Microsoft 2008 Annual Report Download - page 59

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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Patent and intellectual property claims. We are vigorously defending more than 45 patent infringement
cases. 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 as Alcatel-Lucent throughout this 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. In August 2007, on our motions for judgment as a
matter of law, the trial court overturned the jury verdict and entered orders dismissing plaintiff’s claims on
multiple grounds. Alcatel-Lucent appealed. The trial court previously dismissed Alcatel-Lucent’s claims with
respect to a second group of patents and two patents in a third grouping. In April 2008, a jury returned a
verdict in Alcatel-Lucent’s favor in a trial on a consolidated group of video and user interface patents. The
jury concluded that Microsoft had infringed two patents and awarded $367 million in damages. On June 19,
2008, the trial judge increased the amount of damages to $512 million, which includes the $367 million of
damages and $145 million of interest. Microsoft will appeal the verdict.
• In March 2006, Alcatel-Lucent filed a lawsuit against us in U.S. District Court in California, claiming
Windows Vista, Windows Media Player, and the Xbox 360 infringe one of its patents. In response, we
asserted counterclaims that Alcatel-Lucent infringes 10 Microsoft patents by its sale of various products.
The case went to trial in April 2008 on Alcatel-Lucent’s video patent and four Microsoft counterclaim
patents. The jury returned a verdict in Microsoft’s favor on June 4, 2008, finding no infringement of Alcatel-
Lucent’s patent. The jury also found no infringement of Microsoft’s counterclaim patents.
• In November 2006, Alcatel-Lucent filed two patent infringement cases against us in U.S. District Court in
Texas, asserting Mediaroom 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 into the U.S. of certain Alcatel-Lucent unified
communications products. Trial of this matter took place in October 2007. The administrative law judge
ruled that Alcatel-Lucent infringed one of the four asserted patents. The Commission reversed that
decision in May 2008. We are appealing that ruling to the U.S. Court of Appeals for the Federal Circuit.
• 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. In June 2008, the plaintiff dismissed one of the patent claims.
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. 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.
As of June 30, 2008, we had accrued aggregate liabilities of approximately $600 million in other current
liabilities and approximately $500 million in other long-term liabilities for all of the contingent matters described in
this note. While we intend to vigorously defend these matters, there exists the possibility of adverse outcomes
that we