intellectual property rights are protected.  However, continued efforts may not affect revenue positively.



Litigation

Litigation regarding intellectual property rights, patents, and copyrights occurs in the PC software industry.  In addition, there are government regulation and investigation risks along with other general corporate legal risks.



Year 2000

The Year 2000 presents potential concerns for business and consumer computing.  In addition to the well-known calculation problems with the use of 2-digit date formats as the year changes from 1999 to 2000, the Year 2000 is a special case leap year and in many organizations using older technology, dates were used for special programmatic functions.  The problem exists for many kinds of software and hardware, including mainframes, mini computers, PCs, and embedded systems.  The consequences of this issue may include systems failures and business process interruption.

Microsoft has tested more than 3,000 versions/languages of its products.  The vast majority of these tested products are Year 2000 compliant, as defined by Microsoft.  There are a small number of older products that are identified as being non-compliant, and Microsoft will provide recommendations regarding these products.  Not all versions of products or all products will be tested.  All Year 2000 software updates, resources, and tools are available to customers at no charge from the Microsoft Year 2000 Portal Page or Microsoft Year 2000 Resource CD.

Current information needed to evaluate the impact of the Year 2000 on organizational and home computing environments is available at the Microsoft Year 2000 Portal Page (www.microsoft.com/year2000) and the Microsoft Year 2000 Resource CD, which is released on a quarterly basis.  The Web site and Microsoft Year 2000 Resource CD detail specific Year 2000 information concerning Microsoft products and technologies for large organizations.  The detailed information available on the Web site and Microsoft Year 2000 Resource CD is presented to assist information technology (IT) professionals in planning their transition to the Year 2000.  The Microsoft Year 2000 Portal Page also contains information for small business and home PC users, including in-depth product information, answers to frequently asked questions, and links to the other Year 2000 sites.

Variability of definitions of “compliance” with the Year 2000 and of different combinations of software, firmware, and hardware will likely lead to lawsuits against the Company.  The outcome of such lawsuits and the impact on the Company are not estimable at this time.

The Year 2000 issue also affects the Company’s internal systems, including IT and non-IT systems.  Microsoft has assessed the readiness of its mission-critical systems for handling the Year 2000.  Although testing and remediation of all systems have not been completed, management currently believes that all mission-critical systems will be compliant by the Year 2000 and that the cost to address the issues is not material.  Nevertheless, Microsoft is creating contingency plans for certain internal systems.

Microsoft is addressing the effect this issue will have on