2012 Annual Report - ZTE

ANNUAL REPORT 2012Huawei’s litigation, ZTE Hungary filed an application to the Patent Bureau of Hungary to claim the invalidityof the patent. As at the end of the reporting period, the court ruled to suspend trial in respect of all of the4 patents under litigation.In addition to instituting lawsuits in other countries against the Company and its wholly-owned subsidiariesfor infringements of its patent rights or trademarks, Huawei also filed a lawsuit with Shenzhen IntermediatePeople’s Court (“Shenzhen Intermediate Court”) in 2011 alleging the Company’s infringement of 4 of its patentrights and demanding the Company to discontinue such infringement and pay an amount of compensation.The Company responded actively by filing a case with Shenzhen Intermediate Court alleging Huawei’sinfringement of 3 patent rights of the Company, demanding Huawei to discontinue such infringement andpay an amount of compensation. As of now, trials of the aforesaid domestic cases have commenced.Shenzhen Intermediate Court has ruled to reject one of the aforesaid applications by Huawei for lawsuit oninfringements of patent rights and such ruling has taken effect.Based on the legal opinion furnished by legal counsels engaged by the Company and the progress of thecase, the Directors of the Company are of the opinion that the aforesaid case will not have any materialadverse impact on the financial conditions and operating results of the Group for the current period.(7) On 5 April 2011, a certain carrier of Ecuador filed an application for arbitration with the Business ArbitrationTribunal of Guayaquil, Ecuador, claiming quality problems in the works performed by the Company anddemanding a total compensation amount of USD23.35 million from the Company, comprising USD22.25million as reimbursement of the cost of network reconstruction and USD1.10 million as the cost for supervisingand managing construction work quality of the entire network. The legal counsel engaged by the Companyhas submitted a defense in a timely manner to deny all allegations made by the carrier.Based on the legal opinion furnished by the legal counsel engaged by the Company and the progress ofthe case, the Directors of the Company are of the opinion that the aforesaid case will not have any materialadverse impact on the financial conditions and operating results of the Group for the current period.(8) On 29 July 2011 and 2 January 2013, a U.S. company filed a claim with the International Trade Commission(“ITC”) and the Federal District Court of Delaware, respectively, in the United States, alleging the Companyand ZTE USA of infringement upon its 3G patent rights. Defendants in this case included other companies.In the ITC case, The said U.S. company demanded the issue of a permanent exclusion and injunction orderthat would prevent certain of our terminal products from entering the United States. In the case filed withthe District Court, damages for losses and payments of legal fees were also demanded of the defendantsin addition to the plea for injunction order, although no specific amount of compensation was named. Forthe case filed in 2011, the litigation procedure at the District Court has been suspended. The Company hasappointed an external legal counsel to conduct active defense in respect of the said case. As of now, therehas been no substantial progress of the case.Based on the legal opinion furnished by the legal counsel engaged by the Company and the progress ofthe case, the Directors of the Company are of the opinion that the aforesaid case will not have any materialadverse impact on the financial conditions and operating results of the Group for the current period.(9) On 9 December 2011, the Company and ZTE USA received a petition for arbitration filed by four USAcompanies and a natural person (together “CLEARTALK”) with the International Center for Dispute Resolutionunder the American Arbitration Association (“ICDR”), whereby CLEARTALK alleged that the Company andZTE USA had committed acts of breach of contract and fraud, and demanded cancellation of contract andrefund of payments and compensation with an aggregate amount of over USD10 million. On 28 December2011, the Company and ZTE USA received a revised petition for arbitration filed by CLEARTALK with ICDR,63