Shutterfly 2011 Annual Report Download - page 27

These anti-
takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These
provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to
take other corporate actions they desire.
In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits "business
combinations" between a Delaware corporation and an "interested stockholder," which is generally defined as a stockholder who becomes a
beneficial owner of 15% or more of a Delaware corporation's voting stock, for a three-
year period following the date that the stockholder became
an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might
consider to be in their best interests.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
In 2010, we renewed the lease for our corporate headquarters in Redwood City, California in two buildings totaling
approximately 100,000 square feet. This lease will expire in 2017, and we have an option to extend the lease for two additional periods of three
years each. The lease provides for a $2.1 million tenant improvement reimbursement allowance which can be utilized during the course of the
lease.
We maintain our east-
coast production and fulfillment operations in Charlotte, North Carolina in leased facilities totaling approximately
102,400 square feet. The lease for this facility commenced on May 31, 2007, and continues through 2014. We have an option to extend the lease
for three additional periods of either three or five years in length, and first rights of refusal to lease space in certain adjacent buildings.
We maintain our west-
coast production and fulfillment operations in Phoenix, Arizona, totaling approximately 101,200 square feet. The
lease for this facility commenced in March 2009, and will continue through 2016. We have an option to extend the lease for three additional
periods of five years each, and a right of first offer to lease space in adjacent buildings.
We believe that our existing facilities are adequate to meet our current needs.
ITEM 3. LEGAL PROCEEDINGS.
On October 1, 2010, Express Card Systems, LLC filed a complaint for alleged patent infringement against us and four other defendants in
Express Card Systems, LLC. v. Shutterfly, Inc. et. al., Civ. No. 6:10-cv-
514, in the Eastern District of Texas, Tyler Division. The complaint
asserts infringement of U.S. Patent No. 5,751,590, which claims, among other things, a method related to processing images to define social
expression cards in a computer database. The Complaint asserts that we directly or indirectly infringe the patents without providing any details
concerning the alleged infringement, and it seeks unspecified damages and injunctive relief. We have not yet answered or otherwise responded
to the complaint.
On December 10, 2010, Eastman Kodak Company filed a complaint for alleged patent infringement against us in Eastman Kodak Company
v. Shutterfly, Inc., C.A. No. 10-1079-
SLR, in the U.S. District Court for the District of Delaware. The complaint asserts infringement of U.S.
Patents Nos. 6,549,306; 6,600,572; 7,202,982; 6,069,712; and 6,512,570, which claim among other things, methods for selecting photographic
images using index prints, an image handling system incorporating coded instructions, and processing a roll of exposed photographic film into
corresponding visual prints and distributing such prints. The Complaint asserts that we directly or indirectly infringe the patents without
providing any details concerning the alleged infringement, and it seeks unspecified damages and injunctive relief. We have not yet answered or
otherwise responded to the complaint.
On December 13, 2010, we filed a complaint for patent infringement against Eastman Kodak Company and Kodak Imaging Network, Inc.
(“Kodak”)
in Shutterfly, Inc. v. Eastman Kodak Company and Kodak Imaging Network, Inc., Case No. CV 10 5672 in the U.S. District Court
for the Northern District of California. The complaint asserts infringement of U.S. Patents Nos. 6,583,799; 7,269,800; 6,587,596; 6,973,222;
7,474,801; 7,016,869; and 7,395,229, which claim among other things, methods for image uploading, image cropping, automatic generation of
photo albums, and changing attributes of an image-
based product. The Complaint asserts that Kodak directly or indirectly infringes the patents,
and it seeks unspecified damages and injunctive relief. Kodak has not yet answered or otherwise responded to the complaint.
On January 31,
2011, we voluntarily dismissed that lawsuit without prejudice, and on the same day we filed a complaint in the United States District of
Delaware. The new complaint asserts the same claims of infringement against Kodak.
In addition to the above cases, from time to time, we may be involved in various legal proceedings arising in the ordinary course of
business. In all cases, at each reporting period, we evaluate whether or not a potential loss amount or a potential range of loss is probable and
reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. In such cases, we accrue for
the amount, or if a range, we accrue the low end of the range as a component of legal expense.
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