| Commitments and Contingencies | Note 7 — Commitments and Contingencies Contingent Legal Expenses We may retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with our licensing and enforcement activities. These law firms may be retained on a contingent fee basis whereby such law firms are paid on a scaled percentage of any negotiated fee, settlements or judgments awarded based on how and when the fees, settlements or judgments are obtained. Litigation and Patent Reexaminations We own numerous patents and continue to seek to grow and strengthen our patent portfolio, which covers various aspects of our innovations and includes various claim scopes. We plan to pursue avenues to monetize our intellectual property portfolio, in which we would generate revenue by selling or licensing our technology, and we intend to vigorously enforce our patent rights against alleged infringers of such rights. We dedicate substantial resources to protecting and enforcing our intellectual property rights, including with patent infringement proceedings we file against third parties and defense of our patents against challenges made by way of reexamination and review proceedings at the U.S. Patent and Trademark Office (“USPTO”) and Patent Trial and Appeal Board (“PTAB” or the “Board”). We expect these activities to continue for the foreseeable future, with no guarantee that any ongoing or future patent protection or litigation activities will be successful, or that we will be able to monetize our intellectual property portfolio. Any litigation, regardless of its outcome, is inherently uncertain, involves a significant dedication of resources, including time and capital, and diverts management’s attention from our other activities. As a result, any current or future claims, allegations, or challenges by or against third parties, whether eventually decided in our favor or settled, could materially adversely affect our business, financial condition and results of operations. Additionally, the outcome of pending or future litigation and/or related patent reviews and reexaminations, as well as any delay in their resolution, could affect our ability to continue to sell our products, protect against competition in the current and expected markets for our products or license or otherwise monetize our intellectual property rights in the future. Google Litigations On December 4, 2009, Netlist filed a patent infringement lawsuit against Google, Inc. (“Google”) in the U.S. District Court for the Northern District of California (the “NDCA”), seeking damages and injunctive relief based on Google’s alleged infringement of our U.S. Patent No. 7,619,912 (the “‘912 Patent”). The current judge assigned to the case, Chief Judge Seeborg, entered an order via stipulation on October 17, 2022 staying the NDCA Google case until the resolution of a pending case filed by Netlist, Inc. against Samsung Electronics Co., Ltd. in the United States District Court for the Eastern District of Texas (“EDTX”) ( Netlist, Inc. v. Samsung Elecs. Co., Ltd. et al. On July 26, 2022, Netlist filed patent infringement claims against Google Cloud EMEA Limited, Google Germany GmbH, Redtec Computing GmbH, and Google, seeking damages based on those defendants’ infringement of European Patents EP 2,454,735 (“EP735”) and EP 3,404,660 (“EP660”), which both generally relate to load reduced dual in line memory modules (“LRDIMM”) technologies. As of the reporting date, Google has submitted its statements of defense. The date for oral hearings are currently scheduled for November 2023. On October 15, 2021, Samsung initiated a declaratory judgement action against Netlist in the U.S. District Court for the District of Delaware (“DDE”) ( Samsung Elecs. Co., Ltd., et. al. v. Netlist, Inc. Micron Litigations On April 28, 2021, Netlist filed a complaint for patent infringement against Micron Technology, Inc. (“Micron”) in the U.S. District Court for the Western District of Texas, Waco Division (“WDTX”) (Case No. 6:21-cv00431 & Case No. 6:21-cv-00430). These proceedings are based on the alleged infringement by Micron’s LRDIMM and Micron’s non-volatile dual in line memory modules (“NVDIMM”) enterprise memory modules under four U.S. patents – U.S. Patent Nos. 10,489,314 (the “‘314 Patent”), 9,824,035 (the “‘035 Patent”), 10,268,608 (the “‘608 Patent”), and 8,301,833 (the “‘833 Patent”). The case has been assigned to Hon. Judge Lee Yeakel, and the parties completed briefing on their claim construction arguments. On May 11, 2022, Judge Yeakel entered a stay of the case pending the resolution of Micron’s requested Inter Partes Review (“IPR”) proceedings against the four patents asserted by Netlist in this case (the ‘833, ‘035, ‘608, and ‘314 Patents). As of the reporting date, the matter remains stayed pending the outcome of the related IPR proceedings. As noted above, Micron filed requests to bring IPR proceedings against Netlist’s ‘314, ‘035, ‘608, and ‘833 Patents. As of the reporting date, the