Nautilus 2014 Annual Report Download - page 61

and no decision has yet been issued. We do not believe that our use of heart rate monitors utilized or purchased from third parties, and otherwise,
infringe the BioSig patents.
In August 2014, we initiated an arbitration proceeding under a 1999 license agreement pursuant to which we had licensed certain rights relating
to our TreadClimber
®
products. We believe that our obligation to pay royalties under the license agreement ceased in the fourth quarter of 2013.
The licensor disputes this and issued a notice under the contract claiming breach of the license agreement and asserting various remedies. We are
seeking a declaratory ruling in the arbitration that we have performed all our obligations under the license agreement, and that there is no
continuing obligation to pay royalties. The licensor has asserted various counterclaims in the arbitration, including contract and intellectual
property claims, and asserted various remedies, including termination of the license agreement. The Company has replied to the counterclaim,
denying the allegations and demanded remedies and asserting defenses. The arbitration is being administered by the American Arbitration
Association (AAA) and is in its preliminary stages. An arbitrator has been selected, however, a stay of the arbitration proceedings has been
issued.
In addition to the matters described above, from time to time, we may be involved in various claims, lawsuits and other proceedings. These legal
and tax proceedings involve uncertainty as to the eventual outcomes and losses which may be realized when one or more future events occur or
fail to occur.
Litigation and jury verdicts are, to some degree, inherently unpredictable, and although we have determined that a loss is not probable in
connection with any current legal proceeding, it is reasonably possible that a loss may be incurred in connection with proceedings to which we
are a party. Assessment of whether incurrence of a loss is probable, or a reasonable possibility, in connection with a particular proceeding, and
estimation of the loss, or a range of loss, involves complex judgments and numerous uncertainties. Management is unable to estimate a range of
reasonably possible losses related to litigation in its early stages, especially when the damages sought are indeterminate, or the legal and factual
basis for the relevant claims have not been developed with specificity. As such, zero liability is recorded as of December 31, 2014 .
We regularly monitor our estimated exposure to these contingencies and, as additional information becomes known, may change our estimates
accordingly. We evaluate, on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any
accrual, as well as any developments that would make a loss probable or reasonably possible, and whether the amount of a probable or
reasonably possible loss is estimable. Among other factors, we evaluate the advice of internal and external counsel, the outcomes from similar
litigation, current status of the lawsuits (including settlement initiatives), legislative developments and other factors. Due to the numerous
variables associated with these judgments and assumptions, both the precision and reliability of the resulting estimates of the related loss
contingencies are subject to substantial uncertainties.
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