Microsoft in Legal, Financial Flaps

A former Microsoft executive is suing the company for violating a patent that his new company holds on e-commerce, setting up a September 2003 trial date for the software giant. Meanwhile, Microsoft says that a $1 billion "clerical error" caused it to misstate its unearned revenue during the past two quarters, although the company doesn't expect the mistake to change the value of its net cash from operations during that time period.

In the patent-violation case, a company called Network Commerce says that it owns an e-commerce patent that covers multiple servers and a method for synchronizing the downloading of software, music, and video over the Internet. "We believe that Microsoft infringes on our patented technology in various Microsoft products, including but not limited to the Windows operating system and the Windows Media Technology products," said Network Commerce CEO Dwayne Walker, who worked for Microsoft between 1989 and 1996. Walker says he'd like to settle with Microsoft. "I am proud of and grateful for my years at Microsoft. I continue to be a shareholder and a fan of the company. But that doesn't change our obligation to defend Network Commerce's rights to its innovative intellectual property," he said.

Regarding the clerical error, Microsoft said that it understated its unearned revenue for the quarter ending September 30, 2001, by more than $900 million and overstated its unearned revenue for the quarter ending December 31, 2001, by roughly the same amount. The two events "cancel each other out," a company spokesperson said. "Net cash from operations did not change."

Aside from its obvious humor value, the clerical error is important because it could have misled investors about a particular aspect of the company's finances late last year. Microsoft corrected the numbers yesterday.

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