Commitments and contingencies

3 Months Ended

Mar. 29, 2013

Commitments and contingencies [Abstract]

Commitments and contingencies

(8)           Commitments and contingencies

We are a party to various legal proceedings, claims and assessments that arise in the ordinary course of business, and may continue to incur significant costs in defending or settling legal matters.  The total amount and timing of the expected future payments related to these matters cannot be estimated due to the uncertainty of the duration of the legal proceedings and the ultimate scope of other claims.  However, an unfavorable outcome in a single matter or in multiple legal matters during the same reporting period could have a material adverse effect on our consolidated financial position, results from operations and cash flows.

We are a defendant in a lawsuit filed in March 2007 by Halo Electronics, Inc. in the United States District Court, District of Nevada.  The case is captioned Halo Electronics, Inc. v. Pulse Electronics, Inc. and Pulse Electronics Corp., Case No. 2:07-cv-00331-PMP-PAL. The plaintiff, Halo, claims that we infringe certain U.S. patents related to an electronic surface mount package, and is seeking injunctive relief and damages.  On November 26, 2012, the jury returned a verdict ruling in favor of Halo Electronics, Inc. and found that Pulse willfully infringed on three different patents, specifically U.S. Patent Nos. 5,656,985; 6,297,720; and 6,344,785.  The court judgment has ordered Pulse to pay Halo approximately $2.0 million for past damages and interest.  In addition to the award of past damages, the court has awarded a future remedy whereby we pay Halo a royalty on all domestic future sales under licenses to use these patents.

In light of the Court's summary judgment order and its ruling that we are liable with respect to direct infringement, during the fiscal year 2012 we recorded a charge of approximately $1.8 million to our legal reserve.  We intend to continue presenting a vigorous defense against the remaining claims in the case, to maintain our counterclaim that Pulse owes no liability whatsoever to Halo due to the invalidity of the Halo patents, to contest the amount of damages asserted by Halo and its expert, and to consider our rights of appeal with respect to any adverse rulings, including but not limited to infringement.  During the three months ended March 29, 2013 and March 30, 2012, we incurred $0.3 million and $0.1 million of legal expenses, respectively, related to this matter.

The Company is also subject to ongoing tax examinations and governmental assessments in various foreign and domestic jurisdictions. In January 2013, we received a court ruling from the federal tax court in Turkey relating to prior year assessments on non-income tax related assessments relating to our former operations. The ruling was based on our inability to present certain notarized documents required under Turkish tax law. The initial judgment ordered the Company to pay approximately $3.7 million for fines, penalties, and interest on this matter. Accordingly, the Company recorded a charge to our legal reserve of approximately $3.7 million during fiscal year 2012.