SanDisk 1999 Annual Report Download - page 40

the years ended December 31, 1999, 1998 and 1997, respectively.
These amounts are included in other income (loss), net, in the
statement of income.
NOTE 3:
Commitments and Contingencies
COMMITMENTS
The Company leases its headquarters and sales offices under operating
leases that expire at various dates through 2001. Future minimum lease
payments under operating leases at December 31, 1999 are as follows:
Rental expense under all operating leases was $2.1 million, $1.7
million and $1.3 million for the years ended December 31, 1999,
1998 and 1997, respectively.
CONTINGENCIES
The Company relies on a combination of patents, trademarks,
copyright and trade secret laws, confidentiality procedures and
licensing arrangements to protect its intellectual property rights.
There can be no assurance that there will not be any disputes
regarding the Company’s intellectual property rights. Specifically,
there can be no assurance that any patents held by the Company
will not be invalidated, that patents will be issued for any of the
Company’s pending applications or that any claims allowed from
existing or pending patents will be of sufficient scope or strength or
be issued in the primary countries where the Company’s products
can be sold to provide meaningful protection or any commercial
advantage to the Company. Additionally, competitors of the
Company may be able to design around the Company’s patents.
To preserve its intellectual property rights, the Company believes it
may be necessary to initiate litigation with one or more third parties,
including but not limited to those the Company has notified of pos-
sible patent infringement. In addition, one or more of these parties
may bring suit against the Company. Any litigation, whether as a
plaintiff or as a defendant, would likely result in significant expense
to the Company and divert the efforts of the Company’s technical
and management personnel, whether or not such litigation is ulti-
mately determined in favor of the Company.
In March 1998, the Company filed a complaint in federal court
against Lexar Media, Inc. (“Lexar”) for infringement of a funda-
mental flashdisk patent. Lexar has disputed the Company’s claim of
patent infringement, claimed SanDisk’s patent is invalid or unen-
forceable and asserted various counterclaims including unfair
competition, violation of the Lanham Act, patent misuse, interfer-
ence with prospective economic advantage, trade defamation and
fraud. SanDisk has denied each of Lexar’s counterclaims.
In July 1998, the federal district court denied Lexar’s request to
have the case dismissed on the grounds the Company failed to per-
form an adequate prefiling investigation. Discovery in the Lexar suit
commenced in August 1998. The claims construction phase com-
menced in February 1999. The Company intends to vigorously
enforce its patents, but there can be no assurance that these efforts
will be successful.
On February 22, 1999, the court considered arguments and papers
submitted by the parties regarding the scope and proper interpreta-
tion of the asserted claims in our patent at issue in the Lexar suit.
On March 4, 1999, the court issued its ruling on the proper con-
struction of the claim terms in our patent. On July 30, 1999, we
filed a motion for partial summary judgement that Lexar
CompactFlash and PC Cards contributorily infringe our patent. In
December 1999, Lexar filed a counter motion for partial summary
judgement for invalidity of our patent. Both motions were heard by
the court on March 17, 2000 and the matters were taken under
submission by the court. We are waiting for the court's ruling on
both matters. In August 1999, we had a mandatory settlement
meeting with Lexar. No Settlement was reached through this meeting.
A trial date has not yet been set.
In May 1999, Lexar filed a complaint against us in federal court for
claims of unfair competition, false advertising, trade libel and inten-
tional and negligent interference with prospective business
advantage. In Lexar's complaint, Lexar alleged that statements by us
regarding the comparative performance of our products and Lexar's
in digital cameras were false, and further alleged that we had inter-
fered with the certification of certain Lexar products by the
CompactFlash Association. On July 1, 1999, we filed a motion to
dismiss the Lexar complaint. Also, in July 1999, Lexar filed a
motion for preliminary injunction seeking to stop certain advertising
practices that Lexar alleges were misleading. On August 26, 1999,
the parties executed and filed with the court a joint stipulation with-
drawing our motion to dismiss and granting Lexar permission to
amend its complaint. Lexar has amended its complaint to remove
37
SanDisk Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ending December 31,
(In thousands)
2000 $ 1,868
2001 1,035
Total $ 2,903