Commitments and Contingencies

9 Months Ended

Apr. 30, 2014

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 8—Commitments and Contingencies

Legal Proceedings

On December 11, 2012, Straight Path IP filed a demand for arbitration seeking a declaration that it properly terminated for cause the employment of the former Chief Executive Officer of Straight Path IP (the “Former SPIP CEO”) and that he is not entitled to severance or certain equity rights under his employment agreement. On March 15, 2013, the Former SPIP CEO filed a response and counterclaims alleging breach of contract and seeking various forms of relief. Specifically, he is seeking certain declarations related to the termination of his employment, and he is seeking certain payments, including in respect of options to purchase common stock representing 5% of the outstanding common stock of Straight Path IP, damages for unpaid compensation and severance, a sum in excess of $35 million in compensatory damages, and punitive damages in an unspecified amount. In a filing with respect to the arbitration proceeding, the Former SPIP CEO announced his intent to present evidence of a valuation of $5 billion for Straight Path IP, along with his assertion that the market value of Straight Path IP is not a fair representation of his damages related to his alleged equity rights. The parties have selected an arbitrator, commenced discovery, and set a case management schedule. The Company does not believe that the Former SPIP CEO’s counterclaims have merit, and is vigorously seeking to enforce its rights, prevail on its claims, and defend against the respondent’s counterclaims. At the current time, the Company cannot reasonably estimate its likely exposure in this matter. Under the terms of the Separation Agreement related to the Spin-Off, IDT is responsible for the costs of the arbitration and will indemnify the Company for liability other than for issuance of equity to the Former SPIP CEO.

On April 11, 2013, Sipnet EU S.R.O., a Czech company, (“Petitioner”) filed a petition for an inter partes review at the United States Patent and Trademark Office (the “USPTO”) for certain claims of U.S. Patent 6,108,704 (“the ’704 Patent”). On October 11, 2013, the USPTO partially granted the request and instituted an inter partes review. On January 30, 2014, Straight Path IP filed a Patent Owner’s Response, and oral argument is set for July 11, 2014. Straight Path IP intends to vigorously defend the claims of the ’704 Patent. Although Straight Path IP believes that the claims of the’704 Patent are valid, they may be deemed invalid during the inter partes review.

On August 1, 2013, Straight Path IP filed complaints in the United States District Court for the Eastern District of Virginia against Bandwidth.com, Inc., Telesphere Networks Ltd., and Vocalocity, Inc. claiming infringement of two of its patents (U.S. Patent Nos. 6,701,365 and 6,513,066). Straight Path IP seeks both damages and injunctive relief from the defendants. In January 2014, Straight Path IP entered into a confidential settlement and patent license agreement with Bandwidth.com, Inc. On February 26, 2014, the Court issued a Markman ruling, which Straight Path IP believes is favorable to its claims. On April 30, 2014, Straight Path IP engaged in mediation with Telesphere and Vocalocity. On May 15, 2014, Straight Path IP entered into a confidential settlement and patent license agreement with Telesphere. A status conference is currently set for June 23, 2014 to address any outstanding issues before jury trial.

On August 1, 2013, Straight Path IP filed a complaint with the International Trade Commission (“ITC”) to institute an investigation against respondents AmTran Logistics, Inc., AmTran Technology Co., Ltd., LG Electronics, Inc., LG Electronics U.S.A., Inc., LG Electronics MobileComm U.S.A., Inc., Panasonic Corporation, Panasonic Corporation of North America, Sharp Corporation, Sharp Electronics Corporation, Sony Computer Entertainment, Inc., Sony Computer Entertainment America LLC, Sony Computer Entertainment America Inc., Sony Corporation, Sony Corporation of America, Sony Electronics, Inc., Sony Mobile Communications AB, Sony Mobile Communications (USA) Inc., Sony Ericsson Mobile Communications (USA) Inc., Toshiba Corporation, Toshiba America Inc., Toshiba America Information Systems, Inc., and Vizio, Inc. Straight Path IP alleged that the respondents infringed three of its patents (U.S. Patent Nos. 6,108,704, 6,009,469, and 6,131,121). Straight Path IP sought to exclude the allegedly infringing products from importation into the United States. On September 4, 2013, the ITC instituted the investigation. In January 2014, Straight Path IP and the Sharp entities entered into a confidential settlement and patent license agreement. On April 23, 2014, Straight Path IP and the Sony entities entered into a confidential settlement and patent license agreement. On May 5, 2014, Straight Path IP and AmTran entered into a confidential settlement and patent license agreement. Also on May 5, 2014, Straight Path IP moved to terminate the ITC investigation to pursue its claims against the remaining respondents in district court. On May 12, 2014, the Administrative Law Judge issued an initial determination granting Straight Path IP’s motion to terminate. On May 27, 2014, Straight Path IP and the Panasonic entities entered into a confidential settlement and patent license agreement.

