9. COMMITMENTS AND CONTINGENCIES

Royalty Commitments

In November 2004, the Company entered into a license agreement with Roche Molecular Systems, Inc., (“Roche”), that grants the Company the right to use certain Roche technology relating to polymerase chain reaction, (“PCR”), and quantitative real-time PCR, in clinical laboratory services, including in connection with AlloMap. This is a non-exclusive license agreement in the U.S. covering claims in multiple Roche patents. The Company had disputed the combination services percentage Roche sought to apply under the agreement. The combination service percentage is a multiplier used to calculate royalties where licensed services are sold in combination with other services. From July 2011 through September 2014, the Company withheld payment of such royalties pending resolution of the matter. On February 11, 2014, Roche filed a demand for arbitration with the American Arbitration Association seeking a declaration that the Company had materially breached the Roche license agreement by failing to report and pay royalties owing to Roche in respect of licensed services performed by the Company after July 1, 2011. Commencing as of July 1, 2011, the Company fully accrues the unpaid royalties on its balance sheets, and the amount of the unpaid royalties is reflected as an expense in the Company’s statements of operations in the periods revenue is recorded and to which the royalties relate.

In September 2014, the Company entered into a settlement and mutual release agreement with Roche whereby: (i) for the period beginning July 1, 2011 through June 30, 2014, the Company agreed to pay the amount of $2,827,220 in settlement of past royalties due; (ii) for the period beginning July 1, 2014 through September 30, 2014, the Company agreed to pay royalties based on the same combination services percentage used to determine the past royalties due; (iii) for the period beginning October 1, 2014 through September 30, 2017, Roche and the Company agreed to a downward adjustment of the combination services percentage used to determine the portion of the AlloMap testing revenue that is royalty bearing under the terms of the license; (iv) the Company agreed to report and pay quarterly royalties within 45 days of the end of each calendar quarter; (v) Roche agreed that, subject to the Company’s timely payment of all applicable royalties through such date, no further royalties will be payable by the Company for periods after September 30, 2017; (vi) the Company and Roche agreed to mutually release all claims under the license agreement through the settlement date; and (vii) Roche agreed to dismiss the arbitration claims. For all time periods, the contractual royalty rate in the license agreement was or will be applied to the applicable combination services percentage to determine the royalties payable for the AlloMap service.

Under the license agreement, the Company incurs royalty expenses as a percentage of combination services revenue and classifies those expenses as a component of cost of testing in the condensed consolidated statements of operations. For each of the three months ended June 30, 2016 and 2015, royalty expenses in connection with the Roche agreement were $0.3 million. For each of the six months ended June 30, 2016 and 2015, royalty expenses in connection with the Roche agreement were $0.5 million.

Operating Lease

The Company leases its operating and office facilities for various terms under long-term, non-cancelable operating lease agreements in California, Pennsylvania, and Stockholm, Sweden. The lease for our facility in Austria is on a month-to-month basis. The leases expire at various dates through 2020. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties.

As of June 30, 2016, future minimum lease payments due under operating leases were as follows (in thousands):

Years Ending December 31,	Amount
Remainder of 2016	$	1,003
2017		2,026
2018		2,033
2019		2,051
2020		2,016
2021		6
Thereafter		1
Total future minimum lease payments	$	9,136

Contingencies

On April 25, 2016, Oberland filed a breach of contract claim against the Company in the Supreme Court of the State of New York, County of New York (the “Oberland Complaint”), alleging, among other things, that the Company breached certain provisions of the amended and restated commitment letter and the restated fee letter that it entered into with Oberland on February 8, 2016. Pursuant to the Oberland Complaint, Oberland is seeking damages against the Company in the amount of at least $1.4 million, plus costs and expenses, including the fees and expenses of Oberland’s attorneys. On July 15, 2016, the Company filed an answer and made counterclaims against Oberland (“the Answer”), generally denying the claims asserted by Oberland in the Oberland Complaint and asserting fraudulent inducement and breach of contract counterclaims against Oberland. Pursuant to the Answer, the Company is seeking dismissal of the Oberland Complaint in its entirety, recession of all agreements with Oberland and damages of not less than $1.3 million, together with interest and punitive damages, if deemed appropriate under applicable law, and costs and disbursements of the action, including reasonable attorneys’ fees. On August 4, 2016, Oberland filed a motion to dismiss our counterclaims and affirmative defenses asserted in the Answer. The Company believes that it has meritorious defenses to the claims asserted in the Oberland Complaint and that the counterclaims asserted by it in the Answer have merit. The Company intends to vigorously defend against the claims asserted by Oberland and vigorously pursue the counterclaims set forth in the Answer. However, there is no guarantee that the Company will prevail in this suit or recover damages from its counterclaims or other relief if it does prevail. As a result, the Company had accrued the amount being claimed by Oberland of $1.4 million.

On June 15, 2016, the Company received a letter from Nasdaq OMX Stockholm AB, or the Exchange, regarding its compliance with the requirements of the Nasdaq Stockholm Takeover Rules, or the Takeover Rules, and good practice in the securities market in Sweden in connection with its acquisition of Allenex. The Exchange concluded that the Company violated certain technical provisions of the Takeover Rules and acted contrary to good practice in the securities market in Sweden, and gave the Company the opportunity to submit its views before the Exchange decides whether to refer the matter to its Disciplinary Committee. The Company submitted a response on July 12, 2016, which will be considered by the Exchange in making a final determination on whether to refer the matter to its Disciplinary Committee for further assessment. If the matter is referred to the Disciplinary Committee, it has the authority to impose a fine and/or sanctions. Takeover Rules authorize the Disciplinary Committee to impose a special fine ranging between SEK 50,000 (approximately $6,000 in U.S. dollars) and SEK 100 million (approximately $12.0 million in U.S. dollars). The Company cannot predict whether the Exchange will refer this matter to its Disciplinary Committee or the outcome of any Disciplinary Committee review, if taken. An adverse determination by the Disciplinary Committee could have a material adverse effect on the Company. Accordingly, no provisions have been recorded related to this violation.

The Company is subject to claims and assessments from time to time in the ordinary course of business. Other than the matters discussed above, the Company’s management does not believe that any such matters, individually or in the aggregate, may have a material adverse effect on the Company’s business, financial condition, or results of operations.