Microsoft 2010 Annual Report Download - page 63

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restrictions, from both the U.S. Department of Justice and the European Commission during the third fiscal quarter of
2010. The term of the agreement is 10 years subject to termination provisions after five years based on performance.
Microsoft provided Yahoo! country level revenue per search guarantees for a period of 18 months after
implementation of the Bing search platform. These guarantees are calculated, paid, and trued-up in three six-month
periods thereafter, and are intended to insure Yahoo! against any persistent drop in revenue per search from pre-
implementation levels. This is a rate guarantee not a guarantee of search volume. We estimate the total cost of the
revenue per search guarantees during the guarantee period could range between zero and $150 million; however, no
amount has been recorded for the revenue per search guarantees as we do not believe that such liability exists at
this time.
Microsoft also agreed to reimburse Yahoo! for certain transition expenses incurred both before and after the effective
date of the agreement.
Finally, Microsoft also agreed to reimburse Yahoo! for certain costs of running algorithmic and paid search services
prior to migration to Microsoft’s platform.
Product Warranty
The changes in our aggregate product warranty liabilities, which are included in other current liabilities and other long
term-liabilities on our balance sheets, were as follows:
(In millions)
Y
ear Ended June 30, 2010 2009
Balance, beginning of year $ 342 $ 692
Accruals for warranties issued 144 161
Adjustments to pre-existing warranties (2) 0
Settlements of warranty claims (244) (511)
Balance, end of year $ 240 $ 342
NOTE 17 — CONTINGENCIES
Government Competition Law Matters
In March 2004, the European Commission issued a competition law decision that, among other things, ordered us to
license certain Windows server protocol technology to our competitors. In March 2007, the European Commission
issued a statement of objections claiming that the pricing terms we proposed for licensing the technology as required
by the March 2004 decision were “not reasonable.” Following additional steps we took to address these concerns,
the Commission announced on October 22, 2007 that we were in compliance with the March 2004 decision and that
no further penalty should accrue after that date. On February 27, 2008, the Commission issued a fine of $1.4 billion
(€899 million) relating to the period prior to October 22, 2007. In May 2008, we filed an application with the European
Court of First Instance to annul the February 2008 fine. We paid the $1.4 billion (€899 million) fine in June 2008,
pending the outcome of the appeal.
In January 2008, the Commission opened a competition law investigation that relates primarily to interoperability with
respect to our Microsoft Office family of products. This investigation resulted from complaints filed with the
Commission by a trade association of Microsoft’s competitors. Microsoft has made a number of proposals to address
the Commission’s competition law concerns in this area. The Commission announced on December 16, 2009 that it
welcomed these proposals and that it will take them into account in assessing this matter. During the fourth quarter of
fiscal year 2010, the trade association withdrew its complaint that was the basis of the investigation.
We are also subject to a Consent Decree and Final Judgment (“Final Judgments”) that resolved lawsuits brought by
the U.S. Department of Justice, 18 states, and the District of Columbia in two separate actions. The Final Judgments
imposed various constraints on our Windows operating system businesses. The Final Judgments are scheduled to
expire in May 2011.
In other ongoing investigations, various foreign governments and several state attorneys general have requested
information from us concerning competition, privacy, and security issues.