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Note 10. Commitments and Contingencies
 12 Months Ended
Sep. 30, 2012
Commitments and Contingencies Disclosure [Text Block]
10.   Commitments and Contingencies

Litigation

The Company is subject to ordinary routine litigation and claims incidental to its business.  As of September 30, 2012, Bridgeline was not engaged with any material legal proceedings, except as described below.

Bridgeline Digital, Inc vs. e.Magination network, LLC and its principal owner, Daniel Roche.

In August 2010, Bridgeline initiated a lawsuit against e.Magination network, LLC and its principal owner, Daniel Roche, in the Federal District Court of Massachusetts.  Bridgeline seeks damages for accounts receivable allegedly collected by Mr. Roche and e.Magination and used to pay obligations of e.Magination and Mr. Roche (accounts receivable contractually belonging to Bridgeline).  e.Magination and Mr. Roche have asserted counterclaims against Bridgeline and Thomas Massie alleging that Bridgeline has breached Mr. Roche’s employment agreement by improperly terminating Mr. Roche for cause and also alleging breach of the Asset Purchase Agreement by Bridgeline. In November 2012 we agreed to enter into mediation with Mr. Roche. As of the date of this filing there has been no progress in the mediation..

Ingeniador, LLC vs. Interwoven, Inc., Bridgeline Digital, Inc., et al

On April 26, 2012, the Company was informed that on such date the United States District Court for the District of Puerto Rico entered a default judgment against the Company as part of a patent infringement lawsuit brought by Ingeniador, LLC against 16 companies, including Bridgeline. On June 15, 2012 the court granted our request to have the default judgment set aside and dismissed the case. On October 10, 2012 the Company entered into a Covenant Not to Sue Agreement (the “CNTS”) with Ingeniador, LLC, for no monetary consideration, whereby both the Company and Ingeniador, LLC agreed to avoid seeking any further legal disputes and mutually release and dismiss all pending claims as long as the Company does not encourage and/or participate in a challenge to the validity or enforceability of Ingeniador’s patent unless required by law. In addition, both the Company and Ingeniador attested that the CNTS itself does not represent any admission or acknowledgement of any kind in relation to the validity of Ingeniador’s claim of patent infringement.

Operating Lease Commitments

We lease our facilities in the United States and India.  During the quarter ended December 31, 2011, the Company signed a new office lease for its Burlington, MA corporate office location.  The lease term expires in January 2019, with future minimum lease payments totaling $1.8 million.

Future minimum rental commitments under non-cancelable operating leases with initial or remaining terms in excess of one year at September 30, 2012 were as follows:

   
Amount
 
Year Ending September 30,
       
2013
  $ 1,416  
2014
    1,172  
2015
    1,015  
2016
    836  
2017 and thereafter
    1,441  
Total
  $ 5,880  

Rent expense for fiscal 2012 and 2011 was approximately $1.4 million for each fiscal year, exclusive of sublease income of $22 thousand and $36 thousand for fiscal 2012 and 2011, respectively.  

Lease Restructuring

During the three months ended September 30, 2011, the Company exited its leased office space in Arlington, Virginia, and consolidated the Arlington operations with its Baltimore, Maryland office. As a result, the Company recorded a charge of $115 thousand which is reflected in General and administrative expense on its Consolidated Statements of Operations. This charge consists of contractual rental commitments and related costs, offset by sub-lease income. The term of the restructured lease ends in May 2014. Cash outlay over the next 12 months is expected to be $45 thousand.

Other Commitments, Guarantees, and Indemnification Obligations

The Company frequently warrants that the technology solutions it develops for its clients will operate in accordance with the project specifications without defects for a specified warranty period, subject to certain limitations that the Company believes are standard in the industry. In the event that defects are discovered during the warranty period, and none of the limitations apply, the Company is obligated to remedy the defects until the solution that the Company provided operates within the project specifications. The Company is not typically obligated by contract to provide its clients with any refunds of the fees they have paid, although a small number of its contracts provide for the payment of liquidated damages upon default. The Company has purchased insurance policies covering professional errors and omissions, property damage and general liability that reduce its monetary exposure for warranty-related claims and enable it to recover a portion of any future amounts paid.

The Company’s contracts typically provide for testing and client acceptance procedures that are designed to mitigate the likelihood of warranty-related claims, although there can be no assurance that such procedures will be effective for each project.  The Company has not paid any material amounts related to warranties for its solutions.  The Company sometimes commits unanticipated levels of effort to projects to remedy defects covered by its warranties.  The Company’s estimate of its exposure to warranties on contracts is immaterial as of September 30, 2012.

The Company’s agreements with customers generally require the Company to indemnify the customer against claims in which the Company’s products infringe third-party patents, copyrights, or trademarks and indemnify against product liability matters. As of September 30, 2012 and 2011, respectively, the Company has not experienced any losses related to the indemnification obligations and no significant claims with respect thereto were outstanding.  The Company does not expect significant claims related to the indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.