Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

License Agreements

The Company has patent license agreements with four different parties. Under these agreements, the Company has made one-time upfront and milestone payments, which it has capitalized and is amortizing to expense ratably over the useful life of the underlying patent right(s). Under some of these agreements, the Company is obligated to pay low single-digit percentage running royalties on net sales where the licensed patent right(s) are used in the product or service sold, subject to minimum annual royalties or fees in certain agreements.

Royalty expenses were included in cost of precision oncology testing on the accompanying consolidated statements of operations. The Company recognized royalty expenses of $4.4 million, $1.4 million and $1.1 million, or 2%, 2% and 2% of precision oncology testing revenue in each period, for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, future minimum royalty payments are due as follows regardless of sales amounts:



Year Ending December 31,
	(in thousands)
2020	$	1,402
2021	1,402
2022	1,682
2023	1,682
2024 and thereafter	5,607
Total future minimum royalty payments	11,775
Less: amount representing interest	(4,895		)
Present value of future minimum royalty payments	$	6,880

Indemnification Agreements

The Company has entered into indemnification agreements with certain directors and officers that require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. To date, no such matters have arisen and the Company does not believe that the outcome of any claims under indemnification arrangements will have a material adverse effect on its financial positions, results of operations or cash flows. Accordingly, the Company has not recorded a liability related to such indemnifications as of December 31, 2019.

Security Incidents

In connection with a former employee’s complaints alleging non-compliance with applicable provisions of the Health Insurance Portability and Accountability Act of 1996, the Company received requests for information from the Office for Civil Rights, or OCR, of the U.S. Department of Health and Human Services in August 2019. After the Company responded to these requests, the Company was informed by the OCR that it has closed this matter without further action.

Legal Proceedings

The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.

Patent Disputes

In May 2016, Foundation Medicine, Inc. (“Foundation Medicine”) filed a lawsuit for patent infringement against the Company in the United States District Court for the Eastern District of Texas, alleging that the Company infringed Foundation Medicine’s patent relating to its tissue biopsy assay technology and seeking compensatory damages and attorneys’ fees. The Company filed three petitions for inter partes review (“IPR”) with the Patent Trial and Appeal Board (“PTAB”) at the U.S. Patent and Trademark Office, challenging the patentability of Foundation Medicine’s patent. In July 2018, the Company reached an agreement with Foundation Medicine to settle the lawsuit and resolve the IPRs. As part of the settlement agreement, which was accepted by the PTAB and the United States District Court,

the Company made a one-time payment of $3.0 million to Foundation Medicine. The Company recorded $3.0 million as litigation settlement expense, a component of general and administrative expenses, at December 31, 2017.

In November 2017, the Company filed separate lawsuits against Foundation Medicine and Personal Genome Diagnostics, Inc. (“Personal Genome Diagnostics”) in the United States District Court for the District of Delaware, alleging that each of the two companies has infringed a patent relating to the Company’s digital sequencing technology. The Company subsequently amended its original complaints in each case to assert infringement of three additional patents relating to its digital sequencing technology. In each lawsuit, the Company is seeking compensatory damages, injunctive relief and attorneys’ fees. Personal Genome Diagnostics and Foundation Medicine have each asserted counterclaims of patent invalidity and non-infringement. In March 2018, Personal Genome Diagnostics filed two petitions for post-grant review with the PTAB, challenging the patentability of two of the patents asserted by the Company. Prior to reaching a decision on the merits, the two post-grant review petitions were dismissed with prejudice in July 2018. Subsequently, Foundation Medicine filed six petitions for inter partes review with the PTAB, challenging the patentability of all four of the patents asserted by the Company, which actions are currently pending at the PTAB. The Company plans to vigorously defend its patent rights during such PTAB actions. At this time, the Company cannot reasonably ascertain the likelihood that any of the challenged patents will be found to be invalid or unenforceable.

License Dispute

In November 2018, the Company filed a request for arbitration to the International Chamber of Commerce claiming that one of its licensors, KeyGene N.V. (“Licensor”), has breached its patent license agreement with the Company. In January 2019, Licensor responded with its answer and counterclaims and alleged that the Company has breached the patent license agreement. The Company subsequently followed up with supplemental claims, for which Licensor responded with its supplemental answer. The Company is seeking damages, declaratory relief and alternative forms of relief including recession and reformation to address Licensor’s alleged breaches of the patent license agreement. Licensor is seeking damages, recovery of costs and fees and declaratory relief in addition to the dismissal of the Company’s claims. The arbitration is in preliminary stages, and no date has been set for rendering a final decision. At this time, the Company cannot reasonably ascertain the likelihood that any of its claims or Licensor’s counterclaims will be heard by the arbitration panel or succeed on the merits.

Other Disputes

In the first quarter of 2018, the Company settled a commercial dispute. In connection with the settlement, the Company received a payment of $4.25 million, which was reported as other income in the consolidated statements of operations for the year ended December 31, 2018.