HP 2010 Annual Report Download - page 149

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 18: Litigation and Contingencies (Continued)
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 or have been concluded involving
HP in certain European Union (‘‘EU’’) member countries, including litigation in Germany and
Belgium, seeking to impose or modify 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 levies are generally 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 have opposed the extension of levies to the digital environment and have advocated
alternative models of compensation to rights holders.
VerwertungsGesellschaft Wort (‘‘VG Wort’’), a collection agency representing certain copyright
holders, instituted legal proceedings against HP in the Stuttgart Civil Court seeking levies on printers.
On December 22, 2004, the court held that HP is liable for payments regarding all printers using
ASCII code sold in Germany but did not determine the amount payable per unit. HP appealed this
decision in January 2005 to the Stuttgart Court of Appeals. On May 11, 2005, the Stuttgart Court of
Appeals issued a decision confirming that levies are due. On June 6, 2005, HP filed an appeal to the
German Federal Supreme Court in Karlsruhe. On December 6, 2007, the German Federal Supreme
Court issued a judgment that printers are not subject to levies under the existing law. The court issued
a written decision on January 25, 2008, and VG Wort subsequently filed an application with the
German Federal Supreme Court under Section 321a of the German Code of Civil Procedure
contending that the court did not consider their arguments. On May 9, 2008, the German Federal
Supreme Court denied VG Wort’s application. VG Wort appealed the decision by filing a claim with
the German Federal Constitutional Court challenging the ruling that printers are not subject to levies.
On September 21, 2010, the Constitutional Court published a decision holding that the German
Federal Supreme Court erred by not referring questions on interpretation of German copyright law to
the Court of Justice of the European Union and therefore revoked the German Federal Supreme
Court decision and remitted the matter to it. The German Federal Supreme Court has set a hearing
date of March 24, 2011.
In September 2003, VG Wort filed a lawsuit against Fujitsu Siemens Computer GmbH (‘‘FSC’’) in
the Munich Civil Court in Munich, Germany seeking levies on PCs. This is an industry test case in
Germany, and HP has agreed not to object to the delay if VG Wort sues HP for such levies on PCs
following a final decision against FSC. On December 23, 2004, the Munich Civil Court held that PCs
are subject to a levy and that FSC must pay A12 plus compound interest for each PC sold in Germany
since March 2001. FSC appealed this decision in January 2005 to the Munich Court of Appeals. On
December 15, 2005, the Munich Court of Appeals affirmed the Munich Civil Court decision. FSC filed
an appeal with the German Federal Supreme Court in February 2006. On October 2, 2008, the German
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