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Contingencies
6 Months Ended
Dec. 31, 2011
Contingencies

K. Contingencies

From time to time, we become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, product liability, employment, tax, regulation, contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. While unfavorable outcomes are possible, based on available information, we generally do not believe the resolution of these matters will result in a material adverse effect on our business, consolidated financial condition, or results of operations. However, a settlement payment or unfavorable outcome could adversely impact our results of operations. Our evaluation of the likely impact of these actions could change in the future and we could have unfavorable outcomes that we do not expect.

 

As of February 13, 2012, except as described below, neither NAI nor its subsidiaries were a party to any material pending legal proceeding nor was any of their property the subject of any material pending legal proceeding.

On August 20, 2009, NAI filed a lawsuit in the U.S. District Court for the District of Delaware, accusing Vital Pharmaceutical, Inc. (VPX) and DNP International Co., Inc. (DNP) of infringing certain patents owned by NAI relating to the ingredient known as beta-alanine marketed and sold under the CarnoSyn® trade name. NAI asserted claims for unfair competition and false marking, among others, against one or both of the companies named in this lawsuit and sought an injunction against continued infringement and violations and damages for past infringement and violations including, among others, punitive damages and attorneys’ fees.

On August 8, 2011, a settlement agreement was reached between NAI and VPX. As part of the settlement, NAI granted VPX a limited and restricted covenant not to sue on certain claims of NAI’s asserted beta-alanine patents and VPX agreed to dismiss its claims of invalidity and to cease certain business activities.

On August 3, 2011, NAI and CSI filed an amended and supplemental complaint against DNP reasserting claims for unfair competition and violation of the Delaware Deceptive Trade Practices Act. The amended complaint also asserted new facts in support of these claims. On September 8, 2011, NAI and CSI filed a voluntary notice of dismissal of the amended and supplemental complaint against DNP and filed a new complaint in the U.S. District Court for the District of Delaware alleging similar claims of unfair competition, violation of the Delaware Deceptive Trade Practices Act and interference with business relations.

On December 21, 2011, NAI filed a lawsuit in the U.S. District Court for the Southern District of Texas, Houston Division, Civil Action No: 4:11-cv-04511, against Woodbolt Distribution, LLC, also known as Cellucor (“Woodbolt”), Vitaquest International, Inc., d/b/a Garden State Nutritionals (“Garden State”) and F.H.G. Corporation, d/b/a Integrity Nutraceuticals (“Integrity”), for infringing its U.S. Patent No. 8,067,381 (“the ‘381 patent”), entitled “Methods and compositions for increasing the anaerobic working capacity in tissues.” NAI filed the complaint in federal court after Woodbolt failed to comply with a cease and desist demand. The complaint alleges that Woodbolt sells nutritional supplements, including supplements containing beta-alanine such as C4 Extreme™, M5 Extreme™, and N-Zero Extreme™ that infringe the ‘381 patent. NAI also sued Woodbolt’s alleged contract manufacturers, Vitaquest International, Inc., d/b/a/ Garden State Nutritionals and F.H.G. Corporation, d/b/a/ Integrity Nutraceuticals for infringing the ‘381 patent. Woodbolt, in turn, filed a complaint seeking a declaratory judgment of non-infringement and invalidity of the ‘381 patent in the U.S. District Court for the District of Delaware.

On December 22, 2011, DNP filed a complaint in the U.S. District Court for the District of Delaware against NAI and CSI for declaratory judgment of non-infringement and invalidity of three of NAI’s issued U.S. Patent Nos. 5,965,596, 6,172,098, 6,426,361. On January 27, 2012, DNP amended its complaint to add declaratory judgment claims against the ‘381 patent.

On January 20, 2012 NAI filed two patent litigation lawsuits against BPI Sports Holdings, LLC d/b/a BPI Sports, LLC and BPI Sports (“BPI”) and Image Sports, LLC d/b/a Image Nutrition LLC (“Image”) in the U.S. District Court for the Southern District of Texas, Houston Division, for infringing U.S. Patent No. 8,067,381 (“the ‘381 patent”), entitled “Methods and compositions for increasing the anaerobic working capacity in tissues.” NAI filed its complaint against BPI in federal court after BPI failed to comply with a cease and desist demand. The complaint alleges that BPI infringes the ‘381 patent by making, using, offering for sale and selling nutritional supplements and bundled supplement products containing beta-alanine such as its 1.M.R.™ product. NAI also filed a separate lawsuit for infringement of the ‘381 patent alleging that Image makes, uses, offers for sale and sells nutritional supplements and bundled supplement products containing beta-alanine such as its Alarm™ product. On January 30, 2012, BPI Sports, LLC filed a complaint in the U.S. District Court for the Southern District of Florida for declaratory judgment of non-infringement, invalidity and/or unenforceability of NAI’s issued U.S. Patent Nos. 5,965,596, 6,172,098, 6,426,361, 6,680,294 and 8,067,381.

On July 31, 2009, Real Health Laboratories, Inc. (RHL), a former wholly-owned subsidiary, sold substantially all of its remaining assets related to its wholesale and direct-to-consumer business to PharmaCare US Inc. and PharmaCare Laboratories Pty Ltd. for a cash purchase price of $500,000. NAI provided a guarantee of RHL’s indemnity obligations under the asset purchase agreement, which potential liability is capped at the amount of the purchase price paid by the buyers to RHL. The guaranty continues for a minimum period of three years from the date of the Asset Purchase Agreement. RHL was dissolved in November 2011.