Memorex 2007 Annual Report Download - page 45

Item 3. Legal Proceedings.
We are the subject of various pending or threatened legal actions in the ordinary course of our business. All such
matters are subject to many uncertainties and outcomes that are not predictable with assurance. Consequently, as of
December 31, 2007, we are unable to ascertain the ultimate aggregate amount of any monetary liability or financial impact
that we may incur with respect to these matters. While these matters could materially affect operating results depending
upon the final resolution in future periods, it is our opinion that after final disposition, except for possibly the Philips dispute
described below, any monetary liability beyond that provided in the Consolidated Balance Sheet as of December 31, 2007
would not be material to our financial position.
Philips litigation:
Imation filed a Declaratory Judgment Action on October 27, 2006, in Federal District Court in St. Paul, Minnesota
requesting that the court resolve an ongoing dispute with Philips Electronics N.V., U.S. Philips Corporation and North
American Philips Corporation (collectively, Philips). Philips has asserted that (1) the patent cross-license between 3M
Company and Philips was not validly assigned to Imation in connection with the spin-off of Imation from 3M Company in
1996; (2) Imation’s 51 percent owned subsidiary GDM is not a “subsidiary” as defined in the cross-license; (3) the
coverage of the cross-license does not apply to Imation’s acquisition of Memorex; (4) the cross-license does not apply to
DVD discs; (5) certain Philips patents that are not covered by the cross-license are infringed by Imation; and (6) as a
result, Imation owes Philips royalties for the prior and future sales of CD and DVD discs. We believe that these allegations
are without merit and filed a Declaratory Judgment Action to have a court reaffirm Imation’s rights under the cross-license.
On February 26, 2007, the parties signed a Standstill Agreement and the litigation was voluntarily dismissed without
prejudice. Imation and Philips held settlement negotiations but were unable to come to an agreement. Imation re-filed its
Declaratory Judgment Action on August 10, 2007. Philips filed its Answer and Counterclaims against Imation and MBI
(Imation’s partner in GDM). Philips alleges that (1) the cross-license does not apply to companies that Imation purchased
or created after March 1, 2000; (2) GDM is not a legitimate subsidiary of Imation; (3) Imation’s formation of GDM is a
breach of the cross-license resulting in termination of the cross-license at that time; (4) Imation (including Memorex and
GDM) infringes various patents that would otherwise be licensed under the cross-license; and (5) Imation (including
Memorex and GDM) infringe one or more patents that are not covered by the cross-license. Philips claims damages of
$655 million plus interest and costs, as well as a claim requesting a trebling of that amount. Imation was aware of these
claims prior to filing its Declaratory Judgment Action. Imation believed then and continues to believe that Philips’ claims
are without merit.
On October 30, 2007, Imation filed its answers to Philips’ counterclaims and a Motion for Partial Summary Judgment
on the issue of whether the patent cross-license was validly assigned by 3M Company to Imation. Philips did not contest
Imation’s Motion and on November 26, 2007, the parties filed a stipulation affirming that the cross-license was validly
assigned to Imation. Discovery is ongoing and all remaining issues continue to be in dispute. The court has currently
scheduled trial of the matter for mid-2009.
SanDisk litigation:
On July 11, 2007, SanDisk Corporation filed a patent infringement action in U.S. District Court, Northern District of
California, against Imation and its subsidiary, Memorex Products, Inc. This action alleged that we have infringed a patent
held by SanDisk (U.S. Patent 5,602,987) by offering and selling USB flash drives. On September 6, 2007, SanDisk
voluntarily withdrew its lawsuit without prejudice.
On October 24, 2007, SanDisk Corporation filed another patent infringement action in U.S. District Court, Western
District of Wisconsin, against Imation and its subsidiaries Imation Enterprises Corp. and Memorex Products, Inc. The
lawsuit also names over twenty other companies as defendants. This action alleges that we have infringed five patents
held by SanDisk: US Patent 6,426,893; 6,763,424; 5,719,808; 6,947,332 and 7,137,011. SanDisk alleges that our sale of
various flash memory products, such as USB flash drives and certain flash card formats, infringe these patents and is
seeking damages for prior sales, and an injunction and/or royalties on future sales. This action has been stayed pending
resolution of the related case described below.
Also on October 24, 2007, SanDisk filed a complaint with the United States International Trade Commission (ITC)
against the same Imation entities listed above, as well as over twenty other companies. This action involves the same
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