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Commitments and Contingencies | 6 Months Ended
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Jun. 30, 2020
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Lease Agreements The Company leases office, laboratory, manufacturing, distribution and server space with lease terms ranging from 2 to 11 years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease. The Company evaluates renewal options at lease inception and on an ongoing basis, and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. The Company performed evaluations of these contracts and determined them to be operating leases. For the three and six months ended June 30, 2020, the Company incurred $2.1 million and $4.0 million, respectively, of operating lease costs. The Company also incurred $0.1 million and $0.2 million, respectively, of variable lease costs for the three and six months ended June 30, 2020. The variable lease cost is comprised primarily of the Company’s proportionate share of operating expenses, property taxes and insurance and is classified as lease cost due to the Company’s election to not separate lease and non-lease components. Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended June 30, 2020 was $3.1 million and was included in net cash used in operating activities in the Company’s condensed consolidated statements of cash flows. The maturity of the Company’s operating lease liabilities as of June 30, 2020 is as follows (in thousands):
| Operating Leases
2020 (excluding the six months ended June 30, 2020) | $ | 3,142 |
2021 | 8,876 |
2022 | 7,935 |
2023 | 8,083 |
2024 | 7,837 |
Thereafter | 42,575 |
Total lease payments | $ | 78,448 |
Less: imputed interest | (19,282) |
Present value of operating lease liabilities | $ | 59,166 |
Operating lease liabilities, current | $ | 3,938 |
Operating lease liabilities, noncurrent | $ | 55,228 |
The following table summarizes additional information related to operating leases as of June 30, 2020:
Weighted-average remaining lease term: |
Operating leases | 9.0 years
Weighted-average discount rate: |
Operating leases | 6.2 | %
The Company’s future undiscounted lease payments under operating leases (as defined by prior guidance) as of December 31, 2019 are as follow (in thousands):
| Rent Payments
2020 | $ | 6,247 |
2021 | 7,581 |
2022 | 6,794 |
2023 | 6,947 |
2024 | 7,064 |
Thereafter | 38,346 |
Total minimum lease payments | $ | 72,979 |
Litigation The Company is regularly subject to lawsuits, claims, arbitration proceedings, administrative actions and other legal and regulatory proceedings involving intellectual property disputes, commercial disputes, competition and other matters, and the Company may become subject to additional types of lawsuits, claims, arbitration proceedings, administrative actions, government investigations and legal and regulatory proceedings in the future. Amongst other matters, the Company is currently a defendant in the lawsuits and proceedings described below. In these matters, the plaintiffs are seeking damages and injunctions of sales of the Company's products amongst other remedies. Other than with respect to the 2015 Delaware Action, losses are not probable or estimable for the lawsuits and proceedings described below. The 2015 Delaware Action In February 2015, Raindance Technologies, Inc. (“Raindance”) and the University of Chicago filed suit against the Company in the U.S. District Court for the District of Delaware, accusing the Company’s legacy GEM products of infringing certain U.S. patents owned by or exclusively licensed to Raindance (the "2015 Delaware Action"). In May 2017, Bio-Rad Laboratories, Inc. (“Bio-Rad”) was substituted as the plaintiff following its acquisition of Raindance. A jury trial was held in November 2018. The jury found that the accused legacy GEM products infringed U.S. Patent Nos. 8,304,193, 8,329,407 and 8,889,083. The jury also concluded that the Company's infringement was willful and awarded Bio-Rad approximately $24 million in damages through June 30, 2018. The Company appealed the jury verdict. Post-trial, Bio-Rad moved for a permanent injunction, treble damages for willful infringement, attorneys’ fees, supplemental damages for the period from the second quarter of 2018 through the end of the trial as well as pre- and post-judgment interest. In response to the jury award, the Company established an accrual of $30.6 million as of December 31, 2018, which was recorded as an operating expense on the condensed consolidated statement of operations for the year ended December 31, 2018. Additionally, beginning in the fourth quarter of 2018, the Company also