Case 13-8 Accounting for a Loss Contingency for a Verdict Overturned on Appeal

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Report on: Case 13-8 Accounting for a Loss Contingency for a Verdict Overturned on Appeal Two companies, M International and W Inc., have been in a litigation dispute between the two of them over specific patent infringement. In May 2007, W Inc. filed a claim against M International for a patent infringement. For that same year ended on December 31, 2007 the management of M International deemed a loss was probable and the estimate of the loss was going to be between $15 million and $20 million but believing that $17 million was mostly likely going to be the amount of loss. In September 2009 a jury trial occurred and the jury reached a verdict on September 24, 2009 with the judgment ordered in favor of W Inc. that required M International to pay W Inc. $18.5 million. So then in November 2009 M International filed a Notice of Appeal with the Court of Appeals. The Court of Appeals issued a ruling in favor of M International in December 2010 which reversed the lower court’s ruling on the previous claim that was filed by and ruled in favor of W Inc. So this meant that the Court of Appeals overturned the jury verdict and the judgment of the $18.5 million that required M International to pay to W Inc. Being against this overturned verdict, W Inc. filed a petition for a re-hearing on January 6, 2011 to speak before the same panel of appellate judges in the Court of Appeals to insist a reversal of the ruling. On February 10, 2011 the appellate judges denied the petition for W Inc. to have a re-hearing. Therefore on February 28, 2011 the management of M International determined this matter to be closed following discussions with their in-house legal counsel. For the year-end December 31, 2007, M International must recognize a liability for the probable loss from the litigation suit and so now they must consider the correct method for recognizing the liability. M

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