Western Digital 2000 Annual Report Download - page 50

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
using IBM's giant magnetoresistive (""GMR'') heads and other components. The terms of the Agreement
included a $20.0 million non-refundable initial payment in June 1998, which was fully expensed in 1998 as in-
process research and development. Additional payments of $30.0 million and $10.0 million were made in 1999
and 2000, respectively, upon the achievement of certain product development milestones. These additional
payments were capitalized and amortized to cost of sales as the related product was sold (generally within one
year). As of June 30, 2000 the payments had been fully amortized. The Agreement also required the
Company to make supplemental per unit payments as the related product was sold. These amounts were
recorded to cost of sales as the product was sold. The Agreement also included a supply arrangement for the
purchase of GMR heads at negotiated market prices.
Legal Proceedings
In 1992 Amstrad plc (""Amstrad'') brought suit against the Company in California State Superior Court,
County of Orange, alleging that disk drives supplied to Amstrad by the Company in 1988 and 1989 were
defective and caused damages to Amstrad of not less than $186 million. The suit also sought punitive
damages. The Company denied the material allegations of the complaint and Ñled cross-claims against
Amstrad. The case was tried, and in June 1999 the jury returned a verdict in favor of Western Digital.
Amstrad has appealed the judgment and the Company has Ñled motions to recover a portion of its legal and
other costs of defense. The Company does not believe that the outcome of this matter will have a material
adverse eÅect on its consolidated Ñnancial position, results of operation or liquidity.
In 1994 Papst Licensing (""Papst'') brought suit against the Company in federal court in California
alleging infringement by the Company of Ñve of its patents relating to disk drive motors that the Company
purchased from motor vendors. Later that year Papst dismissed its case without prejudice, but it has notiÑed
the Company that it intends to reinstate the suit if the Company does not 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 outcome of this matter will have a material adverse eÅect on its consolidated Ñnancial
position, results of operation or liquidity.
On October 23, 1998, Censtor Corporation (""Censtor'') initiated an arbitration proceeding against the
Company in California, alleging that it is owed royalties under a license agreement between Censtor and the
Company. In response, the Company Ñled a complaint in federal court in California seeking a determination
that the patents at issue are invalid. The federal court action has been stayed pending completion of the
arbitration procedures. The Company does not believe that the outcome of this matter will have a material
adverse eÅect on its consolidated Ñnancial position, results of operation or liquidity.
On June 9, 2000 a suit was brought against the Company in California State Superior Court on behalf of
a class of former employees of the Company who were terminated as a result of a reduction in force in
December 1999. The complaint asserts claims for unpaid wages, fraud, breach of Ñduciary duty, breach of
contract, and unfair business practices. The Company has removed the suit to federal court in California on
the ground that all of the claims are preempted by the Employee Retirement Income Security Act of 1974.
The Company denies the material allegations of the complaint and intends to vigorously defend this action.
The Company does not believe that the outcome of this matter will have a material adverse eÅect on its
consolidated Ñnancial position, results of operation or liquidity.
In the normal course of business, the Company receives and makes inquiries regarding possible
intellectual property matters, including alleged patent infringement. Where deemed advisable, the Company
may seek or extend licenses or negotiate settlements. Although patent holders often oÅer such licenses, no
assurance can be given that in a particular case a license will be oÅered or that the oÅered terms will be
acceptable to the Company. One such matter currently pending involves Discovision Associates, which has
recently brought patents it holds to the Company's attention. The Company does not believe that the ultimate
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