Note 8 — Commitments and Contingencies

In May 2013, the Company entered into an agreement to purchase ViaSat-2, the Company’s second high-capacity Ka-band satellite, from The Boeing Company (Boeing) at a price of approximately $358.0 million, plus an additional amount for launch support services to be performed by Boeing.

In February 2012, the Company filed a complaint against SS/L and its former parent company Loral in the United States District Court for the Southern District of California for patent infringement and breach of contract relating to the manufacture of ViaSat-1. The Company alleged, among other things, that SS/L and Loral infringed U.S. Patent Nos. 8,107,875, 8,010,043, 8,068,827 and 7,773,942 by making, using, offering to sell and/or selling other high-capacity broadband satellites, and requested monetary damages, injunctive relief and other remedies. On December 17, 2013, the Company voluntarily dismissed its claims against SS/L under U.S. Patent No. 7,773,942.

On June 15, 2012, SS/L filed counterclaims against the Company for patent infringement and declaratory relief. Specifically, SS/L sought a declaration that SS/L did not breach the parties’ contract for the manufacture of ViaSat-1, that SS/L did not infringe the Company’s patents described above, and that those patents are invalid and/or unenforceable. SS/L also alleged that the Company infringed U.S. Patent Nos. 6,879,808, 6,400,696 and 7,219,132. On November 13, 2013, the Court granted summary judgment of non-infringement of U.S. Patent No. 6,879,808 in favor of ViaSat. On December 17, 2013, SS/L dismissed its claims against ViaSat under U.S. Patent No. 7,219,132.

On April 24, 2014, a federal court jury returned a verdict in favor of the Company, finding that ViaSat’s patents are valid, SS/L infringed all of ViaSat’s patents, and SS/L breached the parties’ non-disclosure agreement and the manufacturing contract for the ViaSat-1 satellite. The jury awarded the Company $283.0 million in damages for patent infringement and breach of contract. During the trial, SS/L chose not to pursue its claim against the Company for infringing U.S. Patent No. 6,400,696.

Following the trial, SS/L filed a number of motions to set aside the damages award, challenging the Company’s legal basis for damages and asking the Court to invalidate the Company’s patents as well as reverse the jury’s finding that SS/L breached the parties’ contracts and infringed all of the Company’s patents. The Company also filed a motion for a permanent injunction preventing SS/L from continuing to infringe the Company’s patents and using the Company’s intellectual property.

In August 2014, the Court upheld the jury’s findings that SS/L breached the parties’ contracts and infringed the Company’s patents. However, the Court ordered a new jury trial on the amount of damages resulting from SS/L’s breach and infringement. The damages retrial was scheduled for November 12, 2014.

On September 5, 2013, the Company filed a complaint against SS/L in the United States District Court for the Southern District of California for patent infringement and breach of contract relating to SS/L’s continued use of ViaSat’s patented technology and intellectual property in the manufacture of high-capacity broadband satellites. The Company alleged, among other things, that SS/L infringed U.S. Patent Nos. 7,230,908, 7,684,368, 8,213,929, 8,254,832, 8,285,202 and 8,548,377 by making, using, offering to sell and/or selling other high-capacity broadband satellites. The Company requested monetary damages, injunctive relief and other remedies.

On September 5, 2014, the Company entered into a settlement agreement with SS/L and Loral (the Settlement Agreement), pursuant to which SS/L and Loral are required to pay the Company a total of $108.7 million, inclusive of interest, over a two and a half year period from the date of settlement. In exchange, the Company dismissed both lawsuits against SS/L and Loral. The parties further agreed not to sue each other with respect to the patents and intellectual property that were the subject of the lawsuits and, for a period of two years, not to sue each other or each other’s customers for any intellectual property claims.

The Company accounted for the amounts payable under the Settlement Agreement as a multiple-element arrangement and allocated the total consideration to the identifiable elements based upon their fair value. The consideration assigned to each element was as follows:


	(In thousands)
Implied license	$	85,132
Other damages		18,714
Interest income		4,866

	$	108,712

During the second quarter of fiscal year 2015, the Company recorded $40.0 million with respect to amounts realized under the Settlement Agreement during the quarter, of which $21.0 million was recognized as product revenues in the Company’s satellite services segment, $18.7 million was recognized as a reduction to SG&A expenses, and $0.3 million was recognized as interest income in the condensed consolidated financial statements. The remaining payments under the Settlement Agreement will be recognized in future periods when realized, and will be recorded as product revenues in satellite services segment and interest income.

Form time to time, the Company is involved in a variety of claims, suits, investigations and proceedings arising in the ordinary course of business, including actions with respect to intellectual property claims, breach of contract claims, labor and employment claims, tax and other matters. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, the Company believes that the resolution of its current pending matters will not have a material adverse effect on its business, financial condition, results of operations or liquidity.

The Company has contracts with various U.S. government agencies. Accordingly, the Company is routinely subject to audit and review by the DCMA, the DCAA and other U.S. government agencies of its performance on government contracts, indirect rates and pricing practices, accounting and management internal control business systems, and compliance with applicable contracting and procurement laws, regulations and standards. An adverse outcome to a review or audit or other failure to comply with applicable contracting and procurement laws, regulations and standards could result in material civil and criminal penalties and administrative sanctions being imposed on the Company, which may include termination of contracts, forfeiture of profits, triggering of price reduction clauses, suspension of payments, significant customer refunds, fines and suspension, or a prohibition on doing business with U.S. government agencies. In addition, if the Company fails to obtain an “adequate” determination of its various accounting and management internal control business systems from applicable U.S. government agencies or if allegations of impropriety are made against it, the Company could suffer serious harm to its business or its reputation, including its ability to bid on new contracts or receive contract renewals and its competitive position in the bidding process. The Company’s incurred cost audits by the DCAA have not been concluded for fiscal year 2011 and subsequent fiscal years. During the second quarter of fiscal year 2015, the DCAA completed its incurred cost audit for fiscal year 2004 and approved the Company’s incurred cost claims for fiscal years 2005 through 2010 without further audit. Although the Company has recorded contract revenues subsequent to fiscal year 2010 based upon an estimate of costs that the Company believes will be approved upon final audit or review, the Company does not know the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed the Company’s estimates, its profitability would be adversely affected. As of October 3, 2014 and April 4, 2014, the Company had $5.2 million and $6.7 million, respectively, in contract-related reserves for its estimate of potential refunds to customers for potential cost adjustments on several multi-year U.S. government cost reimbursable contracts. This reserve is classified as either an element of accrued liabilities or as a reduction of unbilled accounts receivable based on status of the related contracts. The decrease in contract-related reserves reflects the conclusion of the DCAA’s incurred cost audit for fiscal year 2004 and the DCAA’s approval of the Company’s incurred cost claims for fiscal years 2005 through 2010.