began recording an accrual for estimated royalties to Bio-Rad as a cost of revenue on the condensed consolidated statements of operations based on an estimated royalty rate of 15% of sales of the Company’s Chromium instruments operating its legacy GEM microfluidic chips and associated consumables. As a result, the Company recorded $7.4 million of royalties for the fourth quarter of 2018. As of December 31, 2018, the Company recorded a total accrual of $38 million related to this matter which represented the jury award plus the Company’s estimate of additional damages for the period from June 30, 2018 to the trial date in November 2018 and the royalties accrued in the fourth quarter of 2018. In July 2019, the Court awarded supplemental damages for the period from June 30, 2018 through the end of the trial in November 2018 and established the interest rates for pre- and post-judgment interest, which when combined with the original award, resulted in a $35 million preliminary judgment in favor of Bio-Rad for damages through November 2018 and interest. During the three and six months ended June 30, 2020 and 2019, the Company recorded royalties of $1.5 million and $5.9 million, and $8.0 million and $15.9 million respectively, as a cost of revenue and an additional $0.3 million and $0.6 million, and $0.6 million and $1.4 million, respectively, during the three and six months ended June 30, 2020 and 2019, as an operating expense for estimated pre- and post-judgment interest. The Company’s accrual of $75.2 million as of June 30, 2020 is comprised of the preliminary judgment, along with the Company’s estimate of additional royalties and interest for the period from November 2018 through June 30, 2020. To date the Company has not made any payments related to the judgment or royalties. In July 2019, the Court denied Bio-Rad’s other post-trial requests such as attorneys’ fees and enhanced damages for willful infringement. In July 2019, the Court also granted Bio-Rad a permanent injunction against the Company’s legacy GEM microfluidic chips and associated consumables that were found to infringe the Bio-Rad patents, which historically constituted a significant amount of the Company’s product sales. However, under the injunction, the Company is permitted to continue to sell its legacy GEM microfluidic chips and associated consumables for use with its historical installed base of instruments provided that the Company pay into escrow a royalty of 15% of the Company’s net revenue related to such sales occurring after August 28, 2019. The amounts will be held in escrow until the conclusion of the Company’s appeal. In August 2019, the Court ordered that the Company may post a bond in the amount of $52 million in lieu of payment of the final judgment. Bio-Rad subsequently asked the Court to increase the amount of the bond to approximately $61 million. The Company also asked the Court to reconsider its ruling and decrease the potential bond to approximately $35 million. On September 13, 2019, the Company posted a $52 million bond (the “Bond”) in lieu of payment of the judgment pending the Company’s ongoing appeal. In connection with the Bond, the Company deposited $45 million as collateral in a segregated cash account, where it will be held until the conclusion of the appeal. On October 10, 2019, the Court denied the Company’s motion to decrease the bond amount, and, without addressing Bio-Rad’s request to increase the bond amount, stayed any execution or enforcement of the judgment until the completion of appeal, and for thirty days thereafter. The Company appealed the Court's judgment including the injunction to the Federal Circuit. In August 2020, the Federal Circuit issued its opinion in the Company's appeal of the 2015 Delaware Action. The Federal Circuit (1) affirmed the judgment of the lower Court with respect to infringement of the '083 patent by the Company's legacy GEM products and (2) vacated the judgment with respect to infringement of the '193 and '407 patents, which are remanded to the lower Court for a new trial on infringement. The Federal Circuit affirmed the damages award including the 15% royalty with respect to the Company's legacy GEM products. The Federal Circuit vacated the injunction with respect to the Company's Single Cell CNV and Linked-Read products but affirmed the injunction with respect to the Company's other legacy GEM products. The Company intends to further appeal this decision. Unless that appeal is successful, the Company will be required to pay the judgment, interest and the amount (if any) of additional royalties ordered by the Court. It will be up to the Court to determine whether additional