THQ 2005 Annual Report Download - page 102

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79
(5) Other. On April 26, 2005 we paid $2.0 million in cash, and will pay an additional $2.0 million in the
followingfiscal year related to the purchase of Relic. See “Note 3—Business Combinations”.
Other potential future expenditures relate to the following:
Manufacturer Indemnification. We must indemnify the manufacturers of our games with respect to all
loss, liability and expenses resulting from any claim against the manufacturer involving the development,
marketing, sale or use of our games, including any claims for copyright or trademark infringement brought
against the manufacturer. As a result, we bear a risk that the properties upon which the titles of our games
are based, or that the information and technology licensed from others and incorporated into the products,
may infringe the rights of third parties. Conversely, our agreements with our independent software
developers and property licensors typically provide indemnification rights for us with respect to certain
matters. However, if a manufacturer brings a claim against us for indemnification, the developers or
licensors may not have sufficient resources to, in turn, indemnify us. Furthermore, parties’ indemnification
of us may not cover the matter that gives rise to the manufacturer’s claim.
Director Indemnity Agreements. We have entered into indemnification agreements with the members of
our Board of Directors to provide a contractual right of indemnification to our Directors to the extent
permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages
incurred by the Directors as a result of any lawsuit, or any judicial, administrative or investigative
proceeding in which the Directors are sued as a result of their service as members of our Board of
Directors. The indemnification agreements provide specific procedures and time frames with respect to
requests for indemnification and clarify the benefits and remedies available to Directors in the event of an
indemnification request.
WWE Lawsuit. On October 19, 2004, WWE filed a lawsuit in the United States District Court for the
Southern District of New York against JAKKS, THQ, the THQ/JAKKS joint venture, and others, alleging,
among other claims, improper conduct by JAKKS, certain executives of JAKKS, an employee of the WWE
and an agent of the WWE in granting the WWE video game license to the THQ/JAKKS joint venture. The
complaint seeks various forms of relief, including monetary damages and a judicial determination that,
among other things, the THQ/JAKKS video game license is void. On March 30, 2005, WWE filed an
amended complaint, adding both new claims and our president and chief executive officer, Brian Farrell,
as a defendant. We believethat neither we, nor Brian Farrell, are directly accused of any wrongdoing in
the complaint or the amended complaint, and believe that either there is no basis for terminating the
license with us, or that we will be made whole by those whose conduct is eventually found to be unlawful.
We intend to vigorously protect our rights and, if necessary, pursue appropriate claims against third
parties.
Patent Infringement litigation. On August 30, 2004, we were served with a lawsuit entitled American Video
Graphics, L.P. v. Electronic Arts, Inc., et al. , filed in the United States District Court for the Eastern District
of Texas. The Plaintiff claims that Defendants,including us, have infringed upon a patent owned by the
Plaintiff entitled “Method and Apparatus for Spherical Panning.” Defendants in the lawsuit include us,
Electronic Arts Inc., Take-Two Interactive Software, Inc., Ubi Soft, Activision, Inc., Atari, Inc., Vivendi
Universal Games, Inc., Sega of America, Inc., Square Enix, Inc., Temco, Inc., LucasArts Entertainment
Co., and Namco Hometek, Inc. We have entered into a joint defense agreement with several of the other
Defendants and intend to vigorously defend the claims against us. Since the litigation is still in anearly
stage, we cannot predict the likely outcome of this dispute.