Commitments and Contingencies

Warranties

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



	Fiscal Years Ended
	June 24, 2012			June 26, 2011			June 27, 2010
Balance at beginning of period	$	2,235		$	1,308		$	662
Acquisition related warranties (See Note 3)	5,623			—			—
Warranties accrued in current period	1,055			1,573			990
Changes in estimates for pre-existing warranties	(878		)	(125		)	(97		)
Expenditures	(2,522		)	(521		)	(247		)
Balance at end of period	$	5,513		$	2,235		$	1,308

Product warranties are estimated and recorded at the time the Company recognizes revenue. The warranty periods range from ninety days to ten years. The Company estimates these warranty liabilities as a percentage of revenue, based on historical knowledge of warranty costs and expected future warranty costs. The Company evaluates its warranty reserve on a quarterly basis. If actual product failure rates materially differ from the Company's estimates, revisions to the estimated warranty liability are recorded in the period in which they are determined.

Lease Commitments

The Company primarily leases manufacturing, office, housing and warehousing space under the terms of non-cancelable operating leases. These leases expire at various times through November 2017. 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 $4.6 million, $3.0 million and $2.7 million for each of the fiscal years ended June 24, 2012, June 26, 2011 and June 27, 2010, respectively. Certain agreements 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 24, 2012 (under leases currently in effect) are as follows, (in thousands):



Fiscal Years Ending	Minimum Rental Amount
June 30, 2013	$	3,239
June 29, 2014	3,094
June 28, 2015	2,658
June 26, 2016	2,033
June 25, 2017	1,555
Thereafter	157
Total	$	12,736

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 the Company 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.

SemiLEDs Litigation

The Company is the plaintiff in an action against SemiLEDs Corporation and its subsidiaries, Helios Crew Corp. and SemiLEDs Optoelectronics Co., Ltd. (collectively "SemiLEDs"), commenced October 8, 2010 in the U.S. District Court for the District of Delaware. The complaint as amended seeks injunctive relief and damages and alleges that the defendants are infringing six U.S. patents owned by the Company relating to light-emitting diodes: 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"; No. 7,611,915, entitled "Methods for Manufacturing Light Emitting Diodes Including Barrier Layers/Sublayers"; 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." The defendants have filed an answer and counterclaims in which they deny any infringement and seek a declaratory judgment that all of the patents are invalid and that one of the patents is unenforceable.

SemiLEDs Corporation and SemiLEDs Optoelectronics Co., Ltd. filed a complaint against the Company in the U.S. District Court for the District of Delaware on August 15, 2011. The complaint seeks injunctive relief and damages for alleged infringement of three U.S. patents relating to light-emitting diodes: 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." In October 2011, the Company filed an answer and counterclaims in which the Company denies any infringement and seeks a declaratory judgment that the asserted claims of the SemiLEDs patents are invalid. In addition, the Company asserted counterclaims against SemiLEDs Corporation and SemiLEDs Optoelectronics Co. seeking injunctive relief and damages for infringement of the following additional U.S. patents owned by the Company relating to light-emitting diodes: No. 6,958,497, entitled "Group III Nitride Based Light Emitting Diode Structures with a Quantum Well and Superlattice, Group III Nitride Based Quantum Well Structures and Group III Nitride Based Superlattice Structures"; and No. 6,515,313, entitled "Efficiency Light Emitters with Reduced Polarization-Induced Charges."

In June 2012, the parties entered into a settlement agreement pursuant to which SemiLEDs agreed to the entry of an injunction effective October 1, 2012 that prohibits the importation and sale of the SemiLEDs accused products in the United States and made a one-time payment to the Company for past damages. The remaining claims of all parties were dismissed without prejudice.

Cooper Lighting Litigation

Ruud Lighting, Inc. filed a complaint for patent infringement against Cooper Lighting, LLC in the U.S. District Court for the Eastern District of Wisconsin on April 2, 2010. The complaint as amended seeks injunctive relief and damages for infringement of two U.S. patents owned by Ruud Lighting: No. 7,686,469, entitled "LED Lighting Fixture"; and No. 7,891,835, entitled “Light-Directed Apparatus with Protected Reflector-Shield and Lighting Fixture Utilizing Same.” Cooper Lighting has filed an answer and counterclaims in which it denies any infringement and seeks a declaratory judgment that the asserted claims of the patents are invalid. On May 23, 2012, Ruud Lighting filed a second complaint for patent infringement against Cooper Lighting, LLC in the U.S. District Court for the Eastern District of Wisconsin. The complaint seeks injunctive relief and damages for infringement of a third U.S. patent owned by Ruud Lighting, No. 7,952,262, entitled “Modular LED Unit Incorporating Interconnected Heat Sinks Configured To Mount and Hold Adjacent LED Modules."

