Avid 1996 Annual Report Download - page 36

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expenses are provisions for estimated losses under such recourse agreements. To date, the Company has experienced no
significant write-offs or returns under such recourse agreements.
Research and Development Contracts. During 1995, the Company entered into research and development contracts with
third parties under which it received $4.3 million to be used in the development of certain specified products.
Approximately $2,900,000 was recorded as a reduction of the related development costs during 1995. At December 31,
1995, $1,400,000 was included in accrued expenses due to the status of related product development and other terms of the
underlying contracts. The Company granted to such third parties, among other things, discounted pricing on the products
developed. At December 31, 1996 $179,000 remained in accrued expenses.
Contingencies. On June 7, 1995, the Company filed a patent infringement complaint in the United States District Court
for the District of Massachusetts against Data Translation, Inc., a Marlboro, Massachusetts-based company. Avid is
seeking judgment against Data Translation that, among other things, Data Translation has willfully infringed Avid's patent
number 5,045,940, entitled "Video/Audio Transmission System and Method." Avid is also seeking an award of treble
damages together with prejudgment interest and costs, Avid's costs and reasonable attorneys' fees, and an injunction to
prohibit further infringement by Data Translation. The litigation has been temporarily stayed pending a decision by the
U.S. Patent and Trademark Office on a reissue patent application based on the issued patent.
In December 1995, six purported shareholder class action complaints were filed in the United States District Court for the
District of Massachusetts naming the Company and certain of its underwriters and officers and directors as defendants. On
July 31, 1996, the six actions were consolidated into two lawsuits: one brought under the 1934 Securities Exchange Act
(the “‘34 Act suit”) and one under the 1933 Securities Act (the “‘33 Act suit”). Principal allegations contained in the two
complaints include claims that the defendants violated federal securities laws and state common law by allegedly making
false and misleading statements and by allegedly failing to disclose material information that was required to be disclosed,
purportedly causing the value of the Company's stock to be artificially inflated. The ‘34 Act suit was brought on behalf of
all persons who bought the Company's stock between July 26, 1995 and December 20, 1995. The ‘33 Act suit was
brought on behalf of persons who bought the Company's stock pursuant to its September 21, 1995 public offering. Both
complaints seek unspecified damages for the decline of the value of the Company's stock during the applicable period. A
motion to dismiss both the ‘34 Act and the ‘33 Act suit was filed on October 18, 1996. Plaintiffs filed oppositions to both
motions on December 13, 1996. The defendants’ Reply Briefs were filed and the Court heard oral argument on all pending
motions on January 28 and 29, 1997. Both motions have been taken under advisement by the court. Although the
Company believes that it and the other defendants have meritorious defenses to the allegations made by the plaintiffs and
intends to contest these lawsuits vigorously, an adverse resolution of this litigation could have a material adverse effect on
the Company’s consolidated financial position or results of operations in the period in which the litigation is resolved. A
reasonable estimate of the Company’s potential loss for damages cannot be made at this time. No costs have been accrued
for this possible loss contingency.
On March 11, 1996, the Company was named as defendant in a patent infringement suit filed in the United States District
Court for the Western District of Texas by Combined Logic Company, a California partnership located in Beverly Hills,
California. On May 16, 1996, the suit was transferred to the United States District Court for the Southern District of New
York on motion by the Company. The complaint alleges infringement by Avid of U.S. patent number 4,258,385, issued
in 1981, and seeks injunctive relief, treble damages and costs, and attorneys’ fees. The Company believes that it has
meritorious defenses to the complaint and intends to contest it vigorously. However, an adverse resolution of this litigation
could have an adverse effect on the Company’s consolidated financial position or results of operations in the period in which
the litigation is resolved.
On April 23, 1996, the Company was named as defendant in a patent infringement suit filed in the United States District
Court for the District of Massachusetts by Data Translation, Inc., of Marlboro, Massachusetts. The complaint alleges
infringement by the Company of U.S. patent number 5,488,695 and seeks injunctive relief, treble damages and costs and
attorneys’ fees. The Company believes that it has meritorious defenses to the complaint and intends to defend it vigorously.
However, an adverse resolution of this litigation could have an adverse effect on the Company’s consolidated financial
position or results of operations in the period in which the litigation is resolved.
The Company also receives inquiries from time to time with regard to additional possible patent infringement claims.
These inquiries are generally referred to counsel and are in various stages of discussion. If any infringement is determined to
exist, the Company may seek licenses or settlements. In addition, from time to time as a normal incidence of the nature of
the Company's business, various claims, charges, and litigation are asserted or commenced against the Company arising