Case 13-8

Accounting for a Loss Contingency for a Verdict Overturned on Appeal

M International (M) and W Inc. (W), a competitor of M, have been engaged in long-standing litigation over a specific patent infringement matter. Below is a summary timeline of specific events that have taken place related to this matter:

In May 2017, W filed a claim against M for patent infringement.

For the year ended December 31, 2017, management of M determined that a loss for this matter was probable and represented that the estimate of loss was in the range of $15 million to $20 million, with $17 million being the most likely amount of loss within the range.

A jury trial took place in September 2019.

The jury reached a verdict on September 24, 2019, and a judgment was ordered in favor of W. The judgment required M to pay W $18.5 million.

In November 2019, M filed a Notice of Appeal with the Court of Appeals.

In December 2020, the Court of Appeals issued a ruling in favor of Ms appeal and reversed the lower courts ruling on the matter. This meant that the Court of Appeals overturned the jury verdict and the $18.5 million judgment against M.

On January 6, 2021, W filed a petition for a re-hearing before the same panel of appellate judges against the reversal of ruling by Court of Appeals.

On February 10, 2021, the appellate judges declined the petition for a re-hearing.

On February 28, 2021, management of M determined this matter was closed upon discussions with in-house legal counsel.

A) Read the case and prepare questions and observations.

1. Identify what you believe is the most important fact to consider and why you believe it is the most important.
2. Identify two questions for your group to consider that is at a lower level of detail than the questions in the case

B) For #2

Please respond your questions and explain the reasons for your answers.

Your explanations should go beyond the textbook to include relevant citations from the FASB Codification.