8x8 2015 Annual Report Download - page 73

On September 15, 2014, Bear Creek Technologies, Inc. filed a Notice of Appeal of this decision with the Patent Trial and Appeal Board. The
case is currently on appeal. The Company believes that it has meritorious defenses to these claims and is presenting a vigorous defense, but we
cannot estimate potential liability in this case at this early stage of litigation.
On March 31, 2014, the Company was named as a defendant in a lawsuit, CallWave Communications LLC (CallWave) v. 8x8, Inc. CallWave
also sued Fonality Inc. on March 31, 2014, and previously had sued other companies including Verizon, Google, T-Mobile, and AT&T. The
Company answered the complaint and filed counterclaims in response thereto. Thereafter, CallWave made numerous demands that 8x8 pay
CallWave cash consideration for settling the suit. On April 21, 2015, the Company filed papers to present numerous counterclaims including
patent misuse. On or about May 26, 2015, the parties concluded negotiations regarding CallWave's cash-payment demands and agreed to settle
all claims in the suit (and potential future claims) under confidential terms which await finalization by filing dismissal papers with the Court. As
part of the settlement, the Company agreed to pay CallWave in a manner which the Company recognized as general and administrative expense
in the statements of income as of March 31, 2015, as the Company determined the settlement consideration to be commensurate with a loss
contingency, and the amount was probable and estimable. At March 31, 2015, the Company accrued a loss contingency related to this litigation
and to other patent-related issues in current other accrued liabilities in the consolidated balance sheets.
On December 31, 2014, the Company was named as a defendant in a lawsuit, Adaptive Data, LLC v. 8x8, Inc. Adaptive Data, LLC also sued
another 36 other defendants on December 31, 2014 and another 16 defendants on January 5, 2015 regarding the same patents asserted in our
case. Service of process has not yet been effected on the Company.
On April 15, 2015, the Company was named as a defendant in a lawsuit, UrgenSync, LLC v. 8x8, Inc. UrgenSync, LLC also sued another 14
other defendants on the same day regarding the same patent asserted in the complaint filed against 8x8.
On April 16, 2015, the Company was named as a defendant in a lawsuit, Slocumb Law Firm v. 8x8, Inc. The Slocumb Law Firm alleges that it
purchased certain business services from the Company that did not perform as advertised or expected, asserts causes of actions for fraud, breach
of contract, violations of the Alabama Deceptive Trade Practices Act and negligence. On May 7, 2015, the Company filed a motion with the
Alabama Federal Court seeking an order compelling the Slocumb Law Firm to arbitrate its claims against the Company in Santa Clara County,
California pursuant to a clause mandating arbitration of disputes set forth in the terms and conditions to which Slocumb Law Firm agreed in
connection with its purchase of business services from the Company. No briefing schedule or hearing date for the motion has been set as of this
time. Discovery has not yet commenced in the case. The Company intends to vigorously defend against Slocumb Law Firm's claims.
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. Several jurisdictions 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.
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