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Item 1. Legal Proceedings

2022-05-13 compared with 2021-11-03 · 30 added, 63 removed, 53 unchanged (64% of the section changed)

15 unchanged sentences

On or about October 22, 2021, the Korean tax authorities filed an appeal with the Korea Supreme Court with respect to certain portions of the Korea High Court decision and we filed an appeal with the Korea Supreme Court with respect to certain portions of the Korea High Court decision.

On December 1, 2021, the Korean tax authorities submitted its brief to the Korea Supreme Court challenging the cancellation by the Korea High Court of a portion of the withholding tax imposed by the Korean tax authorities.

On December 3, 2021, we submitted our own brief to the Korea Supreme Court providing arguments in support of our position that Immersion Software Ireland Limited has sufficient economic substance to be considered the beneficial owner of the royalties paid by Samsung to Immersion Software Ireland Limited.

Such brief also provided arguments challenging the calculation of the imposed withholding tax upheld by the Korea High Court.

On December 20, the Korean tax authorities filed a rebuttal brief relating to our brief filed on December 3, 2021.

On December 29, 2021, we filed our rebuttal brief relating to the Korean tax authorities’ brief filed on December 1, 2021.

On February 24, 2022, the Korea Supreme Court issued a decision affirming the rulings of the Korea High Court.

We believe that any impairment in the Long-term deposits associated with the rulings of the Korea High Court is appropriately reflected in the Condensed Consolidated Balance Sheets .

On September 29, 2017, Samsung filed an arbitration demand with the International Chamber of Commerce against us demanding that we reimburse Samsung for the imposed tax and penalties that Samsung paid to the Korean tax authorities.

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and ordered Immersion to pay Samsung’s cost of the arbitration in the amount of approximately $871,454, which was paid in 2019.

We believe that there are valid defenses to all of the claims from the Korean tax authorities.

We intend to vigorously defend against the claims from the Korean tax authorities.

We expect to be reimbursed by Samsung to the extent we ultimately prevail in the appeal in the Korean courts.

At March 31, 2019, $6.9 million was recorded as a deposit included in Long-term deposits on our Condensed Consolidated Balance Sheets.

In the event that we do not ultimately prevail in our appeal in the Korean courts, the deposit included in Long-term deposits would be recorded as additional income tax expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.

Immersion Corporation vs.

Samsung (China) Investment Co., Ltd., Huizhou Samsung Electronics Co., Ltd and Fujian Province Min Xin Household Electrical Appliances Technology Service Co., Ltd.

(Fuzhou Intellectual Property Court - Case:

Min 01 Min Chu No.

On March 8, 2018, we filed a complaint against Samsung (China) Investment Co., Ltd.

(“Samsung China”), Huizhou Samsung Electronics Co., Ltd.

(“Samsung Huizhou”) (together with Samsung China, “Samsung”), and Fujian Province Min Xin Household Electrical Appliances Technology Service Co., Ltd.

in the Fuzhou Intermediate Court in Fuzhou, China alleging that certain Samsung touchscreen phones, including the Galaxy S8, S8+, and Note8, infringe three Immersion Chinese patents.

The three patents at issue, covering haptic feedback systems and methods in electronic devices, are Chinese Patent No.

ZL02821854.X, entitled “Method and Apparatus for Providing Tactile Feedback Sensations”;

Chinese Patent No.

ZL201210005785.2, entitled “Method and Apparatus for Providing Tactile Feedback Sensations”;

and Chinese Patent No.

ZL201310253562.2, entitled “Method and Apparatus for Providing Tactile Feedback Sensations”.

Immersion’s complaint seeks to stop defendants from using patented methods during manufacturing;

to stop defendants from manufacturing, offering to sell, selling, or jointly selling infringing products;

as well as the recovery of damages.

The Fuzhou Intellectual Property Court accepted the case on March 8, 2018.

Samsung China filed a jurisdictional objection on April 10, 2018 in which it asked the court to move the case to Beijing IP court.

