Netgear 2013 Annual Report Download - page 92

Table of Contents NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
purpose base station”)
with prejudice and gave the Company a covenant not to sue as to products in the marketplace now or in the past. On June 22,
2012, Intel filed its Complaint in Intervention, meaning that Intel became an official defendant in the Ericsson case. The parties thereafter completed fact
discovery and exchanged expert reports. During the exchange of the expert reports, Ericsson dropped the '516 patent (the OFDM “pulse shaping”
patent). In addition, Ericsson dropped the '223 Patent (packet discard patent) against all the defendants' products, except for those products that use Intel
chips. Thus, Ericsson has now dropped the '468 Patent (wireless base station), the '516 Patent (OFDM pulse shaping), and the '223 Patent (packet
discard patent) for all non-Intel products. The five remaining patents are all only asserted against 802.11-compliant products.
At a Court ordered mediation in Dallas on January 15, 2013, the parties did not come to an agreement to settle the litigation. On March 8, 2013, the
parties received the Markman (claim construction) Order in response to the claim construction briefing and claim construction hearing.
A jury trial in the Ericsson case occurred in the Eastern District of Texas from June 3 through June 13, 2013. After hearing the evidence, the jury
found no infringement of the '435 and '223 patents, and the jury found infringement of claim 1 of the '625 patent, claims 1 and 5 of the '568 patent, and
claims 1 and 2 of the '215 patent. The jury also found that there was no willful infringement by any defendant. Additionally, the jury found no invalidity
of the asserted claims of the '435 and '625 patents. The jury assessed the following damages against the defendants: D-Link: $435,000
; NETGEAR:
$3,555,000 ; Acer/Gateway: $1,170,000 ; Dell: $1,920,000 ; Toshiba: $2,445,000 ; Belkin: $600,000 . The damages awards equate to 15 cent
s per unit
for each accused 802.11 device sold by each defendant. Thus, unless the defendants' various appeals are successful, the Company will likely have a
15
cent per unit obligation on its 802.11 devices until 2016 (when one infringed patent in suit expires), 10 cent
per unit obligation from 2016 through 2018
(when a second infringed patent in suit expires), and a 5 cent
per unit obligation from 2018 through 2020 (when the third and last infringed patent in suit
expires).
The Company and other defendants submitted various post-
trial motions and briefs to the Court for its consideration, including motions and briefs
for judgment as a matter of law in favor of defendants on non-
infringement and invalidity of the patents in suit and for a reduction in damages, and the
defendants have also moved for a new trial. These motions were argued before the Court on July 16, 2013. On August 6, 2013, the Court issued its
orders on the various JMOL's (“Judgment as a Matter of Law”) and other post-trial motions. The Court denied all the defendants’
motions and set the
reasonable and nondiscriminatory (RAND) royalty rate for the infringed patents equivalent to the jury verdict of 15 cents per unit.
After negotiations, Ericsson and the Company agreed to the following as collateral while the appeal of the verdict, Court’
s rulings, and the RAND
royalty rate are pending. Ericsson will forego collecting the $3,555,000 verdict plus various fees (Prejudgment interest of $224,141 ; Post-
judgment
interest of $336 per day; Costs of $41,667
) assigned to the Company pending appeal, so long as a Company representative declares and provides
Ericsson with adequate quarterly assurances that the judgment can still be paid. For the ongoing royalties of 15 cents per 802.11n or 802.11ac device
sold by the company that the jury and Court awarded, the Company will place the ongoing royalty amount into the Court’
s registry (escrow account) and
will give Ericsson a corresponding royalty report until the Company’s appeals of the jury verdict, the Court’
s orders, and the RAND royalty rate are
exhausted.
On December 16, 2013, the defendants submitted their appeal brief to the Federal Circuit. Ericsson’
s reply brief is due on February 20, 2014. The
defendants estimate that the appeals process will take about 18 months from the jury’
s verdict to run its course. The Company accrued and expensed the
$3,555,000 in damages during the second quarter of 2013 to satisfy the verdict.
NETGEAR, Inc. v. Innovatio IP Ventures LLC.
On November 16, 2011, the Company filed a declaratory judgment action in the District of Delaware for non-infringement and invalidity of
17
WiFi-related patents brought in the approximately 15 actions throughout the United States by Innovatio IP Ventures LLC (“Innovatio”)
against end user
customers of the Company and other companies. Shortly after filing the declaratory judgment action, the Company filed a response supporting Cisco
Systems, Inc.'s ("Cisco") and Motorola Solutions, Inc.'s ("Motorola") Motion to Transfer for Coordinated Pretrial Proceedings Pursuant to 28 U.S.C. §
1407 that was before the United States Judicial Panel on Multidistrict Litigation (“JPML”).
On December 28, 2011, the JPML issued an order
transferring the Innovatio actions throughout the United States, including the Company's declaratory judgment action, to the United States District Court
for the Northern District of Illinois. Thus, the Company's declaratory judgment action and approximately 15
other similar cases will now proceed in the
Northern District of Illinois in a consolidated fashion. On July 10, 2012, Innovatio answered the Declaratory Judgment Complaint filed by the Company
with various counterclaims, cross claims, and affirmative defenses. In its answer, Innovatio accused the Company of infringing six WiFi-
related patents
in addition to the 17 WiFi-related patents on which the Company brought its declaratory judgment action of non-
infringement and invalidity. The
Company filed its answer to
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