Life Fitness has announced a $25 million "litigation charge" in its 10-Q financial filing that may be the cost of a settlement in an ongoing patent-infringement suit by Precor.
"We expect if we get final approval of a settlement, it'll cost us $25 million," Life Fitness Vice President of Corporate and Investor Relations Kathryn Chieger told SNEWS.
The pending settlement, announced on May 15 also by Precor parent Amer Group, must still be approved by elliptical inventor Larry D. Miller, who licenses the technology to Precor, before it is approved by the U.S. District Court, Western Washington, in Seattle, Wash. According to Amer Group, a trial is now set for July, although a settlement could come through before that.
"We hope we'll have it resolved sooner rather than later," Chieger said.
Precor had alleged in a suit filed in January 2000 that Life Fitness was infringing on Miller's patent No. 5,383,829 in a rear-drive "cross-trainer" -- Life's name for an elliptical motion trainer -- that was introduced in October 1999 at the Club Industry show.
But the patent-infringement suit -- as well as ones against SportsArt America and Thane International filed in 1998 by Precor -- were put on hold after the U.S. Patent and Trademark Office began a re-examination of the patent to verify its validity based on several requests between 1997 and 1999, including ones from both Precor and Life Fitness. In March 2002, the office issued a statement upholding the patent, thereby setting the stage for the legal action to continue. Although Precor's case against Life Fitness was re-activated, the two pending against SportsArt and Thane still show as inactive in the court files. In those two cases, the last entries in the court dockets in July 1999 show a stay by the court, and note that a motion could be filed to restore them to the active case list. SportsArt President Terry Brown declined comment.
With the 10-Q filing on May 15, Life Fitness parent Brunswick Corp. (NYSE: BC) shows net earnings for the first quarter of $3.8 million as a result of the $25 million "deducted against earnings in anticipation of the cost," Chieger said. Previously, the company had reported net earnings for the first quarter of $19.8 million.
SNEWS View: This is a notch in the ongoing litigation battle between Precor and Life Fitness. (The verdict in 1999 in the Life-vs.-Precor suit regarding an alleged infringement of Life's FlexDeck was appealed but ultimately Precor won a major part of the suit, an award that still didn't amount to even a third of this cash.) Life Fitness' cross-trainer is obviously a huge seller for the company â€“ certainly not one that it wants to take off the market or be forced to take back to the drawing board, especially since its front-drive product came off the market a few months after this rear-drive one was introduced in 1999. Perhaps Life doesn't think it infringed, but to move into a settlement of this size must mean it's just a tad nervous about what the court will think -- and how much more a court award could mean. If the cross-trainer has to come off the market, we are sure the engineers at Life Fitness, who have probably been going full-steam on a replacement design, will be able to introduce another soon that is every bit as popular and well-conceived. This isn't a category the company can do without in its line for even the shortest time.