Microsoft 2009 Annual Report Download - page 68

PAGE 68
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PATENT AND INTELLECTUAL PROPERTY CLAIMS
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 (although this action began before the merger of Alcatel and Lucent in 2006, for
simplicity we refer to the post-merger entity of Alcatel-Lucent). In April 2008, a jury returned a verdict in Alcatel-
Lucent’s favor in a trial on a consolidated group of one video and three user interface patents. The jury concluded
that we had infringed two user interface patents and awarded $367 million in damages. In June 2008, the trial judge
increased the amount of damages to $512 million to include $145 million of interest. We have appealed that award
to the Federal Circuit. In December 2008, we entered into a settlement agreement resolving all other litigation
pending between Microsoft and Alcatel-Lucent, leaving approximately $500 million remaining in dispute. In April
2009, the U.S. Patent and Trademark Office, after a reexamination of the remaining patent in dispute, determined
that the patent was invalid and Alcatel-Lucent has appealed that ruling.
In October 2003, Uniloc USA Inc., a subsidiary of a Singapore-based security technology company, filed a patent
infringement suit in U.S. District Court in Rhode Island, claiming that product activation technology in Windows XP
and certain other Microsoft programs violated a Uniloc patent. After we obtained a favorable summary judgment that
we did not infringe any of the claims of this patent, the court of appeals vacated the trial court decision and
remanded the case for trial. In April 2009, the jury returned a $388 million verdict against us, including a finding of
willful infringement. We are seeking to overturn this verdict via post-trial motions and, if necessary, will appeal,
based on evidence that our product activation technology does not infringe the patent, that the patent is invalid, and
that the damages were unsupported. With pre-judgment interest, approximately $500 million is in dispute.
In March 2007, i4i Limited Partnership, based in Canada, sued Microsoft in U.S. District Court in the Eastern
District of Texas, claiming that certain custom XML technology in Word 2003 and 2007 infringed i4i’s patent. In May
2009, a jury returned a verdict against us, finding damages of $200 million and that we willfully infringed the patent.
Our defense of inequitable conduct has not yet been ruled upon, and we are also seeking to overturn the verdict via
post-trial motions and, if necessary, via appeal. With pre-judgment interest, approximately $240 million is in dispute.
There are over 50 other patent infringement cases pending against Microsoft, 10 of which are set for trial in fiscal
year 2010.
OTHER
We also are 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, 2009, we had accrued aggregate liabilities of approximately $800 million in other current liabilities
and approximately $400 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
estimate could be up to $2.2 billion in aggregate beyond recorded amounts. The foregoing amount does not include
the January 15, 2009 European Commission statement of objections, the outcome and range of which is not
reasonably estimable. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse
impact on our financial position, results of operations, and cash flows for the period in which the effects become
reasonably estimable.