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Note 7 - Litigation
6 Months Ended
Jun. 30, 2012
Legal Matters and Contingencies [Text Block]
7. Litigation

On September 16, 2011 and September 29, 2011, two nearly identical shareholder derivative actions were filed in the United States District Court for the Northern District of California and the California Superior Court for Santa Clara County, naming as defendants certain of the Company’s current and former directors and officers and the Company’s compensation advisory firm.  The complaints asserted claims for, among other things, breach of fiduciary duty in connection with the directors' approval of compensation for the Company's executive officers during 2010.  The complaints each sought an award of damages in favor of the Company, equitable relief, costs and attorney's fees. On March 2, 2012, the parties in the state court action stipulated to the dismissal without prejudice of that action. On April 3, 2012, a hearing was held in the United States District Court on the defendants’ motions to dismiss the case. On June 13, 2012, the United States District Court issued an order granting the motions and dismissing the complaint without prejudice.  The court ruled that the plaintiff had failed to sufficiently allege that pre-suit demand on the Company’s board of directors was excused, and granted the plaintiff leave to amend the complaint. The plaintiff subsequently informed the defendants that it did not intend to amend the complaint. On July 9, 2012, the parties in the federal court action stipulated to the dismissal without prejudice of that action, and on July 10, 2012, the federal court signed an order dismissing the action without prejudice.

On May 3, 2012, the United States District Court for the Northern District of California issued an order finding O2 Micro International, Ltd. (“O2 Micro”) liable for approximately $9.1 million in attorneys’ fees and non-taxable costs, plus interest, in connection with the patent litigation that the Company won in 2010.  This award is in addition to the approximately $340,000 in taxable costs that the Court had earlier ordered O2 Micro to pay to the Company in connection with the same lawsuit. The matter originated when O2 Micro filed complaints against the Company in both the United States International Trade Commission (“ITC”) and the Northern District of California, alleging that the Company infringed four O2 Micro patents but then voluntarily dismissed three patents. In June 2010, the ITC found that the Company's products did not infringe O2 Micro’s patent. Subsequently, O2 Micro unilaterally dismissed its infringement claims with prejudice, and granted the Company and its customers broad covenants not to sue in the district court case. On March 3, 2011, the Court ordered O2 Micro to pay the Company $339,315.13 in costs. The Court also found that “O2 Micro engaged in a vexatious litigation strategy and litigation misconduct,” entitling the Company to its reasonable attorneys' fees. O2 Micro's vexatious litigation strategy consisted of filing lawsuits against the Company and its customers; only to dismiss them after substantial litigation had taken place. This allowed O2 Micro to damage the Company's business while avoiding trials at which the validity of its patents would be challenged. Since that time, the Company submitted the documentation for its attorneys’ fees and non-taxable costs. O2 Micro challenged those fees on various grounds. On May 3, 2012, the Court accepted the Company’s figures and entered an order awarding $8,419,429 in attorneys’ fees, and $663,151 in non-taxable costs, plus interest. The Court then entered judgment for the Company. The Company anticipates that O2 Micro will appeal the Court’s orders and the final judgment. These amounts will be recognized in the Consolidated Financial Statements of the Company when all related appeals have been exhausted and collectability is probable.  

The Company and certain of its subsidiaries are parties to actions and proceedings incident to the Company's business in the ordinary course of business, including litigation regarding its intellectual property, challenges to the enforceability or validity of its intellectual property and claims that the Company’s products infringe on the intellectual property rights of others. These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. The Company defends itself vigorously against any such claims.

In December 2011, the Company entered into a settlement and license agreement with a third-party company for infringement of the Company’s patent whereby the Company will receive a total of $2 million which will be paid in equal installments of $0.3 million in each quarter of 2012 and the remainder will be paid in two equal installments in first two quarters of 2013. For the three and six months ended June 30, 2012, the Company received the $0.3 million and $0.6 million payments, respectively, which were recorded as credits to litigation expenses in the Condensed Consolidated Statements of Operations.