Qualcomm 1999 Annual Report Download - page 61

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QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On October 27, 1998, the Electronics and Telecommunications
Research Institute of Korea (“ETRI”) submitted to the International
Chamber of Commerce a Request for Arbitration (the “Request”) of
a dispute with the Company arising out of a Joint Development
Agreement dated April 30, 1992 (“JDA”) between ETRI and the Company.
In the Request, ETRI alleges that the Company has breached certain pro-
visions of the JDA and seeks monetary damages and an accounting. The
Company filed an answer and counterclaims denying the allegations,
seeking a declaration establishing the termination of the JDA and mon-
etary damages and injunctive relief against ETRI. In accordance with
the JDA, the arbitration will take place in San Diego. No schedule for
the arbitration proceedings has been established. 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, liquidi-
ty or financial position, the Company believes that the claims are
without merit and will vigorously defend the action.
On February 26, 1999, the Lemelson Medical, Education & Research
Foundation, Limited Partnership, (“Lemelson”) filed an industry-wide
action in the United States District Court for the District of Arizona. The
complaint names a total of 88 parties, including the Company, as defen-
dants and purports to assert claims for infringement of 15 patents. The
complaint alleges that application specific integrated circuit (“ASIC”)
devices sold by the Company, or the processes by which such devices
are manufactured, infringe the asserted patents. On October 1, 1999, the
Company and Lemelson entered into a settlement agreement resolving
all claims made against the Company in the complaint which will not
have a material effect on the financial results of the Company.
On May 6, 1999, Thomas Sprague, a former employee of the Company,
filed a putative class action against the Company, ostensibly on behalf
of himself and those of the Company’s former employees who were
offered employment with Ericsson in conjunction with the sale to
Ericsson of certain of the Company’s infrastructure division assets and
liabilities and who elected not to participate in a Retention Bonus Plan
being offered to such former employees. The complaint was filed in
California Superior Court in and for the County of San Diego and pur-
ports to state eight causes of action arising primarily out of alleged
breaches of the terms of the Company’s 1991 Stock Option Plan, as
amended from time to time. The putative class sought to include former
employees of the Company who, among other things, “have not or
will not execute the Bonus Retention Plan and accompanying full and
complete release of QUALCOMM.” The complaint seeks an order accel-
erating all unvested stock options for the members of the class. Of the
1,053 transitioning former employees who had unvested stock options,
1,016 elected to participate in the Retention Bonus Plan offered by QUAL-
COMM and Ericsson, which provides several benefits including cash
compensation based upon a portion of the value of their unvested
options, and includes a written release of claims against the Company.
On July 30, 1999, plaintiffs filed a First Amended Complaint incorpo-
rating the allegations set forth in the original complaint, adding two
new causes of action and expanding the putative class to also include
those former employees who chose to participate in the Bonus
Retention Plan. In October 1999, the court sustained the Company’s
demurrer to the plaintiffs’ cause of action for breach of fiduciary duty.
Counsel for the putative class have indicated that they will be filing a
Second Amended Complaint, including additional class representa-
tives, and substantially the same allegations as the First Amended
Complaint. Although there can be no assurance that an unfavorable out-
come 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 vigorously
defend the action.
On June 29, 1999, GTE Wireless, Incorporated (“GTE”) filed an action
in the United States District Court for the Eastern District of Virginia
asserting that wireless telephones sold by the Company infringe a sin-
gle patent allegedly owned by GTE. On September 15, 1999, the court
granted the company’s motion to transfer the action to the United States
District Court for the Southern District of California. 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 action is with-
out merit and will vigorously defend the action.
QUALCOMM has received notice from Ericsson that Ericsson intends
to dispute the determination of the purchase price under the Agreement,
pursuant to which Ericsson acquired certain assets related to the
Company’s terrestrial wireless infrastructure business in May 1999.
QUALCOMM has also received notice from Ericsson that Ericsson
intends to assert claims for indemnification under the Agreement.
QUALCOMM and Ericsson are having on-going discussions aimed at
potentially resolving these claims. In the event the parties are unable
to resolve these claims, they are subject to dispute resolution proce-
dures set forth in the Agreement. 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 the claims are without merit and will
vigorously defend them.
The Company is engaged in other legal actions arising in the ordi-
nary course of its business and believes that the ultimate outcome of
these actions will not have a material adverse effect on its results of
operations, liquidity or financial position.