Adobe 2004 Annual Report Download - page 27

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ITEM 3. LEGAL PROCEEDINGS
On September 4, 2002, Adobe initiated arbitration proceedings in London, England against Agfa Monotype
Corporation (“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 and,
therefore, that AMT did not have the right to terminate the agreement. AMT made certain breach of contract claims
in response to Adobe’s arbitration demand. On June 28, 2004, the arbitrators held that the contract remains in full
force and that AMT does not have the right to terminate it. The arbitrators found in favor of AMT on only one of its
three claims, which was subsequently resolved by the parties.
On September 5, 2002, AMT and its subsidiary International Typeface Corporation (“ITC”) filed suit against
Adobe in the U.S. District Court, Eastern District of Illinois, asserting that Adobe’s distribution of the superseded
5.0 version of Adobe Acrobat violated the Digital Millennium Copyright Act. In January 2005, the court granted
Adobe’s motion for summary judgment.
On November 13, 2002, ITC filed another suit against Adobe in the United States District Court for the Eastern
District of Illinois, 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 ITC prevails on its breach of
contract claims in this action, ITC may have the right to terminate Adobe’s right to distribute any of its products that
then still contain font software that generates ITC typefaces. The results of any litigation are inherently uncertain
and we cannot assure that we will be able to successfully defend ourselves against this remaining action. ITC seeks
an unspecified aggregate dollar amount of damages and a favorable outcome for ITC in this action could have a
material adverse effect on Adobe’s consolidated financial position, cash flows or results of operations. We believe
that ITC’s claims are without merit and we are vigorously defending against them.
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. We believe the action has no merit and are vigorously defending against it.
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 derived from the Plaintiffs’ belief that the “healing brush”
technique of Adobe Photoshop software incorporates the Plaintiffs’ trade secrets. The Plaintiffs also sought
preliminary and permanent injunctive relief, compensatory, treble and punitive damages and fees and costs. In
November 2004, the parties resolved this matter.
In connection with our anti-piracy efforts, conducted both internally and through the Business Software
Alliance (“BSA”), from time to time we undertake litigation against alleged copyright infringers. Such lawsuits may
lead to counter-claims alleging improper use of litigation or violation of other local law and have recently increased
in frequency, especially in Latin American countries. We believe we have valid defenses with respect to such
counter-claims; however, it is possible that our consolidated financial position, cash flows or results of operations
could be affected in any particular period by the resolution of one or more of these counter-claims.
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
least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and
other information and events pertaining to a particular case. Litigation is inherently unpredictable. However, we
believe that we have valid defenses with respect to the legal matters pending against Adobe. It is possible,