Memorex 2009 Annual Report Download - page 22

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The parties held court ordered settlement discussions from June through September 2008; however, no agreement
was reached during that time.
On October 1, 2008, Imation filed a Motion for Leave to amend its Complaint. On November 18, 2008, the Magistrate
Judge denied Imation’s Motion. Imation filed its Objection to the Magistrate Judge’s Order and on February 2, 2009, the
Court affirmed the Magistrate Judge’s decision.
On November 26, 2008, the Court issued a decision granting Philips’ Motion for Judgment on the Pleadings relating
to subsidiaries formed after March 1, 2000. Following this ruling, Imation and MBI moved the district court to certify the
ruling on this issue as final under FRCP 54(b) allowing for an interlocutory appeal to the Court of Appeals for the Federal
Circuit. The court granted this Motion on January 21, 2009 and on January 23, 2009, Imation filed its Notice of Appeal
with the Court of Appeals for the Federal Circuit. Oral argument before the Court of Appeals was held on June 2, 2009.
On December 1, 2008, MBI filed two patent-related Summary Judgment Motions. A hearing on these Motions was
held on January 16, 2009. These motions were denied in February and March 2009.
A hearing took place May 4 and 5, 2009 during which the district court considered evidence from the parties on the
appropriate meanings of relevant words used in the patent claims.
On July 13, 2009, we entered into a confidential Settlement Agreement ending all legal disputes with Philips and
MBI. The Settlement resolves all claims and counterclaims filed by the parties without any finding or admission of liability
or wrongdoing by any party. As a term of the settlement, we agreed to pay Philips $53.0 million. As part of the settlement,
Imation, Philips and MBI jointly requested a stay of all proceedings in all jurisdictions while MBI requested approval for an
element of the settlement from the Reserve Bank of India. We placed $20.0 million in escrow in July 2009, which was
released to Philips on February 23, 2010 upon final dismissal of all related litigations. We will pay an additional $33.0 million
over a period of three years. As a result of the settlement, we recorded a charge, based on the present value of these
payments, of $49.0 million or $0.82 per share (after the effect of taxes), in the second quarter of 2009. The discount rate
applied in the calculation of present value is comparable to our 3-year corporate borrowing rate in an arm’s length
transaction. Additionally, we recorded interest expense of $0.8 million for the year ended December 31, 2009, which
represents the fair value accretion of the recorded liability.
On November 3, 2009, the United States Court of Appeals for the Federal Circuit issued an opinion despite the
request for a stay. The ruling was in favor of Imation and reversed the district court Judgment of November 26, 2008. This
ruling has no impact on the settlement agreement entered into on July 13, 2009.
On February 16, 2010, The United States District Court for the District of Minnesota entered a Consent Judgment
dismissing the case before it with prejudice. On the same date, the parties notified the United States Court of Appeals for
the Federal Circuit that the appeal with that court can be terminated. The dismissals of all related litigations has also been
completed.
Additionally, Philips and Imation entered into an escrow agreement related to this dispute on October 29, 2007 and
Imation deposited $3.5 million in escrow. This escrow balance was released to Imation on February 23, 2010, resulting in
net Philips settlement payments of $4.7 million during 2010.
Although we were not a party to this lawsuit, on August 15, 2007, Philips initiated a lawsuit against MBI in The
Hague, Netherlands, based on MBI’s optical license agreements with Philips. MBI had made a claim for indemnification of
its legal expenses and potential liabilities for damages that were incurred with respect to this claim as well as the
U.S. litigation described above. We entered into an agreement with MBI which fully satisfies our obligation to indemnify
MBI for any and all reasonable legal expenses incurred regarding the MBI indemnification. This lawsuit has also been
dismissed as a result of the confidential settlement among the parties.
SanDisk
On October 24, 2007, SanDisk Corporation (SanDisk) filed a patent infringement action in U.S. District Court,
Western District of Wisconsin, against Imation and its subsidiaries, Imation Enterprises Corp. and Memorex Products, Inc.
The lawsuit also named over 20 other companies as defendants. This action alleged that we have infringed five patents
held by SanDisk: U.S. Patent 6,426,893; 6,763,424; 5,719,808; 6,947,332 and 7,137,011. SanDisk alleged that our sale of
various flash memory products, such as USB flash drives and certain flash card formats, infringed these patents and
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