Note 10. Commitments and Contingencies

Litigation

On April 14, 2018, the Company filed a patent infringement lawsuit against Ivantis, Inc. in the U.S. District Court for the Central District of California, Southern Division, alleging that Ivantis’ Hydrus Microstent device infringes the Company’s U.S. Patent Nos. 6,626,858 and 9,827,143. In August 2018, Ivantis filed counterclaims alleging that the Company’s iStent inject infringes U.S. Patent Nos. 8,540,659, 9,603,741, and 9,833,357, patents which Ivantis had recently acquired (Acquired Patents). Each party seeks unspecified monetary damages and injunctive relief. The parties are currently engaged in fact discovery. The Company has filed an early motion seeking a judgment of non-infringement of the Acquired Patents. The Court will hear the motion on March 11, 2019. Trial is set for February 4, 2020. Additionally, in May 2018, Ivantis also filed Inter Partes Review petitions with the Patent Trial and Appeal Board (PTAB) on the patents the Company has asserted in the litigation. The PTAB denied institution of the petitions in December 2018, but Ivantis filed new petitions in January 2019. The PTAB’s decision on institution of this second round of petitions is expected in July 2019. The Company believes that the counterclaim and the PTAB petitions are without merit, and intends to continue vigorously defending itself. The Company is currently unable to predict the ultimate outcome of this matter or estimate a reasonably possible loss or range of loss, and no amounts have been accrued in the consolidated financial statements.

Indemnification

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend the indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. To date, the Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that may require it to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by corporate law. The Company also has directors’ and officers’ insurance.

Operating leases

The Company leases its main headquarters and manufacturing facility and facilities for some of its foreign subsidiaries. Certain of the Company’s leases contain renewal options, rent escalation clauses, and/or landlord incentives. Rent expense for noncancelable operating leases with scheduled rent increases and/or landlord incentives is recognized on a straight-line basis over the lease term beginning with the lease commencement date, or the date the Company takes control of the leased space, whichever is sooner. The excess of straight-line rent expense over scheduled payment amounts and landlord incentives is recorded as a deferred rent liability.

The Company leases two adjacent facilities located in San Clemente, California. During December 2018, the Company extended the term of these facilities by three years, both of which now expire on December 31, 2024. Each agreement contains an option to extend the lease for one additional three-year period at market rates. The total leased square footage of these facilities equals approximately 98,000. In conjunction with these extensions, the lease landlord agreed to provide the Company with a tenant improvement allowance in the amount of the cost of any leasehold improvements, not to exceed approximately $0.3 million upon the Company providing the necessary documentation evidencing the costs of the allowable leasehold improvements.

On November 14, 2018, the Company entered into an office building lease pursuant to which the Company will lease one property containing three existing office buildings, comprising approximately 160,000 rentable square feet of space, located in Aliso Viejo, California (Aliso Facility). The term of the Aliso Facility will commence on May 1, 2019 and continue for thirteen years. The agreement contains an option to extend the lease for two additional five year periods at market rates. The Company intends to relocate its corporate administrative headquarters, along with certain laboratory, research and development and warehouse space, to the Aliso Facility. The Company currently intends to maintain its manufacturing facilities at its San Clemente location for the foreseeable future.

The Company’s remaining U.S.-based and foreign subsidiaries’ leased office space totals less than 14,000 square feet.

The Company recorded deferred rent of $0.5 million and $0.3 million as of December 31, 2018 and December 31, 2017, respectively, in conjunction with its facilities lease agreements. Rent expense was $1.6 million, $1.5 million and $1.1 million for the years ended December 31, 2018, December 31, 2017 and December 31, 2016, respectively.

Future minimum payments under the aforementioned noncancelable operating leases for each of the five succeeding years are as follows (in thousands):


2019	$	1,719
2020		2,929
2021		6,376
2022		6,496
2023		6,842
Thereafter		50,005
	$	74,367

Secured letter of credit

The Company had its bank issue a letter of credit in the amount of $8.8 million that is related to its Aliso Facility. The letter of credit is secured with an amount of cash held in a restricted account equal to its face value, or $8.8 million as of December 31, 2018. Beginning as of the first day of the thirty-seventh month of the lease term, and on each twelve month anniversary thereafter, the letter of credit will be reduced by 20% until the letter of credit amount has been reduced to $2.0 million.

Purchase commitment

As of December 31, 2018, the Company had noncancelable, firm purchase commitments of $3.4 million due beyond one year.

Regents of the University of California

On December 30, 2014, the Company executed an agreement (the UC Agreement) with the Regents of the University of California (the University) to correct inventorship in connection with a group of the Company’s U.S. patents (the Patent Rights) and to obtain from the University a covenant that it did not and would not claim any right or title to the Patent Rights and will not challenge or assist any others in challenging the Patent Rights. In connection with the UC Agreement, Glaukos agreed to pay to the University a low single‑digit percentage of worldwide net sales of certain current and future products, including the Company’s iStent products, with a required minimum annual payment of $0.5 million. This ongoing product payment terminates on the date that the last of the Patent Rights expires, which is currently expected to be in 2022. For the years ended December 31, 2018, December 31, 2017 and December 31, 2016, the Company recorded approximately $4.5 million, $3.9 million and $2.8 million in cost of sales, respectively, in connection with the product payment obligation.