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Item 3. Legal Proceedings

2021-02-25 compared with 2020-02-26 · 39 added, 59 removed, 70 unchanged (58% of the section changed)

16 unchanged sentences

In September 2017, the U.S.

Patent and Trademark Office, or PTO, ordered ex parte reexaminations of certain claims of two of the remaining patents in suit, at our request.

Patent and Trademark Office, or PTO, ordered ex parte reexaminations of

certain claims of two of the remaining patents in suit, at our request.

On October 30, 2018 and November 5, 2018, the PTO issued final office actions in the pending reexaminations rejecting all claims being examined as unpatentable over the prior art.

Nine claims asserted in the litigation were found unpatentable in the PTO rejections.

Vivint appealed these rejections to the PTAB on March 29, 2019 and April 4, 2019.

District Court, District of Utah has

ordered the litigation regarding the nine claims (from two patents) rejected by the PTO during the reexaminations be stayed until May 15, 2020.

On April 3, 2019, the U.S.

District Court, District of Utah heard argument on the parties’ cross motions for claim construction and Alarm.com’s motion for partial summary judgment as to invalidity.

Decisions on these motions are pending.

The PTAB issued decisions affirming the rejections on February 28, 2020 and May 4, 2020.

Vivint appealed one of these decisions to the Federal Circuit on July 1, 2020, and requested rehearing from the PTAB on the other decision.

On December 20, 2018, the Federal Circuit issued an order regarding the inter partes review of three of the remaining patents in suit that vacated, reversed and remanded the PTAB’s ruling with regard to the construction of a term (“communication device identification code”) as requested by Alarm.com and affirmed the PTAB’s May 2017 rulings invalidating certain of the Vivint patents in all other respects.

On July 24, 2019, the PTAB issued further decisions with respect to two of the remaining patents in suit, finding additional claims unpatentable in view of the Federal Circuit’s December 20, 2018 decision.

One of the claims asserted in the litigation was found unpatentable in the July 14, 2019 decisions, and the U.S.

District Court, District of Utah has stayed the proceedings with respect to that claim until May 15, 2020.

One of the claims asserted in the litigation was found unpatentable in the July 14, 2019 decisions.

Vivint appealed the July 24, 2019 decisions to the Federal Circuit on September 25, 2019.

The appeal has been fully briefed and is now pending decision.

On February 12, 2021, we filed an action in U.S.

District Court, Eastern District of Virginia challenging the refusal by the PTO to proceed with additional reexaminations of the remaining patent claims asserted in the lawsuit.

The PTO has not yet responded to the complaint.

Should Vivint prevail in proving Alarm.com infringes one or more of its patent claims, we could be required to pay damages of Vivint’s lost profits and/or a reasonable royalty for sales of our solution.

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Even if we were to prevail, this litigation could continue to be costly and time-consuming, divert the attention of our management and key personnel from our business operations and dissuade potential customers from purchasing our solution, which would also materially harm our business.

During the course of litigation, we anticipate announcements of the results of hearings and motions, and other interim developments related to the litigation.

During the course of the litigation, we anticipate announcements of the results of hearings and motions, and other interim developments related to the litigation.

If securities analysts or investors regard these announcements as negative, the market price of our common stock may decline.

On April 25, 2017, Alarm.com Incorporated and its wholly-owned subsidiary ICN Acquisition, LLC, filed a patent infringement complaint against Protect America, Inc., or Protect America, and SecureNet Technologies, LLC, or SecureNet, in the United States District Court for the Eastern District of Virginia.

The complaint sought injunctive relief to stop the further sale of the infringing Protect America and SecureNet products and systems, and damages for the infringement of Alarm.com’s patents.

The complaint asserted that the technology in the Protect America and SecureNet Alarm Systems products infringe one or more claims of Alarm.com’s patents:

United States Patent Numbers 7,113,090;

and 9,141,276.

In June 2017, Alarm.com filed an amended complaint against Protect America only in the Western District of Texas and voluntarily dismissed SecureNet from the suit.

