Computer Associates 2005 Annual Report Download - page 36

Table of Contents
perform product development in Australia, China, France, Germany, India, Israel, Japan, and the United Kingdom. For fiscal years
ended March 31, 2005, 2004 and 2003, the costs of product development and enhancements charged to operations were $704 million,
$693 million, and $688 million, respectively. In fiscal years 2005, 2004 and 2003, we capitalized costs of $70 million, $44 million, and
$40 million, respectively, for internally developed software. The increase in capitalized costs for fiscal year 2005 as compared with
fiscal year 2004 was principally related to an increase in the quality assurance portion of the development cycle for certain of our
products that had reached technological feasibility.
Some of our software products have been acquired from other companies and individuals. We continually seek to complement and
improve our software portfolio through acquisitions and strategic partnerships. The purchase price of acquired software products
(purchased software) is capitalized and amortized over the estimated useful life of such products over a period not exceeding seven
years.
Proprietary Rights
Certain aspects of our products and technology are proprietary. We rely on U.S. and foreign intellectual property laws, including patent,
copyright, trademark, and trade secret laws to protect our proprietary rights. As of March 31, 2005, we have received approximately 300
patents worldwide and approximately 1,700 patent applications are pending worldwide for our software technology. However, the
extent and duration of protection given to different types of intellectual property rights vary under different countries’ legal systems.
Generally, our U.S. and foreign patents expire at various times over the next twenty years. While the duration of our patents varies, we
believe that the duration of our patents is adequate. The expiration of any of our patents will not have a material adverse effect on our
business. In some countries, full-scale intellectual property protection for our products and technology may be unavailable, and/or the
laws of other jurisdictions may not protect our proprietary technology rights to the same extent as the laws of the United States. We also
maintain contractual restrictions in our agreements with customers, employees, and others to protect our intellectual property rights. In
addition, we occasionally license software and technology from third parties, including some competitors, and incorporate them into our
own software products.
The source code for our products is protected both as a trade secret and as a copyrighted work. Some of our customers are beneficiaries
of a source code escrow arrangement that enables the customer to obtain a contingent, future-limited right to access our source code. If
our source code is accessed, the likelihood of misappropriation or other misuse of our intellectual property may increase.
We are not aware that our products and technologies infringe the proprietary rights of third parties. Third parties, however, may assert
infringement claims against us in the future with respect to current or future products, and any such assertion may require us to enter into
royalty arrangements or result in costly and time-consuming litigation. Although we have a number of United States and foreign patents
and pending applications that may have value to various aspects of our products and technology, we are not aware of any single patent
itself that is essential to us or to any of our principal business product areas.
Competition
The markets in which we compete are marked by rapid and substantial technological change, the steady emergence of new companies
and products, evolving industry standards, and changing customer needs. Some of the factors with which our products compete include,
but are not limited to: performance, quality, breadth of product group, integration of products, brand name recognition, price,
functionality, customer support, frequency of upgrades and updates, manageability of products, and reputation.
We compete with many established companies in the markets we serve. Some of these companies have substantially greater financial,
marketing, and technological resources, larger distribution capabilities, earlier access to customers, and greater opportunity to address
customers’ various information technology requirements than us. These factors may provide our competitors with an advantage in
penetrating markets with their products. We also compete with many smaller, less established companies that may be able to focus more
effectively on specific product areas or markets. We believe, however, that the breadth and quality of our product offerings as well as our
products’ hardware independence provide us with a competitive advantage in the marketplace. We compete with many software
providers across our product areas. However, because of the breadth of our product offerings, an individual competitor does not
generally compete with us across all of our product areas. Some of our key competitors include BMC, EMC, HP, IBM, McAfee, and
Symantec.
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