Microsoft 2007 Annual Report Download - page 60

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judgment, based on certain evidentiary rulings of the trial court. The appellate court also reversed the trial court’s
decision that the inventors had not engaged in inequitable conduct. Trial has been postponed indefinitely while
the parties seek to settle the matter. A settlement is not expected to have a material effect on our financial
position, results of operations, or cash flows.
Microsoft and Alcatel-Lucent Matters. Microsoft and Alcatel-Lucent are parties to a number of legal proceedings
relating to certain patents of each of the companies. Some of these actions began before the merger of Alcatel
and Lucent in 2006. For simplicity, we refer to the post-merger entity of Alcatel-Lucent throughout the following
discussion.
• In 2003, we filed an action in U.S. District Court in California seeking a declaratory judgment that we do not
infringe certain Alcatel-Lucent patents. Alcatel-Lucent has asserted claims under these patents against
computer manufacturers that sell computers with our operating system and application software pre-
installed. In February 2007, the jury returned a verdict in Alcatel-Lucent’s favor in the first of a series of
patent trials, and awarded $1.5 billion in damages. The trial court has dismissed Alcatel-Lucent’s claims
with respect to a second group of patents and two patents in a third grouping. Trial on a newly-
consolidated group of all remaining patents is scheduled to begin in February 2008.
• In March 2006, Alcatel-Lucent filed a lawsuit against us in U.S. District Court in California, claiming the
Xbox 360 violates one of its patents. In response, we asserted counterclaims that Alcatel-Lucent infringes
10 Microsoft patents by its sales of various products. That case has been set for trial in April 2008.
• In November 2006, Alcatel-Lucent filed two patent infringement cases against us in U.S. District Court in
Texas, asserting IPTV and various networking functionalities violate seven of its patents. In April 2007, we
asserted infringement counterclaims based on four of our patents relating to functionality similar to that
accused by Alcatel-Lucent. The trial on all of the patents is set for January 2009.
• In February 2007, we filed a complaint against Alcatel-Lucent with the International Trade Commission
claiming Alcatel-Lucent is infringing four Microsoft patents related to our unified communications
technology and seeking to prevent the import of certain Alcatel-Lucent unified communications products
into the U.S. This matter has been set for trial in October 2007.
• In April 2007, the Multimedia Patent Trust filed a complaint against Microsoft, Dell, and Gateway in San
Diego, California accusing the parties of infringing three video-related patents that originally belonged to
Alcatel-Lucent. Alcatel-Lucent created the Multimedia Patent Trust prior to the companies’ merger and
transferred the patents at issue to the trust. Motions challenging the validity of the trust and Alcatel-
Lucent’s transfer of these patents to it will be heard in September 2007.
The actual costs to resolve these cases will depend upon many factors such as the outcome of post-trial
motions, any appeals, and the results of the remaining trials.
In Z4 Technologies, Inc. v. Microsoft, filed in U.S. District Court in Texas in September 2004, the plaintiff
alleged that Microsoft Windows and Office product activation functionality violates its patent rights. In April 2006,
the jury rendered a $115 million verdict against us. In August 2006, the trial court increased damages by $25
million pursuant to the jury’s finding of willful infringement and awarded Z4 $2 million in attorneys’ fees. We have
appealed the verdict.
In Veritas Operating Corporation v. Microsoft, filed in U.S. District Court in Washington in May 2006, a
subsidiary of Symantec filed an action asserting trade secret misappropriation, breach of contract, and patent
infringement relating to certain storage technologies.
Adverse outcomes in some or all of the matters described in this section may result in significant monetary
damages or injunctive relief against us that would adversely affect distribution of our operating system or
application products. We may enter into material settlements because of these risks.
Other. We are also subject to a variety of other claims and suits that arise from time to time in the ordinary
course of our business. Although management currently believes that resolving claims against us, individually or
in aggregate, will not have a material adverse impact on our financial position, our results of operations, or our
cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may
change in the future.