Commitments and Contingencies

The following table presents a summary of the Company’s contractual obligations and commitments as of July 31, 2013:



	Lease Obligations		Royalty Obligations⁽¹⁾		Purchase Commitments ⁽²⁾		Total
Fiscal Year Ending July 31,	(in thousands)
2014	$	4,967	$	429	$	296	$	5,692
2015	4,778		414		183		5,375
2016	4,812		105		—		4,917
2017	4,693		—		—		4,693
2018	4,766		—		—		4,766
Thereafter	4,828		—		—		4,828
Total	$	28,844	$	948	$	479	$	30,271


⁽¹⁾	Royalty obligations primarily represent our obligations under our non-cancelable agreements related to software used in certain revenue-generating agreements.


⁽²⁾	Purchase commitments consist of agreements to purchase services, entered into in the ordinary course of business. These represent non-cancelable commitments for which a penalty would be imposed if the agreement was canceled for any reason other than an event of default as described by the agreement.

Leases

The Company leases certain facilities and equipment under operating leases. The Company entered into an operating lease agreement in September 2007 for its corporate headquarters in California that expired in July 2012. In connection with the lease, the Company opened a letter of credit which expired upon the expiration of the lease in July 2012. On November 23, 2009, the Company entered into a sublease agreement for additional conference space expiring in July 2012. On December 5, 2011, the Company entered into a seven-year lease for a facility to serve as its new corporate headquarters, located in Foster City, California, for approximately 97,674 square feet of space commencing August 1, 2012. In connection with the new lease, the Company opened an unsecured letter of credit with Silicon Valley Bank for $1.2 million.

Lease expense for all worldwide facilities and equipment, which is being recognized on a straight-line basis over terms of the various leases, was $5.3 million, $4.0 million and $2.3 million during the years ended July 31, 2013, 2012 and 2011, respectively. This expense is net of sublease income of $1.2 million for each of the years ended July 31, 2012 and 2011.

Letters of Credit

In addition to the unsecured letter of credit noted above, the Company had no and three outstanding letters of credit required by certain customers to secure contractual commitments and prepayments as of July 31, 2013 and 2012, respectively. Certain of these letters of credit were fully secured by cash balances, which were classified as restricted cash in our consolidated balance sheets as of July 31, 2012. In July 2012, the Company entered into an unsecured letter of credit agreement related to a customer arrangement for PLN 10.0 million (approximately $3.1 million as of July 31, 2013) to secure contractual commitments and prepayments. No amounts were outstanding under our unsecured letters of credit as of July 31, 2013 or July 31, 2012.

Legal Proceedings

In December 2007, Accenture Global Services GmbH and Accenture LLP (collectively, “Accenture”), a competitor, filed a lawsuit against the Company in the U.S. District Court for the District of Delaware (the “Delaware Court") (Accenture Global Services GmbH and Accenture LLP v. Guidewire Software, Inc., Case No 07-826-SLR). Accenture alleged infringement of U.S. Patent No. 7,013,284 (the “ '284 patent”), among others, by our products; trade-secret misappropriation; and tortious interference with business relations. Accenture sought damages and an injunction. The Company denied Accenture's claims, and asserted counterclaims seeking a declaration that our products do not infringe the patents, that the patents are invalid and that the '284 patent is unenforceable. We also asserted counterclaims against Accenture for breach of contract and trade secret misappropriation. On May 31, 2011, the Delaware Court granted the Company's motion for summary judgment finding that Accenture's '284 patent is invalid. In July 2011, Accenture filed an appeal to the United States Court of Appeals for the Federal Circuit (the “Appeals Court”) of the Delaware Court's judgment of invalidity of the '284 patent.

In October 2011, the Company agreed with Accenture to resolve all outstanding litigation concerning their respective insurance claims management software. As part of the settlement, the parties agreed to a royalty free cross license of all then-current patents and patent applications. In connection with the settlement, the Company has paid $10.0 million to Accenture with a potential additional payment based on the final outcome of Accenture’s appeal regarding the validity of its ‘284 patent. On September 5, 2013, the Appeals Court ruled in the Company's favor, affirming the decision of the District Court and holding the '284 patent invalid. Accenture may still request United States Supreme Court review or rehearing by the full Federal Circuit sitting en banc, and, if Accenture is allowed to appeal and is ultimately successful, then the Company has agreed to pay Accenture an additional $20.0 million. Otherwise, no further payments would be due in connection with the settlement. The Company expensed the $10.0 million litigation provision in fiscal year 2011 as it believes that no future benefit is attributable to the cross license.

In addition to the matters described above, from time to time, the Company is involved in various other legal proceedings and receives claims from time to time, arising from the normal course of business activities. The Company has accrued for estimated losses in the accompanying consolidated financial statements for matters with respect to which we believe the likelihood of an adverse outcome is probable and the amount of the loss is reasonably estimable.

Indemnification

The Company sells software licenses and services to its customers under contracts (“Software License”). Each Software License contains the terms of the contractual arrangement with the customer and generally includes certain provisions for defending the customer against any claims that the Company’s software infringes upon a patent, copyright, trademark, or other proprietary right of a third party. Software Licenses also indemnify the customer against losses, expenses, and liabilities from damages that may be assessed against the customer in the event the Company’s software is found to infringe upon such third party rights.

The Company has not had to reimburse any of its customers for losses related to indemnification provisions and no material claims against the Company are outstanding as of July 31, 2013 and 2012. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases under various Software Licenses, the Company cannot estimate the amount of potential future payments, if any, related to indemnification provisions.

The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of these persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer insurance coverage that may enable the Company to recover a portion of any future amounts paid.