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Commitments And Contingencies
9 Months Ended
Sep. 30, 2011
Commitments And Contingencies [Abstract] 
Commitments And Contingencies
14. Commitments and Contingencies
 
Service Credit
 
Under the terms of the purchase agreement with the seller of the AAX business, the parent company of the seller was granted the right to service credits of $2.5 million, which may be applied against fees that are charged in connection with their purchase of certain future products or services of DealerTrack. These service credits expire on December 31, 2015. The service credits are being recorded as a reduction in revenue as they are utilized. For the three and nine months ended September 30, 2011, we recorded contra revenue related to the service credits of $0.3 million and $0.7 million, respectively. For the nine months ended September 30, 2010, approximately $0.2 million of the service credits were utilized. For the three months ended September 30, 2010, no service credits were utilized. As of September 30, 2011, approximately $1.6 million of the service credit remains.
 
Contingencies
 
We are a party to a variety of agreements pursuant to which we may be obligated to indemnify the other party with respect to breach of contract, infringement and other matters. Typically, these obligations arise in the context of agreements entered into by us, under which we customarily agree to hold the other party harmless against losses arising from breaches of representations, warranties and/or covenants. In these circumstances, payment by us is generally conditioned on the other party making a claim pursuant to the procedures specified in the particular agreement, which procedures typically allow us to challenge the other party's claims. Further, our obligations under these agreements may be limited to indemnification of third-party claims only and limited in terms of time and/or amount. In some instances, we may have recourse against third parties for certain payments made by us.
 
It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. To date, we have not been required to make any material payments. We believe that if we were to incur a loss in any of these matters, it is not probable that such loss would have a material effect on our business or financial condition.
 
Retail Sales Tax

The Ontario Ministry of Revenue conducted a retail sales tax field audit on the financial records of our Canadian subsidiary, DealerTrack Canada, Inc. (formerly known as DealerAccess Canada, Inc.), for the period from March 1, 2001 through May 31, 2003 (the "Audit Period"). We received a formal assessment from the ministry indicating unpaid Ontario retail sales tax totaling approximately $0.2 million, plus interest. Although we disputed the ministry's findings, the assessment, including interest, was paid in order to avoid potential future interest and penalties.
 
As part of the purchase agreement dated December 31, 2003 between us and Bank of Montreal for the purchase of all of the issued and outstanding capital stock of DealerAccess, Inc., Bank of Montreal agreed to indemnify us specifically for this potential liability for all sales tax periods prior to January 1, 2004. The potential sales tax liability for the period covered by this indemnification is now closed due to the statutory expiration of the periods open for audit by the ministry. All amounts paid to the ministry by us for this assessment were reimbursed by the Bank of Montreal under this indemnity.
 
We undertook a comprehensive review of the audit findings of the ministry using external tax experts. Our position was that these lender revenue transactions were not subject to Ontario retail sales tax.
 
A Notice of Appeal was timely filed on our behalf with the Superior Court of Justice on March 18, 2008 to challenge the assessment because we did not believe these services were subject to sales tax. In October 2010, the parties agreed to a settlement of this matter. The Minutes of Settlement provided that the ministry reimburse us $0.1 million, plus interest, for a total payment of $0.2 million, which was received on October 29, 2010.  Under the terms of the indemnity agreement with The Bank of Montreal, we forwarded the settlement payment to the bank.
 
The ministry conducted a retail sales tax field audit on the financial records of DealerTrack Canada, Inc. for the period from March 1, 2007 through June 30, 2010. We received a proposed settlement from the ministry indicating unpaid Ontario retail sales tax totaling approximately $63,000, plus interest. The assessment included items for which the ministry concluded that DealerTrack should have self-assessed but did not. DealerTrack did not dispute the ministry's finding and paid the amount assessed in April 2011. The Ministry did not review or assess on the issue of taxability of our lender revenue transactions.
 
While we believe that the ministry is barred from further inquiry or assessment through June 30, 2010, in the event the ministry later determined that we are obligated to charge sales tax for this type of transaction, we believe this Canadian subsidiary's contractual arrangements with its lender customers obligate these customers to pay all sales taxes that are levied or imposed by any taxing authority by reason of the transactions contemplated under the particular contractual arrangement. In the event of any failure to pay such amounts by our customers, we would be required to pay the obligation, which could range from $4.1 million (CAD) to $4.5 million (CAD), including penalties and interest.
 
On an ongoing basis, various tax jurisdictions in the United States conduct reviews or audits regarding the sales taxability of our products. Historically, we have been able to respond to their inquiries without significant additional sales tax liability imposed. However, in the event we are unsuccessful in responding to future inquiries, additional sales tax liabilities may be incurred. If we are obligated to charge sales tax for certain products, we believe our contractual arrangements with our customers obligate them to pay all sales taxes that are levied or imposed by any taxing authority.
 
Employment Agreements
 
Pursuant to employment or severance agreements with certain employees, we have a commitment to pay severance of approximately $5.3 million as of September 30, 2011, in the event of termination without cause, as defined in the agreements, as well as certain potential gross-up payments to the extent any such severance payment would constitute an excess parachute payment under the Internal Revenue Code. Additionally, in the event of termination without cause due to a change in control, we would also have a commitment to pay additional severance of $2.1 million as of September 30, 2011.
 
