Vonage 2010 Annual Report Download - page 84

V
O
NA
G
EH
O
LDIN
GS CO
RP
.
N
OTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(
In thousands, except per share amounts
)
uary 3, 2011, the
C
ourt granted Preliminary Approval of the
S
ettlement and set a schedule whereb
y
notice of the pro-
p
osed settlement, the final hearin
g
date and other interi
m
deadlines is to be provided to potentially eli
g
ible plaintiffs. A
final hearin
g
on the settlement has been scheduled fo
r
M
ay 10, 2011, at which time the
C
ourt will hear objection
s
to the
p
ro
p
osed settlement, re
q
uests for exclusion
/
o
p
t-out
of the settlement, application by
C
lass
C
ounsel for attor
-
neys’
f
ees, costs and expenses, and application
f
or
Incentive Awards to the named
p
lainti
ff
s
.
W
e previously recorded a reserve of $4,750 to reflect
the
p
ro
p
osed settlement. This amount was
p
aid into a
n
escrow account in January 2011. Of this amount, $2,75
0
was recorded in the
q
uarter ended Se
p
tember 30, 2010
;
with $1,500 and $750 recorded as a reduction to customer
equipment and shippin
g
and telephony services revenue,
r
espectively, and $500 recorded as sellin
g
,
g
eneral an
d
administrative ex
p
ense in the consolidated statement o
f
operations. The remainin
g
$2,000 was recorded as sellin
g
,
g
eneral and administrative expense in the consolidate
d
s
tatement o
f
o
p
erations in the
q
uarter ended March 31
,
2010
.
I
PO Underwriter Indemnification.
O
n December 4
,
2009, we received final Court approval for the settlement o
f
litigation arising from our initial public offering (“IPO”),
which included a release and dismissal o
f
all stockholde
r
claims against us and our individual directors and o
ff
icers
who were named as de
f
endants. The
f
irms who served as
underwriters to the IP
O
, pursuant to an indemnification
agreement entered into between us and those firms prior t
o
the IP
O
, previousl
y
demanded that we reimburse them for
the costs and fees incurred b
y
them in defense of the IP
O
litigation. In addition, three of the firms previousl
y
demanded that we reimburse them for the costs and fees
i
ncurre
db
yt
h
em
i
n response to var
i
ous regu
l
atory
i
nqu
i
r
i
e
s
b
y the Financial Industry Regulatory Authority
(
formerly the
NA
S
D
)
and the New York
S
tock Exchange, among othe
r
things. We have declined to reimburse these three firms an
y
fees or expenses. The settlement of the IP
O
litigation di
d
not resolve the IP
O
underwriters’ claims for indemnification
against us. At the time of our debt refinancing in Decembe
r
2010, we reached agreement with two of the underwriters
r
eleasing us from certain potential claims in connection wit
h
the IP
O.
IP M
atters
Al
cate
l
-
L
ucent.
O
n November 4
,
2008
,
we received
a
l
etter from Alcatel-Lucent initiating an opportunity for us to
obtain a non-exclusive patent license to certain of its pat
-
ents t
h
at ma
yb
ere
l
evant to our
b
us
i
ness.
W
e are current
ly
analyzing the applicability of such patents to our business,
as well as additional patents subsequentl
y
identified b
y
Alcatel-Lucent. If we determine that these patents ar
e
app
li
ca
bl
e to our
b
us
i
ness an
d
va
lid
,wema
yi
ncur expens
e
i
n licensing them. If we determine that these patents are not
app
li
ca
bl
e to our
b
us
i
ness or
i
nva
lid
,wema
yi
ncur expens
e
and damages if there is litigation
.
C
eres
C
ommunications Technolo
g
ies LL
C
.
