IBM 2009 Annual Report Download - page 101

Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
Net Change in Unrealized Gains/(Losses) on Marketable Securities (net of tax)
($ in millions)
For the period ended December 31: 2009 2008
Net unrealized gains/(losses) arising during the period $ 72 $(224)
Less: Net (losses)/gains included in net income for the period* (39) 100
Net change in unrealized gains/(losses) on marketable securities $111 $(324)
* Includes writedowns of $16.2 million and $3.0 million in 2009 and 2008, respectively.
Note O.
Contingencies and Commitments
Contingencies
The company is involved in a variety of claims, demands, suits,
investigations, tax matters 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 lia-
bility, employment, benefits, securities, foreign operations and
environmental matters. These actions may be commenced by a
number of different parties, including competitors, partners, cli-
ents, 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 the more significant legal mat-
ters 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 coun-
terclaims, including breach of contract, violation of the Lanham
Act, unfair competition, intentional 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 simplify 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
decision 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. In the SCO v. Novell case, on November 25, 2008,
SCO filed its notice of appeal to the U.S. Court of Appeals for
the Tenth Circuit, which included an appeal of the August 10,
2007 ruling; on August 24, 2009, the U.S. Court of Appeals
reversed the August 10, 2007 ruling and remanded the SCO v.
Novell case for trial. On August 25, 2009, the U.S. Bankruptcy
Court for the District of Delaware approved the appointment of
a Chapter 11 Trustee of SCO.
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, alleging that PSI vio-
lated certain intellectual property rights of IBM. PSI asserted
counterclaims against IBM. On January 11, 2008, the court
permitted T3 Technologies, a reseller of PSI computer systems,
to intervene as a counterclaim-plaintiff. T3 claimed that IBM
violated certain antitrust laws by refusing to license its patents
and trade secrets to PSI and by tying the sales of its mainframe
computers to its mainframe operating systems. On June 30,
2008, IBM acquired PSI. As a result of this transaction, IBM and
PSI dismissed all claims against each other, and PSI withdrew a
complaint it had filed with the European Commission in October
2007 with regard to IBM. On September 30, 2009, the court
granted IBM’s motion for summary judgment and dismissed
T3’s claims against IBM. This decision is subject to appeal by
T3. In January 2009, T3 filed a complaint with the European
Commission alleging that IBM violated European Commission
competition law based on the facts alleged in the above-
referenced U.S. litigation. IBM has been notified that the U.S.
Department of Justice (DOJ) is investigating possible antitrust
violations by IBM. The DOJ has requested certain information,
including the production of materials from the litigation between
T3 and IBM.
The company is a defendant in an action filed on December
14, 2009 in the United States District Court for the Western
District of Texas by Neon Enterprise Software, LLC. Neon alleges
that the company has interfered with Neon’s efforts to license
its zPrime software. They seek damages and injunctive relief. In
late January 2010, IBM filed its answer to Neon’s complaint and
asserted counterclaims against Neon.
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