Xerox 2004 Annual Report Download - page 78

76
Compression Labs, Inc. v. Agfa et al. (including Xerox
Corporation): In April 2004, Compression Labs,
Incorporated (“CLI”) commenced an action in the
United States District Court for the Eastern District of
Texas, Marshall Division against Xerox, along with
27 other companies, seeking unspecified damages for
patent infringement, injunction and other ancillary
relief. According to CLI, the patent covers an aspect of
astandard for compressing full-color or gray-scale
still images (“JPEG”). We deny any wrongdoing and
are vigorously defending this action. In July 2004,
along with several of the other defendants in the above
named action, we filed a complaint against CLI in
Federal Court in Delaware, requesting a declaratory
judgment of non-infringement and invalidity; a find-
ing of an implied license to use the patent; a finding
that CLI is estopped from enforcing the patent; dam-
ages and relief under state law for deceptive trade
practices, unfair competition, fraud, negligent misrep-
resentation, equitable estoppel and patent misuse; and
relief under federal anti-trust laws for CLI’s violation
of Section 2 of the Sherman Act. On February 16, 2005,
the U.S. Multi-District Litigation Panel ordered the
subject lawsuit (along with all related lawsuits) be
transferred from the District Court of the Eastern
District of Texas to the District Court for the Northern
District of California. All pre-trial proceedings will
occur in the Northern District of California and the
lawsuit will, if necessary, be transferred back to the
Eastern District of Texas for trial. Discovery for all
related cases will continue in the Northern District of
California, with document production continuing
through the first half of 2005. Based on the stage of the
litigation, it is not possible to estimate the amount of
loss or range of possible loss that might result from an
adverse judgment or a settlement of this matter.
Tesseron, Ltd. v. Xerox Corporation: On October 28,
2004, an action was commenced by Tesseron, Ltd., in
the United States District Court for the Northern
District of Ohio against Xerox seeking unspecified
damages for alleged infringement of seven U.S. patents.
Tesseron asserts that its patents cover Xerox’s variable
imaging software sold with Xerox’s production printing
systems. Xerox filed an answer on January 28, 2005.
We deny any wrongdoing and intend to vigorously
defend the action. Based upon the stage of the litigation,
it is not possible to estimate the amount of loss or
range of possible loss that might result from an adverse
judgment or a settlement of this matter.
Derivative Litigation Brought on Behalf of
the Company:
In re Xerox Derivative Actions: Aconsolidated putative
shareholder derivative action is pending in the
Supreme Court of the State of New York, County of
New York against several current and former mem-
bers of the Board of Directors including William F.
Buehler, B.R. Inman, Antonia Ax:son Johnson, Vernon
E. Jordan, Jr., Yotaro Kobayashi, Hilmar Kopper, Ralph
Larsen, George J. Mitchell, N.J. Nicholas, Jr., John E.
Pepper, Patricia Russo, Martha Seger, Thomas C.
Theobald, Paul Allaire, G. Richard Thoman, Anne
Mulcahy and Barry Romeril, and KPMG. The plaintiffs
purportedly brought this action in the name of and
for the benefit of the Company, which is named as a
nominal defendant, and its public shareholders. The
second consolidated amended complaint alleged that
each of the director defendants breached their fiduci-
ary duties to the Companyand its shareholders by,
among other things, ignoring indications of a lack
of oversight at the Companyand the existence of
flawed business and accounting practices within the
Company’s Mexican and other operations; failing to
havein place sufficient controls and procedures to
monitor the Company’s accounting practices; know-
ingly and recklessly disseminating and permitting
to be disseminated, misleading information to share-
holders and the investing public; and permitting the
Company to engage in improper accounting practices.
The plaintiffs further alleged that each of the director
defendants breached his/her duties of due care and
diligence in the management and administration of
the Company’s affairs and grossly mismanaged or
aided and abetted the gross mismanagement of the
Company and its assets. The second amended com-
plaint also asserted claims of negligence, negligent
misrepresentation, breach of contract and breach of
fiduciary duty against KPMG. Additionally, plaintiffs
claimed that KPMG is liable to Xerox for contribution,
based on KPMG’s share of the responsibility for any
injuries or damages for which Xerox is held liable to
plaintiffs in related pending securities class action
litigation. Onbehalf of the Company, the plaintiffs
seek a judgment declaring that the director defendants
violated and/or aided and abetted the breach of their
fiduciary duties to the Company and its shareholders;
awarding the Company unspecified compensatory
damages against the director defendants, individually
and severally, together with pre-judgment and post-
judgment interest at the maximum rate allowable by
law; awarding the Company punitive damages against
the director defendants; awarding the Company com-
pensatory damages against KPMG; and awarding
plaintiffs the costs and disbursements of this action,
including reasonable attorneys’ and experts’ fees. On