Note 13. Commitments and Contingencies

Lease Commitments

We have various operating leases for office space and equipment. We moved into our current headquarters in Seattle, Washington in August 2011 under an operating lease for which we will be obligated to make escalating monthly lease payments beginning in December 2012 and continuing through November 2022. We lease additional office space in San Francisco, California, Irvine, California, Chicago, Illinois and New York, New York.

The operating lease for our headquarters prior to August 2011 expires in February 2013. As a result of vacating the office space, we recorded a facility exit charge for $1.7 million related to costs that will continue to be incurred under the operating lease for the remaining term. The $1.7 million facility exit charge is included in general and administrative expenses in the statement of operations for the year ended December 31, 2011. As of December 31, 2011, there was $1.4 million of accrued facility exit costs included in accrued expenses and other current liabilities and $0.1 million included in other non-current liabilities.

A summary of activity for the year ended December 31, 2011 related to the facility exit charge accrual is as follows (in thousands):


Balance, beginning of the period	$	—
Charges and adjustments		2,236
Less: cash payments		(695	)

Balance, end of period	$	1,541

For the year ended December 31, 2011, the charges and adjustments related to the facility exit charge accrual of $2.2 million include the impact of the $1.7 million facility exit charge, as well as approximately $0.6 million in adjustments for the effects of deferred items recognized under the lease and estimated sublease income.

Future minimum payments for all operating leases as of December 31, 2011 are as follows (in thousands):


2012	$	1,800
2013		2,120
2014		1,845
2015		1,799
2016		1,864
All future years		12,370

Total future minimum lease payments	$	21,798

Rent expense for the years ended December 31, 2011, 2010 and 2009, was $2.1 million, $1.2 million and $1.3 million, respectively.

Purchase Commitments

As of December 31, 2011, we had non-cancelable purchase commitments for content related to our websites totaling $8.8 million. The amount due for this content is as follows (in thousands):


2012	$	2,207
2013		1,888
2014		1,888
2015		1,888
2016		897

Total future purchase commitments	$	8,768

Line of Credit and Letters of Credit

In March 2011, we entered into a loan and security agreement with a financial institution to establish a line of credit of $4.0 million, secured by substantially all our assets other than our intellectual property, to be used for general business purposes. The line of credit contains financial and non-financial covenants. As of December 31, 2011, we were in compliance with all covenants. The line of credit is available through March 2013. In March 2011, we executed a standby letter of credit of $1.5 million in connection with the lease of our new Seattle offices and reserved this amount against the line of credit, which reduces the available line to $2.5 million. As of December 31, 2011 there were no other amounts outstanding under the line of credit.

We have four outstanding letters of credit totaling $0.6 million as of December 31, 2011, payable to the landlord of our prior headquarters office in Seattle, Washington, in the event we default on our lease, which expires in February 2013. We had three outstanding letters of credit totaling $0.6 million and $0.7 million at December 31, 2010 and 2009, respectively. The letters of credit are secured by our investments and are effective until 60 days after the expiration date of the lease.

Legal Proceedings

In March 2010, Smarter Agent, LLC ("Smarter Agent") filed a complaint against us for patent infringement in the U.S. District Court for the District of Delaware. The complaint seeks, among other things, a judgment that we may have infringed certain patents held by Smarter Agent, an injunctive order against the alleged infringing activities and an award for damages. In November 2010, the U.S. Patent Office granted our petition for re-examination of the three patents-in-suit, and in an initial office action rejected all claims. In March 2011, the court granted a stay of the litigation pending the completion of the re-examination proceedings. We were granted a stay against the patent infringement complaint. We have not recorded an accrual related to this complaint as of December 31, 2011 or December 31, 2010 as we do not believe a material loss is probable. It is a reasonable possibility that a loss may be incurred; however, the possible loss or range of loss is not estimable. In addition, in October 2011, Smarter Agent filed a substantially similar complaint against Diverse Solutions, and other defendants, for patent infringement in the U.S. District Court for the District of Delaware. On October 31, 2011, we acquired substantially all of the operating assets and certain liabilities of Diverse Solutions, including the Smarter Agent complaint.

In April 2010, First American CoreLogic ("CoreLogic") filed a complaint against us, for patent infringement in the U.S. District Court for the Eastern District of Texas. The complaint sought, among other things, a judgment that we may have infringed certain patents held by CoreLogic, an injunctive order against the alleged infringing activities and an award for damages. In December 2011, CoreLogic and Zillow entered into a settlement agreement under which each of the parties granted the other a full release from, and covenanted not to sue the other party based on, any claim relating to this litigation or conduct in the settlement negotiations prior to the effective date of the agreement. CoreLogic further covenanted not to sue us based on any claim relating to assertions of infringement of the CoreLogic patent at issue in the litigation. The parties also entered into a master license agreement with a contractual term of five years under which we license data content from CoreLogic that will be displayed on our website, including property data from various U.S. counties. A portion of the total consideration has been recorded in general and administrative expense during the year ended December 31, 2011 for the estimated fair value of the settlement component of the arrangement. A portion of the total consideration has been allocated to the data license under the terms of the master license agreement with CoreLogic. As the master license agreement includes uneven payment amounts over the term of five years, we will capitalize the payments as they are made as an intangible asset and amortize the total contract value over the estimated useful life, as we expect that the purchased content will provide future economic benefit through the recovery of the costs of the arrangements via the generation of our revenue and margins.

In September 2010, LendingTree, LLC filed a complaint against us, for patent infringement in the U.S. District Court for the Western District of North Carolina. The complaint seeks, among other things, a judgment that we may have infringed certain patents held by LendingTree, an injunctive order against the alleged infringing activities and an award for damages. We have not recorded an accrual related to this complaint as of December 31, 2011 or December 31, 2010 as we do not believe a material loss is probable. It is a reasonable possibility that a loss may be incurred; however, the possible loss or range of loss is not estimable.

In November 2011, CIVIX-DDI, LLC ("CIVIX") granted us a full release and discharge from any and all claims for infringement of two patents owned by CIVIX, both covering "System and Methods for Remotely Accessing a Selected Group of Items of Interest From a Database", and a fully paid-up, perpetual, irrevocable, non-exclusive, world-wide, royalty free, personal right and license under all patents and patent applications owned or controlled by CIVIX as of the effective date, for total consideration of $850,000. The full release and license was provided outside the context of litigation. A portion of the total consideration has been recorded in general and administrative expense during the year ended December 31, 2011 for the estimated fair value of the settlement component of the arrangement. The remaining consideration has been recorded as a prepaid royalty to be amortized and recorded in cost of revenue through the expiration of the related patent in January 2015.

In addition to the matters discussed above, from time to time, we are involved in litigation and claims that arise in the ordinary course of business. Although we cannot be certain of the outcome of any litigation and claims, nor the amount of damages and exposure that we could incur, we currently believe that the final disposition of such matters will not have a material effect on our financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Indemnifications

In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have recourse against third parties for certain payments. In addition, we have indemnification agreements with certain of our directors and executive officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations may vary.