Adobe 2005 Annual Report Download - page 88

88
Legal Actions
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.” 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 June 13, 2005, Plaintiff Steve Staehr filed a shareholder derivative action entitled “Steve Staehr,
Derivatively on Behalf of Adobe Systems Incorporated v. Bruce R. Chizen, et. al.,” in the Superior Court of
the State of California for the County of Santa Clara against Adobe’s directors and naming Adobe as a
nominal defendant. The complaint alleges that the defendants breached their fiduciary duties of loyalty and
due care and caused Adobe to waste corporate assets by failing to renegotiate or terminate the acquisition
agreement with Macromedia following the announcement by Macromedia that it would restate its financial
results for the fiscal years ended March 31, 1999 through 2004. The complaint seeks, among other things,
unspecified monetary damages, attorneys’ fees and certain forms of equitable relief. On August 18, 2005,
Plaintiff amended his complaint to add a purported class action. Adobe has obligations under certain
circumstances to hold harmless and indemnify each of the defendant directors against judgments, fines,
settlements and expenses related to claims against such directors and otherwise to the fullest extent
permitted under Delaware law and Adobe’s bylaws and certificate of incorporation. Such obligations may
apply to this lawsuit. We believe the action has no merit and are vigorously defending against it. We cannot
estimate any possible loss at this time.
In connection with our anti-piracy efforts, conducted both internally and through the Business
Software Alliance, 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.
One such case is Consultores en Computación y Contabilidad, S.C. (“CCC”) v. Microsoft, Adobe,
Symantec, and Autodesk (the “Defendants”). On March 1, 2002, CCC, a Mexican hardware/software
reseller, filed a lawsuit in the Mexico Court of First Instance against the Defendants (all members of the
Business Software Alliance). CCC had previously been the target of a criminal anti-piracy enforcement
action carried out by the Mexican police authorities on the basis of a piracy complaint filed by the
Defendants based on evidence provided to the Defendants. CCC alleged in the lawsuit that it had suffered
damages to its reputation as a result of the enforcement action. CCC did not claim economic damages. On
November 11, 2002, the trial court judge ruled in favor of the Defendants, holding that no moral damage
occurred. After subsequent appeals which were favorable to the Defendants, a court of appeals held that the
Defendants were liable to CCC for “moral” damages, and the court remanded the case to the Court of First
Instance for a determination of the amount. In December 2005, the Court of First Instance awarded CCC
$90 million in damages. The Defendants are appealing the verdict, as are the plaintiffs who seek additional
damages. If, after all appeals have been exhausted, the existing verdict stands and is enforceable, Adobe
would be responsible for approximately $15 million of the judgment. No amounts have been accrued as a
loss is not considered probable or estimable at this time.
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 U.S. 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, nevertheless, that our consolidated