Rosetta Stone 2011 Annual Report Download - page 114

Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. COMMITMENTS AND CONTINGENCIES (Continued)
On or about April 28, 2010, a purported class action lawsuit was filed against the Company in the Superior Court of the State of California, County of
Alameda for damages, injunctive relief and restitution in the matter of Michael Pierce, Patrick Gould, individually and on behalf of all others similarly
situated v. Rosetta Stone Ltd. and DOES 1 to 50. The complaint alleges that plaintiffs and other persons similarly situated who are or were employed as
salaried managers by the Company in its retail locations in California are due unpaid wages and other relief for the Company's violations of state wage and
hour laws. Plaintiffs moved to amend their complaint to include a nationwide class on January 21, 2011. In November 2011, the plaintiffs' attorneys and the
Company agreed to the mediator's proposed settlement terms, and as a result, as of September 30, 2011, the Company reserved $0.6 million for the proposed
settlement amount. Approval of the proposed settlement by the court is pending. The Company disputes the plaintiffs' claims and it has not admitted any
wrongdoing with respect to the case.
On June 23, 2011, Rosetta Stone GmbH was served with a writ filed by Langenscheidt KG ("Langenscheidt") in the District Court of Cologne, Germany
alleging trademark infringement due to Rosetta Stone's use of the color yellow on its packaging of its language-learning software and the advertising thereof
in Germany. Langenscheidt is seeking, among other things, to enjoin Rosetta Stone GmbH from using the color yellow in Germany, a declaratory judgment
that Rosetta Stone GmbH is liable for damages based on our activities in Germany, and the award of costs and attorneys' fees associated with the legal
proceeding. A hearing was held on October 27, 2011 and the presiding judge indicated his opinion that Rosetta Stone GmbH has infringed on Langenscheidt's
German trademark. On January 19, 2012, the District Court of Cologne ordered an injunction of Rosetta Stone GmbH's use of the color yellow in packaging,
on its website and in television commercials and declared Rosetta Stone liable for damages, attorneys' fees and costs to Langenscheidt. However, no dollar
amounts have been specified yet for the award of damages by the District Court of Cologne. In its decision, the District Court of Cologne also ordered the
destruction of Rosetta Stone GmbH's product and packaging which utilized the color yellow and which was deemed to have infringed Langenscheidt's
trademark. The decision is immediately enforceable upon Langenscheidt posting of a bond. To date, Langenscheidt has not posted a bond. It is required in this
jurisdiction for a plaintiff to post a bond in order for a decision to be immediately enforced because if the decision were reversed upon appeal, the defendant
would be awarded the bond amount for costs and damages incurred. Langenscheidt has not yet pled the amount of its damages and the court has not yet made
any determination as to the amount of damages. The Company intends to vigorously defend this matter and has filed a notice of appeal with the Court of
Appeals in Cologne. In addition, the Company commenced a separate proceeding directed at the cancellation of Langenscheidt's German trademark
registration of yellow as an abstract color mark. However, the range of any potential loss is not reasonably estimable at this time. Even if the plaintiff is
unsuccessful in its claims against the Company, the Company will incur legal fees and other costs in the defense of these claims.
From time to time, the Company has been subject to various claims and legal actions in the ordinary course of its business. The Company is not currently
involved in any legal proceeding the ultimate outcome of which, in its judgment based on information currently available, would have a material impact on its
business, financial condition or results of operations.
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