HP 2006 Annual Report Download - page 22

customer contracts in accordance with our revenue, margin and cost estimates and to achieve
operational efficiencies embedded in our estimates. Given the competitive nature of our industry, if any
of these risks materializes, future demand for our products and services and our results of operations
may suffer.
Our revenue, cost of sales, and expenses may suffer if we cannot continue to license or enforce the
intellectual property rights on which our business depends or if third parties assert that we violate their
intellectual property rights.
We rely upon patent, copyright, trademark and trade secret laws in the United States and similar
laws in other countries, and agreements with our employees, customers, suppliers and other parties, to
establish and maintain our intellectual property rights in technology and products used in our
operations. However, any of our direct or indirect intellectual property rights could be challenged,
invalidated or circumvented, or such intellectual property rights may not be sufficient to permit us to
take advantage of current market trends or otherwise to provide competitive advantages, which could
result in costly product redesign efforts, discontinuance of certain product offerings or other
competitive harm. Further, the laws of certain countries do not protect our proprietary rights to the
same extent as the laws of the United States. Therefore, in certain jurisdictions we may be unable to
protect our proprietary technology adequately against unauthorized third-party copying or use, which
could adversely affect our competitive position.
Because of the rapid pace of technological change in the information technology industry, much of
our business and many of our products rely on key technologies developed or licensed by third parties.
We may not be able to obtain or to continue to obtain licenses and technologies from these third
parties at all or on reasonable terms, or such third parties may demand cross-licenses to our intellectual
property. In addition, it is possible that as a consequence of a merger or acquisition transaction third
parties may obtain licenses to some of our intellectual property rights or our business may be subject to
certain restrictions that were not in place prior to the transaction. Consequently, we may lose a
competitive advantage with respect to these intellectual property rights or we may be required to enter
into costly arrangements in order to terminate or limit these rights.
Third parties also may claim that we or customers indemnified by us are infringing upon their
intellectual property rights. For example, in recent years, individuals and groups have begun purchasing
intellectual property assets for the sole purpose of making claims of infringement and attempting to
extract settlements from large companies such as HP. If we cannot or do not license the infringed
technology at all or on reasonable terms or substitute similar technology from another source, our
operations could suffer. Even if we believe that the claims are without merit, the claims can be
time-consuming and costly to defend and divert management’s attention and resources away from our
business. Claims of intellectual property infringement also might require us to redesign affected
products, enter into costly settlement or license agreements or pay costly damage awards, or face a
temporary or permanent injunction prohibiting us from marketing or selling certain of our products.
Even if we have an agreement to indemnify us against such costs, the indemnifying party may be
unable to uphold its contractual agreements to us.
Finally, our costs of operations could be affected on an ongoing basis by the imposition of
copyright levies or similar fees. In certain countries (primarily in Europe), proceedings are ongoing
against HP seeking to impose levies upon equipment (such as multifunction devices and printers) and
alleging that the copyright owners are entitled to compensation because these devices enable
reproducing copyrighted content. Other countries that do not yet have levies on these types of devices
are expected to extend existing levy schemes. The ultimate impact of these potential copyright levies or
similar fees, including the number of units impacted, the amount of levies imposed and the ability of
HP to recover such amounts through increased prices, remains uncertain.
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