VICOR CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2018
(unaudited)
allowance, however, as well as the exact timing and the amount of such release continues to be subject to, among other things, the Company’s level of profitability, revenue growth, and
expectations regarding future profitability. Since the Company was in a significant cumulative loss position as of December 31, 2017, and until actual operating results continue to be consistently positive, it will continue to maintain the full
valuation allowance on its domestic deferred tax assets. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s consolidated
statements of operations, the effect of which would be an increase in reported net income, and the adjustment could likely be material.
In May 2017, the Company received notice from the Internal Revenue Service that its federal corporate tax return for tax year
2015 had been selected for examination. The examination was completed in May 2018 resulting in no tax liability to the Company. In January 2018, the Company received notice from the New York State Department of Taxation that its New York State tax
returns for tax years 2014 through 2016 were selected for audit. The audit was completed in the third quarter of 2018, resulting in an immaterial assessment.
12.
Commitments and Contingencies
At September 30, 2018, the Company had approximately $9,512,000 of capital expenditure commitments.
The Company is the defendant in a patent infringement lawsuit originally filed on January 28, 2011 by SynQor, Inc.
(“SynQor”) in the U.S. District Court for the Eastern District of Texas (the “Texas Action”). The complaint, as amended in September 2011, alleges that the Company’s products, including but not limited to, unregulated bus
converters used in intermediate bus architecture power supply systems, infringe SynQor’s U.S. patent numbers 7,072,190, 7,272,021, 7,564,702, and 8,023,290 (“the ‘190 patent”, “the ‘021 patent”, “the ‘702
patent”, and “the ‘290 patent”, respectively). SynQor’s complaint sought an injunction against further infringement and an award of unspecified compensatory and enhanced damages, interest, costs and attorney fees. The
Company has denied that its products infringe any of the SynQor patents, asserted that the SynQor patents are invalid, and asserted that the ‘290 patent is unenforceable due to inequitable conduct by SynQor or its agents during the examination
of the ‘290 patent at the United States Patent and Trademark Office (“USPTO”). The Company also asserted counterclaims seeking damages against SynQor for deceptive trade practices and tortious interference with prospective economic
advantage arising from SynQor’s attempted enforcement of its patents against the Company. On May 23, 2016, after extensive discovery, the Texas Action was stayed by the court pending completion of certain inter partes reexamination
proceedings at the USPTO (including any appeals from such proceedings to the Federal Circuit (as defined below)) concerning the SynQor patents, which are described below.
In response to the Texas Action, the Company initiated inter partes reexamination proceedings at the USPTO challenging the
validity of certain claims of the SynQor patents asserted in the Texas Action, including all claims that were asserted against the Company by SynQor. The current status of these proceedings is as follows. Regarding the ‘190 patent, the United
States Court of Appeals for the Federal Circuit (the “Federal Circuit”) issued a decision on March 13, 2015, determining that certain claims were invalid, and remanding the matter to the Patent Trial and Appeal Board
(“PTAB”) of the USPTO for further proceedings. On May 2, 2016, the PTAB issued a decision determining that all but one of the remaining claims of the ‘190 patent were invalid and remanding the remaining claim to a patent examiner
for further examination. On June 22, 2017, the examiner issued a determination under 37 C.F.R. § 41.77(d), finding that the remaining claim of the ‘190 patent was unpatentable. That decision is expected to be further reviewed by the
PTAB pursuant to 37 C.F.R. § 41.77(f). On May 2, 2016, the PTAB also issued decisions finding all challenged claims of SynQor’s ‘021 patent invalid and upholding the validity of all challenged claims of SynQor’s ‘702
and ‘290 patents.
On August 30, 2017, the Federal Circuit issued rulings with regard to PTAB’s
reexamination decisions for the ‘021, ‘702 and ‘290 patents. With respect to the ‘021 patent, the Federal Circuit affirmed the PTAB’s determination that all of the challenged claims of the ‘021 patent were invalid. The
Federal Circuit remanded the case to the PTAB for further consideration of the patentability of certain claims that had been added by amendment during the reexamination. With respect to the ‘702 patent, the Federal Circuit affirmed the
PTAB’s determination that all of the challenged claims of the ‘702 patent were patentable. With respect to the ‘290 patent, the Federal Circuit vacated the PTAB’s decision upholding the patentability of the ‘290 patent
claims, and remanded the case to the PTAB for further consideration.
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