Xerox 2004 Annual Report Download - page 79

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December 16, 2002, the Company and the individual
defendants answered the complaint. The plaintiffs
filed a third consolidated and amended derivative
action complaint on July 23, 2003 adding factual alle-
gations relating to subsequent acts and transactions,
namely indemnification of six former officers for
disgorgements imposed pursuant to their respective
settlements with the SEC and related legal fees, and
adding a demand for injunctive relief with respect to
that indemnification. On September 12, 2003, Xerox
and the individuals filed an answer to the third con-
solidated and amended derivative action complaint.
Discovery in this case has been stayed, to the extent
it is duplicative of discovery in Carlson, as discussed
herein, pending determination of the motion to dismiss
in Carlson. The individual defendants deny any
wrongdoing and are vigorously defending the action.
Pall v. KPMG, et al.: OnMay 13, 2003, a shareholder
commenced a derivative action in the United States
District Court for the District of Connecticut against
KPMGand four of its current or former partners. The
Company was named as a nominal defendant. The
plaintiff had filed an earlier derivative action against
certain current and former members of the Xerox
Board of Directors and KPMG. That action, captioned
Pall v. Buehler, et al., was dismissed for lack of juris-
diction. Plaintiff purports to bring this current action
derivatively on behalf and for the benefitof the
Company seeking damages allegedly caused to the
Company by KPMGand the named individual defen-
dants. The plaintiff asserts claims for contribution
under the securities laws, negligence, negligent misrep-
resentation, breach of contract, breach of fiduciary duty
and indemnification. The plaintiff seeks unspecified
compensatory damages (together with pre-judgment
and post-judgment interest), a declaratory judgment
that defendants violated and/or aided and abetted the
breach of fiduciary and professional duties to the
Company, an award of punitive damages for the
Company against the defendants, plus the costs and
disbursements of the action. On November 7, 2003,
the Company filed a limited motion to dismiss the
complaint on jurisdictional grounds and reserved its
right to seek dismissal on other grounds, if the court
denies the initial motion. KPMG and the individual
defendants also filed limited motions to dismiss on
the same grounds. The motions have not been fully
briefed or argued before the court.
Other Litigation:
Xerox Corporation v. 3Com Corporation, et al.: On
April 28, 1997, we commenced an action in U.S.
District Court for the Western District of New York
against Palm, formerly owned by 3Com Corporation,
for infringement of the Xerox “Unistrokes” handwrit-
ing recognition patent by the Palm Pilot using “Graffiti.”
Upon reexamination, the U.S. Patent and Trademark
Office confirmed the validity of all 16 claims of the
original Unistrokes patent. On June 6, 2000, the District
Court found the Palm Pilot with Graffiti did not infringe
the Unistrokes patent claims, and 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
infringement claims. On December 20, 2001, the
District Court granted our motions on infringement
and for a finding of validity, thus establishing liability.
In January 2003, Palm announced that it would stop
including Graffiti in its future operating systems. On
February 20, 2003, the Court of Appeals for the Federal
Circuit affirmed the infringement of the Unistrokes
patent by Palm’s handheld devices and remanded the
validity issues to the District Court for further analysis.
OnDecember 5, 2003 Palm moved for sanctions,
alleging that Xerox withheld production of material
information. Xeroxhas since responded to the motion
denying the basis of claims. On December 10, 2003 the
District Court heard oral arguments on summary judg-
ment motions from both parties directed solely to the
issue of validity. A decision denying Xerox’s motions
and granting Palm’smotion of summary judgment for
invalidity (“SJ”) was granted on May 21, 2004. In June
2004, Palm filed a motion requesting clarification of the
grant of SJ, Xerox has responded to that motion, and
also filed a motion to reconsider the SJ. On February
16, 2005, the District Court denied Xerox’s motion to
reconsider and granted Palm’s motion to clarify.
Pursuant to granting Palm’s motion, the District Court
supplemented its decision of May21, 2004. Xerox plans
to appeal the grant of summary judgment of invalidity
in due course.
Other Matters:
It is our policy to promptly and carefully investigate,
often with the assistance of outside advisers, allega-
tions of impropriety that may come to our attention. If
the allegations are substantiated, appropriate prompt
remedial action is taken. When and where appropri-
ate, we report such matters to the U.S. Department of
Justice and to the SEC, and/or make public disclosure.