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Issue Date: Vol. 50, No. 11, November 2010, Posted On: 10/11/2010

GMC Faces SEC Probe, Class-Action Suits; Files Keurig Patent-Infringement Suit

Emily Jed
SEC Green Mountain inquiry, Green Mountain Coffee Roasters, Green Mountain class-action lawsuit, Keurig, Sturm Foods, K-Cup, K-Cup patent, office coffee service, OCS, coffee business, coffee news

WATERBURY, VT -- The Securities and Exchange Commission has launched an inquiry into Green Mountain Coffee Co.'s accounting practices and the roaster is facing two related class-action suits. Green Mountain, separately, has filed its own lawsuit against a company it says is infringing on its Keurig K-Cup patent.

The Waterbury, VT, roaster disclosed on Sept. 28 that the SEC was investigating certain of its revenue-recognition practices. At issue is whether Green Mountain had been using an incorrect gross margin percentage to eliminate the inter-company markup in its K-Cup inventory balance at its Keurig business unit. If this is the case, the SEC's concern is that the accounting method may have resulted in a lower margin applied to the Keurig ending inventory balance, effectively overstating consolidated inventory and understating cost of sales.

As a result of this news, in after-hours trading on Sept. 28, Green Mountain's stock price declined $5.09 a share, or 13.75%, on unusually heavy trading volume.

In response, two groups of shareholders filed class-action lawsuits claiming members of Green Mountain's board of directors artificially inflated the company's stock price, allowing themselves to profit while other shareholders took big losses when the price plummeted.

Separately, Green Mountain Coffee Roasters has filed a lawsuit of its own, accusing Sturm Foods (Manawa, WI) of violating two patents related to the K-Cups used in the Keurig single-serving brewing system that the roaster acquired in 2006. The lawsuit, filed Oct. 1 in federal court in Delaware, alleges that Sturm Foods is making cartridges for use in the proprietary Keurig machine.

The lawsuit charges that Sturm is promoting the single-serve filter cartridge for use with the Keurig brewer in its advertising, implying that the Sturm cartridges are authorized, sponsored and endorsed by Keurig or that Sturm is affiliated with Keurig. Green Mountain asserts in the suit that the cartridge packages include a statement that Sturm is not affiliated with Keurig, but it is hidden underneath the cartridges whose sole intended use is clearly in the Keurig brewer.

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