LEGAL PROCEEDINGS AND OTHER MATTERS |
12 Months Ended |
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Dec. 31, 2025 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| LEGAL PROCEEDINGS AND OTHER MATTERS | LEGAL PROCEEDINGS AND OTHER MATTERS Legal Proceedings
Lufthansa
On December 29, 2010, Lufthansa Technik AG (“Lufthansa”) filed a Statement of Claim in the Regional State Court of Mannheim, Germany. Lufthansa’s claim asserted that a subsidiary of the Company, AES, sold, marketed, and brought into use in Germany a power supply system that infringes upon a German patent held by Lufthansa.
In February 2015, the Regional State Court of Mannheim, Germany held that the patent was infringed.
The Company appealed to the Higher Regional Court of Karlsruhe. In November 2016, the Higher Regional Court of Karlsruhe upheld the lower court’s decision. The Company sought permission to appeal to the German Federal Supreme Court. In March 2019, the German Federal Supreme Court dismissed AES's appeal. With this decision, these proceedings are complete.
AES modified the outlet units at the end of 2014 and the overwhelming majority of the modified outlet units sold from 2015 on do not infringe the patent of Lufthansa.
In July 2017, Lufthansa filed an action in the Regional State Court of Mannheim for payment of damages caused by AES’s direct sales of the infringing power supply system into Germany (referred to as “direct sales”). A first instance decision in this matter was handed down on December 6, 2019. According to this ruling, Lufthansa was awarded damages in the amount of approximately $3.2 million plus interest. In 2020, AES made payment of $4.7 million, inclusive of interest, in satisfaction of the first instance judgment. In July 2023, the Higher Regional Court of Karlsruhe in Germany reduced the Company’s liability for direct damages on appeal from approximately $3.2 million plus interest to approximately $2.8 million plus interest. Additionally, in its judgment, the Court reduced the interest rate on damages from 5% (as held by the Regional Court of Mannheim) to 4%. Accordingly, the Company reclaimed overpaid damages and interest from LHT in the amount of approximately $1.2 million. This was recorded as an offset to Selling, General and Administrative expenses in the year ended December 31, 2023, upon receipt of the refund.
Both Lufthansa and AES have filed requests with the German Federal Supreme Court to be granted leave to file appeals against this decision.
On December 29, 2017, Lufthansa filed another infringement action against AES in the Regional State Court of Mannheim claiming that sales by AES to its international customers have infringed Lufthansa's patent if AES's customers later shipped the products to Germany (referred to as “indirect sales”). This action, therefore, addresses sales other than the direct sales covered by the action discussed above.
A first instance decision in this matter was issued in December 2019. While the Court found in favor of Lufthansa, they rejected Lufthansa's claim that AES is also liable for damages for the sale of modified products. Thus, AES is not liable for damages based on the sale of modified outlet units that removed the infringing feature. AES and Lufthansa both appealed this decision. In July 2023, the Higher Regional Court of Karlsruhe essentially upheld the first instance ruling.
According to the Higher Regional Court of Karlsruhe ruling, AES is responsible for payment of damages for indirect sales of patent-infringing in-seat power supply systems in the period from December 29, 2007 to May 22, 2018. However, because the outlet units were modified at the end of 2014, the period for which AES is liable for damages in connection with indirect sales into Germany substantially finished at the end of 2014.
Both Lufthansa and AES have filed requests with the German Federal Supreme Court to be granted leave to file appeals against this decision.
Lufthansa is expected to enforce its claim for damages in separate court proceedings. These proceedings would most likely be tried before the Mannheim Court again, which makes it probable that the Mannheim Court will determine the damages for the indirect sales based on the same principles as in the direct sales proceedings (unless the latter ruling of the Mannheim Court is reversed on appeal). Based on the information available and the determination of the damages in the direct sales claim discussed above, we estimated that the Company’s total exposure related to these matters that was probable and that could be reasonably estimated at December 31, 2025 and 2024, was approximately $11.6 million plus accrued interest. Accrued interest on the indirect damages reserve was estimated using the same interest rate as the direct damages, as were reduced on the direct damages appeal discussed above. Approximately $0.5 million, $0.7 million, and $0.7 million was recorded within Selling, General and Administrative Expenses in the Company’s Consolidated Statements of Operations for each of 2025, 2024 and 2023, respectively, for additional interest accrued during such periods.
We believe it is unlikely that the appeals process will be completed and any indirect damages and related interest will be paid before December 31, 2026. Therefore, the liability related to this matter (inclusive of accrued interest), totaling $17.6 million and $17.1 million, is classified within other liabilities (non-current) in the Consolidated Balance Sheets at December 31, 2025 and 2024, respectively. This amount may be adjusted depending on the decision of the Court on the direct sales damages appeal referred to previously.
In December 2017, Lufthansa filed patent infringement cases in the United Kingdom (“UK”) and in France. The subject patent expired in May 2018. In the normal course of its supply arrangements, AES has indemnified its customers from liability arising from such matters, and as such will bear responsibility for any monetary damages arising from such claims.
