Nautilus 2005 Annual Report Download - page 61

Table of Contents
In November 2005, the Company proceeded to trial in Salt Lake City, Utah in a case filed by ICON Health & Fitness, Inc. (“ICON”)
claiming false advertising involving the Company’s advertising and promotion going back to 1987 for certain elements of its Bowflex home
gyms and claiming trademark infringement for the name placed on a treadmill belt sold in 2002. On November 15, 2005, the jury returned a
verdict in favor of ICON in the amount of $7,800. The verdict is subject to review by the Court on the issues of liability and damages and will
not become final until the Court has issued additional rulings. The Company has filed additional briefings requesting that the Court overturn
and/or reduce the damages and the matter remains under consideration by the Court. The Company believes the jury’s advisory verdict is
inconsistent with the law and the evidence presented at trial and that the evidence does not support the damage award. Thus, the Company has
not accrued any material amounts for this case. The Company will continue to vigorously contest this verdict.
In December 2002, the Company filed suit against ICON in the Federal District Court, Western District of Washington (the “District
Court”) alleging infringement by ICON of the Company’s Bowflex patents and trademarks. The Company sought injunctive relief, monetary
damages and its fees and costs. In October 2003, the District Court dismissed the patent infringement claims. The Company appealed the
District Court’s decision to the United States Court of Appeals for the Federal Circuit (the “Appeals Court”) and in November 2003, the
Appeals Court overruled the District Court and reinstated the patent infringement claims. In May 2005 the District Court again dismissed the
patent infringement case against ICON. The Company has appealed this case to the Appeals Court, which has previously ruled in favor of
Nautilus in two separate appeals on this matter.
In July 2003, the District Court ruled in favor of the Company on a motion for preliminary injunction on the issue of trademark
infringement and entered an order barring ICON from using the trademark “CrossBow” on any exercise equipment. In its ruling, the District
Court concluded that the Company showed “a probability of success on the merits and irreparable injury” on its trademark infringement claim.
In August 2003, the Appeals Court granted ICON a temporary stay regarding the motion for a preliminary injunction, which enjoined ICON
from using the trademark “CrossBow.” This stay allowed ICON to continue using the trademark “CrossBow”
until a decision was issued by the
Appeals Court. In June 2004, the Appeals Court issued its decision upholding the issuance of an injunction and preventing ICON from selling
exercise equipment using the trademark “CrossBow” pending trial on the trademark issue. A trial date has been set for October 2006 in the
District Court on this claim.
ICON had been using the term “CrossBar” on certain exercise equipment in response to the litigation regarding its use of “CrossBow.” In
July 2004, the Company filed an additional suit against ICON in the District Court alleging that ICON has further infringed on the Bowflex
trademark by the use of the “CrossBar” trademark. ICON and the Company have now reached a voluntary resolution of that lawsuit, and the
case has been dismissed.
In addition to the matters described above, from time to time the Company is subject to litigation, claims and assessments that arise in the
ordinary course of business, including disputes that may arise from intellectual property related matters. Many of our legal matters are covered
in whole or in part by insurance. Management believes that any liability resulting from such matters will not have a material adverse effect on
the Company’s financial position, results of operations, or cash flows.
16. EMPLOYEE BENEFIT PLAN
The Company adopted a 401(k) profit sharing plan (the “Plan”)
in 1999 covering substantially all employees over the age of 18. The Plan
was amended in 2000 to allow for immediate eligibility in the Plan. Each participant in the Plan may contribute up to 50% of eligible
compensation during any calendar year, subject to certain limitations. The Plan provides for Company matching contributions of up to 50% of
the first 6% of eligible contributions made by all participants. All participants must have completed one year of service before becoming
eligible for Company matching contributions. Employees are 25% vested in the matching contributions per year for the first four years of
service. Expense for the plan was $507, $640 and $613 for the years ended December 31, 2005, 2004 and 2003, respectively.
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