Commitments and Contingencies

9 Months Ended

Apr. 30, 2011

Commitments and Contingencies [Abstract]

13. Commitments and Contingencies

Legal Matters

The Company could become involved in litigation from time to time relating to claims arising out of its ordinary course of business. There were no claims as of April 30, 2011 that, in the opinion of management, might have a material adverse effect on the Company’s financial position, results of operations or cash flows.

During the first quarter of fiscal 2010, the Company entered into a Patent Cross License and Settlement Agreement with Motorola. As part of the Settlement Agreement, the Company agreed to pay Motorola $19.8 million.

During the second and third quarters of fiscal 2010, the Company recorded additional reserves of $0.5 million and $1.7 million, respectively, related to a legal matters.

Lease Obligation

The Company leases office space under non-cancelable operating leases with various expiration dates through July 2016. The terms of certain operating leases provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the respective lease periods and has accrued for rent expense incurred but not paid.

Future minimum lease payments under non-cancelable operating leases are as follows:


	Operating
	Leases
	(in thousands)

Three months remaining in fiscal 2011	$	979
Year ending July 31,
2012		4,452
2013		4,143
2014		3,862
2015		3,891
2016		3,336

Total minimum payments	$	20,663

Non-cancelable purchase commitments

The Company outsources the production of its hardware to third-party contract manufacturers. In addition, the Company enters into various inventory related purchase commitments with its contract manufacturers and other suppliers. The Company had $25.0 million and $20.3 million in non-cancelable purchase commitments with these providers as of April 30, 2011 and July 31, 2010, respectively. The Company expects to sell all products that it has committed to purchase from these providers.

Warranties

The Company provides for future warranty costs upon product delivery. The specific terms and conditions of those warranties vary depending upon the product sold and country in which the Company does business. In the case of hardware, the warranties are generally for 12-15 months from the date of purchase. The Company also has a lifetime warranty program on certain access points purchased subsequent to the announcement of the program.

The Company warrants that any media on which its software products are recorded will be free from defects in materials and workmanship under normal use for a period of 90 days from the date the products are delivered to the end customer. In addition, the Company warrants that its hardware products will substantially conform to the Company’s published specifications. Historically, the Company has experienced minimal warranty costs. Factors that affect the Company’s warranty liability include the number of installed units, historical experience and management’s judgment regarding anticipated rates of warranty claims and cost per claim. The Company assesses the adequacy of its recorded warranty liabilities every reporting period and makes adjustments to the liability as necessary.

The warranty liability is included as a component of accrued liabilities on the balance sheet. Changes in the warranty liability are as follows:


	Warranty
	Amount
	(in thousands)
As of July 31, 2010	$	210
Provision		298
Obligations fulfilled during period		(182	)

As of April 30, 2011	$	326

Indemnifications

In its sales agreements, the Company may agree to indemnify its indirect sales channels and end user customers for any expenses or liability resulting from claimed infringements of patents, trademarks or copyrights of third parties. The terms of these indemnification agreements are generally perpetual any time after execution of the agreement. The maximum amount of potential future indemnification is unlimited. To date the Company has not paid any amounts to settle claims or defend lawsuits pursuant to any indemnification obligation. The Company is unable to reasonably estimate the maximum amount that could be payable under these arrangements since these obligations are not capped but are conditional to the unique facts and circumstances involved. Accordingly, the Company has no liabilities recorded for these agreements as of April 30, 2011 and July 31, 2010.