On December 4, 2020, the Court held the French patent invalid for all asserted claims, and consequently there could be no finding of infringement. Lufthansa appealed this judgment. On February 24, 2023, the Court upheld the first instance judgment in favor of AES. Lufthansa lodged an appeal before the French Supreme Court. A decision from this Court was rendered on March 19, 2025, remanding the case to the Court of Appeal of Paris for reconsideration of the invalidity of the French patent. A second trial on nullity is scheduled on October 28, 2026; a ruling on nullity is not expected before early first quarter 2027. As loss exposure is not probable and estimable at this time, the Company has not recorded any liability with respect to the French matter as of December 31, 2025 or 2024.
In the UK matter, the Court held the UK patent valid and 3 out of 4 asserted claims infringed in June 2020. In contrast to the decisions in Germany, the UK Court found that the modified components infringed a valid claim of the patent, and accordingly, the period for which AES or its customers would be liable in connection with direct sales into the UK extends until the expiration of the patent in May 2018. While AES appealed the ruling, the Court dismissed the appeal on all grounds. Lufthansa sought damages based on account of the profits that AES and certain of its customers had made from UK sales. The trial of that issue took place in October 2024. Both the Company and Lufthansa submitted to the UK High Court of Justice calculations of the estimated profits derived from the reports of the parties’ respective financial experts.
The February 21, 2025 judgment quantified the amount payable in aggregate in respect of the profits derived from infringing Lufthansa’s UK patent by the defendants as $11.9 million. Accordingly, the Company recorded additional expense of $4.8 million in the quarter ended December 31, 2024, within Selling, General and Administrative Expenses in the Company’s Consolidated Statements of Operations. The $11.9 million liability related to this matter was classified within Accrued Expenses and Other Current Liabilities in the accompanying Consolidated Balance Sheets as of December 31, 2024. Following a consequential hearing on March 20, 2025, the amount was adjusted upwards by $0.5 million related to the resolution of a provisional item.
In a further consequential hearing on May 16, 2025 the Company was ordered to make payments of $5.7 million in relation to interest and $3.5 million for partial reimbursement of Lufthansa’s legal costs. Both of these items are reflected within Selling, General and Administrative Expenses in the Company’s Consolidated Statement of Operations for the year ended December 31, 2025.
During the year ended December 31, 2025, the Company made payments totaling $21.6 million, in satisfaction of the liabilities for damages, interest and provisional legal fee reimbursement related to the damages proceedings.
Both the Company and Lufthansa have been granted permission to appeal the rulings by the UK High Court of Justice. The appeals are scheduled to be heard by the UK Court of Appeal in March 2026.
A liability for partial reimbursement of Lufthansa’s legal expenses associated with the UK matter for the first instance trial and the later appeal was approximately $1.0 million as of December 31, 2025 and 2024, which is expected to be paid within the next twelve months and, as such, is classified in Accrued Expenses and Other Current Liabilities in the accompanying Consolidated Condensed Balance Sheets as of December 31, 2025 and 2024.
Each of the German, France and UK claims are separate and distinct. Validity and infringement of the Lufthansa patent in each country is a matter for the courts in each of these countries, whose laws differ from each other. In addition, the principles of calculating damages in each jurisdiction differ substantially. Therefore, the Company has assessed each matter separately and cannot apply the same calculation methodology as in the German direct and indirect matters. However, it is reasonably possible that additional damages and interest could be incurred if the appellate court in France was to rule in favor of Lufthansa, or if damages in the UK matter upon conclusion of the appeal are calculated on a different basis than the initial judgment.
There were no other significant developments in any of these matters during the year ended December 31, 2025.
Other Proceedings
On March 23, 2020, Teradyne, Inc. filed a complaint against the Company and its subsidiary, Astronics Test Systems (“ATS”) (together, “the Defendants”) in the United States District Court for the Central District of California alleging patent and copyright infringement, and certain other related claims. The Defendants moved to dismiss certain claims from the case. On November 6, 2020, the Court dismissed the Company from the case, and also dismissed a number of claims, though the patent and copyright infringement claims remained. In addition, on November 6, 2020, ATS filed a petition for inter partes review (“IPR”) with the US Patent Trial and Appeal Board (“PTAB”), seeking to invalidate the subject patent, and on July 21, 2021, the PTAB instituted IPR. The PTAB issued its decision on July 20, 2022, in which it invalidated all of Teradyne’s patent claims. Teradyne did not appeal the decision. On December 7, 2023, the District Court granted ATS’s motion for summary judgment on its affirmative defense of fair use. The Court subsequently entered final judgment in favor of ATS on December 14, 2023. Teradyne appealed to the United States Court of Appeals for the Ninth Circuit. On January 30, 2025, the Ninth Circuit affirmed the District Court’s grant of summary judgment. Teradyne has elected not to pursue an appeal. As such, the summary judgment ruling stands and final judgment in favor of ATS has been entered. This matter is concluded.
Other than these proceedings, we are not party to any significant pending legal proceedings that management believes will result in a material adverse effect on our financial condition or results of operations. Accrued legal fees were $2.1 million and $6.5 million as of December 31, 2025 and 2024, respectively.
Other Matters
On January 20, 2026, the United States Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”) did not authorize the President to impose tariffs. The IEEPA tariff case has been remanded back to the Court of International Trade to address whether the lower court can issue a nationwide injunction against tariffs imposed under IEEPA. It is unknown at this time if or when refunds will be issued for IEEPA tariffs previously paid by the Company.
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