On June 14th Nokia announced that Apple had agreed to license Nokia patents and make a one-time lump sum payment to company. MacRumors reports that Apple did not make any disclosure regarding the licensing agreement in its financial filings which leading to questioning from the SEC.
In late June the SEC sent a letter to Apple asking for more detail about the deal and why it was not disclosed in Apple's filings.
We note various news articles discussing the patent litigation settlement between Nokia and Apple. Supplementally tell us the amount and terms of such settlement agreement, any amounts accrued, the periods in which they were recognized, and the timeline of the negotiations with Nokia that led to the June settlement agreement. Also, tell us how you considered including a discussion regarding this matter in your MD&A [Management Discussion and Analysis] disclosures and financial statement footnotes, including disclosure of a reasonably possible range of loss in excess of amounts accrued. Further, tell us how considered disclosing this event in a Form 8-K or tell us how you determined that such disclosure was not necessary.
Although much of Apple's response was marked confidential. The company indicates that it did not believe there would be any material loss that required disclosure.
Accordingly, based on all of the Company's quantitative and qualitative materiality assessments and the other factors described above, the Company concluded there was no pending or threatened litigation which, individually or in the aggregate, had at least a reasonable possibility that a material loss or an additional material loss may have been incurred, and which would have necessitated disclosure in our consolidated financial statements pursuant to paragraphs 3 through 5 of ASC 450-20-55 and Question 2 of SAB Topic 5Y.
The SEC was still not satisfied with Apple's response and again on July 19th pressed the company for more information.
Please describe in further detail the terms, arrangements, obligations and rights associated with the Settlement Agreement and Patent License Agreement entered into between the company and Nokia. Also, describe for us each element of these Agreements (i.e. settlement portion, past usage, future usage, etc.).
Apple responded again on August 1st with five full pages of confidential material and on August 17th the SEC sent a notice saying that it had completed its review of the situation.