Well done, Gary. Here is a copy of the relevent portion of the Edgar.
Item 1. Legal Proceedings
As previously reported in the Company's Annual Report on Form 10-K for 1996 and
its quarterly reports on Form 10-Q for the first and second quarters of 1997,
the Company has inititated litigation in France and Germany against Nomai S.A.,
a French company, in connection with Nomai's planned XHD disk product, which
Nomai claims to be compatible with the Company's Zip drives. On October 15,
1997, Nomai and its United States subsidiary Nomus, Inc., filed a complaint for
declaratory relief against the Company in the United States District Court for
the Northern District of California. In its complaint, Nomai seeks a declaratory
judgment of non-infringement and invalidity of certain United States patents
issued to the Company, non-infringement of trade dress, trademark and copyright,
non-unfair competition, and non-misappropriation of trade secrets. The Company
does not believe these claims are meritorious. In support of its standing to
seek declaratory relief from a United States federal court, Nomus claims to have
offered Nomai XHD cartridges for sale in the United States and to be in
apprehension that Iomega will initiate suit against it and Nomai in the United
States. The Company was granted an extension of time until November 21, 1997,
within which to respond to the complaint filed by Nomai. The Company has not
licensed Nomai to manufacture or sell Zip products and believes Nomai's XHD
product infringes the Company's United States and foreign intellectual property
rights and constitutes unfair competition.
With respect to the ongoing European litigation between the Company and Nomai,
Nomai's XHD disk product was formally announced by Nomai in a press release
issued on September 12, 1997. XHD disks were offered for sale at the Apple Expo
exhibition in Paris, France, beginning on September 17, 1997. On September 30,
1997, the Company filed a complaint in the District Court in Paris charging
Nomai with unfair competition, parasitism and violations of the Company's
copyrights, disk design patent and trademarks. The Paris Court granted an early
fixed date hearing on Friday, November 28, 1997, at which time the charges
asserted by the Company will be heard by a panel of three judges. The Company
also filed a separate complaint in Paris on September 30, 1997, claiming that
Nomai is infringing on several Iomega patent applications pending in Europe. No
hearing date has been set on these separate patent claims.
In support of certain of the Company's claims scheduled to be heard by the Paris
District Court on November 28, 1997, the Company filed with the Court reports of
two independent laboratories retained by the Company to test Nomai's XHD disks.
One independent laboratory tested the XHD disks for compatibility with the
Company's Zip drives. Its test results showed that the XHD disk had a very high
rejection rate in PC and Macintosh notebook Zip drives. In addition, five out of
twenty randomly selected Nomai XHD disk cartridges were found to be inoperable
with certain internal Zip drives and the XHD cartridges tested with external Zip
drives exhibited abnormal clicking sounds not exhibited by the tested Iomega
cartridges. 100% of the tested Iomega Zip cartridges were accepted by all models
of Zip drives used in the tests. In correspondence between English solicitors
for the Company and solicitors for Nomai, Nomai's solicitors claim that Nomai's
own tests of the XHD cartridge with commercially available Zip drives have not
shown any incompatibility problems. Nomai claims it has had no opportunity to
test XHD cartridges with notebook Zip drives which were first released for
commercial availability on November 11, 1997.
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<PAGE>
IOMEGA CORPORATION
PART II - OTHER INFORMATION (CONTINUED)
A second independent laboratory retained by the Company tested Nomai XHD disks
for drop resistance and media wear. Its test results showed that two of three
randomly selected XHD cartridges failed a drop test while three randomly
selected Iomega Zip cartridges passed the test. In accelerated media wear
testing conducted by this independent laboratory, two of five randomly selected
Nomai XHD cartridges failed, exhibiting severe abrasions of the type that
frequently result in data loss and drive head contamination. In addition, 40% of
the Zip drives tested by the second laboratory with XHD cartridges exhibited
head damage that the laboratory concluded will render the drive inoperable.
