SanDisk 2000 Annual Report Download - page 37

3 5 . Sa n D is k C o rp o ra t io n . 2 0 0 0 A n n u a l Re p o rt
o uts tanding at Dec e m b e r 3 1, 1999 . Fo re ig n currenc y
translation g ains o f $122,000 w ere d eferre d at
Dec em b e r 3 1, 1999 in c o nnec tio n w ith these c o ntrac ts
as the c o ntracts have bee n id entified as he d g ing c o n-
trac ts. One fo rw ard e xc hang e c ontrac t in the am o unt
o f $4.3 m illio n w as o utstand ing at Decem b er 31, 19 98.
Fo reign c urrency translatio n losse s o f $34 ,00 0 w e re
d eferred at Decem b er 31, 19 98 in conne c tio n w ith this
fo rw ard c o ntrac t.
The im pac t o f m o vem ents in c urrenc y e xc hang e
rate s o n fo re ig n ex c hang e c o ntrac ts substantially m iti-
g ate s the related im p ac t on the und erlying item s
he d g ed. Th e Co m pany had ne t transac tio n g ains o f
ap p ro xim ate ly $ 428 ,00 0, $1,4 67,000 and $412,000 fo r
the years e nd e d De c e m b er 3 1, 2 000 , 19 99 and 19 9 8,
resp ectively. These am o unts are inc lud e d in o ther
inc o m e (lo ss), ne t, in the state m ent o f inc o m e .
Note 3:
C o m m it m e n t s a n d C o n t in g e n c ie s
C o m m itm e n ts
The Com p any lease s its he ad q uarte rs and sale s
o ffic es und e r o p e ratin g le ases that exp ire at vario us
d ate s throug h 200 6. Future m inim um lease p aym ents
und er operating leases at Dec e m b e r 3 1, 2 0 00 are as
fo llo w s (in thousand s):
Year End ing Dec e m b er 31,
2001 $ 2,685
20 02 2 ,411
20 03 2 ,370
20 04 2 ,416
20 05 2,25 1
20 06 1,02 4
To tal $ 13 ,157
Rental exp ense und e r all o p e rating le ases w as $ 2.5
m illio n, $ 2.1 m illio n and $ 1.7 m illion fo r the years end ed
Dec em b e r 3 1, 2 0 00, 199 9 and 1998 , resp ectively.
C o n t in g e n c ie s
The Com p any relies o n a c o m b inatio n o f p atents,
trad e m arks, c o p yrig ht and trad e se c ret law s, c o nfid e n-
tiality p ro c e d ure s and lic ensing arrang em ents to p ro-
te c t its inte lle c tual p ro p e rty rights. There can b e no
assurance that the re w ill no t b e any d isp utes re g ard ing
the Co m p any’s in tellec tual p ro p erty rig hts. Sp e c ific ally,
the re c an b e no assu ranc e that any p atents he ld by
the Co m p any w ill no t b e invalidate d , that p atents w ill
b e issued fo r any o f the Co m pany’s p end ing ap p lic a-
tio ns o r that any c laim s allo w e d fro m existing o r pend-
ing p ate nts w ill b e o f suffic ient sc o p e or strength o r b e
issued in the prim ary c o untrie s w he re the Co m p any’s
p ro d uc ts c an be so ld to provide m eaningful p ro te c tio n
o r any c o m m erc ial ad vantage to the Co m p any.
Ad d itionally, c o m p etitors o f the Com p any m ay b e ab le
to desig n aro und the Co m p any’s p ate nts.
To p re se rve its intelle c tual property rig hts, the
Co m p any b e lie ves it m ay b e ne c e ssary to initiate litiga-
tio n w ith o ne o r m o re third partie s, includ ing b ut no t
lim ite d to tho se the Com p any has notifie d of po ssib le
p ate nt infring e m e nt. In additio n, o ne o r m ore of the se
p artie s m ay b ring suit ag ainst the Co m p any. Any litig a-
tio n, w hethe r as a p laintiff o r as a d e fe nd ant, w ould
like ly re sult in sig nific ant expense to the Co m p any and
d ivert the efforts o f the Co m p an y’s tec hnic al and m an-
ag e m ent p ersonne l, w hether o r not suc h litig atio n is
ultim ate ly d e te rm ine d in favo r of the C o m p any.
