Toro 2009 Annual Report Download - page 66

company’s patents by others, the company periodically reviews issued an order denying the transfer request. Additional lawsuits,
competitors’ products. To avoid potential liability with respect to some of which included additional plaintiffs, were filed in various
others’ patents, the company regularly reviews certain patents federal and state courts asserting essentially the same state law
issued by the United States Patent and Trademark Office (USPTO) claims. To date, lawsuits have been filed in federal and state
and foreign patent offices. Management believes these activities courts throughout the United States, which collectively assert
help minimize its risk of being a defendant in patent infringement claims under the laws of each state.
litigation. The company is currently involved in patent litigation In September 2008, the company and other defendants filed a
cases, both where it is asserting patents and where it is defending motion with the MDL Panel that sought to transfer the multiple
against charges of infringement. actions for coordinated pretrial proceedings. In early December
2008, the MDL Panel issued an order that; (i) transferred 23 law-
Lawnmower Engine Horsepower Marketing and Sales suits, which collectively asserted claims under the laws of 16
Practices Litigation. In June 2004, individuals who claim to have states, for coordinated or consolidated pretrial proceedings;
purchased lawnmowers in Illinois and Minnesota filed a class (ii) selected the United States District Court for the Eastern District
action lawsuit in Illinois state court against the company and other of Wisconsin as the transferee district, and (iii) provided that addi-
defendants alleging that the horsepower labels on the products the tional lawsuits will be treated as ‘‘tag-along’’ actions in accordance
plaintiffs purchased were inaccurate. Those individuals later with its rules.
amended their complaint to add additional plaintiffs and an addi- An initial hearing was held in the United States District Court for
tional defendant. The plaintiffs asserted violations of the federal the Eastern District of Wisconsin in January 2009. At that hearing,
Racketeer Influenced and Corrupt Organizations Act (RICO) and the Court (i) appointed lead plaintiffs’ counsel; and (ii) entered a
state statutory and common law claims. The plaintiffs sought certi- stay of all litigation so that the parties could explore mediation.
fication of a class of all persons in the United States who, begin- Formal mediation proceedings were commenced and settlement
ning January 1, 1994 through the present, purchased a lawnmower discussions are continuing. At this time, management is unable to
containing a two-stroke or four-stroke gas combustible engine up provide assurance that such discussions will ultimately result in an
to 30 horsepower that was manufactured or sold by the defend- executed or court-approved settlement agreement.
ants. The amended complaint also sought an injunction, unspeci- Management continues to evaluate these lawsuits and, in
fied compensatory and punitive damages, treble damages under absence of such a settlement, is unable to assess at this time
RICO, and attorneys’ fees. whether these lawsuits will have a material adverse effect on the
In May 2006, the case was removed to federal court in the company’s annual consolidated operating results or financial condi-
Southern District of Illinois. In August 2006, the company, together tion, although an unfavorable resolution or outcome could be mate-
with the other defendants other than MTD Products Inc. (MTD), rial to the company’s consolidated operating results for a particular
filed a motion to dismiss the amended complaint. Also in August period.
2006, the plaintiffs filed a motion for preliminary approval of a set-
tlement agreement with MTD and certification of a settlement Textron Innovations Inc. v. The Toro Company. In July 2005,
class. In December 2006, another defendant, American Honda Textron Innovations Inc., the patent holding company of Tex-
Motor Company (‘‘Honda’’), notified the company and the other tron, Inc., filed a lawsuit in Delaware Federal District Court against
defendants that it had reached a settlement agreement with the the company for patent infringement. Textron alleges that the com-
plaintiffs. pany willfully infringed certain claims of three Textron patents by
In May 2008, the court issued a memorandum and order that selling its Groundsmaster姞 commercial mowers. Textron seeks
(i) dismissed the RICO claim in its entirety; (ii) dismissed all damages for the company’s past sales and an injunction against
non-Illinois state-law claims but with instructions that such claims future infringement. In August and November 2005, management
could be re-filed in local courts; and (iii) rejected the proposed answered the complaint, asserting defenses and counterclaims of
settlement with MTD. The proposed Honda settlement was not non-infringement, invalidity, and equitable estoppel. Following the
under consideration by the court and was not addressed in the Court’s order in October 2006 construing the claims of Textron’s
memorandum and order. Also in May 2008, the plaintiffs (i) re-filed patents, discovery in the case was closed in February 2007. In
the Illinois claims with the court; and (ii) filed non-Illinois claims in March 2007, following unsuccessful attempts to mediate the case,
federal courts in the District of New Jersey and the Northern Dis- management filed with the USPTO to have Textron’s patents reex-
trict of California with essentially the same state law claims. amined. The reexamination proceedings are pending in the
In June 2008, the plaintiffs filed a motion with the United States USPTO, and all of the claims asserted against the company in all
Judicial Panel on Multidistrict Litigation (the ‘‘MDL Panel’’) that three patents stand rejected. In April 2007, the Court granted the
(i) stated their intent to file lawsuits in all 50 states and the District company’s motion to stay the litigation and, in June 2007, denied
of Columbia; and (ii) sought to have all of the cases transferred for Textron’s motion for reconsideration of the Court’s order staying
coordinated pretrial proceedings. In August 2008, the MDL Panel the proceedings.
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