Commitments and Contingencies

6 Months Ended

Jul. 01, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

From time to time, we may be a party to litigation arising in the ordinary course of business. Other than as discussed below, we are not a party to any litigation that we believe would have a material adverse effect on our financial position, results of operations or cash flows.

Legal Matters

In November 2009, Hitachi High-Technologies Corporation (“Hitachi”) filed a complaint against our subsidiary, FEI Company Japan Ltd. (“FEI Japan”) in the District Court in Tokyo alleging infringement of five patents. Hitachi's complaint seeks a permanent injunction requiring FEI Japan to cease the sale of our allegedly infringing products in Japan. Three of the patents in the infringement case expired in June 2010, September 2010 and August 2011, respectively, and, as a consequence, Hitachi dropped those patents from the permanent injunction case.

Hitachi filed three complaints in the District Court of Tokyo for past damages on the three expired patents from the permanent injunction case in the amounts of¥2.5 billion, ¥1.3 billion and ¥2.8 billionin July 2010, September 2010 and August 2011, respectively (this includes damages claimed but not yet asserted in the litigation). Hitachi has also filed a complaint seeking a preliminary injunction relating to one of the five patents that were the subject of the permanent injunction case. Although the District Court ruled in favor of the preliminary injunction in June 2011, such ruling did not have a material effect on our business because FEI Japan was able to resume sales of the enjoined products in September 2011 when Hitachi withdrew the preliminary injunction due to the expiration of the patent upon which the injunction was based.

FEI Japan has filed actions with the Japanese Patent Office (“JPO”) to invalidate four of the five patents that Hitachi originally asserted before the Tokyo District Court. The JPO, however, maintained such patents, and FEI Japan has filed appeals for three of the patents and will file an appeal for the fourth with the Intellectual Property High Court ("IP High Court").

Hitachi has also brought three ancillary claims with the Tokyo Customs Office to bar the importation of certain of our products into Japan. FEI Japan has successfully invalidated the two patents that were the subject of the first customs proceeding, and Hitachi has withdrawn its request for customs seizure in that proceeding. Hitachi has appealed these decisions to the IP High Court and such appeals are currently pending. In the second and third customs proceedings, the Tokyo Customs Office has accepted Hitachi's request for border seizure of certain configurations of our product lines, however to date no products have been seized.

In July 2011, in response to a request by Hitachi, the Korea Trade Commission (“KTC”) initiated an investigation of two products we import and sell in Korea that Hitachi claimed infringe a Hitachi South Korean patent. In February 2012, the KTC determined that two products do not infringe Hitachi's patent and dismissed the complaint.

We believe that we have meritorious defenses to Hitachi's claims, and are vigorously defending our interests in these matters; however we, and Hitachi, have mutually requested that any rulings in the matter be postponed pending the outcome of settlement discussions in process. We expect that any settlement will include a cross license on certain current technology and a prepaid license against future royalties. We do not expect such settlement to have a material impact on our net income, cash flows or balance sheet. However, there is no assurance that a satisfactory settlement will be reached. Based on the information available to us at this time and our current analysis of this information, we have recorded a contingent accrual of$5.4 millionrelated to these matters. By its nature, this accrual is based on estimates and may increase or decrease in the future as these matters develop further and new information or analysis becomes available. Further, the actual costs associated with settling these matters, and any judgments that could result from litigation on these matters, may be greater or less than the amount of any reserve we record. Legal fees associated with this claim are expensed as incurred.

Purchase Obligations

We have commitments under non-cancelable purchase orders, primarily relating to inventory, totaling$121.1 million at July 1, 2012. These commitments expire at various times through the fourth quarter of 2013.