Legal Proceedings

From time to time, we are a party to litigation matters.  In addition to litigation matters arising in connection with the normal course of our business and not expected to have a material adverse effect on our financial position or results of operations, we are party to the litigation described below.  The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time.  In some actions, the claimants seek damages, as well as other relief that could require significant expenditures or result in lost revenues. In accordance with U.S. GAAP, we record a liability in the consolidated financial statements for loss contingencies when a loss is known or considered probable and the amount can be reasonably estimated.  When determining the estimated loss or range of loss, significant judgment is required to estimate the amount and timing of a loss to be recorded.  Estimates of probable losses resulting from litigation and governmental proceedings are inherently difficult to predict, particularly when the matters are in early procedural stages, with incomplete legal discovery, unsubstantiated or indeterminate claims for damages, potential penalties, fines or punitive damages, or the potential to result in a change in business practice. While it is not possible to predict the outcome of the matters discussed below, it is possible that costs associated with them could have a material adverse impact on our consolidated earnings, financial position, or cash flows.

Patent Litigation

On April 18, 2006, we filed a Complaint and Demand for Jury Trial against David Huber, Finance Express LLC (Finance Express), and three of their unnamed dealer customers in the United States District Court for the Central District of California, Civil Action No. CV-06-2335 AG (FMOx). The complaint sought declaratory and injunctive relief, as well as damages, against the defendants for infringement of the U.S. Patent No. 5,878,403 (the '403 Patent) and 6,587,841 (the '841 Patent). Finance Express denied infringement and challenged the validity and enforceability of the patents-in-suit.

On October 27, 2006, we filed a Complaint and Demand for Jury Trial against RouteOne, David Huber and Finance Express in the United States District Court for the Central District of California, Civil Action No. CV-06-6864 (SJF). The complaint sought declaratory and injunctive relief as well as damages against the defendants for infringement of the '403 Patent and the '841 Patent. On November 28, 2006 and December 4, 2006, respectively, defendants RouteOne, David Huber and Finance Express filed their answers. The defendants denied infringement and challenged the validity and enforceability of the patents-in-suit.

On February 20, 2007, we filed a Complaint and Demand for Jury Trial against RouteOne LLC (RouteOne), David Huber and Finance Express in the United States District Court for the Central District of California, Civil Action No. CV-07-215 (CWx). The complaint sought declaratory and injunctive relief as well as damages against the defendants for infringement of U.S. Patent No. 7,181,427 (the '427 Patent). On April 13, 2007 and April 17, 2007, respectively, defendants RouteOne, David Huber and Finance Express filed their answers. The defendants denied infringement and challenged the validity and enforceability of the '427 Patent.

The DealerTrack, Inc. v. Finance Express et al., CV-06-2335 action, the DealerTrack Inc. v. RouteOne and Finance Express et al., CV-06-6864 action and the DealerTrack v. RouteOne and Finance Express et al., CV-07-215 action, described above, were consolidated by the court. A hearing on claims construction, referred to as a "Markman" hearing, was held on September 25, 2007. Fact and expert discovery and motions for summary judgment have substantially been completed.

On July 21, 2008 and September 30, 2008, the court issued summary judgment orders disposing of certain issues and preserving other issues for trial.

On July 8, 2009, the court held Claims 1-4 the '427 Patent were invalid for failure to comply with a standard required by the recently decided case in the Court of Appeals of the Federal Circuit of In re Bilski. On August 11, 2009, the court entered into a judgment granting summary judgment.
 
On September 8, 2009, DealerTrack filed a notice of appeal in the United States Court of Appeals for the Federal Circuit in regards to the finding of non-infringement of the '841 Patent, the invalidity of the '427 Patent, and the claim construction order to the extent that it was relied upon to find the judgments of non-infringement and invalidity. On May 5, 2011, oral arguments on the appeal were held. No decisions have been received by the parties since the date of the oral arguments.

 We believe that the potential liability from this litigation will not have a material effect on our financial position or results of operations when resolved in a future period.

Other Litigation

On October 13, 2011, Honda Canada, Inc. and Honda Canada Finance Inc. (collectively, "Plaintiff") filed a lawsuit against Vijay Gera ("Gera"), a former employee of DealerTrack, and DealerTrack in the United States District Court for the Eastern District of New York (11cv4980 (E.D.N.Y.)). The complaint alleges involvement in a series of computer-based attacks against Plaintiff's Canadian consumer facing web sites in February 2011.  Plaintiff also asserts that as a result of these computer-based attacks, Plaintiff is itself being sued by its customers in a class-action lawsuit in Ontario, Canada.  Plaintiff alleged damages "well in excess of $75,000" but has not otherwise quantified its damage claim.  Based on DealerTrack's preliminary investigation, these events occurred without the knowledge or involvement of DealerTrack, and DealerTrack is cooperating with Plaintiff's counsel in investigating this matter.  While it is too early to predict the outcome of the litigation and whether an adverse result would have a material adverse impact on our operations or financial position, we believe we have meritorious defenses and cross-claims, vehemently deny the allegations and intend to defend the case vigorously.
 
We have not recorded an expense related to damages in connection with this matter because any potential loss is neither currently probable nor reasonably estimable under U.S. GAAP.  Additionally, we cannot reasonably estimate the range of loss, if any, that may result from this matter.