Illumination Management Solutions, Inc., a subsidiary of Cooper Lighting, LLC, filed a complaint for patent infringement against Ruud Lighting in the U.S. District Court for the Eastern District of Texas on June 7, 2010. The action was later transferred to the U.S. District Court for the Eastern District of Wisconsin. As amended in January 2012, the complaint alleges that Ruud Lighting is infringing two U.S. patents owned by Illumination Management Solutions, No. 7,674,018 and No. 7,993,036, each entitled "LED Device for Wide Beam Generation." It also alleges that Ruud Lighting and its then president, Alan Ruud, who served on the plaintiff's board of directors in 2006 and 2007 when Ruud Lighting was a shareholder of the plaintiff, conspired to misuse confidential information obtained from the plaintiff to file patent applications and to obtain patents assigned to Ruud Lighting. The complaint seeks injunctive relief, damages and ownership of any interest in the patent applications and patents alleged to have been wrongfully filed and obtained.

Ruud Lighting is a defendant in an action commenced by Illumination Management Solutions in the U.S. District Court for the Central District of California on June 8, 2010 and later transferred to the U.S. District Court for the Eastern District of Wisconsin. As amended in December 2011, the complaint names as defendants Ruud Lighting and two of its employees, Alan Ruud and Christopher Ruud, and asserts that the defendants engaged in wrongful acts arising out of the relationship between the plaintiff and Ruud Lighting in 2006 and 2007 when Ruud Lighting was a shareholder of the plaintiff and Alan Ruud served on the plaintiff's board of directors. The complaint alleges that the defendants breached fiduciary duties and otherwise acted improperly by pursuing a plan to compete with the plaintiff and that the defendants misused trade secrets and other information obtained from the plaintiff as fiduciaries and subject to a non-disclosure agreement. These allegedly wrongful acts included filing patent applications and obtaining patents assigned to Ruud Lighting on inventions claimed by the plaintiff. The complaint also alleges that Ruud Lighting: (a) marketed its LED products without reference to certain optical technology claimed by the plaintiff, thereby breaching a marketing agreement with the plaintiff and engaging in unfair competition and false advertising; (b) breached the marketing agreement by failing to give the plaintiff a right of first refusal to integrate the plaintiff's optical technology into Ruud Lighting LED products; and (c) committed fraud by entering into the marketing agreement without any intention to perform it. The complaint further alleges that the plaintiff is entitled to a correction of the inventors named in one or more patents to add a founder of the plaintiff as an inventor. The complaint seeks to recover damages, all profits and other gains realized by defendants as a result of the acts complained of, attorneys' fees, ownership of any interest in the patent applications and patents alleged to have been wrongfully filed and obtained, and correction of the named inventors on one or more patents.

Dynacraft Industries Litigation

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 Litigation

The Fox Group, Inc. filed a complaint for patent infringement against the Company in the U.S. District Court for the Eastern District of Virginia on June 29, 2010. The complaint, which sought injunctive relief and damages, asserted that the Company was infringing two U.S. patents relating to high quality silicon carbide material: No. 6,534,026, entitled "Low Defect Density Silicon Carbide" (the "'026 patent"); and No. 6,562,130, entitled "Low Defect Axially Grown Single Crystal Silicon Carbide" (the "'130 patent"). The district court granted summary judgment in favor of the Company in August 2011. The court determined that the Company did not infringe the '026 patent and that the claims of the '130 patent asserted against the Company are invalid. The Fox Group has filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit.

Dow Corning Litigation

Dow Corning Compound Semiconductor Solutions, LLC filed a complaint against the Company in the U.S. District Court for the Eastern District of Michigan on September 27, 2011. The complaint, as subsequently amended, seeks a declaratory judgment that the plaintiff does not infringe three U.S. patents owned by the Company relating to high quality silicon carbide materials and that the patents are invalid. The patents in suit are: No. 7,294,324, entitled “Low Basal Plane Dislocation Bulk Grown SiC Wafers”; No. 7,314,520, entitled “Low 1C Screw Dislocation 3 Inch Silicon Carbide Wafer”; and No. 7,314,521, entitled “Low Micropipe 100 MM Silicon Carbide Wafer.” The Company has moved the court to dismiss the action for lack of subject matter jurisdiction on the grounds that at the time the complaint was filed there was no substantial or immediate controversy between the parties regarding the patents-in-suit.

Schubert Litigation

E. Fred Schubert filed a complaint for patent infringement against the Company in the U.S. District Court for the District of Delaware on July 18, 2012. The complaint seeks injunctive relief and damages for alleged infringement of U.S. patent No. 6,294,475, entitled “Crystallographic Wet Chemical Etching of III-Nitride Material."