Commitments and Contingencies

Patents and Licenses

In the semiconductor industry, it is not unusual for companies to receive notices alleging infringement of patents or other intellectual property rights of others. The Company has been, and from time-to-time expects to be, notified of claims that it may be infringing patents, maskwork rights or copyrights owned by third parties. If it appears necessary or desirable, the Company may seek licenses under patents that it is alleged to be infringing. Although patent holders commonly offer such licenses, licenses may not be offered and the terms of any offered licenses may not be acceptable to the Company. The failure to obtain a license under a key patent or intellectual property right from a third party for technology used by the Company could cause it to incur substantial liabilities and to suspend the manufacture of the products utilizing the invention or to attempt to develop non-infringing products, any of which could materially and adversely affect the Company’s business and operating results. Furthermore, there can be no assurance that the Company will not become involved in protracted litigation regarding its alleged infringement of third party intellectual property rights or litigation to assert and protect its patents or other intellectual property rights. Any litigation relating to patent infringement or other intellectual property matters could result in substantial cost and diversion of the Company’s resources.

Litigation

GSI Technology Inc. v. Integrated Silicon Solution, Inc., et al.

On October 2, 2013, GSI Technology Inc. (GSI) filed a Second Amended Complaint in a lawsuit filed earlier in 2013 solely against defendant United Memories, Inc. GSI named the Company as a new, second defendant in the Second Amended Complaint, and alleges claims against the Company for violation of the Sherman Act, violation of the Racketeering Influenced and Corrupt Organizations Act, Unfair Competition under California Business & Professions Code 17200, misappropriation of trade secrets, intentional interference with contract, and intentional interference with prospective economic advantage. GSI alleges that the Company conspired with United Memories, Inc. to harm GSI in connection with a bid from Cisco Systems, Inc., to misappropriate alleged GSI trade secrets, and to interfere with a contract between United Memories, Inc. and GSI. GSI seeks damages and injunctive relief. Before the Company was named as a defendant, the Court denied motions by GSI for temporary and preliminary injunctive relief. On December 6, 2013, the Company filed a motion to dismiss each of the causes of action alleged against the Company by GSI. The motion is currently pending. The Company believes it has meritorious defenses to the claims alleged by GSI and intend to defend this suit vigorously.

VAREP GmBH v. Integrated Silicon Solution, Inc.

On August 21, 2012, a lawsuit was filed against the Company in the Superior Court of California, County of Santa Clara by a former independent sales representative based in Germany named Varep GmbH (Varep), for the alleged underpayment of commissions (Case No. 112CV230846). The original complaint alleged 11 causes of action, including, among others, breach of contract, Labor Code violations, and violations of the Independent Wholesale Sales Representatives Contractual Relations Act. A demurrer by the Company challenging the legal sufficiency of the Complaint was sustained with leave to amend and a motion to strike portions of the initial complaint by the Company was granted in part and denied in part. On December 28, 2012, Varep filed a First Amended Complaint (FAC) asserting seven causes of action, including, among others, breach of contract and Labor Code violations. On January 7, 2013, the Company filed a demurrer challenging the legal sufficiency of the FAC and a motion to strike portions of the FAC. On February 19, 2013, the demurrer was sustained without leave to amend as to the causes of action for breach of the implied covenant of good faith and fair dealing and Labor Code violations and overruled with respect to other causes of action, and the motion to strike was granted in part to strike a claim for punitive damages on the cause of action for negligent misrepresentation and denied in other part. On March 4, 2013, the Company filed an answer to the remaining allegations of the FAC. The Company and the plaintiff entered into a settlement and mutual general release agreement and on August 22, 2013 the case was dismissed with prejudice.

Other Legal Proceedings

In the ordinary course of its business, the Company has been involved in a limited number of other legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more of them. Although the outcome of these actions is not presently determinable, the Company believes that the ultimate resolution of these matters will not have a material adverse effect on its financial position, cash flows or results of operations. However, no assurances can be given with respect to the extent or outcome of any such litigation in the future.

Operating Leases

The Company leases various facilities and the land upon which its building in Taiwan is situated under operating lease agreements that expire at various dates through 2016. Minimum rental commitments under these leases are as follows (in thousands):



Fiscal year ending:
2014	$	802
2015	603
2016	355
2017	—
2018	—
Total minimum rental commitments	$	1,760

Total rental expense, recorded on a straight-line basis, for the fiscal years ended September 30, 2013, 2012 and 2011 was approximately $1.4 million, $1.4 million and $1.1 million, respectively.

Commitments to Wafer Fabrication Facilities

The Company issues purchase orders for wafers to various wafer foundries. These purchase orders are generally considered to be cancelable. However, to the degree that the wafers have entered into work-in-process, as a matter of practice it becomes increasingly difficult to cancel the purchase order. As of September 30, 2013, the Company had approximately $31.6 million of purchase orders for which the related wafers had been entered into wafer work-in-process (i.e., manufacturing had begun).