Samsung Huizhou filed a jurisdictional objection on April 10, 2018 in which it asked the court to move the case to Guangzhou IP court.

On May 8, 2018, the court rejected both jurisdictional objections.

Samsung Huizhou and Samsung China appealed and the pretrial conference originally scheduled for June 14-15, 2018 was postponed pending a ruling from the Fujian High Court.

On September 20, 2018, the Fujian High Court rejected the jurisdictional objection appeals.

Samsung China and Samsung Huizhou filed Petitions for Invalidation on April 16, 2018 with the Chinese Patent Office (“SIPO”) for all three patents.

Samsung China and Samsung Huizhou supplemented their petitions in May, and we responded on June 1, 2018.

A hearing on the petition for Chinese Patent No.

ZL02821854.X occurred on July 18, 2018.

Hearings on the petitions for Chinese Patent No.

ZL201210005785.2 and Chinese Patent No.

ZL201310253562.2 occurred on September 28, 2018.

Trial was originally scheduled for November 12, and 14, 2018;

the Fuzhou Intellectual Property Court granted Immersion's request to postpone trial but did not set revised dates.

The Company and Samsung each submitted evidence for use at trial on or before October 26, 2018.

The Patent Reexamination Board of SIPO issued invalidation decisions against Chinese Patent No.

ZL02821854.X on November 21, 2018, against Chinese Patent No.

ZL201310253562.2 on November 14, 2018, and against Chinese Patent No.

ZL201210005785.2 on November 15, 2018, declaring all three Chinese patents invalid.

We filed an application to withdraw our complaint from the Fuzhou Intermediate Court on December 10, 2018 and received the ruling that allows Immersion to withdraw the case from the Fuzhou Intermediate Court on December 29, 2018.

We pre-registered the appeals against the invalidation decisions with the Beijing IP Court on February 14, 2019.

On April 28, 2019, we filed the appeal against the invalidation decisions with the Beijing IP court.

On June 6, 2019, SIPO responded to our filing of the appeal with its counterarguments to the arguments set forth in our appeal filing.

A hearing occurred on March 11, 2021.

On October 18, 2021, we became aware that the Court issued a judgment, which we received on November 2, 2021.

The Court upheld the invalidation decisions issued by the Patent Reexamination Board of SIPO.

We have the right to appeal the decisions to the IP Court of the Supreme People’s Court before December 1, 2021.

As a result of the Korea Supreme Court decision described above, we were reimbursed by Samsung in an amount equal to KRW 6,088,855,388 (approximately $5.0 million) representing Korea national-level taxes, penalties and interest that was canceled by the Korea Supreme Court.

We expect to be reimbursed an additional KRW 608,885,000 (approximately $0.5 million) representing local-level taxes, penalties and interest that was canceled by the Korea Supreme Court.

LGE Korean Withholding Tax Matter

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(“LGE”) requesting that we reimburse LGE with respect to withholding tax imposed on LGE by the Korean tax authorities following an investigation where the tax authority determined that LGE failed to withhold on LGE’s royalty payments to Immersion Software Ireland from 2012 to 2014.

Pursuant to an agreement reached with LGE, on April 8, 2020, we provided a provisional deposit to LGE in the amount of KRW 5,916,845,454 (approximately $5.0 million) representing the amount of such withholding tax that was imposed on LGE, which provisional deposit would be returned to us to the extent we ultimately prevail in the appeal in the Korea courts.

Pursuant to an agreement reached with LGE, on April 8, 2020, we provided a provisional deposit to LGE in the amount of

KRW 5,916,845,454 (approximately $5.0 million) representing the amount of such withholding tax that was imposed on LGE, which provisional deposit would be returned to us to the extent we ultimately prevail in the appeal in the Korea courts.

In the second quarter of 2020, we recorded this deposit as Long-term deposits on our Condensed Consolidated Balance Sheets .

