Intel 2004 Annual Report Download - page 25

Table of Contents
A. Tax Matters
In August 2003, in connection with the U.S. Internal Revenue Service’s (IRS’s) regular examination of Intel’s tax returns for the years
1999 and 2000, the IRS proposed certain adjustments primarily related to the amounts reflected by Intel on these returns as a tax benefit for its
export sales. In January 2005, the IRS issued formal assessments for these adjustments. The company does not agree with these adjustments
and intends to appeal these assessments. If the IRS prevails in its position, Intel’s federal income tax due for these years would increase by
approximately $600 million, plus interest. The IRS may make similar claims for years subsequent to 2000 in future audits.
Although the final resolution of the adjustments is uncertain, based on currently available information, management believes that the
ultimate outcome will not have a material adverse effect on the company’s financial position, cash flows or overall trends in results of
operations. There is the possibility of a material adverse impact on the results of operations of the period in which the matter is ultimately
resolved, if it is resolved unfavorably, or in the period in which an unfavorable outcome becomes probable and reasonably estimable.
B. Litigation
Intel currently is a party to various legal proceedings, including those noted below. While management presently believes that the
ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, cash
flows or overall trends in results of operations, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An
unfavorable ruling could include money damages or, in cases for which injunctive relief is sought, an injunction prohibiting Intel from selling
one or more products. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the net income of the
period in which the ruling occurs or future periods.
MicroUnity, Inc. v. Intel Corporation, et al.
U.S. District Court, Eastern District of Texas
In March 2004, MicroUnity, Inc. filed suit against Intel and Dell Inc. in the Eastern District of Texas. MicroUnity claims that Intel
®
Pentium
®
III , Pentium
®
4, Pentium
®
M and Itanium
®
2 microprocessors infringe seven MicroUnity patents, and that certain Intel chipsets
infringe one MicroUnity patent. MicroUnity also alleges that Dell products that contain these Intel products infringe the same patents. At Dell’
s
request, Intel agreed to indemnify Dell with respect to MicroUnity’
s claims against Dell, subject to the terms of a prior agreement between Intel
and Dell. MicroUnity seeks an injunction, unspecified damages and attorneys’ fees against both Intel and Dell. Intel disputes MicroUnity’s
claims and intends to defend the lawsuit vigorously.
Barbara Sales, et al. v. Intel Corporation, Gateway Inc., Hewlett-Packard Co. and HPDirect, Inc.
(formerly Deanna Neubauer, et al. v. Intel Corporation, Gateway Inc., Hewlett-Packard Co. and HPDirect, Inc.)
Third Judicial Circuit Court, Madison County, Illinois
In June 2002, various plaintiffs filed a lawsuit in the Third Judicial Circuit Court, Madison County, Illinois, against Intel, Gateway Inc.,
Hewlett-Packard Company and HPDirect, Inc., alleging that the defendants’ advertisements and statements misled the public by suppressing
and concealing the alleged material fact that systems containing Intel Pentium 4 microprocessors are less powerful and slower than systems
containing Intel Pentium III microprocessors and a competitor’s microprocessors. In July 2004, the Court certified against Intel an Illinois-
only
class of certain end use purchasers of certain Pentium 4 microprocessors or computers containing such microprocessors. The Court denied
plaintiffs’ motion for reconsideration of this ruling. In January 2005, the Court granted a motion filed jointly by the plaintiffs and Intel that
stayed the proceedings in the trial court pending discretionary appellate review of the Court’s class certification order. The plaintiffs and Intel
thereafter filed a joint application for discretionary appeal of the trial court’s class certification ruling. The plaintiffs seek unspecified damages,
and attorneys’ fees and costs. Intel disputes the plaintiffs’ claims and intends to defend the lawsuit vigorously.
Japan Fair Trade Commission Investigation
In April 2004, the Japanese Fair Trade Commission (JFTC) commenced an investigation into the sales and marketing activities of Intel’s
Japanese subsidiary, including whether Intel’s Japanese subsidiary unfairly influenced Japanese computer makers to use Intel microprocessors
instead of microprocessors sold by competitors. The JFTC is reviewing documents and information from Intel and others and has been
conducting interviews. Intel understands that the JFTC may make a decision regarding whether, and how, to proceed during the first quarter of
2005. Intel is cooperating with the JFTC in the investigation.
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ITEM 3.
LEGAL PROCEEDINGS