SanDisk 2006 Annual Report Download - page 81

No. 2:06cv209 WDK/JEB. Audio MPEG holds itself out to be the U.S. subsidiary of Sisvel and purports to have the
right to enforce certain patents in the U.S. on subject matter related to the patents asserted by Sisvel in the
Netherlands. Specifically, Audio MPEG asserts U.S. Patent No. 5,214,678 (entitled “Digital transmission system
using subband coding of a digital signal”), U.S. Patent No. 5,323,396 (entitled “Digital transmission system,
transmitter and receiver for use in the transmission system”), U.S. Patent No. 5,539,829 (entitled “Subband coded
digital transmission system using some composite signals”), and U.S. Patent No. 5,777,992 (entitled “Decoder for
decoding and encoded digital signal and a receiver comprising the decoder”). The court has issued a case
management order and has indicated that the trial should be expected to take place in December 2007.
In another related action, on April 13, 2006, Sisvel filed suit against the Company’s subsidiary, SanDisk
GmbH, for patent infringement in the Mannheim District Court in Germany, S.I.Sv.El., S.p.A. v. SanDisk GmbH,
file no. 7 O 90/06, which was served on the Company on or about May 10, 2006. The plaintiffs allege that certain of
the Company’s MP3 products infringe four German patents of which Sisvel claims to be a licensee with the right to
bring suit. Sisvel seeks an injunction and unspecified damages. Sisvel has previously publicly stated that it will
license these and other patents under reasonable and nondiscriminatory terms, and it has specifically offered the
Company a license under the patents. In a first trial in September of 2006, the Mannheim court expressed
reservations about Sisvel’s claim of infringement and ordered further briefing and a resumption of the trial, which
was held in January 2007. The court indicated that it expects to hand down a decision in March 2007.
In another related action, on April 13, 2006, Sisvel filed suit against the Company for patent infringement in
the Mannheim District Court in Germany, S.I.Sv.El., S.p.A. v. SanDisk Corporation, file no. 7 O 89/06, which was
served on the Company in or about July, 2006. The plaintiffs allege that certain of the Company’s MP3 products
infringe four German patents of which Sisvel claims to be a licensee with the right to bring suit. Sisvel seeks an
injunction and unspecified damages. Sisvel has previously publicly stated that it will license these and other patents
under reasonable and nondiscriminatory terms, and it has specifically offered the Company a license under the
patents. Both sides submitted initial pleadings and the court held a trial in January 2007. The court indicated that it
expects to hand down a decision in March 2007.
On August 7, 2006, two purported shareholder class and derivative actions, captioned Capovilla v. SanDisk
Corp., No. 106 CV 068760, and Dashiell v. SanDisk Corp., No. 106 CV 068759, were filed in the Superior Court of
California in Santa Clara County, California. On August 9, 2006, and August 17, 2006, respectively, two additional
purported shareholder class and derivative actions, captioned Lopiccolo v. SanDisk Corp., No. 106 CV 068946, and
Sachs v. SanDisk Corp., No. 1-06-CV-069534, were filed in that court. These four lawsuits were subsequently
consolidated under the caption In re msystems Ltd. Shareholder Litigation, No. 106 CV 068759 and on October 27,
2006, a consolidated amended complaint was filed that supersedes the four original complaints. The lawsuit is
brought by purported shareholders of msystems and names as defendants the Company and each of msystems’
directors, including its President and Chief Executive Officer, and its former Chief Financial Officer (now its Chief
Operating Officer), and names msystems as a nominal defendant. The lawsuit asserts purported class action and
derivative claims. The alleged derivative claims assert, among other things, breach of fiduciary duties, abuse of
control, constructive fraud, corporate waste, unjust enrichment and gross mismanagement with respect to past stock
option grants. The alleged class and derivative claims also assert claims for breach of fiduciary duty by msystems’
board, which the Company is alleged to have aided an abetted, with respect to allegedly inadequate consideration
for the merger, and allegedly false or misleading disclosures in proxy materials relating to the merger. The
complaints seek, among other things, equitable relief, including enjoining the proposed merger, and compensatory
and punitive damages.
On September 11, 2006, Mr. Rabbi, a shareholder of msystems Ltd. (“msystems”), filed a derivative action and
a motion to permit him to file the derivative action against four directors of msystems and msystems, arguing that
options were allegedly allocated to officers and employees of msystems in violation of applicable law. Mr. Rabbi
claimed that the aforementioned actions allegedly caused damage to msystems. On October 17, 2006, msystems
filed a motion to change its title in the motion to permit the filing of the derivative action from a “Formal
Respondent” to a “Respondent,” and Mr. Rabbi has consented to this motion. msystems received an extension of
time to file its response to the motion until March 25, 2007. On January 25, 2007, msystems filed a motion to
dismiss the motion to seek leave to file the derivative action and the derivative action on the grounds, inter alia, that
Mr. Rabbi ceased to be a shareholder of msystems after the merger between msystems and the Company.
32