Netgear 2010 Annual Report Download - page 90

Table of Contents
products infringed its U.S. Patent No. 6,218,930. Network-1 also sued six other companies alleging similar claims of patent infringement. The
Company filed its answer in the second quarter of 2008. In May 2009, without admitting any patent infringement, wrongdoing or violation of
law and to avoid the distraction and expense of continued litigation, the Company agreed to make a one-time lump sum payment of $350,000 in
consideration for a license to the patent in suit as well as a dismissal with prejudice of the lawsuit. Under the license, the Company will pay
future running royalties on certain of its PoE products which will be recognized as a component of cost of revenue as the related products are
sold.
IP Indemnification Claims
In addition, in its sales agreements, the Company typically agrees to indemnify its direct customers, distributors and resellers (the
“Indemnified Parties”) for any expenses or liability resulting from claimed infringements of patents, trademarks or copyrights of third parties
that are asserted against the Indemnified Parties. The terms of these indemnification agreements are generally perpetual after execution of the
agreement. The maximum amount of potential future indemnification is generally unlimited. From time to time, the Company receives requests
for indemnity and may choose to assume the defense of such litigation asserted against the Indemnified Parties.
In June 2006, the Company received a request for indemnification from Charter and Charter Communications Operating, LLC, related to a
lawsuit filed in the U.S. District Court, Eastern District of Texas, by Rembrandt Technologies, L.P. (“Rembrandt”), a patent-holding company.
Rembrandt also filed a similar lawsuit in the same jurisdiction against Comcast Corporation, Comcast Cable Communications, LLC and
Comcast of Plano, LP. Rembrandt alleged that products implementing the DOCSIS standard, which are supplied to Charter, Comcast
Corporation, Comcast Cable Communications, LLC and Comcast of Plano, LP by, among others, the Company, infringe various patents held by
Rembrandt. In June 2007, the Judicial Panel on Multidistrict Litigation ordered these and other similar patent cases brought by Rembrandt
consolidated and transferred to the U.S. District Court for the District of Delaware. In November 2007, the Company along with Motorola, Inc.,
Cisco Systems, Inc., Scientific-Atlanta, Inc., ARRIS Group, Inc., Thomson, Inc. and Ambit Microsystems, Inc. filed a complaint for declaratory
judgment in the U.S. District Court for the District of Delaware against Rembrandt, seeking a declaration that eight asserted Rembrandt patents
asserted in the transferred cases are either invalid or not infringed. The District Court held a claim construction hearing on August 5, 2008. On
November 29, 2008, the District Court issued its claim construction order. After the District Court
’s order, Rembrandt agreed to drop three
patents from the case, leaving five patents at issue. The District Court held a mediation on March 3-
4, 2009 but the parties were unable to reach a
resolution. On July 21, 2009, Rembrandt delivered to the Company and other parties an executed covenant not to sue on any of the eight patents
originally in the suit, contending that the execution of the covenant divests the District Court of jurisdiction or renders moot the remaining claims
and counterclaims in the action. On July 31, 2009, Rembrandt filed a motion to dismiss the litigation. While Rembrandt’s motion was pending,
the defendants filed motions for summary judgment, sanctions, and responses to Rembrandt’s motion to dismiss. In early October 2009, the
District Court suspended all further dates for the case while it reviewed the pending motions and case status. On October 23, 2009, the Court
ordered Rembrandt to supplement the covenant not to sue to include any products or services that comply with DOCSIS 1.0, 1.1, 2.0 or 3 and
dismissed Rembrandt’s various infringement claims on the eight patents with prejudice. The Court gave Rembrandt five days to withdraw its
motion to dismiss the litigation if it found the Court’s conditions on dismissal to be unacceptable. Rembrandt did not withdraw its motion to
dismiss the litigation, and on October 30, 2009, Rembrandt executed a covenant not to sue on any of the eight patents in the case and any
products or services that comply with DOCSIS 1.0, 1.1, 2.0 or 3. The Company and its co-defendants moved for attorneys’ fees to be paid by
Rembrandt. Rembrandt has opposed the motion. The parties are waiting for the Court to rule on the motion.
All of the above described claims against the Company, or filed by the Company, whether meritorious or not, could be time-consuming,
result in costly litigation, require significant amounts of management time, and result in the diversion of significant operational resources. Were
an unfavorable outcome to occur, there exists
88