Adobe 2003 Annual Report Download - page 27

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breach its contract pursuant to which it licensed certain rights with respect to AMT typefaces. AMT has made a
breach of contract claim in response to Adobe's arbitration demand in the London Arbitration, asserting that Adobe
wrongfully granted and/or allowed third parties greater rights to distribute and embed AMT fonts than Adobe was
licensed to grant and/or allow.
Adobe asserts that it negotiated for and obtained express, written licenses from both AMT and ITC
approximately ten years ago permitting Adobe to allow end users to embed AMT and ITC fonts in electronic
documents for “print and view” and disputes the other breach of contract claims. Adobe also asserts that Adobe
Acrobat 5.0, which AMT and ITC correctly acknowledge has been superseded by subsequent versions, neither
violates the DMCA nor induces or contributes to the infringement of copyrights in ITC’s and AMT’s TrueType font
software.
On September 5, 2002, AMT and ITC filed suit against Adobe in the U.S. District Court, Eastern District of
Illinois (“the Illinois Action”), asserting only that Adobe’s distribution of the superseded 5.0 version of Adobe
Acrobat violated the DMCA, as described above. The Illinois Action seeks statutory damages of $200 to $2,500 for
each copy of Acrobat 5.0 found to violate the DMCA, a claim that Adobe disputes as a matter of law and fact. The
Illinois Action also seeks injunctive relief with respect to Acrobat 5.0, although it specifically alleges, correctly, that
Adobe no longer distributes Acrobat 5.0.
On November 13, 2002, ITC filed another suit against Adobe in the United States District Court for the Eastern
District of Illinois, this time asserting that Adobe breached its contract with ITC and that ITC, not Adobe, owns the
copyrights in font software created by Adobe which generates ITC typefaces.
If either AMT or ITC prevails on its breach of contract claims, AMT or ITC may have the right to terminate
Adobe’s right to distribute any of its products that then still contain font software that generates AMT or ITC
typefaces. Adobe denies these claims and is vigorously defending against these actions.
The results of any litigation are inherently uncertain and Adobe cannot assure that it will be able to successfully
defend itself against any of the actions described above. AMT and ITC seek an unspecified aggregate dollar amount
of damages. A favorable outcome for AMT or ITC in these actions could have a material adverse effect on Adobe's
financial position, cash flows or results of operations. We believe that all of AMT’s and ITC’s claims are without
merit and will vigorously defend against them in addition to pursuing our own claims as described above.
On September 6, 2002, Plaintiff Fred B. Dufresne filed suit against Adobe, Microsoft Corporation,
Macromedia, Inc. and Trellix Corporation in the U.S. District Court, District of Massachusetts, alleging
infringement of U.S. Patent No. 5,835,712, entitled “Client-Server System Using Embedded Hypertext Tags for
Application and Database Development.” The Plaintiff’s complaint asserts that “Defendants have infringed, and
continue to infringe, one or more claims of the ‘712 patent by making, using, selling and/or offering for sale, inter
alia, products supporting Microsoft Active Server Pages technology.” The plaintiff seeks unspecified compensatory
damages, preliminary and permanent injunctive relief, trebling of damages for “willful infringement,” and fees and
costs. Adobe disagrees with the Plaintiff’s claims and intends to vigorously defend against this action.
On November 18, 2002, Plaintiffs Shell & Slate Software Corporation and Ben Weiss filed a civil action in the
U.S. District Court in Los Angeles against Adobe alleging false designation of origin, trade secret misappropriation,
breach of contract and other causes of action. The claim derives from the Plaintiffs’ belief that the “healing brush”
technique of Adobe Photoshop software incorporates the Plaintiffs’ trade secrets. The Plaintiffs seek preliminary and
permanent injunctive relief, compensatory, treble and punitive damages and fees and costs. We believe that the
action has no merit and intend to vigorously defend against it. On September 9, 2003, Adobe filed a counter-claim
against Ben Weiss for breach of contract and misappropriation of trade secrets. Adobe seeks compensatory, statutory
and punitive damages.
From time to time, in addition to those identified above, Adobe is subject to legal proceedings, claims,
investigations and proceedings in the ordinary course of business, including claims of alleged infringement of third-
party patents and other intellectual property rights, commercial, employment and other matters. In accordance with
generally accepted accounting principles, Adobe makes a provision for a liability when it is both probable that a
liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at