| LEGAL PROCEEDINGS |
| [1] |
On
April 4, 2014 and December 3, 2014, the Company initiated litigation against Google Inc. and YouTube, LLC in the United
States District Court for the Southern District of New York for infringement of several of its patents within the patent portfolio
acquired from Dr. Cox (See Note H[2] hereof) which relate to the identification of media content on the Internet. The
lawsuits allege that Google and YouTube have infringed and continue to infringe certain of the Company’s patents by
making, using, selling and offering to sell unlicensed systems and related products and services, which include YouTube’s
Content ID system. |
In
December 2014, Google Inc. filed four petitions to institute Inter Partes Review at the United States Patent and Trademark
Office (“USPTO”) pertaining to patents within our Cox Patent Portfolio asserted in the litigation filed in April 2014
as described above. Google in each of the four Inter Partes Review petitions seeks to cancel certain claims
of our patents at issue within the Cox Patent Portfolio. The USPTO has not yet made a determination of whether the
petitions for Inter Partes Review will be accepted and trials will proceed in any of the four Inter Partes Review
proceedings.
| [2] |
On
May 23, 2013, the Company’s wholly-owned subsidiary, Mirror Worlds Technologies, LLC, initiated patent litigation in
the United States District Court for the Eastern District of Texas, Tyler Division, against Apple, Inc., Microsoft, Inc.,
Hewlett-Packard Company, Lenovo Group Ltd., Lenovo (United States), Inc., Dell, Inc., Best Buy Co., Inc., Samsung Electronics
America, Inc. and Samsung Telecommunications America L.L.C., for infringement of the ‘227 patent (the “‘227
Patent”) (one of the patents the Company acquired as part of the acquisition of the Mirror Worlds patent portfolio). The
Company seeks, among other things, monetary damages based upon reasonable royalties. The lawsuit alleges that the
defendants have infringed and continue to infringe the claims of the ‘227 Patent by making, selling, offering to sell
and using infringing products including Mac OS and Windows operating systems and personal computers and tablets that include
versions of those operating systems, and by encouraging others to make, sell, and use these products. In September
2013 and October 2013, the defendants filed their answers to the Company’s complaint. Defendants Apple, Inc. and Microsoft,
Inc. also filed counterclaims for a declaratory judgment of non infringement of our ‘227 Patent and invalidity of the
‘227 Patent. In December 2013, the litigation was severed into two consolidated actions, Mirror Worlds
v Apple, et. al. and Mirror Worlds v. Microsoft, et. al. On September 12, 2013, certain defendants filed
a motion to stay the Company’s claims against Microsoft’s customers and transfer the litigation to the Western
District of Washington, which motion was denied by the Court on September 29, 2014. On October 24, 2014, the
defendants in the Mirror Worlds v. Microsoft, et al. action filed a Petition for a Writ of Mandamus in the United States
Court of Appeals for the Federal Circuit directing the District Court to (i) stay the Company’s claims against certain
PC manufacturer defendants, and (ii) transfer the case against Microsoft and certain PC manufacturer defendants to the Western
District of Washington. On January 7, 2015, the United States Court of Appeals for the Federal Circuit denied
defendants’ petition for a writ of mandamus. |
A
Markman hearing (a hearing in which the Court interprets and rules on the scope and meaning of disputed patent claim
language regarding the patent at issue) for the two consolidated actions was held on November 13, 2014. On
January 14, 2015, the Court issued its claim construction order. The Court ruled on the meaning of seven
disputed claim terms, adopted the Company’s proposed construction for four of the disputed claims, provided its own
construction for two claim terms and adopted defendants’ proposed construction for one claim term. On
December 8, 2014, Apple Inc. filed a motion for summary judgment asserting that the Company’s infringement claims are
barred under the Kessler doctrine asserting, among other things, that the accused Apple products are “essentially the
same” as products that were adjudged not to infringe the ‘227 Patent in a prior legal proceeding (described
below). On January 29, 2015, the Company filed a cross-motion for partial summary judgment that the Kessler
doctrine does not apply to this case as a matter of law. A decision on the motion is pending. On
January 23, 2015, defendant Microsoft and certain PC manufacturer defendants filed a motion to dismiss the Company’s
claims against them on the basis that the ‘227 Patent is invalid under 35 U.S.C. §101 on the basis that the claims
of the ‘227 Patent are directed at an abstract idea and do not constitute patentable subject matter. On
February 13, 2015, Apple, Inc. filed a similar motion to dismiss. The Company intends to aggressively oppose the
motions to dismiss. Trial dates in the two consolidated actions have been scheduled for March 2016.
