Creative 1999 Annual Report Download - page 38

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NOTE 13 – LITIGATION
Creative, and its wholly-owned subsidiary E-Mu, are plaintiffs in a lawsuit filed in February 1998 in the United States District Court for
the Northern District of California against Aureal Semiconductor, Inc. (“Aureal”). Creative’s complaint asserts that Aureal has infringed
one of Creative’s patents through Aureal’s manufacture, sale and use of its “Vortex” series of computer chip products. Aureal has answered
Creative’s complaint and filed counterclaims for interference with economic relationship, interference with economic relations, defamation/
commercial disparagement and unfair competition. Aureal has also filed a separate lawsuit asserting its own affirmative claims alleging
violation by Creative of an Aureal patent purporting to deal with certain 3D audio technologies. Creative believes that it has valid claims
against Aureal, as well as meritorious defenses to all of Aureal’s counterclaims and affirmative claims. As to the later, Creative believes
it had valid defenses of patent invalidity and, separately, of non-infringement. Should Aureal prevail in its counterclaims or affirmative
claims, however, Creative does not expect there to be any consequent material adverse effect on its financial position or results of operation.
During the course of their normal business operations, Creative and its subsidiaries are involved from time to time in a variety of intellectual
property and other disputes, including claims against Creative alleging copyright infringement, patent infringement and other business
torts. Currently such disputes exist with, among other entities, Bose Corporation (an action involving patent claims by Bose and other
claims and counterclaims by both sides in the District of Massachusetts and involving Creative and its Cambridge SoundWorks subsidiary)
and 3DFX (involving, among other claims and counterclaims, disputed amounts allegedly owed to 3DFX by Creative’s Creative Labs
subsidiary and allegations by 3DFX of copyright infringement by Creative relating to Creative’s “Unified” graphics driver). Creative also
from time to time receives licensing inquiries and/or threats of potential future patent claims from a variety of entities, including Cirrus
Logic, IBM and Lucent. Creative believes it has valid defenses to the various claims and counterclaims asserted against it. In any event,
should any of these plaintiffs prevail in their claims or counterclaims, Creative does not expect there to be any consequent material adverse
effect on its financial position or results of operation.
Except as set forth above, neither Creative nor any of its subsidiaries is engaged in any litigation or arbitration proceedings which might
in materially adverse manner affect the financial position of the Creative Group as a whole, and the directors of Creative are not aware
of any legal or arbitration proceedings pending or threatened, or any facts likely to give rise to any proceedings, which might in a materially
adverse manner affect the financial position of the Creative Group as a whole. However, litigation in general and intellectual property
litigation in particular has a number of risks and uncertainties that are difficult to assess or predict and there can be no assurance that
one or more adverse result in any of the matters described above or arising in the future will not have a material adverse impact on the
Creative Group financial condition or results of operation.
Notes to Consolidated Financial Statements