IBM 2007 Annual Report Download - page 96

94
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Management Discussion ..................................14
Consolidated Statements ..................................58
Notes ........................................................... 64
A-F ...................................................................64
G-M ..................................................................84
N-S ............................................................. 94
N. Contingencies and Commitments ........ 94
O. Taxes ............................................................97
P. Research, Development
and Engineering ..........................................99
Q. 2005 Actions ................................................99
R. Earnings Per Share of Common Stock ....101
S. Rental Expense and
Lease Commitments .................................101
T-W ................................................................102
Note N. Contingencies
and Commitments
Contingencies
The company is involved in a variety of claims, demands, suits, inves-
tigations and proceedings that arise from time to time in the ordinary
course of its business, including actions with respect to contracts,
intellectual property (IP), product liability, employment, benefits,
securities, and environmental matters. These actions may be com-
menced by a number of different parties, including competitors,
partners, clients, current or former employees, government and
regulatory agencies, stockholders and representatives of the locations
in which the company does business. The following is a summary of
some of the more significant legal matters involving the company.
The company is a defendant in an action filed on March 6, 2003
in state court in Salt Lake City, Utah by The SCO Group (SCO v.
IBM). The company removed the case to Federal Court in Utah.
Plaintiff is an alleged successor in interest to some of AT&T’s Unix
IP rights, and alleges copyright infringement, unfair competition,
interference with contract and breach of contract with regard to the
company’s distribution of AIX and Dynix and contribution of code to
Linux. The company has asserted counterclaims, including breach of
contract, violation of the Lanham Act, unfair competition, inten-
tional torts, unfair and deceptive trade practices, breach of the
General Public License that governs open source distributions,
promissory estoppel and copyright infringement. In October 2005,
the company withdrew its patent counterclaims in an effort to sim-
plify and focus the issues in the case and to expedite their resolution.
Motions for summary judgment were heard in March 2007, and the
court has not yet issued its decision. On August 10, 2007, the court
in another suit, The SCO Group, Inc. v. Novell, Inc., issued a deci-
sion and order determining, among other things, that Novell is the
owner of UNIX and UnixWare copyrights, and obligating SCO to
recognize Novell’s waiver of SCO’s claims against IBM and Sequent
for breach of UNIX license agreements. At the request of the court
in SCO v. IBM, on August 31, 2007, each of the parties filed a status
report with the court concerning the effect of the August 10th Novell
ruling on the SCO v. IBM case, including the pending motions. On
September 14, 2007, plaintiff filed for bankruptcy protection, and all
proceedings in this case were stayed.
On November 29, 2006, the company filed a lawsuit against
Platform Solutions, Inc. (PSI) in the United States District Court for
the Southern District of New York. IBM filed its amended complaint
on August 17, 2007 and asserted claims for patent infringement, trade
secret misappropriation, copyright infringement, tortious interfer-
ence and breach of contract in connection with PSI’s development
and marketing of a computer system that PSI says is compatible with
IBM’s S/390 and System z architectures. IBM also sought a declara-
tory judgment that its refusal to license its patents to PSI and certain
of its software for use on PSI systems does not violate the antitrust
laws. IBM seeks damages and injunctive relief. On September 21,
2007, PSI answered the amended complaint and asserted counter-
claims against IBM for alleged monopolization and attempted
monopolization, tying, violations of New York and California stat-
utes proscribing unfair competition, tortious interference with the
acquisition of PSI by a third party and promissory estoppel. PSI also
sought declaratory judgments of noninfringement of IBM’s patents
and patent invalidity. In October 2007, PSI filed a complaint with the
European Commission claiming that the company’s alleged refusal to
do business with PSI violated European competition law. The com-
pany responded to this complaint in December. On January 11, 2008,
the court in the New York lawsuit permitted T3 Technologies, a
reseller of PSI computer systems, to intervene as a counterclaim-
plaintiff, and the court also permitted the company to file a second
amended complaint adding patent infringement claims against T3.
Discovery is proceeding and the court has ordered that the case be
ready for trial after December 1, 2008.
In May 2005, the Louisiana Supreme Court denied the company’s
motion to review and reverse a Louisiana state court’s certification of
a nationwide class in a case filed against the company in 1995. The
class consists of certain former employees who left the company in
1992, and their spouses, claiming damages based on the company’s
termination of an education assistance program. On July 3, 2007, the
company and the plaintiffs filed a proposed class settlement agree-
ment with the 19th Judicial District Court for the Parish of East
Baton Rouge, Louisiana, where the legal action was filed. On
October 1, 2007, the Court gave its final approval of the proposed
settlement pursuant to which IBM paid certain amounts to eligible
individuals who took or would have taken an education course
within a specified period after departing the company. As part of the
settlement, IBM also made contributions to support engineering
education for women and minorities. Class members did not file an
appeal of the Court’s order approving the settlement prior to the
mid-December 2007 deadline.