| [3] |
In
September 2011, the Company initiated patent litigation against sixteen (16) data networking equipment manufacturers
in the United States District Court for the Eastern District of Texas, Tyler Division, for infringement of its Remote Power
Patent. Named as defendants in the lawsuit, excluding related parties, were Alcatel-Lucent USA, Inc., Allied Telesis,
Inc., Avaya Inc., AXIS Communications Inc., Dell, Inc., GarrettCom, Inc., Hewlett-Packard Company, Huawei Technologies USA,
Juniper Networks, Inx., Motorola Solutions, Inc., NEC Corporation, Polycom Inc., Samsung Electronics Co., Ltd., ShoreTel,
Inc., Sony Electronics, Inc., and Transitions Networks, Inc. Network-1 seeks monetary damages based upon reasonable
royalties. During the year ended December 31, 2012, the Company reached settlement agreements with defendants Motorola
Solutions, Inc. ("Motorola"), Transition Networks, Inc. ("Transition Networks") and GarretCom, Inc. (“GarretCom”). In
February 2013, the Company reached settlement agreements with Allied Telesis, Inc. (“Allied Telesis”) and NEC
Corporation (“NEC”). As part of the settlements, Motorola, Transition Networks, GarretCom, Allied Telesis
and NEC each entered into a non-exclusive license agreement for the Company’s Remote Power Patent pursuant to which
each such defendant agreed to license the Remote Power Patent for its full term (which expires in March 2020) and pay a license
initiation fee and quarterly or annual royalties based on their sales of PoE products. On March 5, 2013, the
Court granted the motion of certain of the defendants to stay the litigation pending completion of the Inter Partes
review described in Note J[6] below. On September 11, 2014, the Company filed a motion to reopen the case
and lift the stay because it was no longer appropriate given the favorable decision the Company received at the USPTO (described
in Note J[6] below). On January 5, 2015, the Court granted the Company’s motion to re-open the case and lift the
stay. The litigation will now proceed toward trial. A trial date has been scheduled for July 2016. |
| [4] |
In
July 2010, the Company settled its patent litigation pending in the United States District Court for the Eastern District
of Texas, Tyler Division, against Adtran, Inc, Cisco Systems, Inc. and Cisco-Linksys, LLC, (collectively, “Cisco”),
Enterasys Networks, Inc., Extreme Networks, Inc., Foundry Networks, Inc., and 3Com Corporation, Inc. As part of
the settlement, Adtran, Cisco, Enterasys, Extreme Networks and Foundry Networks each entered into a settlement agreement with
the Company and entered into non-exclusive licenses for the Company’s Remote Power Patent (the “Licensed Defendants”). Under
the terms of the licenses, the Licensed Defendants paid the Company upon settlement approximately $32 million and also agreed
to license the Remote Power Patent for its full term, which expires in March 2020. In accordance with the Settlement
and License Agreement, dated May 25, 2011, which expanded upon the July 2010 agreement, Cisco is obliged to pay the Company
royalties (which began in the first quarter of 2011) based on its sales of PoE products up to maximum royalty payments per
year of $8 million through 2015 and $9 million per year thereafter for the remaining term of the patent. The royalty
payments are subject to certain conditions including the continued validity of the Company’s Remote Power Patent, and
the actual royalty amounts received may be less than the caps stated above, as was the case in 2013 and 2012. Under the terms
of the Agreement, if the Company grants other licenses with lower royalty rates to third parties (as defined in the Agreement),
Cisco shall be entitled to the benefit of the lower royalty rates provided it agrees to the material terms of such other license. Under
the terms of the Agreement, the Company has certain obligations to Cisco and if it materially breaches such terms, Cisco will
be entitled to stop paying royalties to the Company. This would have a material adverse effect on the Company’s
business, financial condition and results of operations. |
| [5] |
On
July 20, 2012, an unknown third party filed with the USPTO a request for ex parte reexamination of certain claims
of the Company’s Remote Power Patent. On September 5, 2012, the USPTO issued an order granting the reexamination. The
request for reexamination was stayed by the USPTO on December 21, 2012 until May 2014 (the completion of the Inter
Partes Review proceedings at the USPTO involving our Remote Power Patent described below). On October 14, 2014,
the USPTO issued a Reexamination Certificate, rejecting a challenge to the patentability of the Remote Power Patent (U.S Patent
No. 6,218,930). The Reexamination Certificate confirmed the patentability of the challenged claims of the Remote
Power Patent (claims 6, 8 and 9) without any amendment or modification. The USPTO also allowed fourteen (14) new
claims, bringing the total claims in the Remote Power Patent to twenty-three (23) claims. No claims were rejected. |
| [6] |
Avaya
Inc., Dell Inc., Sony Corporation of America and Hewlett Packard Co. were petitioners in Inter Partes Review proceedings
(which were joined together) (the “IPR Proceeding”) at the USPTO before the Patent Trial and Appeal Board (the
“Patent Board”) involving the Company’s Remote Power Patent. Petitioners in the IPR Proceeding sought to
cancel certain claims of the Remote Power as unpatentable. A hearing on the merits of the IPR Proceeding was held
on January 9, 2014. On May 22, 2014, the Patent Board issued its Final Written Decision in the Company’s
favor rejecting a challenge to the patentability of the Company’s Remote Power Patent. On July 24, 2014,
the Petitioners in the IPR Proceeding each filed a Notice of Appeal of the Patent Board’s decision to the United States
Court of Appeals for the Federal Circuit. In the event the decision of the Patent Board is reversed by the United
States Court of Appeals for the Federal Circuit and the Remote Power Patent is ultimately determined to be invalid, such a
decision would have a material adverse effect on the Company’s business, financial condition and results of operations
as the Company’s entire revenue stream is dependent upon the continued validity of its Remote Power Patent. |
| [7] |
On
February 16, 2015, Sony Corporation of America filed a Covered Business Method Review (CBM) Petition and a request for ex
parte reexamination with the USPTO seeking to invalidate certain claims of the Company’s Remote Power Patent. The
USPTO has not yet made a decision as to whether either the CBM petition or the request for ex parte reexamination will be
accepted for filing. |
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