Finally, one of the drives damaged by an XHD cartridge in this independent
testing caused unrecoverable data loss not only in the XHD cartridge that caused
the damage, but also in a known good Iomega Zip cartridge which was subsequently
inserted.
Nomai claims that the XHD disk it is currently selling was modified in order to
not violate a partial preliminary injunction previously granted to the Company
on June 20, 1997, by the Paris District Court. That injunction prohibits Nomai
from manufacturing or selling XHD disks that duplicate certain aspects of Iomega
Zip disks. Notwithstanding Nomai's modification of its disk, Nomai has appealed
the June 20 preliminary injunction. In response, the Company also appealed
certain rulings of the Paris District Court, including the Court's partial
denial of the Company's motion for preliminary injunctive relief. The hearing on
these appeals occurred on November 6, 1997, and a decision is anticipated in
December 1997.
The ex parte preliminary injunction obtained by the Company in March 1997
against Nomai from the Hanover Landgericht (or District) Court was lifted by the
Court following a hearing on Nomai's opposition held on August 26, 1997. The
Company has appealed the decision lifting this preliminary injunction. A
separate ex parte preliminary injunction, obtained by the Company from the
Landgericht Frankental Court in Ludwighafen, Germany against Emtec Magnetics
GmbH, a proposed reseller of Nomai's XHD disks, remains in force but is being
opposed by Emtec. The hearing on Emtec's opposition is scheduled for December
11, 1997.
On October 29, 1997, the Company petitioned the High Court of Justice Chancery
Division in London for a preliminary order prohibiting Nomai and its chief
executive, Mr. Frouin, from using the words "100% Iomega Zip compatible" or "Zip
compatible" or words to similar effect in relation to the XHD cartridge and from
importing into the United Kingdom, manufacturing, selling or offering for sale
any XHD cartridges which have the word Iomega written on the magnetic medium of
(or otherwise marked on) such cartridges in any other location. The Company's
petition was based on claims of trademark infringement, malicious falsehood,
passing off and copyright infringement. On October 31, 1997, the High Court of
Justice granted an order temporarily prohibiting Nomai from manufacturing,
importing, advertising, offering for sale, selling or distributing any
cartridges claimed by Nomai to be compatible with the Company's Zip drives or
described as a Zip disk. The temporary order will remain in effect until a
further hearing on the matter is held before the High Court of Justice.
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<PAGE>
IOMEGA CORPORATION
PART II - OTHER INFORMATION (CONTINUED)
On November 6, 1997, the Presidents of the District Courts of Albi and
Avranches, France, authorized seizures, on the premises of Nomai in Avranches
and on the premises of a Nomai affiliate in Albi, of materials relating to
Nomai's stated intention to introduce a disk product compatible with the
Company's Jaz drives. These seizures were carried out on November 7, 1997. On
the premises of Nomai in Avranches, numerous documents, and a single nonworking
specimen or prototype Nomai cartridge labeled as being compatible with Iomega
Jaz drives, were seized. On November 12, 1997, the Company served a complaint on
Nomai in France alleging copyright, design, trademark and patent infringement,
parasitism and unfair competition, and seeking injunctive relief as well as
damages.
An adverse outcome in any of the proceedings referred to above could result in
the sale or continuing sale by Nomai in one or more countries of a disk product
claimed to be compatible with Zip drives, and could result in the introduction
and sale by Nomai of a disk product claimed to be compatible with the Company's
Jaz drives. Any such introduction of a disk product claimed to be Jaz drive
compatible or sales or continuing sales of a disk product claimed to be Zip
drive compatible could have a material adverse effect on the Company's future
sales and operating results.
On July 29, 1997, the Company filed suit against SyQuest Technology, Inc.
("SyQuest") in the United States District Court for the District of Delaware
claiming patent infringement and unfair competition with respect to SyQuest's
SyJet product. The Company is seeking injunctive relief and damages in an
unspecified amount. Discovery is underway in the litigation and a trial date has
been set by the Court for January 1999.
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