Xerox 2005 Annual Report Download - page 93

Xerox Corporation
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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
compensatory damages against KPMG; and awarding plaintiffs
the costs and disbursements of this action, including reasonable
attorneys’ and experts’ fees. Plaintiffs also demand injunctive
relief from the indemnification of six former officers for disgorge-
ments imposed pursuant to their respective settlements with the
SEC and related legal fees. On November 23, 2005, defendants
filed a motion to dismiss and a separate motion for partial summary
judgment. Those motions have not yet been fully briefed or argued
before the court. The individual defendants deny any wrongdoing.
Pall v. KPMG, et al.: On May 13, 2003, a shareholder commenced
aderivative action in the United States District Court for the
District of Connecticut against KPMG and four of its current or
former partners. The Company was named as a nominal defendant.
The plaintiffhad 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 jurisdiction. Plaintiffpurports to bring this current
action derivatively on behalf and for the benefit of the Company
seeking damages allegedly caused to the Company by KPMG
and the named individual defendants. The plaintiffasserts claims
for contribution under the securities laws, negligence, negligent
misrepresentation, breach of contract, breach of fiduciary duty
and indemnification. The plaintiffseeks unspecified compensatory
damages (together with pre-judgment and post-judgment interest),
adeclaratory 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”
handwriting 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 Courtof 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. On December 5, 2003 Palm moved
for sanctions, alleging that Xerox withheld production of material
information. Xerox has since responded to the motion denying the
basis of claims. On December 10, 2003 the District Court heard
oral arguments on summary judgment 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 Courtdenied Xerox’s
motion to reconsider and granted Palm’s motion to clarify.
Pursuant to granting Palm’s motion, the District Court supple-
mented its decision of May 21, 2004. On June 10, 2005, Xerox
filed an appeal brief with the Court of Appeals for the Federal
Circuit, seeking reversal of the District Court’s holding of
invalidity. Xerox filed a reply brief to the Palm brief on the issue
of invalidity on November 7, 2005. An oral hearing is expected
to occur in March 2006.
Other Matters:
It is our policy to promptly and carefully investigate, often with
the assistance of outside advisers, allegations of impropriety that
may come to our attention. If the allegations are substantiated,
appropriate prompt remedial action is taken. When and where
appropriate, we report such matters to the U.S. Department of
Justice and to the SEC, and/or make public disclosure.
Xerox Annual Report 2005