Hi,
Step 1:
You may try downloading the latest driver from manufacturer's website for the mouse and install the same to check if it works:
Reference links:
**http://www.microsoft.com/hardware/en-us/p/arc-touch-mouse#details**
**http://www.microsoft.com/hardware/en-us/p/arc-touch-mouse#support**
Update a driver for hardware that isn't working properly
http://windows.microsoft.com/en-US/windows7/Update-a-driver-for-hardware-that-isnt-working-properly
Step 2:
If the above fails then try the following.
It seems to be a hardware issue. You may want to contact Microsoft hardware support for assistance.
**http://www.microsoft.com/hardware/en-us/support/contact-us**
You may refer the following link and check:
How to replace Microsoft software or hardware, order service packs, and replace product manuals ****http://support.microsoft.com/kb/326246
Let us know if it helps!