10. Commitments and Contingencies

In the ordinary course of business, the Company may be subject to various legal proceedings and claims including alleged infringement of third-party patents and other intellectual property rights. The Company reviews the status of each matter and records a provision for a liability when it is considered both probable that a liability has been incurred and that the amount of the loss can be reasonably estimated. These provisions are reviewed quarterly and adjusted as additional information becomes available. If either or both of the criteria are not met, the Company assesses whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, the Company discloses the estimate of the amount of loss or range of losses, discloses that the amount would not have a material effect on the Company’s consolidated financial statements (if applicable) or discloses that an estimate of the possible loss or range of loss cannot be made. Legal fees are recognized as incurred when the legal services are provided, and therefore are not recognized as a part of a loss contingency accrual.

On June 12, 2012, we acquired PowerReviews, Inc. (“PowerReviews”) for $31.1 million in cash and 6.4 million shares of our common stock for a total consideration of $150.8 million. In connection with the acquisition, we assumed the PowerReviews option plan. After conversion, the PowerReviews options were equivalent to vested and unvested options to purchase 1.7 million shares of our common stock. On January 10, 2013, the U.S. Department of Justice (the “DOJ”) filed a complaint against the Company with the U.S. District Court for the Northern District of California, San Francisco Division, alleging that the Company’s acquisition of PowerReviews violates Section 7 of the Clayton Act, 15 U.S.C. Section 18 and seeking the Company’s divestiture of assets sufficient to create a competing business that can replace the competitive significance of PowerReviews in the marketplace. On January 8, 2014, the court ruled that the Company’s acquisition of PowerReviews violated Section 7 of the Clayton Act, 15 U.S.C. Section 18, and ordered further hearings to address a remedy. The court has scheduled a hearing to address the remedy for April 2, 2014. On February 12, 2014, the DOJ’s filed its motion for final judgment, which specified its requested relief. If the court were to adopt the DOJ’s proposed motion, the Company would be required to:

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divest all assets it acquired in conjunction with the acquisition of PowerReviews to a divestiture buyer;

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must provide cross-network syndication of content to the customers of the divestiture buyer for free for four years;

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waive trade secret restrictions for any PowerReviews or Company employees hired by the divestiture buyer;

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provide the divestiture buyer with a list of the customers the Company had acquired or renewed since its acquisition of PowerReviews;

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enter into a cross license for intellectual property with the divestiture buyer;

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waive any breach of contract claims against customers that sign a contract with the divestiture buyer;

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license its platform (including any improvements) to the divestiture buyer if the Company transfers to the divestiture buyer less than 80% of PowerReviews customers, based on revenue, the Company acquired; and

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notify the DOJ in advance of any transactions it contemplates over $10 million.

In addition the DOJ requested that a Special Master be appointed to oversee the divestiture sale and ongoing compliance with Court orders.

The Company filed its brief on March 4, 2014, portions of which were redacted to protect confidential and sensitive information. The DOJ will then have the opportunity to file a response brief no later than March 12, 2014. Simultaneously with the remedy proceedings, the court has made the local magistrate judge available to facilitate a possible negotiated settlement between the parties. It is likely that the court’s remedy may require that the Company divest part, or all, of PowerReviews operations and assets. The Company is evaluating whether to appeal the court’s decision, and the outcome of the remedy proceedings may affect the Company’s decision to appeal. In light of a potential court ordered divestiture, the Company has engaged in discussions with various potential purchasers of the PowerReviews operations or assets related to the PowerReviews business. The Company cannot predict the outcome or final terms of such discussions, or whether any agreement that is reached to sell the PowerReviews operations or assets will be acceptable to the court, which must approve any such transaction. The Company’s appeal notice is not due until 60 days from the final judgment, which will not happen until the completion of the remedy proceedings. The Company cannot predict the outcome of an appeal should it elect to appeal the court’s decision or the outcome of the Company’s efforts to stay any disposition of the PowerReviews operations or assets in connection with an appeal. It is also not possible to reliably predict the outcome of the remedy proceedings. Therefore, the Company cannot currently estimate the possible loss or range of loss that could result from the case.

On March 12, 2013, a purported shareholder derivative action was filed in the Texas State District Court for Travis County, Texas against certain of the Company’s officers and directors, former officers and directors, and against the Company as nominal defendant. The original petition in this matter alleged claims purportedly on behalf of the Company against the individual defendants for corporate waste, breaches of fiduciary duties and breaches of the Company’s corporate policies in connection with the acquisition of PowerReviews and certain of the Company’s officers’ and directors’ sales of shares of the Company’s stock. The original petition requested declaratory judgment, a disgorgement of $91.4 million in proceeds received from such sales of the Company’s stock, unspecified damages on behalf of the Company, reasonable attorneys’, accountants’ and experts’ fees, and equitable relief. On October 23, 2013, the court granted a motion filed by the Company and individual defendants and ruled that the plaintiff’s original petition failed to allege particularized facts sufficient to excuse plaintiff from making pre-suit demand on the Company’s Board of Directors. The court ordered the plaintiff to file an amended complaint within 30 days setting forth particularized facts sufficient to excuse demand. On November 22, 2013, the plaintiff filed its amended petition, which again asserted claims for corporate waste, breaches of fiduciary duties and breaches of the Company’s corporate policies in connection with the acquisition of PowerReviews and certain of the Company’s officers’ and directors’ sales of shares of the Company’s stock. The Company has filed a motion for summary judgment asserting that the amended petition has not cured the defects in the original petition. Plaintiff has opposed the motion, which remains pending before the court. Because the case is in its early stages, it is not possible to reliably predict the outcome of the case. Therefore, the Company cannot currently estimate the reasonably possible loss or range of loss that could result from the case.

As of January 31, 2014, the Company was in the process of assessing the sales tax status of the Bazaarvoice enterprise service offering with sales tax agencies in certain states in which it operates. Based on the limited information received from certain of these states, the Company cannot estimate with certainty the historical time period for which these services were taxable, and, for certain states, which of its service offerings and features these states may determine to be subject to state sales tax. The Company currently estimates that its liability, net of amounts to be recovered from customers, will be between $2.3 million and $2.9 million. The Company has accrued a liability of $2.6 million, representing the best estimate of the amount within this range that will probably be incurred to settle these obligations. The estimated range includes continuing to execute its action plan for recovering these amounts due from the Company’s customers. If it is determined that the time period in which the products are taxable or the portion of the Company’s product offering subject to state sales tax is greater than that used to determine the accrual as of January 31, 2014, or if there are changes in our underlying assumptions, then the actual liability incurred will likely approach the higher end of the current estimated range.