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Commitments And Contingencies
9 Months Ended
Sep. 30, 2014
Commitments and Contingencies Disclosure [Abstract]  
Commitments And Contingencies
Commitments and Contingencies

Litigation

From time-to-time, j2 Global and its affiliates are involved in litigation and other disputes or regulatory inquiries that arise in the ordinary course of business. Any claims or regulatory actions against j2 Global and its affiliates, whether meritorious or not, could be time consuming and costly, and could divert significant operational resources. Many of these matters directly or indirectly concern patent actions filed by j2 Global and its affiliates against others. As part of the Company’s continuing effort to prevent the unauthorized use of its intellectual property, j2 Global and its affiliates have brought claims against several companies for infringing patents relating to online fax, voice, and other messaging technologies, including, among others, Integrated Global Concepts, Inc. (“IGC”) and RPost Holdings, Inc. and its affiliates (collectively, “RPost”).
On September 15, 2006, a j2 Global affiliate filed a patent infringement suit against IGC in the U.S. District Court for the Northern District of Georgia (“Northern District of Georgia”) (No. 1:06-cv-02119). In response, IGC filed counterclaims alleging antitrust violations and breach of contract, in addition to patent-related counterclaims.  On September 2, 2011, the Northern District of Georgia dismissed IGC’s breach of contract counterclaim and one of its antitrust counterclaims. On July 27, 2012, the Northern District of Georgia granted the j2 Global affiliate’s motion to dismiss the patent-related claims and counterclaims. On March 12, 2014, the j2 Global affiliate moved for summary judgment on IGC’s remaining antitrust claims, which remains pending.
On January 7, 2011, the Department of Revenue for the State of Washington (“Washington Department of Revenue”) issued assessments to a j2 Global affiliate for business and occupation tax and retail sales tax for the period of January 1, 2004 through September 30, 2010. On November 16, 2012, the Washington Department of Revenue denied the j2 Global affiliate’s petition for correction. The j2 Global affiliate paid the assessments and on June 21, 2013 filed a complaint against the Washington Department of Revenue in the Superior Court of Washington for Thurston County (No. 13-2-01338-7). In that suit, the j2 Global affiliate is seeking a refund of the entire amount paid and a declaration that the State improperly imposed the taxes. Discovery is ongoing.
On February 17, 2011, Emmanuel Pantelakis (“Pantelakis”) filed suit against j2 Global Canada, Inc. (“j2 Canada,” carrying on business as Protus IP Solutions) in the Ontario Superior Court of Justice (No. 11-50673), alleging that j2 Canada breached a contract relating to his use of j2 Canada’s Campaigner® product. j2 Canada filed a responsive pleading on March 23, 2011 and its responses to undertakings on July 16, 2012. On November 6, 2012, Pantelakis filed a second amended statement of claim reframing his lawsuit as a negligence action. j2 Canada filed an amended statement of defense on April 8, 2013. Discovery is ongoing.
On July 2, 2012, IGC filed suit against two j2 Global affiliates in the U.S. District Court for the Northern District of California (“Northern District of California”) (No. 5:12-cv-03434), alleging that the j2 Global affiliates breached a contract not to sue IGC. The j2 Global affiliates asserted counterclaims for infringement of U.S. Patent Nos. 6,350,066 (“the ’066 Patent”), 6,208,638 (“the ’638 Patent”), 6,597,688 (“the ’688 Patent”), and 7,020,132 (“the ’132 Patent”), and IGC asserted counterclaims for, among other things, invalidity, unenforceability, non-infringement, and implied license. On June 27, 2013, one of the j2 Global affiliates filed an additional suit against IGC in the Northern District of California (No. 5:13-cv-02971), alleging infringement of U.S. Patent No. 6,020,980 (“the ’980 Patent”). In response, IGC filed counterclaims for, among other things, invalidity, non-infringement, implied license, and breach of the same alleged covenant not to sue. The Northern District of California ordered that the two pending suits were related for the contract issues and on March 21, 2014 granted summary judgment dismissing IGC’s breach of contract claims in both actions. On June 27, 2014, the Northern District of California transferred the cases to the Central District of California (Nos. 14-cv-5128 and 14-cv-5139). The Central District of California has not yet issued a scheduling order.
On January 17, 2013, the Commissioner of the Massachusetts Department of Revenue (“Commissioner”) issued a notice of assessment to a j2 Global affiliate for sales and use tax for the period of July 1, 2003 through December 31, 2011. On or around July 22, 2014, the Commissioner denied the j2 Global affiliate’s application for abatement. On September 18, 2014, the j2 Global affiliate petitioned the Massachusetts Appellate Tax Board for abatement of the tax asserted in the notice of assessment (No. C325426). The Massachusetts Appellate Tax Board has not yet issued a scheduling order.
On January 18, 2013, Paldo Sign and Display Co. (“Paldo”) filed an amended complaint adding two j2 Global affiliates and a former j2 Canada employee as additional defendants in an existing purported class action pending in the U.S. District Court for the Northern District of Illinois (“Northern District of Illinois”) (No. 1:13-cv-01896). The amended complaint alleged violations of the Telephone Consumer Protection Act (“TCPA”), the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”), and common law conversion, arising from an indirect customer’s alleged use of the j2 Global affiliates’ systems to send unsolicited facsimile transmissions. On August 23, 2013, a second plaintiff, Sabon, Inc. (“Sabon”), was added. The j2 Global affiliates filed a motion to dismiss the ICFA and conversion claims, which was granted. The Northern District of Illinois also dismissed the j2 Canada employee for lack of personal jurisdiction. Discovery is ongoing.