Fo r e xam p le, in M arc h 1998 , the Co m p any sue d
Lexar in the N o rthern Distric t o f Califo rnia alleg ing that
Lexar’s Co m p actFlash and PC Card s infring e our U.S.
Patent N o . 5,6 02,98 7 (“ ’ 987 Patent” ). Le xar d ispute d
this c laim and asse rte d various c o unter c laim s, inc lud -
ing unfair com p etitio n, vio latio n o f the Lanham Ac t,
p ate nt m isuse , interfere nc e w ith p ro sp e c tive e c o nom ic
ad vantag e , trade d efam atio n, unenforceability and
fraud . On N o vem b er 14 , 200 0 , in resolutio n o f these
ac tions, Le xar stip ulate d that SanDisk’s ’ 987 Patent is
valid and infring ed b y Lexar’s current Co m p actFlash
and PC Cards. Lexar m ad e a lum p sum p aym en t of
$8.0 m illio n in Dec em b e r 2 0 00 fo r royaltie s d ue o n the
’98 7 Patent, thro ugh M arc h 31, 200 1. Sub jec t to Lexar’s
rep re se ntatio ns and w arranties relating to Lexar’s
ne w ly d e sig n ed Co m p ac tFlash and PC Cards, SanDisk
has stip ulated that the se d esig n s do not infring e
SanDisk’ s ’98 7 Patent. Lexar ente red into a 4% ro yal-
ty- be aring lic e nse ag reem ent fo r c e rtain Le xar p ro d -
uc ts that m ay use the ’9 87 Patent b eyond M arc h 31,
200 1. SanDisk and Lexar have ag reed to dism iss w ith
p rejud ic e all p end ing c laim s o f p atent infring em ent and
c o unterc laim s invo lving c laim s o f false ad vertising ,
unfair c o m p etitio n and p atent m isuse.
In Sep tem ber 20 0 0, Le xar sued SanDisk in the
Distric t o f De law are alleging that o ur Sm artM ed ia p ro d -
uc ts infring e Lexar’s United State s Patent No.
5,479,638 (“ ’63 8 Pate nt” ). In reso lution o f this ac tion,
the Co m p any p aid Lexar a lum p sum p aym e nt o f $ 2.0
m illio n fo r a fully- p aid up license for use o f the ’63 8
Patent in Sm artM e d ia p ro d uc ts.
Und e r the se ttlem e nt, Lexar has p ro vided the
Co m p any w ith an o p tio n for a royalty b earing license to
its p atents fo r use in c e rtain future p ro d uc ts. SanDisk
and Lexar have agree d to re so lve any futu re d isp utes
relating to the use b y Lexar o f the ’ 987 Patent thro ugh
b ind ing arb itratio n. We have also ag reed that fo r a peri-
o d o f s eve n years, ne ither SanDisk no r Le xar shall see k
injunc tive re lief ag ainst the o ther in any p atent law suit.
H o w ever, at all tim es, w e retain the rig ht to se ek
injunc tive re lief to e nfo rc e the p aym e nt o f ro yalties p ur-
suant to an arb itrato r’s ruling .
On M arc h 2 1, 2 000 , M itsub ishi De nki Co . Ltd.
(M itsub ishi Ele c tric ) filed a c o m p laint in Tokyo Distric t
Co urt ag ainst SanDisk K.K., SanDisk’ s w ho lly ow ne d
sub sid iary in Jap an. The c o m p laint alleg e s that
SanDisk K.K., b ased in Yo ko ham a, Jap an, infring e s o n
thre e M itsub ishi Japane se pate nts. The M itsub ishi
p ate nts in q u es tio n are # JP2 0 993 42, # JP2129 0 71 and
#JP21380 47, w hic h are re lated p rim arily to the