Western Digital 1999 Annual Report Download - page 20

Bowne Conversion 15
Item 3. Legal Proceedings
The following discussion contains forward-looking statements within the meaning of the federal securities laws. These statements
relate to the Company's legal proceedings described below. 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 on the Company's financial position, results of operations or liquidity. Accordingly, actual results could
differ materially from those projected in the forward-looking statements.
The Company was sued by Amstrad PLC ("Amstrad") in December 1992 in Orange County Superior Court. The complaint alleged
that hard drives supplied by the Company in calendar 1988 and 1989 were defective and caused damages to Amstrad of $186.0 million in
out-of-pocket expenses, lost profits, injury to Amstrad's reputation and loss of goodwill. The Company filed a counterclaim for $3.0
million in actual damages in addition to exemplary damages in an unspecified amount. The first trial of this case ended in a mistrial, with
the jury deadlocked on the issue of liability. The case was retried, and on June 9, 1999, the jury returned a verdict against Amstrad and
in favor of Western Digital. Amstrad has filed a notice of appeal from the judgment. The Company does not believe that the ultimate
resolution of this matter will have a material adverse effect on the financial position, results of operations or liquidity of the Company.
However, should the judgment be reversed on appeal, and if in a retrial of the case Amstrad were to prevail, the Company may be
required to pay damages and other expenses, which may have a material adverse effect on the Company's financial position, results of
operations or liquidity. In addition, the costs of defending a retrial of the case may be material, regardless of the outcome.
On February 26, 1999, the Lemelson Foundation ("Lemelson") sued the Company and 87 other companies in the U.S. District Court
for the District of Arizona. The complaint alleges infringement of numerous patents held by Mr. Jerome H. Lemelson relating to, among
other matters, "machine vision," "computer image analysis," and "automatic identification." The Company has reached preliminary
agreement with Lemelson concerning a fully paid-up license of the patents, and Lemelson has filed a voluntary dismissal without
prejudice of the complaint against the Company. Based upon the information presently known to management, the Company does not
believe that the ultimate resolution of this matter will have a material adverse effect on the financial position, results of operations or
liquidity of the Company. However, because of the nature and inherent uncertainties of litigation, should the outcome of this action be
unfavorable, the Company may be required to pay damages and other expenses, which may have a material adverse effect on the
Company's financial position, results of operations or liquidity. In addition, the costs of defending such litigation may be material,
regardless of the outcome.
In 1994 Papst Licensing ("Papst") brought suit against the Company in U.S. District Court for the Central District of California
alleging infringement by the Company of five of its patents relating to disk drive motors that the Company purchases from motor
vendors. Later that year Papst dismissed its case without prejudice, but it has notified the Company that it intends to reinstate the suit
if the Company does not agree to enter into a license agreement with Papst. Papst has also put the Company on notice with respect to
several additional patents. The Company does not believe that the ultimate resolution of this matter will have a material adverse effect
on the financial position, results of operations or liquidity of the Company. However, because of the nature and inherent uncertainties
of litigation, should the outcome of this action be unfavorable, the Company may be required to pay damages and other expenses,
which may have a material adverse effect on the Company's financial position, results of operations or liquidity. In addition, the costs
of defending such litigation may be material, regardless of the outcome.
On July 2, 1999, Magnetic Media Development, LLC ("Magnetic Media") brought suit against the Company in the United States
District Court for the Northern District of California. The suit alleges infringement by the Company of four patents allegedly owned by
Magnetic Media. While the Company has not yet had an opportunity to fully study the complaint, it believes that the patents cited in
the complaint are those previously cited to the Company by Mr. Virgle Hedgcoth. In a letter dated July 16, 1996, Mr. Hedgcoth gave
notice of his assertion that the Company's products infringe several of his patents. Each of the patents which Hedgcoth cited relates to
magnetic media. In the letter, Hedgcoth offered the Company a license under all his patents, without specifying any amount of
compensation. The Company has investigated these assertions and believes it is likely that, with respect to magnetic disks that it
purchases from others and incorporates into the Company's products, it may have the right to have the vendors of such magnetic disks
undertake the defense and indemnify the Company with respect to such purchased disks. The Company does not believe that the
outcome of this matter will have a material adverse effect on its financial position, results of operations or liquidity. However, because
of the nature and inherent uncertainties of litigation, should the outcome of this action be unfavorable, the Company may be required