HP 2008 Annual Report Download - page 150

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 17: Litigation and Contingencies
HP is involved in lawsuits, claims, investigations and proceedings, including those identified below,
consisting of intellectual property, commercial, securities, employment, employee benefits and
environmental matters that arise in the ordinary course of business. In accordance with SFAS No. 5,
‘‘Accounting for Contingencies’’, HP records a provision for a liability when management believes that
it is both probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. HP believes it has adequate provisions for any such matters. HP reviews these provisions at
least quarterly and adjusts these provisions to reflect the impact of negotiations, settlements, rulings,
advice of legal counsel, and other information and events pertaining to a particular case. Based on its
experience, HP believes that any damage amounts claimed in the specific matters discussed below are
not a meaningful indicator of HP’s potential liability. Litigation is inherently unpredictable. However,
HP believes that it has valid defenses with respect to legal matters pending against it. Nevertheless, it is
possible that cash flows or results of operations could be materially affected in any particular period by
the unfavorable resolution of one or more of these contingencies or because of the diversion of
management’s attention and the creation of significant expenses.
Litigation, Proceedings and Investigations
Copyright levies. As described below, proceedings are ongoing against HP in certain European
Union (‘‘EU’’) member countries, including litigation in Germany, seeking to impose levies upon
equipment (such as multifunction devices (‘‘MFDs’’), personal computers (‘‘PCs’’) and printers) and
alleging that these devices enable producing private copies of copyrighted materials. The total levies
due, if imposed, would be based upon the number of products sold and the per-product amounts of the
levies, which vary. Some EU member countries that do not yet have levies on digital devices are
expected to implement similar legislation to enable them to extend existing levy schemes, while some
other EU member countries are expected to limit the scope of levy schemes and applicability in the
digital hardware environment. HP, other companies and various industry associations are opposing the
extension of levies to the digital environment and advocating compensation to rights holders through
digital rights management systems.
VerwertungsGesellschaft Wort (‘‘VG Wort’’), a collection agency representing certain copyright
holders, instituted non-binding arbitration proceedings against HP in June 2001 in Germany before the
arbitration board of the Patent and Trademark Office. The proceedings relate to whether and to what
extent copyright levies for photocopiers should be imposed in accordance with copyright laws
implemented in Germany on MFDs that allegedly enable the production of copies by private persons.
Following unsuccessful arbitration, VG Wort filed a lawsuit against HP in May 2004 in the Stuttgart
Civil Court in Stuttgart, Germany seeking levies on certain MFDs sold from 1997 to 2001. On
December 22, 2004, the court held that HP is liable for payments regarding MFDs sold in Germany,
and ordered HP to pay VG Wort an amount equal to 5% of the outstanding levies claimed, plus
interest, on MFDs sold in Germany up to December 2001. VG Wort appealed this decision. On July 6,
2005, the Stuttgart Court of Appeals ordered HP to pay VG Wort levies based on the published tariffs
for photocopiers in Germany (which range from EUR 38.35 to EUR 613.56 per unit), plus interest, on
MFDs sold in Germany up to December 2001. HP appealed the Stuttgart Court of Appeals’ decision to
the Bundesgerichtshof (the German Federal Supreme Court). On January 30, 2008, the German
Federal Supreme Court held that the MFDs covered by this lawsuit were photocopiers within the
meaning of the German copyright law that was in effect until December 31, 2007, and, therefore, are
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