks for unauthorized card use and merchant-related chargebacks due to non-
delivery of goods or services were $3.9 million and $4.8 million, respectively.
Alexsam Litigation
On October 24, 2007, Alexsam, Inc. filed suit against the Company's subsidiary NetSpend Corporation ("NetSpend") in the District Court
of Travis County, Texas, 419th Judicial District, asserting breach of a license agreement entered into between NetSpend and Alexsam in 2004
and seeking monetary damages, attorneys' fees, costs and interest. The license agreement was entered into by the parties following Alexsam's
assertion and subsequent dismissal without prejudice of a claim of patent infringement filed by Alexsam against NetSpend in 2003. The
Company has asserted counterclaims against Alexsam for breach of contract. In April 2010, the Company filed a motion for summary
judgment, and following a hearing, the court denied the motion without substantive comment. In October 2010, Alexsam filed an amended
petition, which added a claim by Alexsam that NetSpend fraudulently induced Alexsam to give up its prior patent infringement claims against
NetSpend and enter into the license agreement. In November 2010, the Company removed the case to the United States District Court for the
Western District of Texas. In January 2011, the federal court remanded the case back to the Travis County District Court for the 419th Judicial
District for further proceedings. In February 2011, the Company filed a motion for partial summary judgment on Alexsam's fraudulent
inducement claim. Following a hearing, the court denied the motion. Trial is scheduled to begin in April 2012. The Company plans to
vigorously contest Alexsam's claims and to vigorously pursue its own claims.
Integrated Technological Systems, Inc.
Integrated Technological Systems, Inc. ("ITS") filed a patent infringement case against NetSpend in the U.S. District Court for the District
of Nevada on October 7, 2011 and served its complaint on NetSpend on October 13, 2011. ITS asserts in its complaint that NetSpend has been
infringing a patent issued to ITS in March of 2011 as a result of providing services that utilize the system described in the patent to transfer
funds from NetSpend Reload Packs to NetSpend GPR cards and to transfer funds between NetSpend GPR cards. ITS is seeking a declaration
that NetSpend has infringed its patent, an injunction prohibiting NetSpend from continuing the alleged infringement; damages for NetSpend's
prior alleged infringing activity; and attorneys' fees and costs. Netspend filed an answer denying all of the substantive allegations of this
complaint on November 28, 2011. The Company plans to vigorously contest ITS's claims and to vigorously pursue its own claims.
Baker
Frederick J. Baker ("Baker") filed a consumer class action case against NetSpend, as well as one of its Issuing Banks and card associations
(collectively, the "Defendants"), in the U.S District Court for the District of New Jersey in November 2008 seeking damages and unspecified
equitable relief. In May 2009 Baker filed an amended complaint alleging that the Defendants violated the New Jersey Consumer Fraud Act
(CFA), the New Jersey Truth-in-Consumer Contract, Warranty, and Notice Act
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