Rosetta Stone 2012 Annual Report Download - page 35

Table of Contents
approximately 56,000 and 6,000 square feet in Harrisonburg, Virginia for use as a packing and distribution center for all of our U.S. and some of our
international fulfillment, in addition to sales operations.
We also lease space for our one full service retail outlet in Virginia, and small offices in Boulder, Colorado, Tokyo, Japan, San Paulo, Brazil,
Seoul, South Korea, and London, United Kingdom. Our Boulder office serves as a research and development location while our Tokyo, San Paulo,
Seoul and London offices serve as regional sales offices.
As of December 31, 2012, we also had site licenses for 87 kiosks. Most of our kiosk site licenses have terms of one to 89 months and provide for
a minimum rent plus a percentage rent based upon sales after certain minimum thresholds have been achieved. These site licenses generally require that
we pay insurance, utilities, real estate taxes and repair and maintenance expenses. Some of the site licenses also contain early termination options, which
can be exercised by us or the licensor under certain conditions.
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In July 2009, we filed a lawsuit in the United States District Court for the Eastern District of Virginia against Google Inc., seeking, among other
things, to prevent Google from infringing upon our trademarks. In August 2010, the U.S. District Court for the Eastern District of Virginia issued its
final order dismissing our trademark infringement lawsuit against Google. We appealed the District Court's decision to the U.S. Court of Appeals for
the Fourth Circuit. In April 2012, the appellate court reversed the District Court's grant of summary judgment in Google's favor and remanded the case
to the District Court for further consideration. The case was settled pursuant to the terms of a confidential settlement agreement and dismissed with
prejudice in October 2012.
In April 2010, a purported class action lawsuit was filed against us 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 us in our retail locations in California are due unpaid wages and other relief for our violations of state wage and hour laws. Plaintiffs
moved to amend their complaint to include a nationwide class in January 2011. In March 2011, the case was removed to the United States District Court
for the Northern District of California. In November 2011, the parties agreed to a mediator's proposed settlement terms, and as a result, as of
September 30, 2011, we reserved $0.6 million for the proposed settlement amount. We dispute the plaintiffs' claims and have not admitted any
wrongdoing with respect to the case.
In June 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 GmbH's use of the color yellow on its packaging of its language-learning software and
the advertising thereof in Germany. In January 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. 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. Langenscheidt has not posted the necessary bond to immediately enforce that decision. We have continued to
vigorously defend this matter through an appeal to the Court of Appeals in Cologne. The Court of Appeals in Cologne affirmed the decision in
November 2012 and we have moved to have a further appeal heard before the German Federal Supreme Court. We also commenced a separate
proceeding for the cancellation of Langenscheidt's German trademark
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