Toro 2008 Annual Report Download - page 65

costs. The company is also typically involved in commercial dis- (i) stated their intent to file lawsuits in all 50 states and the District
putes, employment disputes, and patent litigation cases in the ordi- of Columbia; and (ii) sought to have all of the cases transferred for
nary course of business. To prevent possible infringement of the coordinated pretrial proceedings. In August 2008, the MDL Panel
company’s patents by others, the company periodically reviews issued an order denying the transfer request. New lawsuits, some
competitors’ products. To avoid potential liability with respect to of which include new plaintiffs, were filed in various federal and
others’ patents, the company regularly reviews certain patents state courts asserting essentially the same state law claims.
issued by the United States Patent and Trademark Office (USPTO) In September 2008, the company and other defendants filed a
and foreign patent offices. Management believes these activities new motion with the MDL Panel that sought to transfer the multiple
help minimize its risk of being a defendant in patent infringement actions for coordinated pretrial proceedings. In early December
litigation. The company is currently involved in patent litigation 2008, the MDL Panel issued an order that (i) transferred 23 law-
cases, both where it is asserting patents and where it is defending suits, which collectively assert claims under the laws of 16 states,
against charges of infringement. for coordinated or consolidated pretrial proceedings, (ii) selected
the United States District Court for the Eastern District of Wiscon-
Lawnmower Engine Horsepower Marketing and Sales sin as the transferee district, and (iii) provided that additional law-
Practices Litigation. In June 2004, individuals who claim to have suits will be treated as ‘‘tag-along’’ actions in accordance with its
purchased lawnmowers in Illinois and Minnesota filed a class rules. To date, more than 40 lawsuits have been filed in various
action lawsuit in Illinois state court against the company and other federal and state courts, which collectively assert claims under the
defendants alleging that the horsepower labels on the products the laws of approximately 30 states.
plaintiffs purchased were inaccurate. Those individuals later Management continues to evaluate these lawsuits and is unable
amended their complaint to add additional plaintiffs and an addi- to reasonably estimate the likelihood of loss or the amount or
tional defendant. The plaintiffs asserted violations of the federal range of potential loss that could result from the litigation. There-
Racketeer Influenced and Corrupt Organizations Act (‘‘RICO’’) and fore, no accrual has been established for potential loss in connec-
state statutory and common law claims. The plaintiffs sought certi- tion with these lawsuits. Management is also unable to assess at
fication of a class of all persons in the United States who, begin- this time whether these lawsuits will have a material adverse effect
ning January 1, 1994 through the present, purchased a lawnmower on the company’s annual consolidated operating results or financial
containing a two-stroke or four-stroke gas combustible engine up condition, although an unfavorable resolution could be material to
to 30 horsepower that was manufactured or sold by the defend- the company’s consolidated operating results for a particular
ants. The amended complaint also sought an injunction, unspeci- period.
fied compensatory and punitive damages, treble damages under
RICO, and attorneys’ fees. Textron Innovations Inc. v. The Toro Company; The Toro
In May 2006, the case was removed to federal court in the Company v. Textron Inc. and Jacobsen. In July 2005, Textron
Southern District of Illinois. In August 2006, the company, together Innovations Inc., the patent holding company of Textron, Inc., filed
with the other defendants other than MTD Products Inc. (‘‘MTD’’), a lawsuit in Delaware Federal District Court against the company
filed a motion to dismiss the amended complaint. Also in August for patent infringement. Textron alleges that the company willfully
2006, the plaintiffs filed a motion for preliminary approval of a set- infringed certain claims of three Textron patents by selling our
tlement agreement with MTD and certification of a settlement Groundsmaster commercial mowers. Textron seeks damages for
class. In December 2006, another defendant, American Honda the company’s past sales and an injunction against future infringe-
Motor Company (‘‘Honda’’), notified the company that it had ment. In August and November 2005, management answered the
reached a settlement agreement with the plaintiffs. complaint, asserting defenses and counterclaims of
In May 2008, the court issued a memorandum and order that non-infringement, invalidity, and equitable estoppel. Following the
(i) dismissed the RICO claim in its entirety with prejudice; Court’s order in October 2006 construing the claims of Textron’s
(ii) dismissed all non-Illinois state-law claims without prejudice and patents, discovery in the case was closed in February 2007. In
with instructions that such claims must be filed in local courts; and March 2007, following unsuccessful attempts to mediate the case,
(iii) rejected the proposed settlement with MTD. The proposed management filed with the USPTO to have Textron’s patents reex-
Honda settlement was not under consideration by the court and amined. The reexamination proceedings are pending in the
was not addressed in the memorandum and order. Also in May USPTO, and all of the claims asserted against the company in all
2008, the plaintiffs (i) re-filed the Illinois claims with the court; and three patents stand rejected. In April 2007, the Court granted our
(ii) filed non-Illinois claims in federal courts in the District of New motion to stay the litigation and, in June 2007, denied Textron’s
Jersey and the Northern District of California with essentially the motion for reconsideration of the Court’s order staying the
same state law claims. proceedings.
In June 2008, the plaintiffs filed a motion with the United States Management continues to evaluate these lawsuits and is unable
Judicial Panel on Multidistrict Litigation (the ‘‘MDL Panel’’) that to reasonably estimate the likelihood of loss or the amount or
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