On August 28, 2013, Phyllis A. Huster (“Huster”) filed suit in the Northern District of Illinois (No. 1:13-cv-06143) against two j2 Global affiliates and three other parties for correction of inventorship for the ’066 Patent, as well as U.S. Patent Nos. 6,857,074 (“the ’074 Patent”), 7,836,141 (“the ’141 Patent”), 7,895,306 (“the ’306 Patent”), 7,895,313 (“the ’313 Patent”), 7,934,148 (“the ’148 Patent”), 5,675,507, 5,870,549, and 6,564,321. Huster seeks, among other things, a declaration that she was an inventor of the patents-in-suit, an order directing the U.S. Patent & Trademark Office to substitute or add her as an inventor, and payment of at least half of defendants’ earnings from patent licensing and sales of rights. On September 19, 2014, the Northern District of Illinois granted the defendants’ motion to dismiss for improper venue and transferred the case to the Northern District of Georgia (No. 1:14-cv-03304). The Northern District of Georgia has not yet issued a scheduling order.
On October 16, 2013, one of j2 Global’s affiliates entered its appearance as a plaintiff in a multi-district litigation pending in the Northern District of Illinois (No. 1:12-cv-06286). In this litigation, Unified Messaging Solutions, LLC (“UMS”), a company with rights to assert certain patents owned by the j2 Global affiliate, has asserted the ’074, ’141, ’306, ’313, and ’148 Patents against a number of defendants. While claims against some defendants have been settled, other defendants have filed counterclaims for, among other things, non-infringement, unenforceability, and invalidity of the patents-in-suit. On December 20, 2013, the Northern District of Illinois issued a claim construction opinion and, on June 13, 2014, entered a final judgment of non-infringement for the remaining defendants based on that claim construction. UMS and the j2 Global affiliate filed a notice of appeal to the Federal Circuit on June 27, 2014. Briefing on the appeal was stayed on September 26, 2014, pending the Northern District of Illinois’s resolution of the defendants’ motion to declare the case exceptional.
On December 16, 2013, Anthony Jenkins filed a purported class action against a j2 Global affiliate in the Central District of California (No. 2:13-cv-09226).  An amended complaint was filed on March 18, 2014 adding two additional named plaintiffs. The amended complaint includes causes of action for breach of contract, several California statutory violations, and conversion.  The claims arose from the alleged difficulties some users encountered in canceling their eFax® accounts.  The potential class representatives sought, among other things, damages and injunctive relief on behalf of themselves and a purported nationwide class of allegedly similarly situated persons.  On May 23, 2014, the Central District of California dismissed the plaintiffs’ breach of contract and conversion claims, as well as certain statutory claims. On September 15, 2014, this case was dismissed pursuant to a settlement agreement.
On February 19, 2014, two j2 Global affiliates filed suit in the Central District of California (No. 2:14-cv-01283) against RPost, alleging infringement of the ’980 and ’148 Patents and seeking a declaration of non-infringement and invalidity of nine RPost patents that had been asserted against the j2 Global affiliates in a patent assertion letter from RPost. An amended complaint was filed on June 20, 2014 adding j2 Canada as a plaintiff. RPost filed an answer to the complaint on July 14, 2014, asserting counterclaims of infringement for the nine RPost patents against j2 Canada’s Campaigner® product. Discovery is ongoing.
On June 23, 2014, Andre Free-Vychine (“Free-Vychine”) filed a purported class action against a j2 Global affiliate in the Superior Court for the State of California, County of Los Angeles (“Los Angeles Superior Court”). The complaint alleges two California statutory violations relating to late fees levied in certain eVoice® accounts. Free-Vychine is seeking, among other things, damages and injunctive relief on behalf of himself and a purported nationwide class of allegedly similarly situated persons. On August 26, 2014, Law Enforcement Officers, Inc. and IV Pit Stop, Inc. (collectively, “LEO”) filed a purported class action against the same j2 Global affiliate in Los Angeles Superior Court. The complaint alleges three California statutory violations, negligence, breach of the implied covenant of good faith and fair dealing, and various other common law claims relating to late fees levied in certain Onebox® accounts. LEO is seeking, among other things, damages and injunctive relief on behalf of itself and a purported nationwide class of allegedly similarly situated persons. On September 29, 2014, the Los Angeles Superior Court ordered both cases related. Discovery is ongoing.
j2 Global does not believe, based on current knowledge, that the foregoing legal proceedings or claims, including those where an unfavorable outcome is reasonably possible, after giving effect to existing reserves, are likely to have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect j2 Global’s consolidated financial position, results of operations, or cash flows in a particular period. The Company has not accrued for a loss contingency relating to these legal proceedings because unfavorable outcomes are not considered by management to be probable.

Non-Income Related Taxes

As a provider of cloud services for business, the Company does not provide telecommunications services. Thus, it believes that its business and its users (by using our services) are not subject to various telecommunication taxes. Moreover, the Company does not believe that its business and its users (by using our services) are subject to other indirect taxes, such as sales and use tax, value added tax (“VAT”), goods and services tax, business tax and gross receipt tax. However, several state and municipal taxing authorities have challenged these beliefs and have and may continue to audit and assess our business and operations with respect to telecommunications and other indirect taxes.

The current U.S. federal government moratorium on states and other local authorities imposing access or discriminatory taxes on the Internet, which is set to expire November 2014 (extended to December 2014), does not prohibit federal, state or local authorities from collecting taxes on our income or from collecting taxes that are due under existing tax rules.

The Company is currently under audit for indirect taxes in several states and municipalities. The Company currently has no material reserves established for these matters, as the Company has determined that the liability is not probable and estimable. However, it is reasonably possible that such a liability could be incurred, which would result in additional expense, which could materially impact our financial results.