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(O’Brien), petitioner’s group technology counsel, also studied
the patents and formed the conclusion that the Lemelson lawsuit
would most likely result in no liability exposure. Anton was the
lead on-site due diligence person for petitioner’s acquisition of
the DeVilbiss assets, and Buckman and O’Brien were attorneys and
members of the patent bar. The representatives of petitioner
estimated that legal fees of approximately $400,000 would be
incurred to defend the lawsuit. The “worst case scenario” that
was contemplated by petitioner’s representatives was that
petitioner could incur a liability of between $1 million and
$3 million. However, they concluded that the likelihood of this
exposure was somewhere between zero and 5 percent. They believed
that there was a 98- to 99-percent chance that petitioner would
prevail in the patent infringement claim.
The reserve for the Lemelson lawsuit, in the course of the
acquisition, was eventually set at $350,000. At the conclusion
of the due diligence review, the purchase price of the DeVilbiss
assets was adjusted from $126.5 million to $125.5 million.
Petitioner and DeVilbiss considered the pending Lemelson lawsuit,
but the lawsuit liability did not affect the adjustment in the
purchase price. The acquisition closed on April 24, 1990.
After the acquisition, petitioner assumed the defense of the
Lemelson lawsuit in the District Court in 1991. On January 17,
1991, the jury returned a verdict against Champion (and, thus,
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