8x8 2014 Annual Report Download - page 73

On October 25, 2011, the Company was named a defendant in a lawsuit, Klausner Technologies, Inc. v. Oracle Corporation et al.
, along with 30
other defendants. The lawsuit alleges infringement of a patent that is now believed to have expired. On November 1, 2011, Klausner dismissed
the Complaint voluntarily and filed new complaints separating the defendants, including a new Complaint against 8x8. The Company believes it
has factual and legal defenses to these claims and is presenting a vigorous defense. On March 21, 2013, the District Court granted 8x8's Motion
to Change Venue, and has ordered the transfer of the case to the US District Court for the Northern District of California. An answer to the
complaint was filed on April 25, 2014. The Company cannot estimate potential liability in this case at this early stage of the litigation.
On March 31, 2014, the Company was named a defendant in a lawsuit, CallWave Communications LLC v. 8x8, Inc. CallWave
Communications also sued Fonality Inc. on March 31, 2014, and previously sued other companies including Verizon, Google, T-Mobile, and
AT&T. The Company is currently assessing factual and legal defenses to these claims and expects to present a vigorous defense. The Company
has not answered the complaint yet and cannot estimate potential liability in this case at this early stage of the litigation.
On April 23, 2014, the Company was named but not served as a defendant in a lawsuit, TQP Development, LLC v. 8x8, Inc. On April 30, 2014
(and before any service of the complaint), TQP Development filed papers to dismiss this lawsuit and other lawsuits that were filed on or about
the same time.
State and Municipal Taxes
From time to time, the Company has received inquiries from a number of state and municipal taxing agencies with respect to the remittance of
taxes. Four states currently are conducting tax audits of the Company's records. The Company collects or has accrued for taxes that it believes
are required to be remitted. The amounts that have been remitted have historically been within the accruals established by the Company.
Regulatory
VoIP communication services, like the Company's, are subject to less regulation at the federal level than traditional telecommunication services
and states are preempted from regulating such services. Many regulatory actions are underway or are being contemplated by federal and state
authorities, including the FCC, and state regulatory agencies. The FCC initiated a notice of public rule-making in early 2004 to gather public
comment on the appropriate regulatory environment for IP telephony which would include the services we offer. In November 2004, the FCC
ruled that the VoIP service of a competitor and "similar" services are jurisdictionally interstate and not subject to state certification, tariffing and
other legacy telecommunication carrier regulations.
The effect of any future laws, regulations and the orders on the Company's operations, including, but not limited to, the 8x8 service, cannot be
determined. But as a general matter, increased regulation and the imposition of additional funding obligations increases the Company's costs of
providing service that may or may not be recoverable from the Company's customers which could result in making the Company's services less
competitive with traditional telecommunications services if the Company increases its retail prices or decreases the Company's profit margins if
it attempts to absorb such costs.
5. STOCKHOLDERS' EQUITY
1996 Stock Plan
In June 1996, the Company's board of directors adopted the 1996 Stock Plan ("1996 Plan"). A total of 12,035,967 shares were reserved for
issuance under the 1996 Plan prior to its expiration in June 2006. The 1996 Plan provided for granting incentive stock options to employees and
nonstatutory stock options to employees, directors or consultants. The stock option price of incentive stock options granted could not be less than
the determined fair market value at the date of grant. Options generally vested over four years and had a ten-year term.
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