O
n
O
ctober 6, 2010,
C
eres
C
ommunications Technolo
g
ies LL
C
(“Ceres”) filed a lawsuit a
g
ainst Vona
g
e Holdin
g
s Corp. and
its subsidiaries Vona
g
e America, Inc. and Vona
g
e Marketin
g
L
L
C
in the
U
nited
S
tates District
C
ourt for the District of
D
elaware alle
g
in
g
that Vona
g
e’s products and services ar
e
c
overed by a patent held by Ceres, United States Paten
t
No. 5,774,526, entitled “Reconfi
g
urable On-Demand Tele
-
p
hone and Data Line System.” The suit also named numer-
o
us other companies as de
f
endants, includin
g
AT&T, Inc.,
C
ablevision Systems Corporation, Comcast Corporation
,
C
ox Communications Inc., Skype Global S.a.r.l, Skype Inc.
,
T
ime Warner Cable, and Verizon Communications Inc. W
e
f
iled our Answer to the Com
p
laint on November 16, 2010.
W
e also
f
iled a Motion to Dismiss certain o
fp
lainti
ff
’
s
a
lle
g
ations on November 16, 2010. On December 3, 2010
,
C
eres filed its First Amendment Complaint omittin
g
its prior
c
laims
f
or induced, contributory, and will
f
ul in
f
rin
g
ement
.
W
e filed our Answer and Counterclaim on December 20
,
2
010. Ceres filed its Repl
y
to our Counterclaim on Jan-
uar
y
6, 2011.
N
o case sc
h
e
d
u
l
e
h
as
b
een set an
ddi
scover
y
h
as not yet
b
egun.
Hi
tac
hi.
O
n Januar
y
27, 2011, we met with Hitachi, Ltd
.
to discuss an opportunit
yf
or us to obtain a non-exclusiv
e
patent
li
cense to certa
i
n
Hi
tac
hi
patents t
h
at
Hi
tac
hi
b
e
li
eves ma
yb
ere
l
evant to our
b
us
i
ness.
W
e are current
ly
a
nalyzing the applicability of such patents to our busi-
n
ess. If we determine that these patents are applicable to
o
ur
b
us
i
ness an
d
va
lid
, we may
i
ncur expense
i
n
li
cens
i
n
g
them. If we determine that these patents are not applicabl
e
to our
b
us
i
ness or
i
nva
lid
,wema
yi
ncur expense an
d
d
amages if there is litigation
.
From time to time
,
in addition to those identifie
d
ab
ove, we are su
bj
ect to
l
ega
l
procee
di
ngs, c
l
a
i
ms,
i
nves-
tigations, and proceedings in the ordinary course of busi
-
n
ess, including claims of alleged infringement of third-part
y
patents an
d
ot
h
er
i
nte
ll
ectua
l
property r
i
g
h
ts, commerc
i
a
l,
e
mp
l
o
y
ment, an
d
ot
h
er matters.
F
rom t
i
me to t
i
me we
receive letters from third parties initiatin
g
an opportunity fo
r
u
s to obtain patent licenses that mi
g
ht be relevant to ou
r
business. In accordance with
g
enerally accepted account-
in
g
principles, we make a provision for a liability when it is
both probable that a liability has been incurred and th
e
a
mount of the loss or ran
g
e of loss can be reasonably
e
stimated. These provisions are reviewed at least quarterly
a
nd adjusted to re
f
lect the impacts o
f
ne
g
otiations, settle
-
m
ents, rulin
g
s, advice o
f
le
g
al counsel, and othe
r
in
f
ormation and events pertainin
g
to a particular case
.
Other than as set forth above, no additional reserves wer
e
recorded in the three months ended December 31, 2010.
L
iti
g
ation is inherently unpredictable. We believe that we
h
ave valid de
f
enses with respect to the le
g
al matters pend
-
in
g
a
g
ainst us and are vi
g
orously de
f
endin
g
these matters
.
Given the uncertainty surroundin
g
liti
g
ation and our inabilit
y
t
o assess
th
e
lik
e
lih
ood of a fa
v
o
r
ab
l
eo
r
u
n
fa
v
o
r
ab
l
eou
t-
c
ome in the above noted matters, it is
p
ossible that the
r
eso
l
u
ti
o
n
of o
n
eo
rm
o
r
eof
th
ese
m
a
tt
e
r
s cou
l
d
h
a
v
ea
m
aterial adverse e
ff
ect on our consolidated
f
inancial
p
osi-
tion, cash
f
lows or results o
f
o
p
erations
.
F
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