Quarterly report pursuant to Section 13 or 15(d)

COMMITMENTS AND CONTINGENCIES

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COMMITMENTS AND CONTINGENCIES
3 Months Ended
Mar. 31, 2013
Commitments and Contingencies Disclosure [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 (16) 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% (with certain exceptions) of the net recovery (after deduction for expenses) depending on the stage of the preceding in which a result (settlement or judgment) is achieved. For the three month periods ended March 31, 2013 and March 31, 2012, the Company accrued legal fees and expenses of $128,000 and $264,000, respectively, due Dovel and Luner, LLP with respect to the litigation.

 

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 provided 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 three months ended March 31, 2013 and March 31, 2012, the Company accrued aggregate legal fees payable to Dovel & Luner, LLP of $867,000 and $880,000, respectively.

 

With respect to the Company’s litigation against D-Link, which was settled in May 2007, the Company utilized the legal 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, 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. During the three month period ended March 31, 2013, the Company recovered its expenses related to the litigation and accrued legal fees to Blank Rome LLP of $4,000. 

 

[2] Patent Acquisition:

 

On February 28, 2013, the Company completed the acquisition of 4 patents (as well as a pending patent application) pertaining to enabling technology for identification of media content for a purchase price of $1,000,000 in cash and 403,226 shares of the Company’s common stock. In addition, the Company is obligated to pay the seller 12.5% of the net proceeds generated by the Company from licensing, sale or enforcement of the patents. In March 2013, the Company filed six (6) additional related patent applications with the United States Patent and Trademark Office seeking patent protection based upon the original patent application filed in 2000.

 

[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 ranging from 5%-20% of royalty payments received from certain licensees in consideration for services performed on behalf of the Company. At March 31, 2013 and March 31, 2012, the Company accrued fees of $22,800 and $20,700, respectively, with respect to its obligation to ThinkFire.

 

[4 Lease Agreement:

 

The Company currently leases office space in New York City at a cost of $3,500 per month which lease expires on November 30, 2013.

 

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 pays 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 (which expired in July 2012) at a base rent of $3,700 per month to sublet approximately 50% of the space to a third party.