| Commitments and Contingencies | Note 14. Commitments and
Contingencies
Lease Commitments
We have various operating leases for office space and
equipment.
Seattle, Washington
In March 2011, we entered into a lease agreement for office space
that houses our corporate headquarters in Seattle (as amended from
time to time, the “Seattle Lease”). Pursuant to the
terms of the Seattle Lease, we currently occupy a total of 155,042
square feet, and we are obligated to make escalating monthly lease
payments that began in December 2012 and continue through December
2024. In November 2014, we entered into a lease amendment
under which we will lease an additional 113,470 square feet of
office space. The Company has taken possession of a portion of the
additional office space and will continue to take possession as
space becomes available through 2017 under the same terms and
conditions.
San Francisco, California
In connection with our February 2015 acquisition of Trulia, we
assumed a lease agreement for office space in San Francisco (as
amended from time to time, the “San Francisco Lease”),
which houses Trulia’s corporate headquarters and beginning in
March 2015, also houses Zillow’s personnel located in San
Francisco. Pursuant to the terms of the San Francisco Lease, we
lease a total of approximately 79,000 square feet, and we are
obligated to make escalating monthly lease payments that began in
November 2014 and continue through September 2023. In
July 2014, Trulia entered into a lease amendment under which
we will lease an additional 26,620 square feet of office space
commencing in October 2015 under the same terms and conditions.
In November 2012, we entered into an operating lease in San
Francisco, California for 18,353 square feet under which we are
obligated to make escalating monthly lease payments which began in
December 2012 and continue through November 2018. In March 2015, we
ceased use of this space in connection with our February 2015
acquisition of Trulia, and in May 2015, we sublet this office space
to another occupant.
New York, New York
In February 2014, we entered into an operating lease in New York
(as amended from time to time, the “New York Lease”).
Pursuant to the terms of the New York Lease, we lease a total of
approximately 39,900 square feet, and we are obligated to make
escalating monthly lease payments that began in August 2014 and
continue through November 2024.
Denver, Colorado
In connection with our February 2015 acquisition of Trulia, we
assumed a lease agreement for office space in Denver. Pursuant to
the terms of the lease, we lease a total of approximately 65,000
square feet, and we are obligated to make escalating monthly lease
payments that began in November 2014 and continue through October
2021.
Bellevue, Washington
In connection with our February 2015 acquisition of Trulia, we
assumed a lease agreement for office space in Bellevue. Pursuant to
the terms of the lease, we lease a total of approximately 72,000
square feet, and we are obligated to make escalating monthly lease
payments that began in October 2014 and continue through September
2021. We currently utilize approximately half of the total square
feet available in Bellevue (see Note 15).
Irvine, California
In April 2012, we entered into a lease agreement for office space
in Irvine (as amended from time to time, the “Irvine
Lease”). Pursuant to the terms of the Irvine Lease, we lease
a total of approximately 60,000 square feet under which we are
obligated to make escalating monthly lease payments which began in
August 2012 and continue through July 2022.
We lease additional office space in Chicago, Illinois, Lincoln,
Nebraska and Vancouver, British Columbia. We believe our facilities
are sufficient for our current needs.
Future minimum payments for all operating leases as of
June 30, 2015 are as follows (in thousands):
Remainder of 2015 $ 8,804
2016 20,056
2017 24,033
2018 27,206
2019 23,734
All future years 103,394
Total future minimum lease payments $ 207,227
Rent expense for the three months ended June 30, 2015 and 2014
was $4.0 million and $1.6 million, respectively. Rent expense for
the six months ended June 30, 2015 and 2014 was $7.4 million
and $3.1 million, respectively. Total minimum rentals to be
received in the future under noncancelable subleases as of
June 30, 2015 was $4.4 million.
