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Commitments and Contingencies
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6 Months Ended |
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Jul. 31, 2011
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| Commitments and Contingencies |
7. Commitments and Contingencies
ARRIS Litigation
On
July 31, 2009, ARRIS Group, Inc. (“ARRIS”) filed a
contempt motion in the U.S. District Court for the District of
Delaware against SeaChange International relating to U.S. Patent No
5,805,804 (the “804 patent”), a patent in which ARRIS
has an ownership interest. In its motion, ARRIS is
seeking further patent royalties and the enforcement of the
permanent injunction entered by the Court on April 6, 2006 against
certain SeaChange products. On August 3, 2009, SeaChange
filed a complaint seeking a declaratory judgment from the Court
that its products do not infringe the ‘804 patent and
asserting certain equitable defenses. On June 4, 2010,
the Court entered an Order staying the declaratory judgment action
pending resolution of the contempt proceeding. On
September 2, 2011, the Court entered an Order in which it concluded
that a contempt proceeding is the appropriate procedure for
resolving the parties’ dispute and that further factual and
legal determinations would be necessary. The Order made
no determinations as to liability. No schedule has been
set by the Court for the additional proceedings.
Indemnification and Warranties
SeaChange
provides indemnification, to the extent permitted by law, to its
officers, directors, employees and agents for liabilities arising
from certain events or occurrences while the officer, director,
employee, or agent is or was serving at SeaChange’s request
in such capacity. With respect to acquisitions, SeaChange provides
indemnification to or assumes indemnification obligations for the
current and former directors, officers and employees of the
acquired companies in accordance with the acquired companies’
bylaws and charter. As a matter of practice, SeaChange has
maintained directors' and officers’ liability insurance
including coverage for directors and officers of acquired
companies.
SeaChange
enters into agreements in the ordinary course of business with
customers, resellers, distributors, integrators and suppliers. Most
of these agreements require SeaChange to defend and/or indemnify
the other party against intellectual property infringement claims
brought by a third party with respect to SeaChange’s
products. From time to time, SeaChange also indemnifies customers
and business partners for damages, losses and liabilities they may
suffer or incur relating to personal injury, personal property
damage, product liability, and environmental claims relating to the
use of SeaChange’s products and services or resulting from
the acts or omissions of SeaChange, its employees, authorized
agents or subcontractors. For example, SeaChange has received
requests from several of its customers for indemnification of
patent litigation claims asserted by Acacia Media Technologies, USA
Video Technology Corporation, Multimedia Patent Trust, Microsoft
Corporation, VTran Media Technologies and Active Video. Management
performed an analysis of these requests, evaluating whether any
potential losses were probable and estimable.
SeaChange
warrants that its products, including software products, will
substantially perform in accordance with its standard published
specifications in effect at the time of delivery. Most warranties
have at least a one year duration that generally commence upon
installation. In addition, SeaChange provides maintenance support
to customers and therefore allocates a portion of the product
purchase price to the initial warranty period and recognizes
revenue on a straight line basis over that warranty period related
to both the warranty obligation and the maintenance support
agreement. When SeaChange receives revenue for extended warranties
beyond the standard duration, it is deferred and recognized on a
straight line basis over the contract period. Related costs are
expensed as incurred.
In
the ordinary course of business, SeaChange provides minimum
purchase guarantees to certain of its vendors to ensure continuity
of supply against the market demand. Although some of these
guarantees provide penalties for cancellations and/or modifications
to the purchase commitments as the market demand decreases, most of
the guarantees do not. Therefore, as the market demand decreases,
SeaChange re-evaluates the accounting implications of guarantees
and determines what charges, if any, should be
recorded.
With
respect to its agreements covering product, business or entity
divestitures and acquisitions, SeaChange provides certain
representations and warranties and agrees to indemnify and hold
such purchasers harmless against breaches of such representations,
warranties and covenants. With respect to its acquisitions,
SeaChange may, from time to time, assume the liability for certain
events or occurrences that took place prior to the date of
acquisition.
SeaChange
provides such guarantees and indemnification obligations after
considering the economics of the transaction and other factors
including, but not limited to, the liquidity and credit risk of the
other party in the transaction. SeaChange believes that the
likelihood is remote that any such arrangement could have a
material adverse effect on its financial position, results of
operation or liquidity. SeaChange records liabilities, as disclosed
above, for such guarantees based on the Company’s best
estimate of probable losses which considers amounts recoverable
under any recourse provisions.
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