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Commitments and Contingencies
 12 Months Ended
Jun. 26, 2011
Commitments and Contingencies  
Commitments and Contingencies

Note 13 – Commitments and Contingencies

Warranties

The following table summarizes the changes in the Company's product warranty liabilities (in thousands):

 

                         
     Fiscal Years Ended  
     June 26, 2011     June 27, 2010     June 28, 2009  

Balance at beginning of period

    $ 1,308      $ 662      $ 138   

Costs accrued for new warranty contracts and changes in estimates for pre-existing warranties

     1,448        893        564   

Expenditures

      (521 )      (247 )      (40 ) 
    

 

 

    

 

 

    

 

 

  

Balance at end of period

    $ 2,235      $ 1,308      $ 662   
    

 

 

    

 

 

    

 

 

  

Product warranties are provided for at the time the Company recognizes revenue. The warranty periods range from ninety (90) days to seven years. The Company estimates these warranty liabilities as a percentage of revenue, based on historical knowledge of warranty costs and expected future warranty costs. If actual product failure rates materially differ from these estimates, revisions to the estimated warranty liability would be required. The Company evaluates its warranty reserve on a quarterly basis.

 

Lease Commitments

The Company leases certain office and manufacturing space under the terms of non-cancelable operating leases. These leases expire at various times through November 2015. All of the lease agreements provide for rental adjustments for increases in base rent over the term of the lease. The Company records net rent expense on a straight-line basis over the life of the lease. Rent expense associated with these operating leases totaled approximately $3.0 million, $2.7 million and $2.3 million for each of the fiscal years ended June 26, 2011, June 27, 2010 and June 28, 2009, respectively. Sublease income was approximately $0.0, $0.0 million and $0.7 million for the fiscal years ended June 26, 2011, June 27, 2010 and June 28, 2009, respectively. Also, the agreements may require that the Company pay property taxes and general property maintenance in addition to the minimum rental payments. Future minimum rental payments as of June 26, 2011 (under leases currently in effect) are as follows, (in thousands):

         

Fiscal Years Ending

    Minimum Rental
Amount		  

June 24, 2012

    $ 2,664   

June 30, 2013

      1,879   

June 29, 2014

      1,576   

June 28, 2015

      1,456   

June 26, 2016

      335   

Thereafter

      —     
    

 

 

  

Total

    $ 7,910   
    

 

 

  

Litigation

The Company is currently a party to various legal proceedings, including certain of the proceedings noted in this section. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm the Company's financial position, cash flows, or overall trends in results of operations, legal proceedings are subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include money damages or, in matters for which injunctive relief or other conduct remedies are sought, an injunction prohibiting us from selling one or more products at all or in particular ways. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on the Company's business, results of operation, financial position, and overall trends. Except as may be otherwise indicated, the outcomes in these matters are not reasonably estimable.

Cree, Inc. v. SemiLEDs Corporation and Helios Crew Corp.

The Company is the plaintiff in an action against defendants SemiLEDs Corporation and its subsidiary, Helios Crew Corp., pending in the U.S. District Court for the District of Delaware. The action was commenced by the filing of a complaint on October 8, 2010. The complaint alleges the defendants are infringing three U.S. patents owned by the Company. The three patents are No. 7,737,459 entitled "High Output Group III Nitride Light Emitting Diodes," No. 7,211,833 entitled "Light Emitting Diodes Including Barrier Layers/Sublayers" and No. 7,611,915, entitled "Methods for Manufacturing Light Emitting Diodes Including Barrier Layers/Sublayers." The suit seeks monetary damages and an injunction against future infringements. The defendants filed an answer and counterclaims in which they deny any infringement and assert, among other defenses, that the patents are invalid. The counterclaims seek a declaratory judgment that the defendants have not infringed the patents and that the patents are invalid. On March 16, 2011, the court allowed the Company to add claims for infringement of three additional U.S. patents owned by the Company: No. 6,657,236 entitled "Enhanced Light Extraction in LEDS Through the Use of Internal and External Optical Elements"; No. 7,795,623 entitled "Light Emitting Devices Having Current Reducing Structures and Methods of Forming Light Emitting Devices Having Current Reducing Structures"; and No. 7,557,380 entitled "Light Emitting Devices Having a Reflective Bond Pad and Methods of Fabricating Light Emitting Devices Having Reflective Bond Pads.  On August 15, 2011, SemiLEDs Corporation and SemiLEDs Optoelectronics Co., Ltd. filed a complaint for patent infringement against Cree, Inc. in the U.S. District Court for the District of Delaware seeking injunctive relief and damages for alleged infringement of the following three U.S. patents: No. 7,615,789 entitled "Vertical Light Emitting Diode Device Structure," No. 7,646,033 entitled "Systems and Methods for Producing White-Light Emitting Diodes," and No. D580,888 entitled "Light Emitting Diode Device With Electrode."  

Dynacraft Industries Sdn Bhd v. Cree, Inc. and Cree Malaysia Sdn Bhd

On April 29, 2009, Dynacraft Industries Sdn Bhd commenced an action against the Company and Cree Malaysia Sdn Bhd, a subsidiary of the Company, in Malaysia in a filing with the High Court of Malaysia at Pulau Pinang (Penang). The statement of claim filed in the action alleges that the Cree defendants breached an agreement to purchase from Dynacraft certain real property in Malaysia for a contract price of 38,000,000 Malaysia ringgit (approximately $10.8 million) and seeks an award of damages in an unspecified amount. The Cree defendants have filed defenses denying liability for damages.

The Fox Group, Inc. v. Cree, Inc.

On June 29, 2010, The Fox Group, Inc. commenced a patent infringement lawsuit against the Company by filing a complaint in the U.S. District Court for the Eastern District of Virginia. The complaint asserted that the Company is infringing U.S. Patent No. 6,534,026, entitled "Low Defect Density Silicon Carbide" (the "'026 Patent") and U.S. Patent No. 6,562,130, entitled "Low Defect Axially Grown Single Crystal Silicon Carbide" (the "'130 Patent"). It alleged that the Company is infringing the patents by making, using, selling, and/or offering for sale silicon carbide substrates and products that use silicon carbide that practice the inventions claimed in the patents, and it requested a judgment against the Company for damages in an unspecified amount, an injunction against infringements, attorneys' fees and costs. On August 30, 2010, the Company filed an answer and counterclaims in which it denied any infringement and asserted, among other defenses, that the patents are invalid and are unenforceable. The counterclaims sought a declaratory judgment that the Company has not infringed the patents and that the patents are invalid and unenforceable. On July 20, 2011, the court granted summary judgment in favor of the Company with respect to the '026 patent, finding that the '026 patent was not infringed, and dismissed as moot the Company's counterclaims of invalidity and unenforceability with respect to the '026 patent. On August 8, 2011, the court granted summary judgment in favor of the Company with respect to the '130 Patent, finding that the '130 patent was invalid, dismissed as moot the Company's counterclaims of non-infringement and unenforceability with respect to the '130 patent, and ordered the case closed.