post-judgment royalties apply and in what amount, which the Company expects the Court to finalize once appeals are completed. The Company has accrued $75.2 million as of June 30, 2020 related to this matter which is classified within current liabilities in its condensed consolidated balance sheets as of this date. Restricted cash of $57.8 million, classified within current assets in the Company's condensed consolidated balance sheets as of June 30, 2020 serves as collateral for a bond and royalties in connection with the Bio-Rad litigation and would be used to partially satisfy this payment. The ITC 1068 Action On July 31, 2017, Bio-Rad and Lawrence Livermore National Security, LLC filed a complaint against the Company in the U.S. International Trade Commission (“ITC”) pursuant to Section 337 of the Tariff Act of 1930, accusing substantially all of the Company’s Chromium products of infringing certain asserted patents (the “ITC 1068 Action”). In September 2018, the judge found that the Company’s legacy GEM microfluidic chips infringe certain of the asserted patents, but also that the Company’s gel bead manufacturing microfluidic chip and Next GEM microfluidic chip do not infringe any claim asserted against them (the “Initial Determination”). The judge recommended entry of an exclusion order preventing the Company from importing its legacy GEM microfluidic chips and a cease and desist order that would prevent the Company from selling such imported chips. On December 18, 2019, the ITC issued its final determination in the ITC 1068 Action (the “Final Determination”). The Final Determination affirmed the Initial Determination that the Company’s Next GEM microfluidic chips and gel bead manufacturing microfluidic chips do not infringe any of the claims asserted against them. The Final Determination also affirmed the ruling that the Company’s legacy GEM microfluidic chips infringe the ‘664, ‘682 and ‘635 patents but not the ‘160 patent. The ITC issued (1) a limited exclusion order prohibiting the unlicensed importation of the legacy GEM microfluidic chips into the United States and (2) a cease and desist order preventing the Company from selling such imported legacy GEM microfluidic chips in the United States. The ITC expressly allowed the importation and sale of the legacy GEM microfluidic chips for use by researchers who were using such chips as of December 18, 2019, and who have a documented need to continue receiving such chips for a specific current ongoing research project for which that need cannot be met by any alternative product. The Final Determination was subject to a 60-day presidential review period. During the presidential review period, the Company was permitted to continue importation and sales of the legacy GEM microfluidic chips subject to payment of a bond of three (3) percent of the entered value of the accused microfluidic chips. The Company and Bio-Rad have appealed the Final Determination to the Court of Appeals for the Federal Circuit. Bio-Rad has appealed the Final Determination with respect to non-infringement of the Company's gel bead manufacturing chips, but not with respect to non-infringement of the Company's Next GEM microfluidic chips. The Company has appealed the Final Determination with respect to infringement of the Company's legacy GEM microfluidic chips. The Company expects oral arguments to be held around the first quarter of 2021 and a decision around mid-2021. The Northern District of California Action On July 31, 2017, Bio-Rad and Lawrence Livermore National Security, LLC also filed suit against the Company in the U.S. District Court for the Northern District of California, alleging that the Company’s legacy GEM products infringe certain patents in addition to the patents asserted in the ITC 1068 Action. The complaint seeks injunctive relief, unspecified monetary damages, costs and attorneys’ fees. This litigation has been stayed pending resolution of the Federal Circuit appeal of the ITC 1068 Action. In July 2020, Bio-Rad moved to lift the stay with respect to the '059 patent and consolidate the '059 patent with the '115 patent transferred from the District of Massachusetts which is being asserted against the Company's Next GEM products. In August 2020, the Court denied Bio-Rad's motion to lift the stay with respect to both the '059 and '115 patents. The Company believes that this lawsuit is without merit and intends to vigorously defend itself. The Germany Action On July 31, 2017, Bio-Rad filed suit against the Company in Germany in the Munich Region Court alleging that the Company infringed a European patent. Bio-Rad dismissed this action in August 2018. On February 