On April 27, 2004, the Predecessor Company received a letter from counsel for Patriot Scientific Corporation listing six patents purportedly owned by Patriot concerning various microprocessor technologies. The letter did not name any specific products of the Predecessor Company but noted that Patriot had commenced litigation against six companies in two separate litigations, including Intel. On September 23, 2005, the Predecessor Company received a follow up letter from Alliacense, which purported to be a successor entity to Patriot. The September 2005 letter stated that Alliacense had reached agreement with several companies, including Intel and AMD, for licenses to the subject patents. The letter did not identify any specific products of the Predecessor Company that Alliacense believed to infringe any of the subject patents; however, the letter states Alliacense’s belief that “virtually every product manufactured today utilizing microprocessors or embedded microprocessors” will require a portfolio license from Alliacense. We believe that Alliancense's assertions are without merit. Alliacense failed to assert a claim in our bankruptcy case and any pre-petition liability, if any exists, was discharged upon our emergence from bankruptcy.

Alliacense has held licensing discussions with Kodak and many other companies regarding a portfolio of patents directed to microprocessors. Allegedly, these patents would implicate products in all of Kodak’s businesses, including the Health Group. Kodak does not make its own microprocessors, so is seeking indemnification from its suppliers. Several of these patents are being re-examined by the USPTO.

Alliacense (Cases TA443, TA486, TA13621 and TA13864)

•                            Several assertions have been made relating to alleged infringement of U.S. patent No. 5,440,749 and related dependent patents (the so-called Moore Patent Portfolio) relating to microprocessor technology and co-owned by Technology Properties and Patriot Scientific (now joined in the new company Alliacense). Because of sales by Philips of TriMedia microprocessors in the U.S., Technology Properties and Patriot Scientific in the past offered to settle for USD 22 million but did not want to substantiate their case. Philips refused the offer and is of the opinion that its microprocessors did not infringe the patents involved.

•                            Patriot Scientific approached a number of Japanese PC companies, such as Sony, Matsushita, Fujitsu, NEC and Toshiba. Intel, as supplier of Pentium chips, came to their defense. In 2004, Sanyo asked Philips for assistance in their defense. Philips explained that it does not believe that the Philips microprocessors infringe. Recently, Intel, which produces similar microprocessors to those that Philips does, took a license from Technology Properties and Patriot Scientific for an amount of USD 10 to 25 million. In addition, Bosch and Agfa Gevaert recently sent a letter to Philips indicating that they had been approached by Alliacense for alleged infringement by products incorporating Philips microprocessors and asking for indemnification. Philips Semiconductors is receiving questions from more customers about the Moore patents. Recently, Alliacense approached Philips Consumer Electronics again to present their claim against microprocessors used in products from both Philips Consumer Electronics and Philips Medical Systems. Because the patents pertain to microprocessor technology, Philips Consumer Electronics and Philips Medical Systems are requesting indemnification from their suppliers, including Philips Semiconductors.

•                            Alliacense primarily approaches companies such as Sanyo, Bosch, Agfa Gevaert, and Philips Consumer Electronics that manufacture finished products incorporating microprocessors, relying on patent claims that allegedly cover the combination of microprocessors with other components. Although Philips Semiconductors is generally not liable for infringement by the combinations, Philips Semiconductors could be liable in case their products implement all features of one or more of the Moore patent claims. Besides from indemnification requests by customers, liability could also arise from Alliacense directly if they would decide to approach Philips Semiconductors (risking exhaustion of their patents. However, Alliacense like their predecessors declined to discuss a license on the chip level, keeping their focus on higher value products.

•                            Several manufacturers have recently entered into license agreements with Alliacense, including Fujitsu, HP, Sony, apparently not protected by their customer status of Intel and AMD