Amazon.com 2005 Annual Report Download - page 29

Item 3. Legal Proceedings
The Company is involved from time to time in claims, proceedings and litigation, including the following:
A number of purported class action complaints were filed by holders of our equity and debt securities
against us, our directors, and certain of our senior officers during 2001, in the United States District Court for the
Western District of Washington, alleging violations of the Securities Act of 1933 (the “1933 Act”) and/or the
Securities Exchange Act of 1934 (the “1934 Act”). In August 2003, plaintiffs in the 1934 Act cases filed a
second consolidated amended complaint alleging that we, together with certain of our officers and directors,
made false or misleading statements during the period from October 29, 1998 through October 23, 2001
concerning our business, financial condition and results, inventories, future prospects, and strategic alliance
transactions. The 1933 Act complaint alleges that the defendants made false or misleading statements in
connection with our February 2000 offering of the 6.875% PEACS. The complaints seek damages and injunctive
relief against all defendants. We dispute the allegations of wrongdoing in these complaints and have been
vigorously defending ourselves in these matters. In March 2005, we signed a Stipulation of Settlement with
counsel representing the plaintiff class with respect to the 1934 Act claims. In July 2005, we signed a Stipulation
of Settlement with counsel representing the plaintiff class with respect to the 1933 Act claims. These settlements,
which were approved by the Court in the fourth quarter of 2005, dispose of all claims asserted in these lawsuits in
exchange for payments totaling $48 million, substantially all of which we expect to be funded by our insurers.
In October 2002, Gary Gerlinger, individually and on behalf of all other similarly situated consumers in the
United States who, during the period from August 1, 2001 to the present, purchased books online from either
Amazon.com or Borders.com, instituted an action against us and Borders in the United States District Court for
the Northern District of California. The complaint alleges that the agreement pursuant to which an affiliate of
Amazon.com operates Borders.com as a co-branded site violates federal anti-trust laws, California statutory law,
and the common law of unjust enrichment. The complaint seeks injunctive relief, damages, including treble
damages or statutory damages where applicable, attorneys’ fees, costs, and disbursements, disgorgement of all
sums obtained by allegedly wrongful acts, interest, and declaratory relief. In November 2005, the Court
dismissed all of the plaintiff’s claims with prejudice. The plaintiff is appealing that dismissal. We dispute the
allegations of wrongdoing in this complaint, and we will continue to defend ourselves vigorously in this matter.
Beginning in March 2003, we were served with complaints filed in several different states, including Illinois
and Nevada, by a private litigant purportedly on behalf of the state governments under various state False Claims
Acts. The complaints allege that we (along with other companies with which we have commercial agreements)
wrongfully failed to collect and remit sales and use taxes for sales of personal property to customers in those
states and knowingly created records and statements falsely stating we were not required to collect or remit such
taxes. The complaints seek injunctive relief, unpaid taxes, interest, attorneys’ fees, civil penalties of up to
$10,000 per violation, and treble or punitive damages under the various state False Claims Acts. It is possible
that we have been or will be named in similar cases in other states as well. We do not believe that we are liable
under existing laws and regulations for any failure to collect sales or other taxes relating to Internet sales and
intend to vigorously defend ourselves in these matters.
In January 2004, IPXL Holdings, LLC brought an action against us for patent infringement in the United
States District Court for the Eastern District of Virginia. The complaint alleges that aspects of our online ordering
technology, including 1-Click®ordering, infringe a patent obtained by IPXL purporting to cover an “Electronic
Fund Transfer or Transaction System” (U.S. Patent No. 6,149,055) and seeks injunctive relief, monetary
damages in an amount no less than a reasonable royalty, prejudgment interest, and attorneys’ fees. In August
2004, the Court entered a judgment in Amazon.com’s favor on the grounds that the patent claims asserted by the
plaintiff were invalid and that Amazon.com’s technology did not infringe those claims in any event. The
judgment in our favor was affirmed by the Court of Appeals for the Federal Circuit in November 2005.
In April 2004, we learned that the French authorities are investigating our DVD sales practices in France,
and we are cooperating.
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