Commitment and Contingencies

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

7. Commitment and Contingencies

Leases

As of June 30, 2014, the Company’s offices were located in Tysons Corner, Virginia and Bethesda, Maryland, where it leased 837 and 5,000 square feet of office space under leases that expired on August 31, 2014 and expires on March 31, 2018, respectively. The Company’s monthly lease payment for the Virginia office space was $1,883 per month and is $13,090 per month for the Maryland office space.  The capacity of the Bethesda facility is adequate for the Company’s current needs.  The Company also leases office space in New York, NY on a month-to-month basis at a monthly rate of $6,000; however, the Company has secured new office space in New York City, which lease term is effective August 1, 2014 and carries a monthly cost of $4,990 for a period of 12 months. The Virginia lease ran from March 1, 2013 through August 31, 2014.  Upon the expiration of this lease, the Company’s Virginia operations were moved to Bethesda. In June, 2014, the Company opened a new office in Longview, Texas. The lease term of the Texas office runs from June 1, 2014 through May 31, 2015 at a monthly rate of $1,958.

Future minimum rental payments required as of September 30, 2014, remaining under the non-cancelable leases are as follows (in thousands):

	Operating Lease
Three Months Ended December 31, 2014	$	78
Year Ended December 31, 2015		223
Year Ended December 31, 2016		165
Year Ended December 31, 2017		170
Year Ended December 31, 2018		43
	$	679

Legal Proceedings

In the ordinary course of business, the Company actively pursues legal remedies to enforce its intellectual property rights and to stop unauthorized use of our technology.  From time to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of our business.  There were no pending material claims or legal matters as of the date of this report other than the following matters:

Spherix Incorporated v. Elizabethean Court Associates III Limited Partnership

The Company commenced a lawsuit against the landlord of the Bethesda, Maryland office claiming that the assignment of the lease to the purchaser of the Spherix Consulting business was permitted under the lease and seeking termination of the lease as a result of the landlord's failure to consent to such assignment.  The lawsuit, Spherix Incorporated v.  Elizabethean Court Associates III Limited Partnership, Case No., 377142 was decided in favor of Elizabethean Court Associates III Limited Partnership (“Elizabethean”) on March 28, 2014.  On April 24, 2014 Elizabethean filed a motion for an award of attorneys’ fees and costs.  For the period ended at June 30, 2014, the Company accrued an estimated $50,000 of related to potential legal costs.  On September 18, 2014, the Company entered into a settlement agreement with Elizabethean and paid a $266,000 settlement fee relating to an award of attorneys’ fees and costs. The Company will continue to use the leased property in the normal course of its business and make the monthly rental payments in accordance with the terms of the lease.

Charter Communications, Inc., Wideopenwest Finance LLC a/k/a Wow! Internet, Cable & Phone, Knology, Inc., Cequel Communications, LLC, d/b/a Suddenlink Communications, and Cable One, Inc.  v. Rockstar Consortium US LP, Bockstar Technologies LLC, Constellation Technologies LLC, and Spherix Incorporated.

On January 17, 2014, an action was filed by several cable operators in the United States District Court for the District of Delaware (No. 1:14-cv-00055-SLR) against Rockstar, Bockstar Technologies LLC, Constellation Technologies LLC and the Company (collectively, the “Defendants”).  The complaint was filed by Charter Communications, Inc., WideOpenWest Finance, LLC a/k/a WOW! Internet, Cable & Phone, Knology, Inc., Cequel Communications, LLC d/b/a Suddenlink Communications, and Cable One, Inc.  (collectively, the “Plaintiffs”).  Plaintiffs are in the communications, cable and/or wireline industries and allege that Rockstar has accused the Plaintiffs of practicing various communication and networking technologies (including many well-established technical standards), related to those industries.  The complaint states that in many instances such technical standards are designed into the equipment Plaintiffs purchase from vendors, and must be implemented to interoperate with other communications providers and their end user customers.  Rockstar owns (and since December 31, 2013, the Company owns) patents alleged to be infringed by Plaintiffs activities.  The relief sought against the Company is principally for a declaratory judgment that Plaintiffs do not infringe the patents, requiring that the Plaintiffs be granted a patent license, that the Company has misused the patents and it and the other Defendants have waived and are estopped from enforcing the patents in the marketplace, that the Company is liable to Plaintiffs for entering into an illegal conspiracy, and assessing corresponding damages, for direct and consequential damages, attorney’s fees and costs.   On June 5, 2014, the Company and the Plaintiffs filed a joint stipulation of dismissal in the action filed on January 17, 2014. As a result, the Plaintiffs’ allegations against the Company are dismissed without prejudice, with each party to bear its own costs. The Plaintiffs and the Company also agreed, with respect to all patents owned by the Company as of the date of the filing, to negotiate in good faith prior to bringing any action concerning these patents or bringing an action for infringement of these patents.  The parties agreed that any further actions related to these patents will be brought solely in Delaware.

Counterclaims

In the ordinary course of business, the Company, along with its wholly-owned subsidiaries, will initiate litigation against parties whom it believes have infringed on its intellectual property rights and technologies.  The initiation of such litigation exposes the Company to potential counterclaims initiated by the defendants.  Currently, as stated above, defendants in the cases Spherix Incorporated v. VTech Telecommunications Ltd.; Spherix Incorporated v. Uniden Corporation; NNPT, LLC v. Huawei Investment & Holding Co., Ltd. et al,; and Bockstar Technologies vs. Cisco Systems have filed counterclaims against the Company.  While the Company has evaluated the counterclaims and believes they are without merit, there can be no assurance that the outcome of these matters will be favorable to the Company or will not have a negative impact on the Company’s financial condition or results from operations.  The Company has not recorded a loss provision relating to such matters at September 30, 2014.

Registration Penalty

As stipulated in the Registration Rider of the December 2013 Rockstar patent acquisition agreement, the Company was required to both (i) file a registration statement for the securities issued as consideration in the agreement by February 3, 2014 (unless a later date was consented to by Rockstar), and (ii) such registration statement was to be declared effective by the SEC within 60 days after its filing.  Failure to comply with the registration requirement required that the Company issue to Rockstar additional consideration (“Additional Rockstar Shares”) in the form of shares of Common Stock equal to five percent of the number of shares of Common Stock and Series H Convertible Stock (taken together) issued to Rockstar (subject to certain beneficial ownership restrictions).  Additionally, if the issuance of “Additional Rockstar Shares” would have resulted in violation of certain beneficial ownership limitations, then the issuance of such “Additional Rockstar Shares” would be deferred until such time as the issuance would not cause Rockstar to exceed the applicable Beneficial Ownership set out with in the agreement.

The Company filed a registration statement with the SEC that was not declared effective within the sixty day time period stipulated in the Registration Rider. The registration statement was not declared effective until April 16, 2014.  As a result, in April, 2014, the Company issued Rockstar 239,521 shares of common stock with a grant date fair value of approximately $0.7 million. The amount of expense recorded by the Company was determined at the time the Company failed to have the registration statement declared effective, or April 4, 2014.