Question

Copyright 2012 Deloitte Development LLC All Rights Re served. Case 13- 08 Accounting for a Loss Contingency for a Verdict Overturned on Appeal M International (“M”) and W Inc. ( “W,” a competitor of M) have been engaged in long- standing litigation over a specific patent infringement matter . Below is a summary timeline of specific events that have taken place related to this matter : • In May 2007, W filed a claim against M for patent infringement . • For the year ended December 31, 2007, management of M determined th at a loss for this matter was probable and represented t hat the estimate of loss was in the range of $1 5 million to $20 million , with $17 million being the most likely amount of loss within the range. • A jury trial took place in September 2009. • The jury reached a verdict on September 24, 2009, and a judgment was ordered in favor of W . The judgment required M to pay W $18.5 million . • In November 2009, M filed a Notice of Appeal with the Court of Appeals . • In December 2010, the Court of Appeals issued a ruling in favor of M’s appeal and reversed the lower court ’s ruling on the matter. This meant that the Court of Appeals overturned the jury verdict and the $18.5 million judgment against M . • On January 6, 2011, W filed a petition for a re -hearing before the same panel of appellate judges against the reversal of r uling by Court of Appeals . • On February 10, 2011, the appellate judges declined the petition for a re -hearing . • On February 28, 2011, management of M determined this matter was closed upon discussions with in- house legal counsel.

Please provide one page summary of the above case

Answer 1

Summary:

                   A claim was filed by W Inc. against M International for over an alleged infringement of patent by the later. As the probability of losing the above case was high for M the management of the company ascertained that an expected claim of $17.5 million is likely to be paid by the company to settle the obligation. Thus, the management provided $17.5 million in the books of accounts for the year ending on 31^st December, 2007. On 24^th September, 2009 the jury decided that M International has committed an infringement of patent right and needs to pay W Inc. $18.5 million for such infringement. However, subsequent to the decision M filed a notice of appeal against the decision of the jury of lower court. The court of appeals decided that the ruling given by the lower court was not correct and reversed the decision of the lower court. Though W filed a petition for re-hearing of the decision of the court of appeals but the company’s petition was rejected.

Conclusion:

                   Thus, from the above it is clear that there is no requirement for M to keep the matter open and keep the provision of $17.5 million for expected loss as the case has been decided in favour of M. hence, M has done correctly to close the case.