In December 2019, Alarm.com entered into a confidential settlement agreement with Protect America which resulted in the dismissal of the lawsuit without prejudice.

On October 22, 2019, EcoFactor, Inc., or EcoFactor, filed a complaint with the U.S.

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Among other things, we asserted defenses based on non-infringement and invalidity of the patents in question.

The administrative law judge presiding over the investigation has set March 15, 2021 as the target date for completion of the investigation.

The evidentiary hearing is scheduled to begin on July 21, 2020.

An evidentiary hearing was held in November 2020.

The administrative law judge presiding over the investigation has set August 20, 2021 as the target date for completion of the investigation.

On November 11, 2019, EcoFactor filed a lawsuit against us in U.S.

2 unchanged sentences

On December 26, 2019, the court issued an order staying the lawsuit pending the conclusion of the related ITC investigation.

On January 31, 2020, EcoFactor filed a second lawsuit against us in U.S.

District Court, Western District of Texas, alleging Alarm.com’s products and services infringe four additional U.S.

On May 26, 2020, EcoFactor filed a second lawsuit against us in U.S.

District Court, District of Massachusetts, alleging Alarm.com’s products and services infringe four additional U.S.

patents owned by EcoFactor.

EcoFactor is seeking permanent injunctions, enhanced damages and attorneys' fees.

Our response to the complaint is due on March 5, 2020.

On January 19, 2021, the court issued an order staying the lawsuit until May 19, 2021 in light of the related ITC investigation.

On February 12, 2021, Alarm.com requested the PTO reexamine the claims of one of the patents asserted in the lawsuit.

The request is pending with the PTO.

Should EcoFactor prevail in the ITC investigation, Alarm.com thermostats manufactured abroad could be excluded from importation into the United States.

1 unchanged sentence

While we believe we have valid defenses to EcoFactor’s claims, the outcome of these legal claims cannot be predicted with certainty and any of these outcomes could result in an adverse effect on our business.

On December 30, 2015, a putative class action lawsuit was filed against us in the U.S.

District Court for the Northern District of California, or the Court, which alleged violations of the Telephone Consumer Protection Act, or TCPA, and sought to hold us responsible for the marketing activities of one of our service providers as well as telemarketing calls made by one of this service provider’s sub-dealer agents under principles of agency and vicarious liability.

On August 30, 2018, we reached an agreement in principle to settle the case for total cash consideration of $28.0 million .

On October 25, 2018, we entered into a definitive

settlement agreement, or Settlement Agreement, and submitted it to the Court for approval.

The Court granted preliminary approval of the Settlement Agreement on December 19, 2018 and final approval on August 13, 2019.

In entering into the definitive settlement agreement, we made no admission of liability.

Pursuant to the Settlement Agreement, among other things, (1) we agreed to pay total cash consideration of $28.0 million into a settlement fund, (2) we agreed to implement certain business practice changes to increase awareness of TCPA compliance, (3) each party to the Settlement Agreement agreed to a mutual release of claims relating to any claim or potential claim relating to the marketing activities described in the complaint, and (4) each party covenanted not to sue the other with regard to the released claims.

In addition, we agreed to no longer allow the service provider identified in the litigation as purportedly violating the TCPA to continue activating new accounts for Alarm.com products and services following preliminary Court approval of the Settlement Agreement.

We made an initial payment of $5.0 million to the settlement administrator on January 2, 2019, and the remaining payment of $23.0 million was made on September 30, 2019.

The release of claims includes all alleged damages incurred related to the lawsuit.

Any attorneys’ fees awarded by the Court and all costs of notice and claims administration will be paid from the settlement fund.

We currently expect all distributions to be completed by August 2020.

On July 29, 2020, a putative class action was filed against Alarm.com Incorporated d/b/a ICN Acquisition, among other defendants, by Abante Rooter and Plumbing Inc.

and Sidney Naiman in the U.S.

District Court for the Northern District of California, alleging violations of the TCPA.

The complaint sought statutory damages under the TCPA, injunctive relief, and other relief.

The matter was resolved in December 2020.

On January 27, 2021, the Court entered an order dismissing the case.