Purchase Commitments
As of June 30, 2015, we had non-cancelable purchase
commitments for content related to our mobile applications and
websites totaling $108.6 million. The amounts due for this content
as of June 30, 2015 are as follows (in thousands):
Remainder of 2015 $ 14,859
2016 28,570
2017 34,700
2018 14,000
2019 6,000
All future years 10,500
Total future purchase commitments $ 108,629
Letters of Credit
As of June 30, 2015, we have outstanding letters of credit of
approximately $3.8 million, $1.8 million, $1.5 million, $1.1
million and $1.1 million, respectively, which secure our lease
obligations in connection with the operating leases of our San
Francisco, Seattle, Bellevue, New York and Denver office spaces.
Certain of the letters of credit are unsecured obligations, and
certain of the letters of credit are secured by certificates of
deposit held as collateral in our name at a financial institution.
The secured letters of credit are classified as restricted cash in
our condensed consolidated balance sheet.
Surety Bonds
In the course of business, we are required to provide financial
commitments in the form of surety bonds to third parties as a
guarantee of our performance on and our compliance with certain
obligations. If we were to fail to perform or comply with these
obligations, any draws upon surety bonds issued on our behalf would
then trigger our payment obligation to the surety bond issuer. We
have outstanding surety bonds issued for our benefit of
approximately $2.0 million as of June 30, 2015. There were no
surety bonds outstanding as of December 31, 2014.
Legal Proceedings
We are involved in a number of legal proceedings concerning matters
arising in connection with the conduct of our business activities,
some of which are at preliminary stages and some of which seek an
indeterminate amount of damages. We regularly evaluate the status
of legal proceedings in which we are involved to assess whether a
loss is probable or there is a reasonable possibility that a loss
or additional loss may have been incurred to determine if accruals
are appropriate. We further evaluate each legal proceeding to
assess whether an estimate of possible loss or range of loss can be
made if accruals are not appropriate. For certain cases described
below, management is unable to provide a meaningful estimate of the
possible loss or range of possible loss because, among other
reasons, (i) the proceedings are in preliminary stages;
(ii) specific damages have not been sought; (iii) damages
are, in our view, unsupported and/or exaggerated; (iv) there
is uncertainty as to the outcome of pending appeals or motions;
(v) there are significant factual issues to be resolved;
and/or (vi) there are novel legal issues or unsettled legal
theories presented. For these cases, however, management does not
believe, based on currently available information, that the
outcomes of these proceedings will have a material effect on our
financial position, results of operations or cash flow.
In March 2010, Smarter Agent, LLC (“Smarter Agent”)
filed a complaint against us and multiple other defendants,
including HotPads, Inc. (“HotPads”), for patent
infringement in the U.S. District Court for the District of
Delaware. The complaint alleges, among other things, that our
mobile technology infringes three patents held by Smarter Agent
purporting to cover: a “Global positioning-based real estate
database access device and method,” a “Position-based
information access device and method” and a
“Position-based information access device and method of
searching,” and seeks an injunction against the alleged
infringing activities and an unspecified award for damages. In
November 2010, the U.S. Patent and Trademark Office granted our
petition for re-examination of the three patents-in-suit, and, to
date, all claims of all three patents remain rejected in the
re-examination proceedings, including through appeals to the Patent
Trial and Appeal Board. In March 2011, the court granted a stay of
the litigation pending the completion of the re-examination
proceedings. In addition, in October 2011, Smarter Agent filed a
substantially similar complaint against Diverse Solutions, Inc.
(“Diverse Solutions”), StreetEasy, Market Leader (a
subsidiary of Trulia), and other defendants, for patent
infringement in the U.S. District Court for the District of
Delaware. On October 31, 2011, we acquired substantially all
of the operating assets and certain liabilities of Diverse
Solutions, including the Smarter Agent complaint against Diverse
Solutions. On December 14, 2012, we acquired HotPads, and took
responsibility for the Smarter Agent complaint against HotPads. On
August 26, 2013, we acquired StreetEasy, and took
responsibility for the Smarter Agent complaint against StreetEasy.
