Xerox 2005 Annual Report Download - page 92

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
84
Warren, et al. v. Xerox Corporation: On March 11, 2004, the
United States District Court for the Eastern District of New
York entered an order certifying a nationwide class of all black
salespersons employed by Xerox from February 1, 1997 to the
present under Title VII of the Civil Rights Act of 1964, as amended,
and the Civil Rights Act of 1871. The suit was commenced on
May 9, 2001 by six black sales representatives. The plaintiffs
allege that Xerox has engaged in a pattern or practice of race
discrimination against them and other black sales representatives
by assigning them to less desirable sales territories, denying
them promotional opportunities, and paying them less than their
white counterparts. Although the complaint does not specify
the amount of damages sought, plaintiffs do seek, on behalf of
themselves and the classes they seek to represent, front and
back pay, compensatory and punitive damages, and attorneys’
fees. We deny any wrongdoing and are vigorously defending the
action. 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.
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 a standard for
compressing full-color or gray-scale still images (JPEG). 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 finding of an implied license to use the patent; a
finding that CLI is estopped from enforcing the patent; damages
and relief under state law for deceptive trade practices, unfair
competition, fraud, negligent misrepresentation, equitable
estoppel and patent misuse; and relief under federal anti-trust
laws for CLI’sviolation 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 Courtfor 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. On May 19, 2005
the judge recused herself from the litigation and a new judge
was assigned in August 2005. Wedeny any wrongdoing and
arevigorously defending this action. 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. The parties
are currently engaged in discovery. 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:
Miller, et al. v. Allaire, et al.: Following the voluntary dismissal
without prejudice of In Re Xerox Derivative Actions in the Supreme
Court of the State of New York, County of New York, the plaintiffs
purportedly brought a substantially similar putative shareholder
derivative action in Connecticut Superior Court, Judicial District of
Stamford-Norwalk at Stamford in the name of and for the benefit
of the Company, which is named as a nominal defendant, and its
public shareholders against several current and former members
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. RichardThoman, Anne Mulcahy and
Barry Romeril, and KPMG LLP. This action is based on substan-
tially the same allegations and seeks substantially the same relief
as the discontinued action. The complaint alleges that each of the
director defendants breached their fiduciary duties to the Company
and its shareholders by,among other things, ignoring indications
of a lack of oversight at the Company and the existence of flawed
business and accounting practices within the Company’s Mexican
and other operations; failing to have in place sufficient controls
and procedures to monitor the Company’s accounting practices;
knowingly and recklessly disseminating and permitting to be
disseminated, misleading information to shareholders and the
investing public; and permitting the Company to engage in
improper accounting practices. The plaintiffs further allege 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
complaint also asserts claims of negligence, negligent misrepre-
sentation, breach of contract and breach of fiduciary duty against
KPMG. Additionally, plaintiffs claim 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. On behalf 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;
Xerox Annual Report 2005