Contingencies

9 Months Ended

Sep. 25, 2011

Contingencies

Contingencies

Note 11 – Contingencies

Patent Litigation with Power Integrations, Inc. There are four outstanding proceedings with Power Integrations.

POWI 1: On October 20, 2004, the company and our wholly owned subsidiary, Fairchild Semiconductor Corporation, were sued by Power Integrations, Inc. in the U.S. District Court for the District of Delaware. Power Integrations alleged that certain of the company's pulse width modulation (PWM) integrated circuit products infringed four Power Integrations U.S. patents, and sought a permanent injunction preventing the company from manufacturing, selling or offering the products for sale in the U.S., or from importing the products into the U.S., as well as money damages for past infringement.

The trial in the case was divided into three phases. In the first phase of the trial that occurred in October of 2006, a jury returned a verdict finding that thirty-three of the companies PWM products willfully infringed one or more of seven claims asserted in the four patents and assessed damages against the company. The company voluntarily stopped U.S. sales and importation of those products in 2007 and has been offering replacement products since 2006. Subsequent phases of the trial conducted during 2007 and 2008 focused on the validity and enforceability of the patents. In December of 2008, the judge overseeing the case reduced the jury's 2006 damages award from $34 million to approximately $6.1 million and ordered a new trial on the issue of willfulness. The new trial was held in June of 2009 and then in January of 2011 the court awarded Power Integrations final damages in the amount of $12.2 million. We have challenged the final damages award, willfulness finding, injunction, and other issues on appeal.

POWI 2: On May 23, 2008, Power Integrations filed another lawsuit against the company, Fairchild Semiconductor Corporation and our wholly owned subsidiary System General Corporation in the U.S. District Court for the District of Delaware, alleging infringement of three patents. Of the three patents claimed in that lawsuit, two are patents that were asserted against the company and Fairchild Semiconductor Corporation in the October 2004 lawsuit described above. In 2011, POWI added a fourth patent to this case. The company believes that it has strong defenses against Power Integrations' claims and intends to vigorously defend this second lawsuit.

On October 14, 2008, Fairchild Semiconductor Corporation and System General Corporation filed a patent infringement lawsuit against Power Integrations in the U.S. District Court for the District of Delaware, alleging that certain PWM integrated circuit products infringe one or more claims of two U.S. patents owned by System General. The lawsuit seeks monetary damages and an injunction preventing the manufacture, use, sale, offer for sale or importation of Power Integrations products found to infringe the asserted patents.

Both lawsuits have been consolidated and will be heard together in Delaware District Court. The trial is currently scheduled for spring of 2012.

POWI 3: On November 4, 2009, Power Integrations, Inc. filed a complaint for patent infringement against the company and two of the company's subsidiaries in the United States District Court for the Northern District of California alleging that several of our products infringe three of Power Integrations' patents. One of those patents has since been dropped from the case. The company intends to put on a vigorous defense against these claims. In the same lawsuit we have filed counterclaims against Power Integrations, alleging Power Integrations' products infringe certain claims of one of our patents.

POWI 4: On February 10, 2010 Fairchild and System General filed a lawsuit in Suzhou, China against four Power Integrations entities and seven vendors. The lawsuit claims that Power Integrations violates four Fairchild/System General patents. Fairchild is seeking an injunction against the Power Integrations products and over $17.0 million in damages. Power Integrations is currently seeking to invalidate the Fairchild/System General patents in proceedings before the Chinese patent office.

Fairchild Semiconductor Corporation v. Cadeka Microcircuits, LLC. Fairchild filed this lawsuit against a competitor for misappropriation of trade secrets, tortuous interference with contract and breach of contract. The competitor filed counterclaims alleging breach of contract, unjust enrichment and other claims. On September 29, 2011, the parties entered into a preliminary confidential settlement agreement resolving all claims between them.

Other Legal Claims. From time to time the company is involved in legal proceedings in the ordinary course of business. The company believes that there is no such ordinary-course litigation pending that could have, individually or in the aggregate, a material adverse effect on our business, financial condition, results of operations or cash flows. Legal costs are expensed as incurred.

The company analyzes potential outcomes from current litigation in accordance with the Contingency Topic of the FASB ASC. Accordingly, the company groups contingencies into three categories. The first represents contingencies in which the possibility of a loss is remote. For contingencies in this category, the company records no reserve and does not attempt to assess the range of losses that are possible because the likelihood of occurrence is so remote. The second group represents contingencies in which the possibility of a loss is reasonably possible. For this category, the company attempts to estimate the range of possible losses but does not record a reserve for such losses. The company believes the range of possible losses for contingencies that are reasonably possible is approximately zero to $5.0 million. The third group represents contingencies in which the company believes losses are probable. The company believes that losses in this category could range anywhere between $13.0 and $30.0 million. Accordingly, the company has recorded a reserve attributable to losses that are probable in the amount of $14.7 million as of September 25, 2011. The company determines the amount of the reserve by assessing the potential liabilities and analyzing the claims based upon historical experience in defending and/or resolving similar claims.