Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and contingencies

8. Commitments and contingencies

Leases

We lease office space under noncancelable agreements with various expiration dates through May 30, 2023. Rent expense was $693,000 and $1.7 million for the three and nine months ended September 30, 2012, respectively. Rent expense was $309,000 and $916,000 for the three and nine months ended September 30, 2011, respectively.

On June 5, 2012, we entered into a lease agreement for our future headquarters, which will consist of 87,565 square feet in Mountain View, California. The facility is in the process of being constructed. The contractual lease commencement date is the earlier of (i) the date upon which we first commence to conduct business in the premises, and (ii) the later to occur of (a) the date upon which the premises are ready for occupancy or (b) June 1, 2013. The contractual annual base payment is $3.7 million subject to a full abatement of payment for the first month of the lease term. The annual base payment increases 3% each year. The lease term is 10 years with one option to extend the lease term for an additional period of five years.

Pursuant to the lease agreement, we agreed to pay construction cost in excess of a certain amount and we have certain indemnification obligations related to the construction. As a result of our involvement during the construction period, we are considered to be the owner of the construction project during the construction period in accordance with accounting for the effect of lessee involvement in asset construction. As of September 30, 2012, we capitalized $1.1 million of assets as construction in progress, based on the construction costs incurred by the landlord. Upon execution of the lease agreement, we reimbursed the landlord $0.5 million for the construction cost in the form of a security deposit, and as a result, our corresponding liability of $0.6 million was reflected as a financing obligation for construction in progress.

Future minimum lease payments under noncancelable leases as of September 30, 2012 were as follows:

	(in thousands)
Year ending December 31,
2012 (remaining three months)	$	699
2013		4,457
2014		4,446
2015		4,184
2016		4,314
2017		4,265
2018 and beyond		24,360
Total minimum lease payments	$	46,725

Litigation

On May 1, 2012, Dmitry Edward Terez filed a patent infringement lawsuit in U.S. District Court for the District of Delaware against us. The complaint alleged that our products infringe U.S. Patent No. 7,124,075 held by Mr. Terez. The complaint sought unspecified monetary damages, costs and expenses and injunctive relief against us. On August 23, 2012, Mr. Terez dismissed his complaint without prejudice.

On July 3, 2012, Noise Free Wireless, Inc. filed a lawsuit in U.S. District Court for the Northern District of California against one of our OEMs and against us. The complaint alleged that our products infringe U.S. Patent No. 7,742,790 held by Noise Free Wireless and that our OEM infringed the same patent based on its alleged use of our products. The complaint also alleged that we misappropriated Noise Free Wireless’ trade secrets and engaged in unfair business practices based on the alleged patent infringement and trade secret misappropriation. The complaint made additional allegations against our OEM. The complaint sought unspecified monetary damages, costs and fees and injunctive relief against us. On September 14, 2012, the parties stipulated to dismiss Noise Free Wireless’ complaint without prejudice. On September 18, 2012, the Court entered an order approving this stipulation, thereby dismissing Noise Free Wireless’ complaint without prejudice.

On September 13, 2012, a purported shareholder filed a class action complaint in the Superior Court of the State of California for Santa Clara County against us, the members of our board of directors, two of our executive officers and the underwriters of our IPO. The complaint purports to be brought on behalf of a class of purchasers of our common stock issued in or traceable to the IPO and contains claims under Sections 11, 12(a)(2) and 15 of the Securities Act. The complaint seeks, among other things, compensatory damages, rescission and attorney’s fees and costs. Pursuant to a scheduling order set by the Court, we anticipate filing a response to the complaint in February 2013. We believe that the allegations in the complaint are without merit and intend to vigorously contest the action. However, there can be no assurance that we will be successful in our defense and we cannot currently estimate a range of any possible losses we may experience in connection with this case. Accordingly, we are unable at this time to estimate the effects of this complaint on our financial condition, results of operations or cash flows.

Purchase commitments

We subcontract with other companies to manufacture our voice and audio processors. We may cancel these purchase commitments at any time, however we are required to pay all costs incurred through the cancellation date. We rarely cancel these agreements once production has started. As of September 30, 2012 and December 31, 2011, we had purchase commitments with our third-party foundries and other suppliers of $10.3 million and $11.8 million due within one year, respectively, and $0 due after one year for both periods.