In addition to the matters described above, we may be required to provide indemnification to certain of our service provider partners for certain claims regarding our solutions.

For example, we are incurring costs associated with the indemnification of our service provider ADT, LLC in two ongoing patent infringement suits:

Applied Capital, Inc.

The ADT Corporation et al.

and Varatec, LLC v.

For example, we are incurring costs associated with the indemnification of our service provider ADT, LLC in ongoing patent infringement suits.

On July 13, 2016, Applied Capital, Inc., or Applied Capital, filed a lawsuit against ADT, LLC, the ADT Corporation, and Icontrol Networks, Inc.

1 unchanged sentence

Applied Capital, Inc v.

The ADT Corporation et al.

The ADT Corporation et al., D.

New Mexico Case No.

12 unchanged sentences

Fox reached settlement and stipulated to dismissal of the New Mexico State Court action on October 31, 2019.

The court issued its claim construction order on August 12, 2019, fact discovery closed on November 12, 2019, and the parties served opening expert reports on December 16, 2019.

Rebuttal expert reports are due on February 10, 2020 and expert discovery closes on February 28, 2020.

Applied Capital filed its Second Amended Complaint on January 27, 2020 and ADT answered, adding a claim of inequitable conduct, on February 10, 2020.

The pretrial conference is scheduled for August 5, 2020;

however, the trial date has not yet been set.

On March 4, 2019, Varatec, LLC, or Varatec, sued ADT, LLC d/b/a ADT Security Services in U.S.

District Court for the Northern District of Illinois.

Varatec, LLC v.

ADT, LLC d/b/a ADT Security Services , N.D.

Illinois Case No.

1-19-cv-01543.

Varatec alleges that ADT’s sales of ADT Pulse directly and indirectly infringe U.S.

7,792,256, which was assigned to Varatec.

Varatec seeks a permanent injunction, enhanced damages, and attorneys’ fees.

On May 23, 2019, ADT filed a motion seeking to dismiss the complaint for failure to state a claim, on the basis that the asserted patent fails to claim patent eligible subject matter.

On July 3, 2019, third-party Unified Patents Inc.

filed a petition seeking inter parties review of the asserted patent by the PTAB.

After the completion of briefing of ADT’s motion to dismiss, the parties agreed to stay the case pending resolution of the inter partes review, and the court granted the parties’ motion on August 14, 2019.

Unified Patent’s petition for inter parties review was instituted on December 31, 2019 and Varatec’s response is due on March 23, 2020.

The stay remains in place.

Should either Applied Capital or Varatec prevail on the claims that one or more elements of ADT’s products infringe, we could be required to indemnify ADT for damages in the form of a reasonable royalty or ADT could be enjoined from making, using and selling our solution if a license or other right to continue selling our technology is not made available to us or we are unable to design around such patents, and required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us.

The court issued its claim construction order on August 12, 2019, fact discovery closed on November 12, 2019, expert discovery closed on March 9, 2020, and summary judgment and Daubert motions briefing closed on June 3, 2020 and are pending.

The pretrial conference is scheduled for March 22, 2021, and trial is set for June 15, 2021.

On July 2, 2020, Portus Singapore Pte.

and Portus Pty.

Ltd., or Portus, sued ADT, LLC d/b/a ADT Security Services in U.S.

District Court for the Western District of Texas.

Portus alleges that ADT’s sales of ADT Pulse directly and indirectly infringe U.S.

8,914,526 and 9,961,097, which were assigned to Portus.

Portus is seeking damages and attorneys’ fees.

ADT answered the complaint on August 31, 2020.

The claim construction hearing is set for June 11, 2021.

Trial is scheduled for April 4, 2022.

Should the plaintiffs prevail on the claims that one or more elements of ADT’s products infringe, we could be required to indemnify ADT for damages in the form of a reasonable royalty or ADT could be enjoined from making, using and selling our solution if a license or other right to continue selling our technology is not made available to us or we are unable to design around such patents, and required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us.

The outcome of these legal claims cannot be predicted with certainty.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings