Shutterfly 2010 Annual Report Download - page 29

ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
We maintain our corporate headquarters in Redwood City, California in two leased facilities totaling approximately 98,000 square feet. The
two buildings are under separate leases that both expire in 2010. In December 2009, we signed a non-
binding letter of intent to renew our lease
for the two buildings.
We maintain our east-
coast production and fulfillment operations in Charlotte, North Carolina in leased facilities totaling approximately
102,400 square feet. The lease for this facility commenced on May 31, 2007, and continues through 2014. We have an option to extend the lease
for three additional periods of either three or five years in length, and first rights of refusal to lease space in certain adjacent buildings.
In April 2009, we began operations in a new manufacturing and production facility in Phoenix, Arizona, totaling approximately 101,200
square feet. The lease for this facility commenced in March 2009, and will continue through 2016. We have an option to extend the lease for
three additional periods of five years each, and a right of first offer to lease space in adjacent buildings.
We believe that our existing facilities are adequate to meet our current needs.
ITEM 3. LEGAL PROCEEDINGS.
On June 25, 2009, Soverain Software LLC filed a complaint for alleged patent infringement against us and seventeen other defendants in
Soverain Software LLC. v J.C.Penny Corp. et.al., Civ. No. 6:09-CV-
274, in the Eastern District of Texas, Tyler Division. The Complaint asserts
infringement of U.S. Patent nos. 5,715,314 and 5,909,492, which claim network sales systems including, among other things, a buyer computer
and a shopping cart computer, and U.S. Patent no. 7,272,639, which claims, among other things, a method of processing service requests from a
client to a server system through a network using session identifiers. The Complaint asserts that we directly or indirectly infringe the patents
without providing any details concerning the alleged infringement, and it seeks unspecified damages and injunctive relief. On December 30,
2009, pursuant to a patent license agreement between the parties dated December 21, 2009, and a Stipulation filed by the parties, the Court
dismissed with prejudice Soverain's claims against us and our counterclaims against Soverain.
On or about June 18, 2007, Fotomedia Technologies, LLC (“Fotomedia”)
filed suit in the United States District Court for the Eastern District
of Texas, against us and several other defendants alleging infringement of U.S. Patent Nos. 6,018,774; 6,542,936 B1; and 6,871,231
B2. Fotomedia sought unspecified damages, costs, interest and attorneys’
fees, and a permanent injunction. The court issued a claim
construction order on July 21, 2009. The case against us was resolved by settlement and pursuant to a patent license agreement between the
parties dated August 6, 2009, the Court dismissed with prejudice Fotomedia's claims against us on August 20, 2009.
On or about February 5, 2008, Parallel Networks, LLC filed a lawsuit in the United States District Court for the Eastern District of Texas,
against us and several other defendants alleging patent infringement. The Parallel Networks complaint seeks unspecified damages, costs, interest
and attorneys’
fees, and an injunction against all parties. We filed an answer to the complaint on April 29, 2008. On July 14, 2008, we and
other defendants filed a motion to stay the lawsuit pending the reexamination of the patents-in-
suit by the United States Patent and Trademark
Office. On December 23, 2008 that motion was denied. On January 12, 2009, the court entered a revised Agreed Docket Control order setting a
schedule for deadlines in the case. The case against us was resolved by settlement and pursuant to a patent license agreement between the parties
dated May 5, 2009, the Court dismissed with prejudice Parallel Networks’ claims against us on May 18, 2009.
In addition to the above cases, from time to time, we may be involved in various legal proceedings arising in the ordinary course of business.
In all cases, at each reporting period, we evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably
estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. In such cases, we accrue for the
amount, or if a range, we accrue the low end of the range as a component of legal expense.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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