PTAB granted Micron’s request for the ‘035, ‘833, and ‘314 Patents, but denied its request for the ‘608 Patent. The PTAB further denied Micron’s request for rehearing on the ‘608 Patent’s institution denial. As of the reporting date, the IPR trials under the ‘035, ‘833, and ‘314 Patents are proceeding following Netlist’s timely submissions of its related Patent Owner Responses. Oral arguments were presented for the ‘035 Patent IPR on April 19, 2023. Oral arguments for the ‘833 and ‘314 Patents are set for June and August 2023, respectively. On March 31, 2022, Netlist filed patent infringement claims against Micron in Germany (“Micron Dusseldorf Case”), seeking damages based on their infringement of EP735 and EP660. On June 24, 2022, Netlist requested injunctive relief. Micron initiated a nullity proceeding against the asserted EP patents in this action, making Netlist’s response to the same as November 19, 2022. As of the reporting date, primary briefing in the Micron Dusseldorf Case has concluded, while the German Federal Patent Court has entered a preliminary opinion on the EP735 and EP660 invalidity proceedings. Given the entry of the preliminary opinions, the Judge in the Micron Dusseldorf infringement actions has reset the oral hearing in those cases to 2024. Samsung Litigations On May 28, 2020, Netlist filed a complaint against Samsung in the U.S. District Court for the Central District of California for Samsung’s breach of the parties’ Joint Development and License Agreement (“JDLA”). On July 22, 2020, Netlist amended its complaint to seek a declaratory judgment that it properly terminated the JDLA in light of Samsung’s material breaches. On October 14, 2021, the Court entered summary judgment in Netlist’s favor and confirmed Netlist properly terminated the JDLA as of July 15, 2020. On February 15, 2022, the Court entered a final judgment in favor of Netlist on each of its three claims and confirmed conclusively that the licenses granted by Netlist under the JDLA were terminated. On February 25, 2022, Samsung filed a Notice of Appeal, and the Federal Court of Appeals for the Ninth Circuit Court of Appeals issued a Time Schedule Order on February 28, 2022. On August 4, 2022, Netlist filed a cross-appeal seeking the Appeal Court’s reconsideration of the District Court’s finding that the fees Netlist paid to PwC were consequential damages, rather than recoverable general damages. The parties have completed briefing on the appeal and cross-appeal. As of the reporting date, the Ninth Circuit Court of Appeals set a date for oral argument on June 9, 2023 at 9:30 A.M. PT, in Courtroom 1 of the Court’s Pasadena, CA Courthouse. On October 15, 2021, Samsung initiated a declaratory judgement action against Netlist in the DDE ( Samsung Elecs. Co., Ltd., et. al. v. Netlist, Inc. On November 19, 2021, Samsung filed IPR requests contesting the validity of U.S. Patent Nos. 9,858,218 (the “‘218 Patent”), 10,474,595 (the “‘595 Patent”), and 10,217,523 (the “‘523 Patent”). Netlist filed its initial responses to Samsung’s petitions on February 18, 2022, contesting the institution of any IPR on the grounds propounded. As of the reporting date, oral arguments were heard for the ‘523 IPR (February 1, 2023), and the ‘218 Patent and ‘595 Patent IPRs (February 15, 2023). As of the reporting date, the PTAB has issued a final written decision finding all of the claims of the ‘523 Patent valid and patentable, while finding all of the claims of the ‘218 Patent unpatentable. The PTAB has not yet entered its final written decision regarding the ‘595 Patent, which is due May 15, 2023. On December 20, 2021, Netlist filed a complaint for patent infringement against Samsung, Samsung Semiconductor, Inc., and Samsung Electronics America, Inc. in the EDTX (Case No. 2:21-cv-00463-JRG) under the ‘506, ‘339, and ‘918 Patents. Samsung responded to Netlist’s complaint on April 12, 2022, and Chief Judge Gilstrap ordered a scheduling conference be set. On May 3, 2022, Netlist entered a First Amended Complaint pursuant to the Federal Rules of Civil Procedure (“FRCP”) Rule 15, adding claims for infringement under three additional patents: the ‘060, ‘160, and ‘054 Patents. On April 14, 2023, the trial began with jury selection and opening statements, and concluded on April 21, 2023 with the entry of the jury’s verdict into the public record. The jury unanimously found that Samsung had willfully infringed Netlist’s ‘339, ‘918, ‘054, ‘060, and ‘160 patents through the sale of their DDR4 LRDIMMs, DDR5 DIMMS, and HBM components, and that none of the patent claims assessed at trial were invalid. Given the infringement, the jury awarded Netlist, Inc. a total of $303 million for Samsung’s infringement. As of the reporting date, post-trial proceedings are being briefed and adjudicated. On February 17, 2022, Samsung filed an IPR request contesting the validity of only claim 16 within the ‘912 Patent. Samsung then filed two additional IPR requests contesting