Legal Proceedings and Other Matters

Legacy TCS Intellectual Property Matters

TCS is a party to a number of legal proceedings and a contract dispute, in each case, relating to customers seeking indemnification under contractual arrangements for claims and other costs associated with defending lawsuits alleging infringement of patents through the customers' use of TCS’s products and services, including in combination with products and services of other vendors. In some cases, TCS has agreed to assume the defense of lawsuits and in other situations, TCS did not believe that its technology was infringing or that certain customers were entitled to indemnification.

Due to the inherent difficulty of predicting the outcome of these legacy TCS intellectual property legal proceedings and contract disputes, it is difficult to estimate the amount or range of reasonably possible losses. Ongoing legal expenses associated with defending these legacy TCS intellectual property legal proceedings and contract disputes and their ultimate resolution could have a material adverse effect on our future consolidated results of operations, financial position, or cash flows.

We believe it is probable that TCS will incur a loss related to these matters. Although we are unable to precisely predict the effects of these legal proceedings on our financial condition, results of operations, or cash flows, our Condensed Consolidated Balance Sheet as of April 30, 2016 reflects $4,500,000 of accrued liabilities related to these intellectual property legal proceedings and contract disputes which are described further below:

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In December 2009, Vehicle IP, LLC ("Vehicle IP") filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware, seeking monetary damages, fees and expenses and other relief from, among others, our customer Verizon Wireless ("Verizon"), based on the VZ Navigator product, and TCS is defending Verizon against Vehicle IP. In 2013, the District Court granted the defendants’ motion for summary judgment on the basis that the products in question did not infringe plaintiff’s patent. Plaintiff appealed that decision and, in 2014, the U.S. Court of Appeals for the Federal Circuit reversed the district court's claim construction, overturned the district court's grant of summary judgment of noninfringement, and remanded the case for further proceedings. Fact discovery in the case is complete and, currently, expert discovery is ongoing and trial is scheduled to begin in February 2017.

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In August 2014, TracBeam, LLC ("TracBeam") brought a patent infringement lawsuit in the U.S. District Court for the Eastern District of Texas seeking monetary damages, fees and expenses and other relief from, among others, TCS’s customers T-Mobile US, Inc. and T-Mobile USA, Inc. (together, "T-Mobile"), based on the defendants’ E9-1-1 service and locator products, and TCS is defending T-Mobile against TracBeam. In August 2015, T-Mobile and a co-defendant filed petitions for Inter Partes Review challenging TracBeam’s patents in the Patent Trial and Appeal Board and subsequently moved to stay the District Court case pending resolution of the Inter Partes Review. That motion is pending with trial scheduled for January 2017.

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In 2012, CallWave Communication LLC ("CallWave") brought a patent infringement lawsuit in the U.S. District Court for the District of Delaware seeking monetary damages, fees and expenses and other relief from, among others, Verizon Wireless, or Verizon, based on the defendants’ VZ Family Locator and VZ Navigator, and TCS has agreed to indemnify Verizon with respect to one patent of plaintiff that implicates a TCS product. Currently, a motion to dismiss the complaint on grounds that the asserted patent claims relate to unpatentable subject matter and is therefore invalid is pending before the court. It is anticipated that fact discovery is likely to conclude shortly and that expert discovery, dispositive motions and a trial date will follow later in 2016.

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In August 2015, IP Cube Partners Co. Ltd. ("IP Cube") brought a lawsuit in the U.S. District Court for the Southern District of New York seeking damages based on TCS’s alleged breach of contract and fraudulent representation in connection with the sale by TCS to IP Cube in 2012 of two patents for $2,300,000. In September 2015, TCS moved to dismiss the case related to all claims except breach of contract claim and that motion is pending before the court. Discovery commenced in December 2015 and is ongoing and trial is anticipated to begin in November 2016.

TCS Acquisition-Related Lawsuits

Prior to the closing of our acquisition of TCS, five complaints were filed in Maryland state court against TCS, members of the TCS Board of Directors, Comtech, and a wholly owned subsidiary of Comtech formed to effect the acquisition. All of the complaints raised similar putative class claims against TCS, members of the TCS Board, Comtech and its subsidiary, alleging breaches of fiduciary duty by members of the TCS Board in connection with the acquisition, and allege that some or all of TCS, Comtech and its subsidiary aided and abetted the purported breaches of fiduciary duty. On March 22, 2016, the court dismissed three of the five cases with prejudice, and on April 12, 2016, counsel for the plaintiffs in the other two actions filed a Notice of Dismissal. As such, all pending litigation with respect to the TCS acquisition is ended.

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 other pending and threatened actions will not have a material adverse effect on our consolidated financial condition or results of operations.