On February 17, 2015, we acquired Trulia, and took
responsibility for the Smarter Agent complaint against Market
Leader. The Patent Office recently issued a Notice of Intent to
Issue Reexamination Certification indicating that it will cancel
all claims in one of the three patents. We expect to receive
similar Notices for the other two patents. We have not recorded an
accrual related to these complaints as of June 30, 2015 or
December 31, 2014, as we do not believe a loss is probable or
reasonably estimable.
In September 2010, LendingTree, LLC (“LendingTree”)
filed a complaint against us for patent infringement in the U.S.
District Court for the Western District of North Carolina. The
complaint alleged, among other things, that our website technology
infringes two patents purporting to cover a “Method and
computer network for coordinating a loan over the internet.”
The complaint sought, among other things, a judgment that we
infringed certain patents held by LendingTree, an injunction
against the alleged infringing activities and an award for damages.
We denied the allegations and asserted defenses and counterclaims
seeking declarations that we are not infringing the patents and
that the patents are invalid. In March 2014, a federal jury found
that Zillow does not infringe the patents and that the patents
asserted by LendingTree are invalid. In April, 2014, LendingTree
filed two motions for judgment as a matter of law and for a new
trial, all of which we opposed. In October 2014, the Court issued
an order upholding the jury verdict and denying LendingTree’s
motions. In November 2014, LendingTree filed a notice of
appeal. We have not recorded an accrual related to this complaint
as of June 30, 2015 or December 31, 2014, as we do not
believe a loss is probable or reasonably estimable.
In March 2014, Move, Inc., the National Association of Realtors and
three related entities, filed a complaint against us and Errol
Samuelson, our Chief Industry Development Officer, in the Superior
Court of the State of Washington in King County, alleging, among
other things, that Zillow and Mr. Samuelson misappropriated
plaintiffs’ trade secrets in connection with
Mr. Samuelson joining Zillow in March 2014. The complaint
seeks, among other things, an injunction against the alleged
misappropriations and Mr. Samuelson working for us, as well as
unspecified damages. In April 2014, the court denied the
plaintiffs’ motion for a preliminary injunction prohibiting
Mr. Samuelson from working for us. Plaintiffs renewed
their motion for a preliminary injunction and on September 30,
2014, the court granted that request and entered a preliminary
injunction. Zillow filed a motion requesting that the court
reconsider that decision, which the court denied. On
September 22, 2014, Zillow filed a notice for discretionary
review by the Washington Court of Appeals, followed by a motion for
discretionary review on October 7, 2014. Samuelson also filed
a motion for discretionary review. Zillow’s and
Samuelson’s motions for discretionary review were granted on
November 19, 2014. On January 26, 2015, the plaintiffs
filed a contempt motion for alleged violation of the preliminary
injunction, which Zillow and Samuelson opposed. On February 3,
2015, the parties entered into a stipulation, later adopted by
order of the court that Zillow and Samuelson shall withdraw the
appeal and the last of the terms of the preliminary injunction will
expire on March 22, 2015. The trial date has been extended to
June 2016. On February 11, 2015, the Superior Court issued an
Order to Show Cause regarding plaintiffs’ contempt motion and
set a schedule for discovery, briefing and a hearing. In February
2015, plaintiffs filed an amended complaint that, among other
things, added Curt Beardsley, our Vice President of MLS
Partnerships, as a defendant in the matter. On March 27, 2015,
the parties entered into a stipulation, later adopted by order of
the court, that plaintiffs shall withdraw their request that the
Superior Court find Zillow and Mr. Samuelson in contempt of
the preliminary injunction. We deny the allegations of any
wrongdoing and intend to vigorously defend the claims in the
lawsuit. We have not recorded an accrual related to these
complaints as of June 30, 2015 or December 31, 2014, as
we do not believe a loss is probable. There is a reasonable
possibility that a loss may be incurred; however, the possible loss
or range of loss is not estimable.
