Rosetta Stone 2013 Annual Report Download - page 97

Table of Contents
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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 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 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. The Company
disputed the plaintiffs’ claims and it has not admitted any wrongdoing with respect to the case. In September 2013, the court entered a final order directing
payment of the $0.6 million settlement amount and in October 2013 the Company paid this amount in final settlement of the lawsuit.
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. The Court of
Appeals in Cologne affirmed the District Court's decision. Langenscheidt has not posted the necessary bond to immediately enforce that decision. The
Company commenced a separate proceeding for the cancellation of Langenscheidt’s German trademark registration of yellow as an abstract color mark. In
June 2012, the German Patent and Trademark Office rendered a decision in the cancellation proceeding denying Rosetta Stone’s request to cancel
Langenscheidt’s German trademark registration. The Company has filed appeals of the decisions in both cases to the German Federal Supreme Court on the
grounds of law. The Company cannot predict the timing and ultimate outcome of this matter, however, the Company believes the range of possible loss is
immaterial to the consolidated financial statements. 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 and appeals.
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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