Xerox 2002 Annual Report Download - page 83

and post-judgment interest at the maximum rate allow-
able by law; awarding the Company punitive damages;
and awarding the plaintiff the costs and disbursements
of the action, including reasonable attorneys’ and
experts’ fees. On August 16, 2002, the individual defen-
dants and Xerox filed a motion to dismiss the action.
That motion is currently pending. The individual defen-
dants deny the wrongdoing alleged and intend to vig-
orously defend the litigation.
Lerner v. Allaire, et al.: On June 6, 2002, a shareholder,
Stanley Lerner, commenced a derivative action in
the United States District Court for the District of
Connecticut against Paul A. Allaire, William F. Buehler,
Barry D. Romeril, Anne M. Mulcahy and G. Richard
Thoman. The plaintiff purports to bring the action
derivatively, on behalf of the Company, which is named
as a nominal defendant. Previously, on June 19, 2001,
Lerner made a demand on the Board of Directors to
commence suit against certain officers and directors
to recover unspecified damages and compensation
paid to these officers and directors. In his demand,
Lerner contended, inter alia, that management was
aware since 1998 of material accounting irregularities
and failed to take action and that the Company has
been mismanaged. At its September 26, 2001 meeting,
the Board of Directors appointed a special committee
to consider, investigate and respond to the demand.
In this action, plaintiff alleges that the individual
defendants breached their fiduciary duties of care and
loyalty by disguising the true operating performance
of the Company through improper undisclosed
accounting mechanisms between 1997 and 2000.
The complaint alleges that the defendants benefited
personally, through compensation and the sale of
company stock, and either participated in or approved
the accounting procedures or failed to supervise ade-
quately the accounting activities of the Company.
The plaintiff demands a judgment declaring that defen-
dants intentionally breached their fiduciary duties to
the Company and its shareholders; awarding unspeci-
fied compensatory damages to the Company against
the defendants, individually and severally, together
with pre-judgment and post-judgment interest; award-
ing the Company punitive damages; and awarding
the plaintiff the costs and disbursements of the action,
including reasonable attorneys’ and experts’ fees. On
September 18, 2002, the individual defendants and
Xerox filed a motion to dismiss the action, or alterna-
tively to stay the action pending the disposition of In
re Xerox Derivative Actions. That motion is currently
pending. The individual defendants deny the wrong-
doing alleged and intend to vigorously defend the
litigation.
Other Matters:
Xerox Corporation v. 3Com Corporation, et al.: On April
28, 1997, we commenced an action against Palm™for
infringement of the Xerox “Unistrokes®” handwriting
recognition patent by the Palm Pilot using “Graffiti® .”
On January 14, 1999, the U.S. Patent and Trademark
Office (“PTO”) granted the first of two 3Com/Palm
requests for reexamination of the Unistrokes patent
challenging its validity. The PTO concluded its reexami-
nations and confirmed the validity of all 16 claims of
the original Unistrokes patent. On June 6, 2000, the
judge narrowly interpreted the scope of the Unistrokes
patent claims and, based on that narrow determina-
tion, found the Palm Pilot with Graffiti did not infringe
the Unistrokes patent claims. On October 5, 2000, the
Court of Appeals for the Federal Circuit reversed the
finding of no infringement and sent the case back to
the lower court to continue toward trial on the infringe-
ment claims. On December 20, 2001, the District Court
granted our motions on infringement and for a finding
of validity thus establishing liability. On December 21,
2001, Palm appealed to the CAFC. We moved for a
trial on damages and an injunction or bond in lieu of
injunction. The District Court denied our motion for a
temporary injunction, but ordered a $50 bond to be
posted to protect us against future damages until
the trial. Palm issued a $50 irrevocable letter of credit
in favor of Xerox. In January 2003, after the oral argu-
ment, Palm announced that it would stop including
Graffiti in its future operating systems. On February 20,
2003, the Court of Appeals affirmed the infringement
of the Unistrokes patent by Palm’s handheld devices
and that Xerox will be entitled to an injunction if the
validity of the patent is favorably determined. It re-
manded the validity issues back to the District Court
for further validity analysis.
Xerox Corporation v. Business Equipment Research &
Test Laboratories, Inc.: On July 9, 2002, the Company
filed an action in U.S. District Court for the Western
District of New York against Business Equipment
Research & Test Laboratories, Inc. and one of its own-
ers (collectively “BERTL”) alleging libel per se, trade
libel, tortious interference with prospective business
relationship, unfair competition, breach of contract,
violation of the federal Computer Fraud and Abuse Act,
deceptive acts and practices and conversion. On
December 11, 2002, Xerox filed an amended complaint,
alleging the same claims with greater specificity. Xerox
seeks unspecified damages, injunctive relief and a
declaratory judgment that Xerox has not infringed
BERTL’s trademarks or copyrights, breached any agree-
ment with BERTL or engaged in unfair competition.
On January 24, 2003, BERTL filed its answer and
sixteen counterclaims against Xerox Corporation and
XCL, totaling $53; comprising $33 in compensatory
damages and $20 in punitive damages in the aggregate.
BERTL also moved to dismiss seven of Xerox’s nine
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