Netgear 2008 Annual Report Download - page 76

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Table of Contents
The total amount of net unrecognized tax benefits that, if recognized would affect the effective tax rate as of December 31, 2008 is $11.5
million. The ending net UTB results from adjusting the gross balance at December 31, 2007 for items such as U.S. federal, state and foreign
deferred tax, foreign tax credits, interest, and deductible taxes. The net UTB is included as a component of non-current income taxes payable
within the consolidated balance sheet.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. As of December 31,
2007 and December 31, 2008, accrued interest on a gross basis was $643,000 and $1.2 million, respectively. No penalties have been accrued.
Included in accrued interest are amounts related to tax positions for which the ultimate deductibility is highly certain but for which there is
uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest, the disallowance of the
shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an
earlier period.
The Company has recognized a deferred tax benefit related to excess foreign tax credits of $202,000 related to unremitted earnings of
certain foreign sales subsidiaries. With the exception of those foreign sales subsidiaries for which deferred tax has been provided, the Company
intends to indefinitely reinvest foreign earnings. These earnings were approximately $22.8 million and $28.0 million as of December 31, 2008
and December 31, 2007, respectively. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the income tax
liability that would be payable if such earnings were not indefinitely reinvested.
Note 8—Commitments and Contingencies:
Litigation and Other Legal Matters
NETGEAR v. CSIRO
In May 2005, the Company filed a complaint for declaratory relief against the Commonwealth Scientific and Industrial Research
Organization (“CSIRO”), in the San Jose division of the United States District Court, Northern District of California. The complaint alleges that
the claims of CSIRO’s U.S. Patent No. 5,487,069 are invalid and not infringed by any of the Company’s products. CSIRO had asserted that the
Company’s wireless networking products implementing the IEEE 802.11a, 802.11g, and 802.11n wireless LAN standards infringe its patent. In
July 2006, the United States Court of Appeals for the Federal Circuit affirmed the District Court’s decision to deny CSIRO’s motion to dismiss
the action under the Foreign Sovereign Immunities Act. In September 2006, the Federal Circuit denied CSIRO’s request for a rehearing en banc.
CSIRO filed a response to the complaint in September 2006. In December 2006, the District Court granted CSIRO’s motion to transfer the case
to the Eastern District of Texas, where CSIRO had brought and won a similar lawsuit against Buffalo Technology (USA), Inc., which Buffalo
recently appealed and which has been partially remanded to the District Court. The District Court consolidated this action with three related
actions involving other companies (such as Buffalo) accused of infringing CSIRO’s patent. The case is now in the final stages of discovery. The
Company attended a court-mandated mediation in November 2007 but failed to resolve the litigation. The District Court held a June 26, 2008
claim construction hearing. On August 14, 2008, the District Court issued a claim construction order and denied a motion for summary judgment
of invalidity. In December 2008, the parties filed numerous motions for summary judgment concerning, among other things, infringement,
validity, and other affirmative defenses. The District Court has scheduled an April 13, 2009 jury trial regarding all liability issues for the four
consolidated cases. Beginning in June of 2009, the District Court will hold the first in a series of damages trials. The Company’s case will be
heard in the second trial in this series, which will likely commence sometime during the third or fourth quarter of 2009.
Linex Technologies v. NETGEAR
In June 2007, a lawsuit was filed against the Company by Linex Technologies, Inc. (“Linex”), a patent-holding company organized under
the laws of Delaware, in the U.S. District Court, Eastern District of Texas. Linex alleged that the Company infringed U.S. Patent No. 6,757,322.
Linex had accused certain of the
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