Legal Proceedings and Other Matters

6 Months Ended

Jan. 31, 2012

Legal Proceedings and Other Matters [Abstract]

Legal Proceedings and Other Matters

(20)Legal Proceedings and Other Matters

Patent Infringement Suit

We are party to a dispute related to the Double Talk^® Carrier-in-Carrier^® ("CIC") technology that we license from Raytheon Applied Signal Technology, Inc. ("Raytheon"), formerly known as Applied Signal Technology, Inc. We use CIC technology in certain of our satellite earth station modem products. In May 2009, Raytheon filed a complaint against Emerging Markets Communications, Inc. ("EMC"), Paradise Datacom, LLC ("Paradise") and ViaSat, Inc. ("ViaSat") (Case No. 4:09-CV-02180-SBA) alleging that these defendants infringed upon certain patents that underlie the CIC technology. In October 2009, ViaSat filed a counterclaim against Raytheon alleging that the CIC technology infringed upon certain of its patents and requested that the court declare that Raytheon's patents were invalid and unenforceable. In May 2010, ViaSat amended its lawsuit alleging that Comtech EF Data Corp. ("EF Data"), a wholly-owned subsidiary of Comtech, infringed upon ViaSat's patents because EF Data sold, and continues to sell, satellite earth station products that incorporate the licensed CIC technology. Although all parties have engaged in settlement discussions, as of this date, no global settlement has been reached and we have not accrued any amounts associated with any potential settlement. A trial date has been set for September 2012.

We believe that ViaSat's claims are unfounded and that we have strong and meritorious defenses. We intend to vigorously defend ViaSat's claims against us and enforce our rights to such licensed technology and we have filed a motion with the Court to join as a plaintiff in the case. If an adverse judgment is rendered against us, it could have a material adverse effect on our business and results of operations.

BFT-1 Contract Audit

In May 2011, we were notified that our BFT-1 contract was selected for a post award audit by the Defense Contract Audit Agency ("DCAA"). A post award audit (sometimes referred to as a Truth in Negotiations Act or "TINA" audit) generally focuses on whether the contractor disclosed current, accurate and complete cost or pricing data in the contract negotiation process pursuant to Federal Acquisition Regulations ("FAR"). Through January 31, 2012, we received $378,009,000 in total orders under our BFT-1 contract.

In January 2012, the Defense Contract Management Agency ("DCMA") advised us that the fiscal 2007 award of the BFT-1 contract triggered full coverage under the Cost Accounting Standards ("CAS"), which are a set of specialized rules and standards that the U.S. government uses for determining costs on large, negotiated contracts. The DCMA also requested that we submit an initial CAS disclosure statement that would describe our cost accounting practices. We informed the DCMA that we had addressed this issue with them shortly after we were awarded the fiscal 2007 BFT-1 contract. We believed then, as we do now, that the BFT-1 contract does not trigger full CAS coverage and that a CAS disclosure statement is not required. In response to this issue being raised again, we provided information to the DCMA to support our view that the BFT-1 contract is subject to a CAS exemption for fixed price commercial contract line items (such as our mobile satellite transceivers). We also informed the DCMA that since the ordering period on the BFT-1 contract expired on December 31, 2011, we believe that there would be no purpose for a CAS disclosure statement at this time.

We are currently negotiating a new BFT-1 sustainment contract with the U.S. Army to provide the same equipment and type of services that we have provided under the aforementioned BFT-1 contract. As such, we have informed the U.S. Army of our view that any new contract with Comtech related to the BFT or MTS program must state that our equipment and other items are commercial items as defined in FAR Part 12 – Acquisition of Commercial Items. In February 2012, the U.S. Army Contract Officer for the BFT-1 program, who is also negotiating the potential award to us of a new multi-year BFT-1 sustainment contract, and the DCMA, separately, informed us that the U.S. government would continue to review the information we provided to them which we believe supports our view that certain items in the 2007 BFT-1 contract are commercial items.

Although we believe that our BFT-1 contract was not subject to full coverage under CAS and that our equipment is commercial (as that term is defined), the outcome of the DCAA audit, which is in its early stages, is difficult to predict. If it is ultimately determined that a cost or price adjustment for our BFT-1 contract is appropriate, we may be required to refund monies to the U.S. government, with interest. These amounts could have a material adverse effect on our results of operations and financial condition. 

Other Proceedings

There are certain other pending and threatened legal actions, which arise in the normal course of business. Although the ultimate outcome of litigation is difficult to accurately predict, we believe that the outcome of these pending and threatened actions will not have a material adverse effect on our consolidated financial condition or results of operations.