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LEGAL PROCEEDINGS
12 Months Ended
Feb. 28, 2018
Commitments And Contingencies Disclosure [Abstract]  
LEGAL PROCEEDINGS

NOTE 18 – LEGAL PROCEEDINGS

Omega patent infringement claim

In December 2013, a patent infringement lawsuit was filed against us by Omega Patents, LLC (“Omega”) alleging that certain of our vehicle tracking products infringed on patents owned by them. On February 24, 2016, a jury in the U.S. District Court for the Middle District of Florida awarded Omega damages of $2.975 million, for which we recorded a reserve of $2.9 million in fiscal 2016. Following the trial, Omega brought a motion seeking an injunction and requesting payment of treble damages and attorneys’ fees. On April 5, 2017, the court denied the request for an injunction but awarded treble damages in the aggregate amount of $8.9 million. On April 24, 2017, the court awarded attorneys’ fees, costs, and prejudgment interest in the aggregate amount of $1.2 million and directed the payment of royalties by us for any infringing sales after February 24, 2016 at a royalty rate to be determined. As a result, we accrued $7.2 million in the fourth quarter of fiscal 2017.  

We filed motions with the court seeking judgment as a matter of law and for a new trial which the court then denied on November 14, 2017. We have filed an appeal in the Court of Appeals for the Federal Circuit which is pending at this time. We also initiated proceedings filed in the U.S. Patent and Trademark Office seeking to invalidate a number of Omega’s patents involved in the litigation. Those proceedings remain pending at this time. We continue to believe that our products do not infringe on any of Omega’s patents. During first quarter in fiscal 2018, we increased our reserve by approximately $6.1 million in relation to this legal matter. As of February 28, 2018, the aggregate accrual for this matter was approximately $17.6 million, which represents our best estimate at this time. While it is not feasible to predict with certainty the outcome of this litigation, its ultimate resolution could be material to our cash flows and results of operations.

EVE battery claim

On October 27, 2014, LoJack and LoJack Equipment Ireland DAC (“LJEI”), a wholly-owned subsidiary of LoJack, commenced arbitration proceedings against EVE Energy Co., Ltd. (“EVE”) by filing a notice of arbitration with a tribunal (the “Tribunal”) before the Hong Kong International Arbitration Centre (the “HKIAC”). LoJack and LJEI alleged that EVE breached representations and warranties made in supply agreements relating to the quality and performance of battery packs supplied by EVE. On June 2, 2017, we were notified that the Tribunal rendered a decision and awarded damages to us (the “Damage Award”) for EVE’s breach of contract. On June 9, 2017, we entered into a settlement agreement with EVE and its controlling shareholder EVE Holdings Limited to resolve the Damage Award by having EVE Holdings Limited, the parent company of EVE, make payments to us in the aggregate amount of approximately $46 million, which amount is net of attorneys’ fees and insurance subrogation payment (the “Settlement”). As of February 28, 2018, we had received approximately $28 million of the expected $46 million net amount, of which approximately $15 million was received in June 2017 and $13 million was received in November 2017. The Settlement amounts are reported as other non-operating income in our consolidated statement of comprehensive income for the fiscal year ended February 28, 2018. Pursuant to the Settlement, we received an installment payment of $13.3 million in April 2018 and are due to receive an additional installment payment of approximately $5 million in June 2018.

Tracker South Africa claim

On December 9, 2016, Tracker Connect (Pty) LTD (“Tracker”), an international licensee of LoJack located in South Africa, commenced arbitration proceedings against LoJack Ireland by filing a notice of arbitration with the International Centre for Dispute Resolution. The filing alleges breaches of the license agreement as well as misrepresentations and violation of Massachusetts General Laws chapter 93A. Tracker seeks various relief, including monetary damages and recovery of attorneys’ fees. On March 3, 2017, LoJack Ireland filed its response to Tracker’s notice, denying their allegations and filing counterclaims against Tracker for material breaches of the parties’ license agreement and bad faith conduct. The arbitral tribunal was selected and the arbitration was conducted in March 2018 with closing arguments set for June 25, 2018. While it is not feasible to predict with certainty the outcome of this litigation, its ultimate resolution could be material to our cash flows and results of operations.

 

In addition to the foregoing matters, from time to time as a normal consequence of doing business, various claims and litigation may be asserted or commenced against us. In particular, we may receive claims concerning contract performance or claims that our products or services infringe the intellectual property of third parties which are in the ordinary course of business. While the outcome of any such claims or litigation cannot be predicted with certainty, management does not believe that the outcome of such matters existing at the present time would have a material adverse effect on our consolidated results of operations, financial condition and cash flows.