Adobe 2003 Annual Report Download - page 89

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On September 4, 2002, Adobe initiated arbitration proceedings in London, England (“the London
Arbitration”) against AMT, seeking a declaration that Adobe's distribution of font software that generates
AMT typefaces did not 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asserts that Adobe Acrobat 5.0, which AMT and ITC correctly acknowledge has been superseded by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District of Illinois (“the Illinois Action”), asserting only that Adobe’s distribution of the superseded 5.0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. We cannot estimate the possible loss at this time.
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. We cannot estimate the possible loss at this time.
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. We cannot estimate the possible loss at this time.
From time to time, 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 SFAS 5,
“Accounting for Contingencies,” Adobe makes a provision for a liability when it is both probable that a