13, 2018, Bio-Rad filed suit against the Company in Germany in the Munich Region Court alleging that its Chromium instruments, legacy GEM microfluidic chips and certain accessories infringe a German utility model. Bio-Rad seeks unspecified damages and an injunction prohibiting sales of these products in Germany and requiring the Company to recall these products sold in Germany subsequent to February 11, 2018. An initial hearing was held on November 27, 2018, and a subsequent hearing was held on May 15, 2019. The Court issued a ruling on November 20, 2019. The Court ruled that the Company’s legacy GEM microfluidic chips, as well as certain Chromium instruments and accessories used with legacy GEM microfluidic chips, infringed the German Utility Model. The Court issued an injunction with respect to such legacy GEM microfluidic chips, Chromium instruments and accessories used with such systems, prohibiting among other things the sale of these products in Germany and the importation of such products into Germany. The Court found that the Company is obligated to compensate Bio-Rad for unspecified damages and required that these products be recalled from distribution channels in Germany. The Court further found that the Company has to bear the statutory costs of the legal dispute in a minimum amount of at least 61,000 Euros. The Company has accrued the 61,000 Euros for statutory costs in the condensed consolidated balance sheet as of June 30, 2020. The Company is unable to estimate any additional potential exposure related to the matter beyond the statutory costs that have been accrued. The Court’s ruling did not address the Company’s Next GEM products, which were not accused in this action and which constitute substantially all of the Company’s Chromium sales in Germany. The Company appealed the Court’s ruling. On April 6, 2020, the Munich Higher Regional Court (the “Higher Court”) issued a ruling staying enforcement of the ruling of the lower Court, including the injunction, subject to the payment of a bond by the Company. The Higher Court found that the lower Court’s claim construction was not justifiable and that the facts did not provide a basis for a finding of infringement. On April 16, 2020, the Company paid a 2.8 million Euro bond to the Higher Court to completely stay enforcement of the ruling. The bond is refundable upon a favorable ruling on the merits by the Higher Court. The Company expects the Higher Court to rule on the merits around the end of 2020. The 2018 Delaware Action On October 25, 2018, Bio-Rad filed suit against the Company in the U.S. District Court for the District of Delaware alleging that substantially all of the Company’s Chromium products, including our legacy GEM products and Next GEM products, infringe U.S. Patent Nos. 9,562,837 and 9,896,722. Bio-Rad seeks injunctive relief, unspecified monetary damages, costs and attorneys’ fees. In October 2019, the Company filed four petitions for inter partes review (“IPR”) challenging the validity of both asserted patents. On April 27, 2020, the Patent Trials and Appeals Board (“PTAB”) instituted review on all four of these petitions. A final written decision is expected from the PTAB in April 2021. In June 2020, the Court completely stayed the District of Delaware litigation pending resolution of the IPRs before the PTAB. The Massachusetts Action On September 11, 2019, Bio-Rad filed suit against the Company in the U.S. District Court for the District of Delaware alleging that the Company’s Next GEM products infringe certain claims of U.S. Patent No. 8,871,444. On November 5, 2019, Bio-Rad amended the complaint to additionally allege that the Company’s Next GEM products infringe certain claims of U.S. Patent Nos. 9,919,277 and 10,190,115. The ‘444 and ‘277 patents are exclusively licensed by Bio-Rad from Harvard University, which subsequently joined the suit as a party plaintiff. Bio-Rad is seeking damages and an injunction against the Company's Next GEM products amongst other remedies. The ‘444 and ‘277 patents are projected to expire in October 2024. On December 18, 2019, Bio-Rad dismissed this action in the District of Delaware and refiled it in the U.S. District Court for the District of Massachusetts. The case was assigned to Judge William G. Young. On January 14, 2020, the Court consolidated this case with a separate action, Bio-Rad Laboratories Inc. et al. v. Stilla Technologies, Inc. (“Stilla”), in which Bio-Rad is asserting the ‘444 patent (among other patents) against Stilla’s droplet digital PCR product. On January 23, 2020, the Company filed a motion to dismiss the case and to transfer the ‘115 patent to the Northern District