Adobe 2013 Annual Report Download - page 97

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Royalties
We have royalty commitments associated with the shipment and licensing of certain products. Royalty expense is generally
based on a dollar amount per unit shipped or a percentage of the underlying revenue. Royalty expense, which was recorded under
our cost of products revenue on our Consolidated Statements of Income, was approximately $40.2 million, $29.6 million and $29.8
million in fiscal 2013, 2012 and 2011, respectively.
Indemnifications
In the ordinary course of business, we provide indemnifications of varying scope to customers against claims of intellectual
property infringement made by third parties arising from the use of our products and from time to time, we are subject to claims
by our customers under these indemnification provisions. Historically, costs related to these indemnification provisions have not
been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future
results of operations.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for
certain events or occurrences while the officer or director is or was serving at our request in such capacity. The indemnification
period covers all pertinent events and occurrences during the officer's or director's lifetime. The maximum potential amount of
future payments we could be required to make under these indemnification agreements is unlimited; however, we have director
and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We
believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
Legal Proceedings
In connection with disputes relating to the validity or alleged infringement of third-party intellectual property rights, including
patent rights, we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted litigation.
Intellectual property disputes and litigation may be very costly and can be disruptive to our business operations by diverting the
attention and energies of management and key technical personnel. Although we have successfully defended or resolved past
litigation and disputes, we may not prevail in any ongoing or future litigation and disputes. Third-party intellectual property disputes
could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent
us from licensing certain of our products or offering certain of our services, subject us to injunctions restricting our sale of products
or services, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification
commitments with our customers including contractual provisions under various license arrangements and service agreements.
Between May 4, 2011 and July 14, 2011, five putative class action lawsuits were filed in Santa Clara Superior Court and
Alameda Superior Court in California. On September 12, 2011, the cases were consolidated into In Re High-Tech Employee
Antitrust Litigation (“HTEAL”) pending in the United States District Court for the Northern District of California, San Jose
Division. In the consolidated complaint, Plaintiffs alleged that Adobe, along with Apple, Google, Intel, Intuit, Lucas Films and
Pixar, agreed not to recruit each other's employees in violation of Federal and state antitrust laws. Plaintiffs claim the alleged
agreements suppressed employee compensation and deprived employees of career opportunities. Plaintiffs seek injunctive relief,
monetary damages, treble damages, costs and attorneys fees. All defendants deny the allegations and that they engaged in any
wrongdoing of any kind. On October 24, 2013, the court certified a class of all persons who worked in the technical, creative, and/
or research and development fields on a salaried basis in the United States for one or more of the following: (a) Apple from March
2005 through December 2009; (b) Adobe from May 2005 through December 2009; (c) Google from March 2005 through
December 2009; (d) Intel from March 2005 through December 2009; (e) Intuit from June 2007 through December 2009; (f)
Lucasfilm from January 2005 through December 2009; or (g) Pixar from January 2005 through December 2009, excluding retail
employees, corporate officers, members of the boards of directors, and senior executives of all defendants. We dispute these claims
and intend to vigorously defend ourselves in this matter. As of November 29, 2013, no amounts have been accrued as a loss is not
considered probable or estimable. The trial is currently scheduled to be held in May 2014.
In addition to intellectual property disputes and other litigation matters described above, we are subject to legal proceedings,
claims and investigations in the ordinary course of business, including claims relating to commercial, employment and other
matters. Some of these disputes and legal proceedings may include speculative claims for substantial or indeterminate amounts
of damages. We consider all claims on a quarterly basis in accordance with GAAP and based on known facts assess whether
potential losses are considered reasonably possible, probable and estimable. Based upon this assessment, we then evaluate disclosure
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)