the validity of the ‘506 and ‘339 Patents. Netlist filed its Patent Owner’s Preliminary Response for the ‘912 and ‘339 Patent IPRs on July 21, 2022, and for the ‘506 Patent IPR on July 28, 2022. On January 19, 2023, the PTAB instituted IPR trials on both the ‘912 and ‘339 Patents. The following day, the PTAB instituted an IPR trial on the ‘506 Patent. On October 19, 2022, the PTAB instituted IPR trials on the ‘912 Patent and ‘339 Patent, while two days later it instituted an IPR trial on the ’506 Patent. On January 5, 2023, USPTO Director Katherine K. Vidal entered an Order in the ‘912 proceeding mandating a sua sponte Samsung and set a supplemental briefing schedule that terminates on May 3, 2023. As of the reporting date, Netlist has timely filed its Patent Owner Responses for the ‘339 and ‘506 Patent IPR proceedings. Substantive briefing is ongoing in these IPRs. On May 17, 2022, Samsung filed two IPR petitions contesting the validity of Netlist’s ‘918 and ‘054 Patents. On December 6, 2022, the Board instituted an IPR trial for the ‘054 Patent, and then instituted an IPR trial for the ‘918 Patent the next day. On December 9, 2022, the Board set a joint schedule for both IPRs. As of the reporting date, Netlist filed its Patent Owner Response. Substantive briefing is ongoing in these IPRs. On June 3, 2022, Netlist filed patent infringement lawsuits against Samsung in Dusseldorf, Germany, seeking damages for Samsung’s infringement of Netlist’s Patents EP735 and EP660. The Dusseldorf Court set an Oral Hearing date for September 5, 2023. On August 1, 2022, Netlist filed a complaint for patent infringement against Samsung, Samsung Semiconductor, Inc., and Samsung Electronics America, Inc. in the EDTX (Case No. 2:22-cv-00293) under the ‘912 Patent, which relates generally to technologies to implement rank multiplication. On August 15, 2022, Netlist filed its first amended complaint here, further addressing Samsung’s infringement of the ‘215 Patent and ‘417 Patent. On October 21, 2022, Chief Judge Gilstrap ordered that this action and a parallel action by Netlist against Micron on the same patents (22-cv-00294-JRG) be consolidated and set for a joint scheduling conference on November 17, 2022, further instructing that this Samsung action be considered the “LEAD CASE” and that any further filings from either action be submitted in therefore all pretrial matters. As of the reporting date, the consolidated case stands ready to proceed with a claim construction hearing set for October 5, 2023, and trial beginning on April 15, 2024. On August 26, 2022, Samsung filed two IPR petitions contesting the validity of Netlist’s U.S. Patent Nos. 8,787,060 (the “‘060 Patent”) and 9,318,160 (the “‘106 Patent”). On January 19, 2023, Netlist filed its Patent Owner Preliminary Responses in those proceedings. As of the reporting date, the Board instituted trials for both IPRs, setting Netlist’s deadline to files its Patent Owner’s Response on July 5, 2023. On January 10, 2023, Samsung filed two IPR petitions contesting the validity of the ‘215 and ‘417 Patents. As of the reporting date, the Board has accorded these IPR a filing date of January 10, 2023. As of the reporting date, Netlist filed its Patent Owner Preliminary Responses by the May 9, 2023 deadline. On April 27, 2023, Samsung filed an IPR petition contesting the validity of the ‘608 Patent. As of the reporting date, the Board has not yet accorded this IPR a filing date. Other Contingent Obligations In the ordinary course of our business, we have made certain indemnities, commitments and guarantees pursuant to which we may be required to make payments in relation to certain transactions. These may include, among others: (i) intellectual property indemnities to our customers and licensees in connection with the use, sale and/or license of our products; (ii) indemnities to vendors and service providers pertaining to claims based on our negligence or willful misconduct; (iii) indemnities involving the accuracy of representations and warranties in certain contracts; (iv) indemnities to our directors and officers to the maximum extent permitted under the laws of the State of Delaware; (v) indemnities pertaining to all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with transactions contemplated by applicable investment or loan documents, as applicable; and (vi) indemnities or other claims related to certain real estate leases, under which we may be required to indemnify property owners for environmental and other liabilities or may face other claims arising from our use of the applicable premises. The duration of these indemnities, commitments and guarantees varies and, in certain cases, may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments we could be obligated to make. Historically, we have not been obligated to make significant payments as a result of these obligations, and no liabilities have been recorded for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. |
