HP 2005 Annual Report Download - page 124

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 16: Commitments (Continued)
Future unconditional purchase obligations at October 31, 2005 were as follows:
2006 2007 2008 2009 2010 Thereafter
In millions
Unconditional purchase obligations ............... $1,417 $250 $180 $137 $75 $33
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, which 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 HP can reasonably estimate the amount of the
loss. 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.
Pending Litigation and Proceedings
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’’) 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.
In May 2004, VG Wort filed a lawsuit against HP in the Stuttgart Civil Court in Stuttgart, Germany
seeking levies on 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
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