HP 2006 Annual Report Download - page 133

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings (Continued)
Note 17: Litigation and Contingencies (Continued)
were filed in state court in San Joaquin County, California, with factual allegations similar to those in
LaPray and Alvis, seeking certification of a California-only class, injunctive relief, unspecified damages
(including punitive damages), restitution, costs, and attorneys’ fees. On November 27, 2006, the trial
court granted plaintiff’s motion for class certification and certified the Schultz case as a California-only
class. HP intends to file a Petition for Writ of Mandate with the California Court of Appeal seeking
reversal of the trial court’s class certification decision. In addition, the Civil Division of the Department
of Justice, the General Services Administration Office of Inspector General and other Federal agencies
are conducting an investigation of allegations that HP and Compaq made, or caused to be made, false
claims for payment to the United States for computers known by HP and Compaq to contain defective
parts or otherwise to perform in a defective manner relating to the same alleged floppy disk controller
errors. HP agreed with the Department of Justice to extend the statute of limitations on its
investigation until December 6, 2006. HP is cooperating fully with this investigation.
Barbara’s Sales, et al. v. Intel Corporation, Hewlett-Packard Company, et al. and Neubauer, et al. v.
Compaq Computer Corporation are separate lawsuits filed on June 3, 2002 in the Circuit Court, Third
Judicial District, Madison County, Illinois, alleging that HP and Compaq (along with Intel) misled the
public by suppressing and concealing the alleged material fact that systems that use the Intel Pentium 4
processor are less powerful and slower than systems using the Intel Pentium III processor and
processors made by a competitor of Intel. The plaintiffs seek unspecified damages, restitution,
attorneys’ fees and costs, and certification of a nationwide class. The trial court in the HP action
certified an Illinois class as to Intel but denied a nationwide class. Both parties appealed the trial
court’s decision. On July 25, 2006, the Fifth District Appellate Court ruled that the trial court erred in
applying Illinois law in deciding to certify the Illinois class and to deny certification of the nationwide
class and directed the trial court to reconsider those decisions applying California law instead. On
August 28, 2006, Intel appealed the Fifth District’s decision to the Illinois Supreme Court, and the
Illinois Supreme Court granted Intel’s petition for appeal on November 29, 2006. Proceedings against
HP have been stayed pending resolution of the parties’ appeal of this decision. The class action
certification against Compaq has been stayed pending resolution of the parties’ appeal in the HP
action. Skold, et al. v. Intel Corporation and Hewlett-Packard Company is a lawsuit to which HP was
joined on June 14, 2004 that was initially filed in state court in Alameda County, California, based
upon factual allegations similar to those in the Illinois cases. The plaintiffs in the Skold matter also
seek unspecified damages, restitution, attorneys’ fees and costs, and certification of a nationwide class.
The Skold case has since been transferred to state court in Santa Clara County, California.
Feder v. HP (formerly Tyler v. HP) is a lawsuit filed in the United States District Court for the
Northern District of California on June 16, 2005 asserting breach of express and implied warranty,
unjust enrichment, violation of the Consumers Legal Remedies Act and deceptive advertising and
unfair business practices in violation of California’s Unfair Competition Law. Among other things,
plaintiffs alleged that HP employed a ‘‘smart chip’’ in certain inkjet printing products in order to
register ink depletion prematurely and to render the cartridge unusable through a built-in expiration
date that is hidden, not documented in marketing materials to consumers, or both. Plaintiffs also
contend that consumers received false ink depletion warnings and that the smart chip limits the ability
of consumers to use the cartridge to its full capacity or to choose competitive products. On
September 6, 2005, a lawsuit captioned Ciolino v. HP was filed in the United States District Court for
the Northern District of California. The allegations in the Ciolino case are substantively identical to
those in Feder, and the two cases have been formally consolidated in a single proceeding in the District
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