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Dolby, Lucent In AC-3 Dispute

3/01/2005 03:07:00 PM Eastern

San Francisco — A patent-infringement lawsuit filed by Lucent against Dolby Labs “could materially impact” Dolby’s licensing business and “may seriously harm our financial condition and results operations,” Dolby said in its prospectus.

In August 2002, Lucent filed a suit claiming that products incorporating Dolby AC-3 technology infringe on two Lucent patents and sought injunctive relief and unspecified damages, the prospectus says. The patents “generally involve a process and means for encoding and decoding audio signals,” Dolby explained.

In the prospectus, Dolby says its technology licensing business accounted for $211.4 million of its $289 million in total 2004 fiscal revenue, “principally as a result of the increase in sales of DVD players and in-home theater systems that incorporate our surround sound technologies [AC-3, or Dolby Digital].” The company continued, “Our licensing revenue is primarily dependent on our licensees’ sales of DVD players, audio/video receivers and home theater systems.”

For the 2004 fiscal year ending last September, Dolby generated a net income of $39.8 million.

The suit goes to a jury in April in San Jose, Calif.

“Even if we prevail in this dispute, the litigation will be expensive and time consuming and may distract our management from operating our business,” the prospectus said.

The dispute began in May 2001 when Dolby filed suit against Lucent, seeking to declare the two Lucent patents invalid. Lucent failed twice to have the complaint dismissed, Dolby said.