Seagate 2007 Annual Report Download - page 107

Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Continued)
reasonably estimated, the Company establishes an accrual for the litigation, claim or assessment. Litigation is inherently uncertain and may
result in adverse rulings or decisions. Additionally, the Company may enter into settlements or be subject to judgments that may, individually or
in the aggregate, have a material adverse effect adverse effect on its results of operations. Accordingly, actual results could differ materially.
Intellectual Property Litigation
Convolve, Inc. and Massachusetts Institute of Technology (“MIT”) v. Seagate Technology LLC, et al. Between 1998 and 1999,
Convolve, Inc., a small privately held technology consulting firm founded by an MIT Ph.D., engaged in discussions with Seagate Technology,
Inc. with respect to the potential license of technology that Convolve claimed to own. During that period, the parties entered into non-disclosure
agreements. We declined Convolve’s offer of a license in late 1999. On July 13, 2000, Convolve and MIT filed suit against Compaq Computer
Corporation and us in the U.S. District Court for the Southern District of New York, alleging patent infringement, misappropriation of trade
secrets, breach of contract, tortious interference with contract and fraud relating to Convolve and MIT’s Input Shaping
®
and Convolve’s Quick
and Quiet™ technology. The plaintiffs claim their technology is incorporated in the Company’s sound barrier technology, which was publicly
announced on June 6, 2000. The complaint seeks injunctive relief, $800 million in compensatory damages and unspecified punitive damages.
We answered the complaint on August 2, 2000 and filed counterclaims for declaratory judgment that two Convolve/MIT patents are invalid and
not infringed and that the Company owns any intellectual property based on the information that the Company disclosed to Convolve. The court
denied plaintiffs’ motion for expedited discovery and ordered plaintiffs to identify their trade secrets to defendants before discovery could begin.
Convolve served a trade secrets disclosure on August 4, 2000, and the Company filed a motion challenging the disclosure statement. On May 3,
2001, the court appointed a special master to review the trade secret issues. The special master resigned on June 5, 2001, and the court appointed
another special master on July 26, 2001. After a hearing on the Company’s motion challenging the trade secrets disclosure on September 21,
2001, the special master issued a report and recommendation to the court that the trade secret list was insufficient. Convolve revised the trade
secret list, and the court entered an order on January 1, 2002, accepting the special master’s recommendation that this trade secret list was
adequate. On November 6, 2001, the U.S. Patent and Trademark Office (“USPTO”) issued US Patent No. 6,314,473 to Convolve. Convolve
filed an amended complaint on January 16, 2002, alleging defendants’ infringement of this patent, and the Company answered and filed
counterclaims on February 8, 2002. On July 26, 2002, the Company filed a Rule 11 motion challenging the adequacy of plaintiffs’ pre-filing
investigation on the first two patents alleged in the complaint and seeking dismissal of plaintiffs’ claims related to these patents and
reimbursement of attorney’s fees. The court denied the Company’s motion on May 23, 2003. On May 6, 2003, the USPTO issued to Convolve
U.S. Patent No. 6,560,658 B2, entitled “Data Storage Device with Quick and Quiet Modes.” Convolve indicated that it would seek leave of the
court to add this patent to the lawsuit, but it never did so. This latest patent is a continuation of a patent currently in the lawsuit (U.S. Patent
No. 6,314,473). We believe any claims that may relate to this continuation patent would be without merit, regardless of whether such claims
were added to the ongoing litigation or asserted against us in a separate lawsuit. Judge John Martin, who was assigned this case, announced his
retirement from the federal bench. The case was reassigned to Judge George B. Daniels. On October 14, 2003, the Special Master resigned from
the case due to Convolve’s claim that he had a conflict of interest. Magistrate Judge James C. Francis IV was appointed to handle all discovery
matters. Plaintiffs have indicated that they will dismiss claims regarding U.S. Patent No. 5,638,267 from the case. The claims construction
hearing on U.S. Patent Nos. 4,916,635 and 6,314,473 was held on March 30 and 31, 2004. On August 11, 2005, the court entered an order
construing the patent claims. Both Seagate and Compaq moved for reconsideration of its claim construction in light of intervening new law in
the Federal Circuit’s then-recent decision in Phillips v. AWH Corp., et al. , 415 F.3d 1303 (Fed. Cir. 2005). Convolve also moved for
clarification. The court denied reconsideration without oral argument on December 7, 2005. The court later granted Convolve’s unopposed
clarification motion. On March 29, 2006, the court granted Seagate’s summary judgment
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