2012 Annual Report - ZTE

ANNUAL REPORT 2012Notes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 201247. CONTINGENT LIABILITIES (continued)(i)On 29 July 2011 and 2 January 2013, a U.S. company filed a claim with the International TradeCommission (“ITC”) and the Federal District Court of Delaware, respectively, in the United States,alleging the Company and ZTE USA of infringement upon its 3G patent rights. Defendants in this caseincluded other companies. In the ITC case, The said U.S. company demanded the issue of a permanentexclusion and injunction order that would prevent certain of our terminal products from entering theUnited States. In the case filed with the District Court, damages for losses and payments of legal feeswere also demanded of the defendants in addition to the plea for injunction order, although no specificamount of compensation was named. For the case filed in 2011, the litigation procedure at the DistrictCourt has been temporarily suspended. The Company has appointed an external legal counsel toconduct active defence in respect of the said case. As of now, there has been no substantial progressof the case.Based on the legal opinion furnished by legal counsel engaged by the Company and the current progressof the case, the Directors of the Company are of the opinion that the aforesaid case will not have anymaterial adverse impact on the financial conditions and operating results of the Group for the current period.(j)In May 2012, a U.S. company filed a claim with ITC and the Federal District Court of Delaware,respectively, in the United States, alleging the Company and ZTE USA of infringement upon its patentrights in image processing. Defendants in the ITC case included other companies. In the ITC case,the said U.S. company demanded the issue of a limited exclusion and injunction order that wouldprevent the Company’s products that had allegedly infringed its patent rights from entering the UnitedStates. In the case filed with the District Court, damages for losses and payments of legal fees werealso demanded of the defendants in addition to the plea for injunction order, although no specificamount of compensation was named. The litigation procedure at the District Court has been temporarilysuspended. The Company has appointed an external legal counsel to conduct active defence in respectof the said case. As of now, there has been no substantial progress of the case.Based on the legal opinion furnished by legal counsels engaged by the Company and the current progressof the case, the Directors of the Company are of the opinion that the aforesaid case will not have anymaterial adverse impact on the financial conditions and operating results of the Group for the current period.(k)In July 2012, a U.S. company filed a claim with ITC and the Federal District Court of California,respectively, in the United States, alleging the Company and ZTE USA of infringement upon its patentrights in chips. Defendants in the ITC case included other companies. In the ITC case, the said U.S.company demanded the issue of a permanent exclusion and injunction order that would prevent theCompany’s products that had allegedly infringed its patent rights from entering the United States.In the case filed with the District Court, damages for losses and payments of legal fees were alsodemanded of the defendants in addition to the plea for injunction order, although no specific amountof compensation was named. The litigation procedure at the District Court has been temporarilysuspended. The Company has appointed an external legal counsel to conduct active defence in respectof the said case. As of now, there has been no substantial progress of the case.Based on the legal opinion furnished by legal counsels engaged by the Company and the currentprogress of the case, the Directors of the Company are of the opinion that the aforesaid case will nothave any material adverse impact on the financial conditions and operating results of the Group forthe current period.415