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A tenth hearing occurred on September 13, 2021.

An eleventh hearing is scheduled for November 15, 2021.

The Court has indicated that it expects to render a decision on this matter by the end of February 2022.

We believe that there are valid defenses to the claims raised by the Korean tax authorities and that LGE’s claims are without merit.

We intend to vigorously defend ourselves against these claims.

In the event that we do not ultimately prevail in our appeal in the Korean courts, any payments to LGE with respect to withholding tax imposed on LGE by the Korean tax authorities as described in the previous paragraph would be recorded as additional income tax expense on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.

We cannot predict the ultimate outcome of the above-mentioned actions, and we are unable to estimate any potential liability we may incur.

An eleventh hearing occurred on November 15, 2021 .

A twelfth hearing occurred on December 23, 2021.

The Court had indicated that it expected to render a decision on this matter by the end of February 2022.

However, due to a reshuffling of judges, another hearing, which was originally scheduled for April 14, 2022 is currently scheduled for July 7, 2022, at which time we believe we will have a better indication as to when the Court will render a decision on this matter.

Based on the developments in these cases, we regularly reassess the likelihood that we will prevail in some or all of the claims from the Korean tax authorities.

To the extent that we determine that it is more likely than not that we will prevail against the claims from the Korean tax authorities, then no additional tax expense is provided for in our Condensed Consolidated Statements of Income and Comprehensive Income .

In the event that we determine that it is more likely than not that we will not prevail against the claims from the Korean tax authorities, or a portion thereof, then we would estimate the anticipated additional tax expense associated with that outcome and record it as additional income tax expense in our Condensed Consolidated Statements of Income and Comprehensive Income in the period of the new determination.

If the additional income tax expense was related to the periods assessed by Korean tax authorities and for which we recorded in Long-term deposits on our Condensed Consolidated Balance Sheets , then the additional income tax expense would be recorded as an impairment in the Long-term deposits .

If the additional income tax expense was not related to the periods assessed by Korean tax authorities and for a which we recorded a Long-term deposits on our Condensed Consolidated Balance Sheets , then the additional income tax expense would be accrued as an Other current liabilities .

We cannot predict the ultimate outcome of the above-mentioned actions that are pending, and we are unable to estimate any potential liability we may incur.

Please also refer to our disclosures in Note 5.

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Further, since that date, we have not received any other royalty reports or royalty payments from Marquardt.

The term of the Marquardt License expires by its terms on December 31, 2023.

As a result of Marquardt’s breach of the Marquardt License, per unit royalties and applicable interest fees, in the amount of a definite sum to be determined, are currently past due.

License expires by its terms on December 31, 2023.

As a result of Marquardt’s breach of the Marquardt License, per unit royalties relating to past royalty periods, and applicable interest fees are currently past due.

Pursuant to the terms of the Marquardt License, we requested arbitration by a single arbitrator in Madison County, New York.

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On September 30, 2021, we filed an answer to Marquardt’s counterclaim in which we denied the allegations set forth in Marquardt’s counterclaim.

An arbitrator has been chosen to arbitrate this matter.

We anticipate that the arbitrator will conduct the arbitration proceedings in New York City or White Plains, New York, with the consent of the parties.

The arbitrator has not yet set a preliminary hearing date.

A preliminary hearing occurred on December 6, 2021, during which the parties agreed to explore mediation and the arbitrator set forth a schedule relating to the arbitration.

A mediation session occurred during the period of March 14-16, 2022.

At the mediation, we entered into a binding

settlement term sheet with Marquardt pursuant to which we agreed to cause our arbitration demand to be dismissed.

In exchange, Marquardt agreed to the prepayment of certain royalties otherwise payable under the Marquardt License.

Additionally on April 4, 2022, we entered into an amendment to the Marquardt License to reflect such payment and other related terms.

There have been no material changes to the risk factors disclosed in Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 25, 2022.

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-Q

Item 1. Legal Proceedings