| Legal Matters And Indemnifications | Note 12 — Legal Matters and Indemnifications
There were no material changes in our legal matters and indemnifications, as disclosed in our Annual Report on Form 10-K for the year ended January 1, 2016.
TAOS litigation
Texas Advanced Optoelectronic Solutions, Inc., or TAOS, named us as a defendant in a lawsuit filed on November 25, 2008 in the United States District Court for the Eastern District of Texas. In this action, TAOS alleged four claims consisting of patent infringement, breach of contract, trade secret misappropriation, and tortious interference with a business relationship. On March 6, 2015, the jury found in favor of TAOS on each of the four claims and recommended to the court that we pay $ 48.8 million in actual damages and $ 10.0 million in exemplary damages on the trade secret misappropriation claim along with $ 74,000 in damages for patent infringement. The jury’s verdict also included other duplicat ive damages of $ 30.0 million. After the trial, TAOS filed post-trial motions seeking unspecified attorneys’ fees, enhanced patent infringement damages, $ 18.1 million in pre-judgment interest, which will continue to accrue until the judgment is entered, and a permanent injunction enjoining us from making or selling certain ambient light sensor products. We have vigorously opposed each of these motions. We filed post-trial motions for a new trial and renewed a motion for judgment as a matter of law. In January 2016, the court heard oral arguments on TAOS’ motions for a permanent injunction and unspecified attorneys’ fees , but declined to hear oral argument o n the other motions before it. On April 22, 2016, the court denied TAOS’ motion for permanent injunction, but allowed for a continuing reasonable royalty on parts found to be infringing TAOS’ patent. On April 26, 2016, the court issued its order on the remaining post-trial motions, in relevant part, granting TAOS’ motion for entry of final judgment, consistent with the jury’s verdict, but without the duplicative damages. The court also indicated it intends to award to TAOS $ 18.2 million in pre-judgment interest plus court costs. After judgment is entered, we will file an appeal with the U.S. Court of Appeals for the Federal Circuit .
As a consequence of the verdict, during the quarter ended April 3, 2015, we recorded a provision of $81.1 million related to this matter, including pre-judgment interest and estimated legal costs, but excluding the damages we believe to be duplicative. No change was required to our estimate as a result of the April 26 , 2016 order . Since April 3, 2015, we incurred $ 3.4 million of legal costs, and, as such, the accrual outstanding as of April 1, 2016 was $ 77.7 million. Given the unpredictable nature of this type of litigation and because the outcome remains subject to appeal, the ultimate impact of this lawsuit may be materially different from our estimate.
Environmental matter
In a correspondence dated September 28, 2015, Thomson Consumer Electronics Television Taiwan, Ltd., or TCETVT, notified us that it reserved its right to seek indemnification from us for any and all costs, fees, and expenses incurred as a result of a toxic tort class action lawsuit filed in Taiwan against TCETVT and others. The lawsuit pertains to alleged injuries resulting from groundwater contamination at a manufacturing facility in Taiwan currently owned by TCETVT, which was previously owned and operated by predecessors, including General Electric and Harris Corporation, or Harris, of our Taiwan subsidiary, Intersil Ltd. In the September 28 correspondence, TCETVT also informed us that the Taipei District Court entered a judgment of $ 18.5 million in the lawsuit against TCETVT, which judgment has been appealed. In addition, TCETVT informed us that they have incurred costs of $ 11.2 million in defending against the lawsuit through September 1, 2015. We were also advised by TCETVT that additional claimants made be added to the lawsuit and TCETVT believes that if such additional claimants were successfully added, the resulting liability could be as high as $ 200.0 million.
TCETVT also informed us that it reserved its right to seek indemnification from us for any and all costs associated with the remediation of the contamination on that site and nearby areas. TCETVT claims they have incurred $ 15.9 million in remediation-related costs through September 1, 2015.
Under the terms of the 1999 Master Transaction Agreement between Harris and Intersil, whereby Harris transferred its semiconductor business assets to us, environmental liabilities (including those associated with Harris’ Taiwan semiconductor operations) were expressly retained by Harris. The Master Transaction Agreement also requires Harris to indemnify us for any and all costs relating to those retained environmental liabilities. We have denied liability to TCETVT for the costs associated with the lawsuit as well as the costs associated with the remediation of the contamination on the site. We have also submitted a claim notice to Harris seeking defense and indemnification from Harris under the Master Transaction Agreement for any and all claims made by TCETVT in connection with this matter. Harris has not yet agreed to indemnify us for the liability asserted by TCETVT.
We are currently party to various claims and legal proceedings, including those discussed above. When we believe that a loss is probable and the amount of the loss can be reasonably estimated, we recognize the estimated amount of the loss. We include legal costs in the estimate of losses. As additional information becomes available, we reassess any potential liability related to these matters and, if necessary, revise the estimates.
We do not believe, based on currently available facts and circumstances that the ultimate outcome of these matters, individually and in the aggregate, will have a material adverse effect on our financial position or overall trends in results of our operations in excess of amounts already accrued. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur, including an award of substantial monetary damages or issuance of an injunction prohibiting us from selling one or more products. From time-to-time, we may enter into confidential discussions regarding the potential settlement of such lawsuits. Any settlement of pending litigation could require us to incur substantial costs and other ongoing expenses, such as future royalty payments in the case of an intellectual property dispute. There can be no assurances that the actual amounts required to satisfy any liabilities arising from the matters described above will not have a material adverse effect on our results of operations, financial position, or cash flows.
We incur indemnification obligations for intellectual property infringement claims related to our products. We accrue for known indemnification issues and estimate unidentified issues based on historical activity. |
