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30/6/2008 Appendix 4E Page 18

IPERNICA LTD Appendix 4E
Preliminary final report

Notes to Preliminary Final Report (continued)
10. Contingent Assets and Liabilities
(a) Contingent liabilities
In April 2001, a legal action for patent infringement against Siemens AG and Deutsche Telekom AG was initiated by QPSX Europe GmbH, a wholly owned subsidiary of ipernica Ltd, in Germany, with an initial litigation value of DEM 125 million. Litigation funding for the action has been provided under a facility from Lloyd’s of London. Under the
terms of the Lloyd’s facility, where the infringement litigation results in the Company receiving an economic benefit or presumed economic benefit through either monetary settlement, an award of damages or non-monetary arrangements with the infringer, the Company must repay the funds advanced by Lloyd’s together with a premium of
30% thereon.
On 30 June 2004, the German Patent Court heard an application by Deutsche Telekom that the Company’s German SAR patent was invalid. In a subsequent decision the Court held the patent in Germany was invalid and on 23 September 2004 ordered that QPSX Communications Pty Ltd, a wholly owned subsidiary of ipernica ltd, pay Deutsche Telekom’s costs of EUR 1,542,606 (AUD $2,530,522 at 30 June 2008) plus interest. This amount has been included as a liability in the Company’s accounts.
QPSX Europe GmbH has appealed the invalidity decision to the German Supreme Court and has lodged the relevant security, 80% of which was provided by Lloyd’s under the insurance policy. If QPSX Europe GmbH is entirely unsuccessful in the appeal, a further costs order may be made against it which at this time the Company estimates at EUR 537,000 (AUD $880,906 at 30 June 2008). If the appeal is entirely unsuccessful, the infringement case against Deutsche Telekom and Siemens is likely to be dismissed, which may result in a further costs order estimated
at EUR 970,000 (AUD $1,591,207 at 30 June 2008) being made against the Company. Lloyd’s continues to provide significant support for the German litigation, and will cover it’s share of any future adverse costs orders. Another third party also is obliged to pay 15% of the Company’s future liabilities should they arise in this case.
The Company is also liable to pay certain profit share amounts in respect of some of its assertion cases to third parties. Each of the profit share amounts are only eligible to be paid from the proceeds of future revenue streams.
In certain exceptional circumstances US Courts may order litigants to pay a proportion of the other litigant's legal costs. If this occurs in a case to which ipernica is a party, ipernica would be liable to pay such costs. If this occurs in a case to which ipernica's client is a party, ipernica may be required to reimburse its client in respect of such costs.
No other contingent liabilities have arisen in respect of the Company or the consolidated entity.
(b) Contingent assets
No contingent assets have arisen in respect of the Company or the consolidated entity.