of California, where the related ‘059 patent is stayed. On January 24, 2020, the Company filed antitrust counterclaims against Bio-Rad alleging violations of (a) Section 7 of the Clayton Act, (b) Section 2 of the Sherman Act and (c) California unfair competition laws, for illegally acquiring Raindance and illegally monopolizing or attempting to monopolize markets relating to droplet digital PCR products, droplet single cell products and droplet genetic analysis technology. On February 19, 2020, Bio-Rad moved to dismiss, or alternatively to stay and sever, the Company’s antitrust claims. On February 5, 2020, the Company filed additional counterclaims against Bio-Rad alleging that Bio-Rad’s single cell ATAC-seq products infringe U.S. Patent No. 9,029,085 and 9,850,526 that are exclusively licensed to the Company from Harvard University. On February 26, 2020, Bio-Rad moved to sever and stay the patent counterclaims. On March 6, 2020, the Court denied the motion to stay and deferred the motion to sever until prior to trial. On March 25, 2020, the Court held a hearing with respect to (a) the Company’s motion to dismiss Bio-Rad’s patent claims, (b) the Company’s motion to transfer the ‘115 patent and (c) Bio-Rad’s motion to dismiss the Company’s antitrust counterclaims. On April 30, 2020, the Court denied the Company’s motion to dismiss with respect to Bio-Rad’s patent claims and granted the Company’s motion to transfer the ‘115 patent to the Northern District of California. The Court has not yet ruled on Bio-Rad’s motion to dismiss the Company’s antitrust counterclaims. Discovery is ongoing. A Markman hearing is expected in September 2020. In July 2020, the Court set a trial date for Bio-Rad's patent claims and the Company's patent counterclaims in April 2021 and set a trial date for the Company's antitrust counterclaims in July 2021. In June 2020, the Company filed two petitions for IPR challenging the validity of the '444 patent. The Company expects the PTAB to issue a decision on institution of these IPR petitions in the first quarter of 2021. 2019 Becton Dickinson Settlement and Patent Cross License Agreement On November 15, 2018, Becton, Dickinson and Company (“BD”) and Cellular Research, Inc. filed suit against the Company in the U.S. District Court for the District of Delaware, alleging that the Company infringed certain patents. In September 2019, the Company filed counterclaims alleging that BD and Cellular Research, Inc. (together, the “BD Entities”) infringed a number of the Company’s patents. In October 2019, the Company entered into a settlement and patent cross license agreement (the “BD Agreement”) with the BD Entities. The BD Agreement resolved all outstanding patent litigation between the parties (the “BD Litigation”), which was dismissed with prejudice on October 21, 2019. Under the terms of the BD Agreement, the BD Entities granted the Company and its affiliates, and the Company granted BD and its affiliates, a worldwide, royalty-free, non-exclusive, fully paid-up license to certain patents and patent applications relating to molecular barcoding and single cell analysis, including to all the patents asserted in the BD Litigation. The Company is required to make an aggregate payment of $25.0 million to BD in annual amounts of $6.25 million over four years beginning in January 2020 in connection with the BD Agreement. Upon execution of the BD Agreement, the fair value of these payments was recognized as a liability and is classified as accrued expenses and other current liabilities and accrued license fee, noncurrent on the Company’s condensed consolidated balance sheet as of June 30, 2020. As part of the BD Agreement, each party, on behalf of itself and its affiliates, has also entered into a covenant not to sue in certain fields related to each company’s products. The companies have also agreed on behalf of themselves and their affiliates to refrain from challenging the patents and patent applications licensed under the BD Agreement. The Company considers this matter closed. For certain of the Company’s litigation matters, the Company is required to make milestone payments to the Company’s legal counsel based on certain litigation outcomes. Based on the occurrence in the first quarter of 2020 of one such milestone in one of the Company’s litigation matters, a milestone payment to the Company’s legal counsel in the amount of $5 million was triggered in the first quarter of 2020. The Company expects to trigger additional such milestone payments during the pendency of litigation, though the timing and amounts of such payments is uncertain.

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