On August 1, 2013, Straight Path IP also filed complaints in the United States District Court for the Eastern District of Virginia against the same respondents in the ITC action, alleging infringement of the same three patents. Straight Path IP seeks damages in these actions. With a co-pending ITC investigation involving the same patents, the defendants were entitled by statute to a stay of the district court proceedings, and all of the matters have been stayed. Although the ITC action has concluded, the stay has not yet been lifted. These actions, except against the LG defendants, have been consolidated. Straight Path IP has served the complaints. On March 31, 2014, Straight Path IP dismissed the Sharp entities from the district court proceeding based upon Sharp’s compliance with its obligations under the confidential settlement and patent license agreement.

On April 23, 2014, Straight Path IP and Google, Inc. entered into a confidential license agreement. Although Google was not a party to either the ITC investigation or district court actions described above, Google products and services were identified in a number of allegedly infringing products.

On August 23, 2013, Straight Path IP filed complaints in the United States District Court for the Eastern District of Texas against Blackberry Ltd., Blackberry Corp., Huawei Investment & Holding Co., Ltd., Huawei Technologies Co., Ltd., Huawei Technologies USA, Inc., Huawei Devices USA, Inc., Samsung Electronics Co. Ltd., Samsung Electronics America, Inc., Samsung Telecommunications America, L.L.C., ZTE Corporation, and ZTE USA, Inc. alleging infringement of three of its patents (U.S. Patent Nos. 6,108,704, 6,009,469, and 6,131,121). Straight Path IP seeks damages in these actions. Straight Path IP entered into a stipulation dismissing the foreign ZTE entity, ZTE Corporation, without prejudice in exchange for discovery against the remaining ZTE entity, ZTE USA. Discovery has begun, a Markman hearing is set for October 2014 and a pretrial conference has been set for October 2015.

On November 5, 2013, Straight Path IP filed a complaint in the United States District Court for the Eastern District of Virginia against Vonage Holdings Corp., Vonage America, Inc., and Vonage Marketing LLC claiming infringement of four of its patents (U.S. Patent Nos. 6,009,469, 6,131,121, 6,513,066, and 6,701,365). Straight Path IP seeks both damages and injunctive relief from the defendants. In January 2014, the action was transferred to the District Court for the District of New Jersey. A scheduling order has not issued.

On December 5, 2013, Sony Corporation filed three petitions at the USPTO for inter partes review of certain claims of U.S. Patent Nos. 6,108,704; 6,009,469; and 6,131,121. Straight Path IP filed a Patent Owner’s Preliminary Response on March 21, 2014.  On April 28, 2014, shortly after entering into a confidential settlement and patent license agreement, Sony Corporation and Straight Path IP jointly moved to terminate Sony’s petitions. On May 2, 2014, the USPTO terminated the petitions.

On May 2, 2014, Straight Path IP filed a complaint against Netflix, Inc. in the United States District Court for the Eastern District of Texas claiming infringement of five of its patents (U.S. Patent Nos. 6,108,704; 6,009,469; 6,701,365; 6,131,121; and 6,513,066). Straight Path IP seeks both damages and injunctive relief in this action.

On May 19, 2014, VIZIO, Inc. filed an action for declaratory relief of non-infringement of Straight Path’s patents (U.S. Patent Nos. 6,108,704; 6,009,469; and 6,131,121) in the Eastern District of Virginia against Straight Path IP. Straight Path IP has not been served at this time.

On June 5, 2014, Straight Path IP filed an additional complaint against Blackberry Ltd. and Blackberry Corp. in the United States District Court for the Eastern District of Texas, again claiming infringement of three of its patents (U.S. Patent Nos. 6,108,704; 6,009,469; and 6,131,121). The complaint alleges infringement by additional Blackberry functionality. Straight Path IP seeks both damages and injunctive relief in this action. The complaint has not been served at this time.

At April 30, 2014, Straight Path IP’s total license and settlement amounts were an aggregate of $13.2 million, of which $12.3 million was secured subsequent to the Spin-Off. The aggregate license and settlement amounts exclude contingent amounts for which collectability is not reasonably assured. At April 30, 2014, Straight Path IP incurred an aggregate of $6.6 million in expenses directly related to these settlements, which is being recognized ratably in proportion to the revenue recognized.

In addition to the foregoing, the Company may from time to time be subject to other legal proceedings that arise in the ordinary course of business. Although there can be no assurance in this regard, the Company does not expect any of those legal proceedings to have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

Other Commitments and Contingencies

The Former SPSI CEO is entitled to receive payments from future revenues generated from the leasing, licensing or sale of rights in certain of Straight Path Spectrum’s wireless spectrum licenses. Those payments are to be made out of 50% of the covered revenue and are in a maximum aggregate amount of $4 million. The payments arise under the June 2013 settlement of certain claims and disputes with the Former SPSI CEO and parties related to the Former SPSI CEO. As of April 30, 2014, the Company has paid $0.1 million to the Former SPSI CEO for this obligation.

Straight Path IP generally pays law firms that represent it in litigation against alleged infringers of its intellectual property rights a percentage of the amounts recovered ranging from 0% to 40% depending on several factors. One of such law firms has the right to 30% of the proceeds from any monetization of the Droplet patent portfolio, as such assets were received in settlement of litigation. The Droplet patent portfolio includes United States Patents Nos. 6,825,780; 6,847,317; 7,844,122; 7,525,463; 8,279,098; 7,679,649 and a number of U.S. and foreign patent applications.