In August 2014, four purported class action lawsuits were filed by
plaintiffs against Trulia and its directors, Zillow, and Zebra
Holdco, Inc. in connection with Zillow’s proposed acquisition
of Trulia. One of those purported class actions, captioned Collier
et al. v. Trulia, Inc., et al., was brought in the Superior Court
of the State of California for the County of San Francisco, however
on October 7, 2014, plaintiff in the Collier action filed a
new complaint in the Delaware Court of Chancery alleging
substantially the same claims and seeking substantially the same
relief as the original complaint filed in California. On
October 8, 2014, plaintiff in the Collier action filed a
request for dismissal of the California case without prejudice. The
other three of the purported class action lawsuits, captioned Shue
et al. v. Trulia, Inc., et al., Sciabacucci et al. v. Trulia, Inc.,
et al., and Steinberg et al. v. Trulia, Inc. et al., were brought
in the Delaware Court of Chancery. All four lawsuits allege that
Trulia’s directors breached their fiduciary duties to Trulia
stockholders, and that the other defendants aided and abetted such
breaches, by seeking to sell Trulia through an allegedly unfair
process and for an unfair price and on unfair terms. All lawsuits
seek, among other things, equitable relief that would enjoin the
consummation of Zillow’s proposed acquisition of Trulia and
attorneys’ fees and costs. The Delaware actions also seek
rescission of the Merger Agreement (to the extent it has already
been implemented) or rescissory damages and orders directing the
defendants to account for alleged damages suffered by the
plaintiffs and the purported class as a result of the
defendants’ alleged wrongdoing. On September 24, 2014,
plaintiff in the Sciabacucci action filed (1) a motion for
expedited proceedings, (2) a motion for a preliminary
injunction, (3) a request for production of documents from
defendants, and (4) notice of depositions. On
October 13, 2014, the Delaware Court of Chancery issued an
order consolidating all of the Delaware actions into one matter
captioned In re Trulia, Inc. Stockholder Litigation. On
October 13 and 14, 2014, the above-referenced motions were
refiled under the consolidated case number. On November 14,
2014, plaintiffs again refiled their motion for a preliminary
injunction challenging the proposed acquisition. On
November 19, 2014, the parties entered into a Memorandum of
Understanding, documenting the agreement-in-principle for the
settlement of the consolidated litigation, pursuant to which Trulia
agreed to make certain supplemental disclosures in a Form 8-K. The
Memorandum of Understanding was filed with the Chancery Court that
same day. The parties have concluded confirmatory discovery and are
negotiating a stipulation of settlement. We have recorded an
accrual for an immaterial amount related to these lawsuits as of
June 30, 2015. There is a reasonable possibility that an
additional loss in excess of amounts accrued may be incurred;
however, the possible additional loss or range of additional
possible loss is not estimable. We did not record an accrual
related to these lawsuits as of December 31, 2014.
In addition to the matters discussed above, from time to time, we
are involved in litigation and claims that arise in the ordinary
course of business. Although we cannot be certain of the outcome of
any litigation and claims, nor the amount of damages and exposure
that we could incur, we currently believe that the final
disposition of such matters will not have a material effect on our
financial position, results of operations or cash flow. Regardless
of the outcome, litigation can have an adverse impact on us because
of defense and settlement costs, diversion of management resources
and other factors.
Indemnifications
In the ordinary course of business, we enter into contractual
arrangements under which we agree to provide indemnification of
varying scope and terms to business partners and other parties with
respect to certain matters, including, but not limited to, losses
arising out of the breach of such agreements and out of
intellectual property infringement claims made by third parties. In
addition, we have agreements that indemnify certain issuers of
surety bonds against losses that they may incur as a result of
executing surety bonds on our behalf. For our indemnification
arrangements, payment may be conditional on the other party making
a claim pursuant to the procedures specified in the particular
contract. Further, our obligations under these agreements may be
limited in terms of time and/or amount, and in some instances, we
may have recourse against third parties for certain payments. In
addition, we have indemnification agreements with certain of our
directors and executive officers that require us, among other
things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or
officers. The terms of such obligations may vary. |
