Quarterly report pursuant to Section 13 or 15(d)

Commitments And Contingencies

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Commitments And Contingencies
9 Months Ended
Sep. 30, 2011
Commitments And Contingencies [Abstract]  
Commitments And Contingencies

Note B - COMMITMENTS AND CONTINGENCIES

 

[1] Legal Fees:


Dovel & Luner, LLP provides legal services to the Company with respect to the Company's pending patent litigation filed in September 2011 against sixteen data networking equipment manufacturers in the United States District Court for the Eastern District of Texas, Tyler (See Note D (1)). The terms of the Company's agreement with Dovel & Luner LLP essentially provides for legal fees on a full contingency basis ranging from 12.5% to 35% of the net recovery (after deduction for expenses) depending on the stage of the preceding in which a result (settlement or judgment) is achieved.

 

Dovel & Luner, LLP provided legal services to the Company with respect to the litigation settled in July 2010 against several major data networking equipment manufacturers (See Note D[2]). The terms of the Company's agreement with Dovel & Luner, LLP provide for legal fees of a maximum aggregate cash payment of $1.5 million plus a contingency fee of up to 24% (based on the settlement being achieved at the trial stage). Because of the royalty payments payable quarterly by Cisco in accordance with the Company's settlement and license agreement with Cisco, the Company has an obligation to pay Dovel & Luner 24% of such royalties received. During the nine months ended September 30, 2011 and 2010, the

 

Company incurred aggregate legal fees to Dovel & Luner, LLP of approximately $1,492,647 and $7,872,000, respectively, and during the three months ended September 30, 2011 and 2010 the Company incurred aggregate legal fees to Dovel & Luner, LLP of approximately $247,000 and $7,572,000, respectively.

 

With respect to the Company's litigation against D-Link, which was settled in May 2007 (See Note D[3]), the Company utilized the services of Blank Rome, LLP on a full contingency basis. In accordance with the Company's contingency fee agreement with Blank Rome LLP, once the Company recovers its expenses related to the litigation (which have not yet been recovered), the Company is obligated to pay legal fees to Blank Rome LLP equal to 25% of the royalty revenue received by the Company from its license agreement with D-Link.

 

[2] Amended Patent Purchase Agreement:

 

On January 18, 2005, the Company and Merlot Communications, Inc. ("Merlot"), the successor of which is BAXL Technologies, Inc. ("BAXL"), amended the Patent Purchase

Agreement originally entered into in November 2003 (the "Amendment") pursuant to which the Company paid an additional purchase price of $500,000 to Merlot in consideration for the

restructuring of future contingent payments to Merlot from the licensing or sale of the Patents. The Amendment provides for future contingent payments by the Company to BAXL of $1.0 million upon achievement of $25 million of Net Royalties (as defined), an additional $1.0 million upon achievement of $50 million of Net Royalties and an additional $500,000 upon achievement of $62.5 million of Net Royalties from licensing or sale of the patents acquired from Merlot. At September 30, 2011, a payment of $1.0 million was payable to BAXL since Net Royalties of $25 million was achieved. This amount has been recorded as additional patent expense.

 

[3] Services Agreement:

 

Pursuant to an agreement, dated November 30, 2004, between the Company and ThinkFire Services USA, Ltd. ("ThinkFire"), the Company is obligated to pay ThinkFire fees from royalty payments received from certain licensees in consideration for services performed on behalf of the Company. At September 30, 2011, the Company accrued fees of approximately $27,000 with respect to its obligation to ThinkFire.

 

[4] Lease Agreement:

 

The Company currently leases office space in New York City at a cost of $4,200 per month under a lease which expires November 30, 2011.

 

On June 16, 2011, the Company entered into a four-year lease agreement commencing July 18, 2011 to rent office space, consisting of approximately 2,400 square feet, for offices in New Canaan, Connecticut. In accordance with the lease, the Company will pay a base rent of $6,400 per month for the first two years, $6,800 per month for the third year and $7,000 per month for the fourth year. The base rent is subject to annual adjustments to reflect increases in real estate taxes and operating expenses. The Company also entered into a one year sublease at a base rent of $3,700 per month to sublet approximately 50% of the space to a third party.