Adobe 2004 Annual Report Download - page 89

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develop an estimate of the maximum potential amount of future payments that could potentially result from
any hypothetical future claim, but believe the risk of having to make any payments under this general
indemnification to be remote.
We accrue for costs associated with future obligations which include costs for undetected bugs that are
discovered only after the product is installed and used by customers. As of December 3, 2004, there was no
remaining accrual. The table below summarizes the activity related to the accrual for fiscal 2004:
Balance at
November 28, 2003 Accruals Payments
Balance at
December 3, 2004
$ 3,185 $ 114 $ (3,299) $ —
Legal Actions
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the superseded 5.0 version of Adobe Acrobat violated the Digital Millennium Copyright Act.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. We cannot estimate any 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. We believe the action has no merit and are vigorously
defending against it. We cannot estimate any 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 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 BSA, from time
to time we undertake litigation against alleged copyright infringers. Such lawsuits may lead to counter-