LeapFrog 2002 Annual Report Download - page 99

LEAPFROG ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except share, per share and percent data)
counterclaim seeking declaratory relief that the patent is invalid, unenforceable and not infringed. The Company
believes that it has meritorious defenses to General Creation’s claims, including both non-infringement and
invalidity defenses, and intends to defend the suit vigorously. However, the Company’s defenses may be
unsuccessful and the litigation may affect the Company’s ability to make or sell some of its products. Because
the lawsuit is still in the pre-trial discovery stage, a reasonable estimate of the possible loss cannot be made.
Technology Innovations, LLC v. LeapFrog Enterprises, Inc.
In July 2002, Technology Innovations, LLC filed a complaint against the Company in the western federal
district court of New York alleging that the Company has infringed, and induced others to infringe, United States
Patent No. 5,517,407, which it purports to own, by manufacturing, using, offering for sale and/or selling our
LeapPad, LeapPad Pro and My First LeapPad platforms and other unspecified products. Technology Innovations
seeks unspecified monetary damages, including triple damages based on its allegation of willful infringement, an
accounting for all profits received by us from the sale of allegedly infringing products, attorneys’ fees and
injunctive relief. In August 2002, Technology Innovations filed an amended complaint adding seven defendants
to the complaint: Knowledge Universe, LLC; F.A.O., Inc.; KBToys, Inc.; Staples, Inc.; Target Corporations;
Toys “R” Us, Inc.; and Wal-Mart Stores, Inc. The Company has examined the patent in question, its file history
and the prior art, and the Company believes it has meritorious defenses to Technology Innovations’ claims and
intends to pursue these defenses vigorously.
LeapFrog Enterprises, Inc. v. Franklin Electronic Publishers, Inc.
In April 2002, based in part on assertions by Franklin Electronic Publishers, Inc. that a number of the
Company’s products, infringe, contributorily infringed or induced infringement of United States Patent No.
5,203,705, issued to Franklin, the Company filed a lawsuit against Franklin in federal district court in California
seeking declaratory relief that the patent is invalid, unenforceable and not infringed. In July 2002, Franklin filed a
complaint against the Company and one of its finished goods manufacturers with the U.S. International Trade
Commission, or ITC, requesting an investigation into whether the importation, distribution and sale of a number
of the Company’s products directly infringed, induced infringement or contributorily infringed one or more
claims of Franklin’s patent. In November 2002, the ITC granted Franklin Electronic Publishers, Inc.’s motion to
withdraw its complaint and terminate the associated investigation. See Note 24 (Subsequent Events).
21. Defined Contribution Plan
The Company participates in a defined contribution plan sponsored by Knowledge Universe, Inc. under
Section 401(k) of the Internal Revenue Code. The 401(k) plan is elective and provides for the Company to match
25% of employee contributions up to 4% of the participant’s compensation. The matching contributions are fully
vested at the time the contribution is made.
Total expense to the Company related to this plan was $169, $114 and $37 in 2002, 2001 and 2000,
respectively.
22. Segment Reporting
The Company’s reportable segments include U.S. Consumer, Education and Training and International.
The U.S. Consumer segment includes the design, production and marketing of electronic educational toys
and books, sold primarily through the retail channels. The Education and Training segment includes the design,
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