7. Commitments and contingencies

Leases and non-cancelable contractual obligations

The Company leases its facilities and certain equipment under operating leases that expire through September 2024. At December 31, 2017, the minimum aggregate payments due under operating leases and specified non-cancelable contractual obligations, which consist of software license and maintenance agreements, are summarized as follows:

As a result of the MedSupport acquisition, the Company leases a property owned by a related party. Rent expense for the property was $21 for the year ended December 31, 2017.

Rent expense of $1,148, $1,028 and $900 for the years ended December 31, 2017, 2016 and 2015, respectively, was included in the accompanying consolidated statements of comprehensive income.

Purchase obligations

The Company had approximately $48,900 of outstanding purchase orders with its outside vendors and suppliers as of December 31, 2017.

Warranty obligation

The following table identifies the changes in the Company’s aggregate product warranty liabilities for the years ended December 31, 2017, 2016 and 2015:

Legislation and HIPAA

The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government activity has continued with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in exclusion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed.

The Company believes that it is in compliance in all material respects with applicable fraud and abuse regulations and other applicable government laws and regulations. Compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) ensures health insurance portability, reduces healthcare fraud and abuse, guarantees security and privacy of health information, and enforces standards for health information. The Health Information Technology for Economic and Clinical Health Act (HITECH Act) imposes notification requirements of certain security breaches relating to protected health information. The Company believes that it complies in all material respects with the provisions of those regulations that are applicable to the Company’s business.

Legal proceedings

Separation Design Group litigation

On October 23, 2015, Separation Design Group IP Holdings, LLC (SDGIP) filed a lawsuit against the Company in the United States District Court for the Central District of California. On December 7, 2015, SDGIP filed a First Amended Complaint in the SDGIP Lawsuit.

SDGIP alleged that the Company willfully infringed U.S. Patent Nos. 8,894,751 (‘751 Patent) and 9,199,055 (‘055 Patent), both of which are titled “Ultra Rapid Cycle Portable Oxygen Concentrator.” SDGIP also alleged misappropriation of trade secrets and breach of contract stemming from a meeting in September 2010. The Company never received any communication from SDGIP related to patent infringement, misuse of trade secrets, or breach of the mutual non-disclosure agreement prior to SDGIP filing the lawsuit. SDGIP sought to recover damages (including compensatory and treble damages), costs and expenses (including attorneys’ fees), pre-judgment and post-judgment interest, and other relief that the Court deemed proper. SDGIP also sought a permanent injunction against the Company.  

The Company answered SDGIP’s First Amended Complaint, denying SDGIP’s allegations of patent infringement, trade secret misappropriation, and breach of contract and asserting several affirmative defenses. The Company also filed counterclaims against SDGIP alleging that the patents-in-suit were unenforceable due to inequitable conduct.

On May 19, 2017, the Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Office granted the Company’s inter partes review (IPR) petition with respect to the ‘751 Patent and instituted review of the validity of the patent claims in the ‘751 Patent asserted by SDGIP in the lawsuit.  On June 16, 2017, the PTAB granted the Company’s IPR petition with respect to the ‘055 Patent and instituted review of the validity of the patent claims in the ‘055 Patent asserted by SDGIP in the lawsuit.

The parties reached a mutually agreeable settlement in October 2017. On October 19, 2017, the Court dismissed the lawsuit without prejudice. The parties filed a Joint Stipulation of Dismissal of all claims in the lawsuit with prejudice on November 1, 2017. In the third quarter of 2017, the Company recognized a loss of $600 for all alleged past damages relating to the asserted patents and trade secrets, classified within general and administrative expense.  In addition, the Company recorded an intangible asset for future rights to use the patents-in-suit as well as any future patents related to the patents-in-suit of $2,400 in the fourth quarter of 2017. The Company paid $3,000 on November 3, 2017 finalizing the payment of this settlement.  Although the Company came to a settlement agreement to remove the risk of uncertain legal and financial obligations going forward, the Company in no way assumed or admitted any wrong doing.

CAIRE Inc. lawsuit

On September 12, 2016, CAIRE Inc. (CAIRE) filed a lawsuit in the United States District Court for the Northern District of Georgia against the Company. CAIRE alleged that the Company infringed U.S. Patent No. 6,949,133, entitled “Portable Oxygen Concentrator.” CAIRE alleged willful infringement and sought damages, injunctive relief, pre-judgment and post-judgment interest, costs, and attorneys’ fees. On September 11, 2017, the Company filed with the Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Office a petition for inter partes review (IPR) of the patent CAIRE is asserting against the Company.

The parties reached a mutually agreeable settlement in December 2017. The parties filed a Joint Stipulation of Dismissal of all claims in the lawsuit with prejudice on January 18, 2018. On January 19, 2018, the Court dismissed the lawsuit with prejudice. In the fourth quarter of 2017, the Company recognized a loss of $100 for all alleged past damages relating to the asserted patent, classified within general and administrative expense, and also recorded an intangible asset for future rights to use the patent-in-suit of $900. The Company paid $1,000 on January 17, 2018 finalizing the payment of this settlement.  Although the Company came to a settlement agreement to remove the risk of uncertain legal and financial obligations going forward, the Company in no way assumed or admitted any wrong doing.

Other legal proceedings

The Company is party to various legal proceedings arising in the normal course of business. The Company carries insurance, subject to specified deductibles under the policies, to protect against losses from certain types of legal claims. At this time, the Company does not anticipate that any of these other proceedings will have a material adverse effect on the Company’s business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.