Microsoft 2011 Annual Report Download - page 69

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Antitrust, Unfair Competition, and Overcharge Class Actions
A large number of antitrust and unfair competition class action lawsuits were filed against us in various state,
federal, and Canadian courts on behalf of various classes of direct and indirect purchasers of our PC operating
system and certain other software products. We obtained dismissals of damages claims of indirect purchasers
under federal law and in 15 states. Courts refused to certify classes in two additional states. We have reached
agreements to settle all claims that have been made to date in 19 states and the District of Columbia.
The settlements in all states have received final court approval. Under the settlements, generally class members
can obtain vouchers that entitle them to be reimbursed for purchases of a wide variety of platform-neutral
computer hardware and software. The total value of vouchers that we may issue varies by state. We will make
available to certain schools a percentage of those vouchers that are not issued or claimed (one-half to two-thirds
depending on the state). The total value of vouchers we ultimately issue will depend on the number of class
members who make claims and are issued vouchers. The maximum value of vouchers to be issued is
approximately $2.7 billion. The actual costs of these settlements will be less than that maximum amount,
depending on the number of class members and schools that are issued and redeem vouchers. We estimate the
total cost to resolve all of the state overcharge class action cases will range between $1.9 billion and $2.0 billion.
At June 30, 2011, we have recorded a liability related to these claims of approximately $568 million, which reflects
our estimated exposure of $1.9 billion less payments made to date of approximately $1.3 billion mostly for
vouchers, legal fees, and administrative expenses.
The three cases pending in British Columbia, Ontario, and Quebec, Canada have not been settled. In March
2010, the court in the British Columbia case certified it as a class action. On April 15, 2011, the British Columbia
Court of Appeal reversed the class certification ruling and dismissed the case, holding that indirect purchasers do
not have a claim. The plaintiffs have sought review by the Canadian Supreme Court. The other two actions have
been stayed.
Other Antitrust Litigation and Claims
In November 2004, Novell, Inc. (“Novell”) filed a complaint in U.S. District Court for the District of Utah (later
transferred to federal court in Maryland), asserting antitrust and unfair competition claims against us related to
Novell’s ownership of WordPerfect and other productivity applications during the period between June 1994 and
March 1996. In June 2005, the trial court granted our motion to dismiss four of six claims of the complaint. In
March 2010 the trial court granted summary judgment in favor of Microsoft as to all remaining claims. The court of
appeals has reversed that ruling, and the case is scheduled for trial in Utah in October 2011.
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 appealed
that award. 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
September 2009, the court of appeals affirmed the liability award but vacated the verdict and remanded the case
to the trial court for a re-trial of the damages ruling, indicating the damages previously awarded were too high.
Trial on the remanded damages claim was held in July 2011.
In October 2003, Uniloc USA Inc. (“Uniloc”), a subsidiary of a Singapore-based company, filed a patent
infringement suit in U.S. District Court in Rhode Island, claiming that product activation technology supporting
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. In September 2009, the district court judge overturned the jury verdict,
ruling that the evidence did not support the jury’s findings either that Microsoft infringed the patent or was willful.
Uniloc appealed, and in January 2011 the court of appeals reversed the district court’s finding of non-infringement
(thus reinstating the jury verdict of infringement) but affirmed the district court’s ruling that Microsoft was not willful
and affirmed the district court’s grant of a new trial on damages. Uniloc’s petition for rehearing of the court of
appeals’ decision as to damages was denied. A new trial on damages has been set for January 2012.