LeapFrog 2006 Annual Report Download - page 31

In 2006, we completed consolidation of our office locations, moving our research and development offices
from Los Gatos, California to our corporate headquarters in Emeryville, California; and opened an office in
Shenzhen, China to expand our research and development activities.
Item 3. Legal Proceedings.
From time to time, LeapFrog is party to various pending claims and lawsuits. We are currently party to the
lawsuits described below, and we intend to defend or pursue these suits vigorously.
Tinkers & Chance v. LeapFrog Enterprises, Inc.
In August 2005, a complaint was filed against us in the federal district court for the Eastern District of Texas
by Tinkers & Chance, a Texas partnership. The complaint alleges that we have infringed, and induced others to
infringe, United States Patent No. 6,739,874 by making, selling and/or offering for sale in the United States and/
or importing our LeapPad and Leapster platforms and other unspecified products. Tinkers & Chance seeks
unspecified monetary damages, including triple damages based on its allegation of willful and deliberate
infringement, attorneys’ fees and injunctive relief. In the spring of 2006, the court granted Tinkers & Chance’s
motions to amend the complaint to add claims of infringement of U.S. Patent Nos. 7,006,786; 7,018,213;
7,029,283 and 7,050,754 against our LeapPad, Leapster and L-Max platforms. A claim construction hearing is set
for May 10, 2007 and trial is scheduled for November 2007.
LeapFrog Enterprises, Inc. v. Fisher-Price, Inc. and Mattel, Inc.
In October 2003, we filed a complaint in the federal district court for the district of Delaware against Fisher-
Price, Inc., alleging that the Fisher-Price PowerTouch learning system violates United States Patent
No. 5,813,861. In September 2004, Mattel, Inc. was joined as a defendant. We are seeking damages and
injunctive relief. Following a trial in the district court, the court declared a mistrial because the jury was unable
to reach a unanimous verdict, and the parties stipulated to have the case decided by the court based on the
seven-day trial record. On March 30, 2006, the district court issued an order entering judgment in favor of
Fisher-Price, Inc. with respect to patent infringement and invalidated claim 25 of our ‘861 patent. We have
appealed this decision. The appeal has been fully briefed and a hearing on the appeal was held in March 7, 2007.
Stockholder Class Actions
In December 2003, April 2005 and June 2005, six purported class action lawsuits were filed in federal
district court for the Northern District of California against Leapfrog and certain of our current and former
officers and directors alleging violations of the Securities Exchange Act of 1934. These actions have since been
consolidated into a single proceeding captioned In Re LeapFrog Enterprises, Inc. Securities Litigation.On
January 27, 2006, the lead plaintiffs in this action filed an amended and consolidated complaint. In July 2006, the
Court granted our motion to dismiss the amended and consolidated complaint with leave to amend. On
September 29, 2006, plaintiffs filed a second amended consolidated class action complaint. This second amended
complaint seeks unspecified damages on behalf of persons who acquired our Class A common stock during the
period July 24, 2003 through October 18, 2004. Like the predecessor complaint, this complaint alleges that the
defendants caused LeapFrog to make false and misleading statements about our business and forecasts about the
financial performance, and that certain of our current and former individual officers and directors sold portions of
their stock holdings while in the possession of adverse, non-public information. We have filed a motion to
dismiss the second amended consolidated complaint, and a hearing on our motion is set for March 16, 2007.
Discovery has not commenced, and a trial date has not been set.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to our stockholders during the fourth quarter of our 2006 fiscal year.
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