Qualcomm 1999 Annual Report Download - page 60

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QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company leases certain facilities to Ericsson under noncance-
lable operating leases, with provisions for cost-of-living increases.
The leases expire on May 31, 2004 and provide for renewal options
thereafter. Future minimum rentals in each of the next five years from
fiscal 2000 to 2004 are $10 million, $10 million, $10 million, $11 million
and $7 million.
COMMITMENTS AND CONTINGENCIES
Litigation
On March 5, 1997, the Company filed a complaint against Motorola,
Inc. (“Motorola”). The complaint was filed in response to allegations
by Motorola that the Company’s then, recently announced, Q phone
infringes design and utility patents held by Motorola as well as trade
dress and common law rights relating to the appearance of certain
Motorola wireless telephone products. The complaint denies such
allegations and seeks a judicial declaration that the Company’s prod-
ucts do not infringe any patents held by Motorola. On March 10, 1997,
Motorola filed a complaint against the Company (the “Motorola
Complaint”), alleging claims based primarily on the above-alleged
infringement. The Company’s motion to transfer the Motorola Complaint
to the U.S. District Court for the Southern District of California was
granted on April 3, 1997. On April 24, 1997, the court denied Motorola’s
motion for a preliminary injunction thereby permitting the Company to
continue to manufacture, market and sell the Q phone. On April 25, 1997,
Motorola appealed the denial of its motion for a preliminary injunction.
On January 16, 1998 the U.S. Court of Appeals for the Federal Circuit
denied Motorola’s appeal and affirmed the decision of the U.S. District
Court for the Southern District of California refusing Motorola’s request
to enjoin QUALCOMM from manufacturing and selling the Q phone. On
June 4, 1997, Motorola filed another lawsuit alleging infringement by
QUALCOMM of four patents. Three of the patents had already been
alleged in previous litigation between the parties. On August 18, 1997,
Motorola filed another complaint against the Company alleging
infringement by the Company of seven additional patents. All of the
Motorola cases have been consolidated for pretrial proceedings. On
August 6, 1999, the court granted the Company’s motion for summary
judgment that the Q phone does not infringe two of Motorola’s design
patents. On October 5, 1999, the United States District Court in San
Diego granted the Company’s motions for summary judgment that the
Q phone does not infringe the last two Motorola design patents remain-
ing in the case. As a consequence of these rulings and Motorola’s
decision to drop one utility patent from the case, there are no design
patents and a total of ten utility patents remaining in the case. The
cases have been set for a final pretrial conference in April 2000.
Although there can be no assurance that an unfavorable outcome of the
dispute would not have a material adverse effect on the Company’s
results of operations, liquidity or financial position, the Company
believes the claims are without merit and will continue to vigorously
defend the action.
On July 20, 1999, the Company filed a lawsuit against Motorola
seeking a judicial determination that the Company has the right to ter-
minate all licenses granted to Motorola under a 1990 Patent License
Agreement, while retaining all licenses granted by Motorola to the
Company under the same agreement. The Company’s complaint was
filed in the United States District Court for the Southern District of
California where the earlier actions between the Company and
Motorola described above have been pending for more than two years.
The complaint alleges that Motorola has committed breaches of the
Patent License Agreement that include pursuing a lawsuit against the
Company for infringement of patents that are in fact licensed to the
Company under the agreement and a failure to grant certain sublicens-
es to the Company in accordance with the terms of the agreement. The
Company’s new filing also seeks a ruling that upon termination of the
Patent License Agreement, the patents formerly licensed to Motorola
would be infringed by CDMA handsets, integrated circuits and network
infrastructure equipment made and sold by Motorola. On August 5, 1999,
the Company amended its complaint to allege that Motorola’s CDMA
wireless phones infringe three patents of the Company. The Company’s
new claims seek damages and an injunction against Motorola’s sale of
infringing phones. Motorola has filed counterclaims alleging breach of
the Patent License Agreement and a DS-CDMA Technology License
Agreement also signed in 1990.
On or about June 5, 1997, Elisra Electronic Systems Ltd. (“Elisra”)
submitted to the International Chamber of Commerce a Request for
Arbitration of a dispute with the Company based upon a Development
and Supply Agreement (“DSA”) entered into between the parties effective
November 15, 1995, alleging that the Company wrongfully terminated
the DSA, seeking monetary damages. The Company thereafter submitted
a Reply and Counterclaim, alleging that Elisra breached the DSA, seek-
ing monetary damages. Subsequently, the parties stipulated that the
dispute be heard before an arbitrator under the jurisdiction of the
American Arbitration Association, and to bifurcate the resolution of lia-
bility issues from damage issues. To date, the arbitrator has heard
testimony regarding the liability or non-liability of the parties, and a
briefing schedule has been set. Although there can be no assurance
that the resolution of these claims will not have a material adverse
effect on the Company’s results of operations, liquidity or financial
position, the Company believes that the claims made by Elisra are with-
out merit and will vigorously defend against the claims.
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