Netgear 2011 Annual Report Download - page 101

Table of Contents
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, motions for 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 opposed the motion. On July 8, 2011, the Court denied the defendant’s unopposed motion for summary judgment of
noninfringement of the one patent remaining in the case, the ‘627 Patent. This ruling did not affect the Company since that patent was not
asserted against the Company, other than postponing the Company’s possible recovery of attorneys’ fees. On July 13, 2011, the Court dismissed
without prejudice the defendants’ joint motion for fees because the motion is now not ripe given the Court’s denial of the motion for summary
judgment of noninfringement of the
‘627 Patent. The Company is now reviewing its options for recovering attorneys’ fees.
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 the possibility it would have a material adverse impact on the Company’s financial position and
results of operations for the period in which the unfavorable outcome occurs or becomes probable. In addition, the Company is subject to legal
proceedings, claims and litigation arising in the ordinary course of business, including litigation related to intellectual property and employment
matters.
Based on currently available information, the Company does not believe that the ultimate outcomes of any unresolved matters, individually
and in the aggregate, are likely to have a material adverse effect on the Company’
s financial position, liquidity or results of operations within the
next 12 months. However, litigation is subject to inherent uncertainties, and the Company’s view of these matters may change in the future.
Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position and results
of operations or liquidity for the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.
97