Dell 2006 Annual Report Download - page 103

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
products sold and the per-product amounts of the levies, which vary. Dell, along with other companies and various industry
associations are opposing these levies and instead are advocating compensation to rights holders through digital rights
management systems.
There are currently three levy cases involving other equipment manufacturers pending before the German Federal
Supreme Court. Adverse decisions in these cases could ultimately impact Dell. The cases involve personal computers,
printers, and multifunctional devices. The equipment manufacturers in these cases recently lost in lower courts and have
appealed. The amount allowed by the lower courts with respect to PCs is €12 per personal computer sold for reprographic
copying capabilities. The amounts claimed with respect to printers and multifunctional devices depend on speed and color
and vary between €10 and €300 for printers and between €38 and €600 for multifunctional devices. On December 29,
2005, Zentralstelle Für private Überspielungrechte ("ZPÜ"), a joint association of various German collection societies,
instituted arbitration proceedings against Dell's German subsidiary before the Arbitration Body in Munich. ZPÜ claims a levy
of €18.4 per PC that Dell sold in Germany from January 1, 2002 through December 31, 2005. On July 31, 2007, the
Arbitration Body recommended a levy of €15 on each PC sold during that period, for audio and visual copying capabilities.
Dell and ZPÜ rejected the recommendation and Dell expects that the matter will proceed to court. Dell will continue to
defend this claim vigorously.
• Lucent v. Dell — In February 2003, Lucent Technologies, Inc. filed a lawsuit against Dell in the United States District Court
for Delaware, and the lawsuit was subsequently transferred to the United States District Court for the Southern District of
California. The lawsuit alleges that Dell infringed 12 patents owned by Lucent and seeks monetary damages and injunctive
relief. In April 2003, Microsoft Corporation filed a declaratory judgment action against Lucent in the United States District
Court for the Southern District of California, asserting that Microsoft products do not infringe patents held by Lucent,
including 10 of the 12 patents at issue in the lawsuit involving Dell and Microsoft. These actions were consolidated for
discovery purposes with a previous suit that Lucent filed against Gateway, Inc. In September 2005, the court granted a
summary judgment of invalidity with respect to one of the Lucent patents asserted against Dell. In addition, in decisions
made through May 2007, the court granted summary judgment of non-infringement with respect to five more of the Lucent
patents asserted against Dell. The court has ordered invalidity briefing with regard to other patents at issue in view of the
April 30, 2007, U.S. Supreme Court decision in KSR v. Teleflex. Fact and expert discovery has closed, and the three
actions have been consolidated. Trial is scheduled to begin in February 2008. Dell is defending these claims vigorously.
Separately, Dell has filed a lawsuit against Lucent in the United States District Court for the Eastern District of Texas,
alleging that Lucent infringes two patents owned by Dell and seeking monetary damages and injunctive relief. That litigation
is pending and discovery is proceeding.
• Sales Tax Claims — Several state and local taxing jurisdictions have asserted claims against Dell Catalog Sales L.P.
("DCSLP"), an indirect wholly-owned subsidiary of Dell, alleging that DCSLP had an obligation to collect tax on sales made
into those jurisdictions because of its alleged nexus, or physical presence, in those jurisdictions. During the first and second
quarter of Fiscal 2008, Dell settled suits filed by the State of Louisiana and the Secretary of the Louisiana Department of
Revenue and Taxation in the 19th Judicial District Court of the State of Louisiana, and by two Louisiana parishes, Orleans
Parish and Jefferson Parish, in the State of Louisiana 24th Judicial District Court. Dell also settled similar claims made by a
number of other Louisiana parishes and by the State of Massachusetts. These settlement amounts did not have a material
adverse effect on Dell's financial condition, results of operations, or cash flows. While there are ongoing claims by certain
other state and local taxing authorities, DCSLP disputes the allegation that it had nexus in any of these other jurisdictions
during the periods in issue, and is defending the claims vigorously. Dell does not expect that the outcome of these other
claims, individually or collectively, will have a material adverse effect on its financial condition, results of operations, or cash
flows.
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